DISQUS

Well, we sure agree on that. I've probably written a book's worth of material on this point. It's why I was so cautious about making a prediction other than "but for" this change, we would see less company formation, and didn;t even try to quantify this difference.

I think we're going to end up at way more than a percent or two of difference, btw.

Best,
Jim

Thanks.

If we're talking about the U.S., it seems to me that the whole issue becomes how much lattitude states, counties, towns, neighborhoods and families (which maintain certain coercive rights) have in creating and enforcing restrictions on freedom that you and I might not like. (i.e., what are the "basic rights").

My view is that we should allow an extremely expansive view of how much lattitude they have; said differently, I think there should be very few basic rights. We fought a civil war over one - you have a basic right not to be owned as a chattel slave. But how much further should we go?

Recognizing that we are using the power of the national state to tell people, more or less, "well, I have 50% + 1 vote and reasonably good civilian control over the military, so you can just shut up and obey me when I tell you that you can't outlaw handguns / gay marriage / prostitution or whatever Left-wing or right-wing thing in your town", we should be hesitant to use this power. As a rough rule-of-thumb, I always ask myself whether I would be willing to sign up for the armed forces in a civil war to force compliance. As you might imagine, I don't answer 'yes' very often.

This strikes me as a paradox of libertarianism. If epistemological humility is a core of one's worldview, you want to allow lots of freedom to experiment, including with coercive rule sets.

Will,

I laughed out loud at the D&D comment - very funny.

Whe you pivot to the point, you say that:

"As far as I can see, humans flourish best where autonomy is most celebrated and encouraged, though I’m pefectly open to evidence to the contrary."

Very broadly speaking, I mostly agree with this. But what if we're wrong? (ot at least wrong for some people at some times) Even further, what if we continue in error for the rest of our lives because we don't ever get access to sufficiently compelling evidence which exists or might exist, or becasue we're obstinate or insufficiently enlightened or whatever? I think this is (in my case) a real possibility.

If one accepts that possibility, shouldn't he be open to allowing a consitutional regime that permits local coercive rules, subject to all kinds of practical constraints and right of exit. More strongly, if he thinks that (1) the world is complicated as compared to human understanding, and (2) that the best possible evidence for truth or falsity is actual experimental flourishing, under various sets of rules, wouldn't such diversity be a positive good?

If you have time, I'm very interested in your take on this.

Best,
Jim

I didn't argue that "we must have new start-ups" or that "this is the only way to get innovation" or whatever.

I argued that if you lower the expected payoff fo an activity, then "all else held equal, you usually get less of it."

Are you really disputing that?

As per my comment:

"Now, to be clear, I only did this because you asked. There is no strong argument for causality in such a comparison, IMHO."

Further, as per the original artile, in one of the two paragraphs quoted by will in the post:

"The concept of “animal spirits” recognizes that not all economic decisions are made entirely with spreadsheets. Some people start companies because they’re driven by a dream that transcends rational economic calculation. But most successful entrepreneurs are pretty serious about comparing risks with opportunities. Higher tax burdens raise the price of entrepreneurship. When you raise the price of something, then, all else held equal, you usually get less of it"

If you calculate the correlation between these two vectors, I think you will find it to be -0.53, i.e., a neagtive slope with R2 of 0.28, as per my comment.

Odograph:

I think if you calculate the correlation between those the two vectors, in your comment, you will find it to be -0.53, i.e., negative slope with an R2 of .28, as per my comment.

LOL...don't worry about it

Thanks for the question. I think the natural crude comparison that would relate directly to my contention would be the comparison between gov't consumption of resources in a year (taxes plus expectation of future taxes) as compared to venture capital funding commitments in that year. If you look at gov't spending as a % of GDP from here: http://www.usgovernmentspending.com/us_20th_cen...

and compare it to VC capital commitments from here: http://www.nvca.org/pdf/NVCAYearbook2008.pdf

then you have the data to do this for the period 1980 - 2007. There is a negative correlation with R2 of .28. That is, it is entirely consistent with my argument.

Now, to be clear, I only did this because you asked. There is no strong argument for causality in such a comparison, IMHO.

Thanks everybody for the detailed comments. a few quick reactions

Alphie:

I've written a lot in prior posts about the fact that GWB also ran up huge deficits, and for no justifiable reasons. Deficit spending is now gooing to ~10% of gdp, whihc is more than it's been since 1945. there is an argument for this, on balance, being a good idea. One drawback, whihc i don;t think is obvious to everybody is that it is likely to reduce company formation c.p. That was the point of the article.

Ododgraph:

Lots of laws have been passed or submitted that will raise capital gians, ordinary and uneraned income rates, which are the specific mechanisms discusse din the article. I used Obama's published proposals as the basis for the quantitative analysis in the piece.

Kim:

"Load of crap... entrepreneurs do for the sake of doing"

I've started a couple of companies, and I carefully considered risk vs. financial returns. I sit on the Boards f two others, and this is true for the CEO / Founders of those companies as well.

manuelg:

"The simplest rebuttal is that any innovation people are unwilling to begin during an Obama administration, will be taken up by others; perhaps less effectively, but still taken up."

Maybe, but unless you think that company founders perform no useful economic function, if you have less of it, you will have less innovation.

Chris:

"I think you start to see a lot of stuff like this post because economists and political types who don't know a damn thing about technology or engineering want to use the appeal of consumer technology to peddle their wares, and the people who do understand often don't have the interest, communication skills, or political heft to be heard. It's either poorly thought out, disingenuous, or both."

I'm a scientist-turned-entrepreneur, and not a "political type".

"I'm so sick of hearing that venture capital and entrepreneurship are the ultimate source of innovation. Maybe that's true for shipping or banking or whatever, but for technology it's unadulterated bunk. Entrepreneurs of the type mentioned come in and do the last two steps of bringing an idea to market after 95% of the work has been done by somebody in a huge corporate lab like HP or (once upon a time) bell labs, or nowadays, dare I say it, government funded university labs."

I actually worked at Bell Labs many years ago. for some companies, there is a lot of truth to what you say, and for others, not so much (at loeast in my experience).

WIll:

The elephant in the room here is the capital cost that needs to be applied to each hour of labor to properly understand the actual economic cost of one hour of labor. GM needs to tie up an enormously greater amount of cash in the form of PP&E and inventory than does Toyota per hour of manufacturing labor, and the implicit interest on that cash needs to be applied to get a true cost.

Further, if you extend beyond cost / hour to cost / profit dollar created, it gets much worse. The output of one hour of labor at a Toyota factory produces something that: (1) can be sold for a greater gross profit, and (2) requires less downstream costs and capital to generate one dollar of gross profit, in large part becasue it requires fewer dealers, commissions and on-lot invetory.

The economic comparison makes it clear that the Big 3 busienss model is totally broken. The market value of GM is below $2BB; probably more relevant, the enterprise value (equity plus long-term debt) is about $30BB (think of this as being like your equity plus the value of your mortage on your house - what we would normally mean in everyday speech by "what my house is worth"). The enterprise value of Toyota is over $200BB.

Will,

I've put up some quick reaction comments to this post:

http://theamericanscene.com/2008/11/07/re-inequ...

All the best,
Jim Manzi

Yes, but I think that the assertion (in these terms) in the post is that "the thing one is" is an organ used by genes for self-replication, and further, that this slef-replication machine has no anterior purpose beyond this. The point of my article is that the phrase that follows the word "further" in the prior sentence is a frequent mis-interpretation of evolutionary theory that has no scientific basis, and that can not be demonstrated as derivable from any accepted scientific findings.

Tell me about it.

Will:

I'm not so sure that evolution describes "why" we are here, as much as "how we got here" (using these terms in their natural language meaning, since you're the philospher here, not me). I go into why I think this is true at great length in this National Review article:

http://findarticles.com/p/articles/mi_m1282/is_...

K:

I've written a (very) long reply to this paper here:

http://theamericanscene.com/2008/01/04/weitzman...

Michael Drake:

I don't think that is an entirely fair critique. I went through in some detail in that article, in decending order: the expected costs, the probability distriobution of projected costs and then the inherently unquantifiable uncertainty (as opposed to quantifiable risk) of costs. Sonce neither the expected costs nor the risk-adjusted costs justify (by my lights, at least) the costs of the proposed remedies, one is left with no non-arbitrary stopping position on acceptable costs for abatement. This is not just a theoretical issue. I reviewed in the article various proposals by serious people (presumably people you would consider "worth talking to"), like Stern and Al Gore that would create expected costs net of benefits of $17 trillion and $23 trillion respectively. James Hansen (whom I assume is also "worth talking to") has yet-more-severe proposals that are almost impossible to cost because they would be so draconian.

Best regards,
Jim Manzi

Will:

I don't know that I'd call the process of getting a job at Goldman / McKisney / Skadden, and then making partner, a perfect market arrangement as compared to getting a job at GM and then making CEO.

Here's a counter-cultural thought: public company CEOs don't really make that much money as compared to their alternatives on a career lifecycle and odds-adjusted basis. Here's a post on it: http://theamericanscene.com/2007/12/18/why-are-...

And here's a longer article on this point: http://www.thefreelibrary.com/Big-time+pay+...+...

Here's an article about , however, the oevrall trend to inequality in the US can be worrisome: http://www.thefreelibrary.com/A+more+equal+capi...

None of this addresses, of course, the overal Rawlsian point about the race going to the strong and swift.

Will:

Great post. With respect to this paragraphs that you quote, I don't think the guy has the logic right. Everybody knows that correlation does not imply causality, but one of the hardest things to get your head around as an analyst is that in a complex system, lack of correlation does not imply lack of causality. Unless we are confident that we have the measurement period right and have properly accounted for confounding variables, we will often see non-correlated variables that, in fact, have a causal relationship.

This doesn't mean that I have an opinion one way or another about the guy's conclusion, just that I don't think his evidence supports his assertion.

Thanks to everybody for the very insightful comments. Here are a few quick thoughts.

Pithlord:

1. Yes, in theory we could eliminate an entire class of taxation and make that permament, but what is being proposed (as far as I know) is a recution in income tax rates at lower incomes, not a elimnation of the income tax system. (Obviously, this is all asimplification, as we would need really to look at the probability distribution of likely total compliance costs given the fixed and variable compliance costs of various tax schemes under the odds-weighted set of future tax scenarios with and without the introduction of this new class of taxation today. I think that such a question is not realistically analyzable, but it seems to me to be a clear prudential estimate that if we introduce a new class of taxation today, we increase the expected vale of future compliance costs.

2. My point here was not that this is false in theory, but that we have no reliable way to measure these values.

3. My point here was that the way around the "unmeasurability" argument is to argue that most such effects are unmenasurable, but that AGW costs (or, really, NPV of expected costs) is so high that it is practically measuable. This is, I think, an untanable psoition, and referenced a set of posts which in turn reference a set of articles that describe in detail why I think this is true.

4. That's not exactly what I argued (or, at least, was trying to argue). I don't know what the theoretically optimal carbon tax would be (and I don;t think anybody else does either). What I was trying to say is that under any risk-adjusted forecast for AGW impacts, it is probably low vs. the inefficiency costs that it would, in practice, create. It is only in a "black swan" (ie, outside the currently-estimated risk PDF) event that we would be in the kind of emergency that would have, in retrospect, justified a large carbon tax. But planning as if that case is known is not wise. Ive gone into a lot of detail on why I think this in some of the artiles and posts that are linked to this one.


Ben:

1. You say that "He claims that a carbon tax is more efficient than a cap-and-trade system, while economists generally see them as identical in efficiency terms, preferring cap-and-trade because it allows policy-makers to precisely set the amount of carbon emitted, its ease of use in international treaties, and to a lesser extent, political feasibility."

Here are some well-known economists with relevant expertise that I can think of off the top of my head who are on the public record as favoring a carbon tax over cap-and-trade: Greg Mankiw, Paul Krugman, Alan Greenspan, Bill Nordhaus, Ken Rogoff, Martin Feldstein, Gary Becker, and Nicholas Stern. A majority of economists surveyed by the Wall Street Journal support a carbon tax over cap-and-trade (or any other alternative): http://online.wsj.com/article/SB117086898234001...

2. Once again, my point here was not that such an external cost does not exist, but that we can'r reliably measure it.

3. You say that "The fact that marginal costs of emission are hard to calculate should lead to calls for greater study, and a certain degree of care in implementing policy correctly. They don’t support a policy of doing nothing."


How is this different than saying that "The fact that marginal costs of steel are hard to calculate should lead to calls for greater study, and a certain degree of care in implementing our national policy of having the federal government set the price of steel correctly. It doesn't support a policy of doing nothing."?

I can think of two pssible classes of arguments for how they are different: (1) arguments that resolve to the idea that one is easier to other measure than the other, or (2) arguments that resolve to AGW is an emergency. I've tried to address both.

I did a post that got into this exact issue in a little deatil: http://theamericanscene.com/2007/12/05/coase-club

Here's the relavant section:

2. We have no idea how to set the price. Burning fossil fuels adds CO2 to the atmosphere and thereby increases the risks from AGW, but these fuels create social utility by generating energy at lower direct costs than alternatives, but the US needs to bear a huge military burden to protect oil supply chains in unstable geographies, but a car-based economy allows more people to satisfy their desire to live in detached homes with yards, but roads are subsidized to do this and it crates excess congestion, and so on and so on ad infinitum.

There is an unending set of externalities created by fossil fuels, and there is no logical reason to privilege AGW-related costs over any others. If I die in an AGW-caused flood or I die from cancer caused by inhaling the fumes from somebody else’s car, I am in both cases equally dead.

But surely economists have worked through this, and come to some imperfect but tolerable estimate of fossil fuels externalities, right? A recent review of such analyses by European academics finds that the estimates for the external costs per kilowatt-hour of, for example, coal range from about .01 cents to $10. Glad they cleared that up. Even the middle 50% of studies have cost estimates that range by a factor of about 20. Depending on the analysis, AGW-related externalities might be anything from a dominant to a trivial component of external costs.

Now, a reasonable person might say: “So what, after all, we believe there are some external costs, so why wouldn’t some tax be a good idea?” The problem, as this same study indicates, is that the every form of energy production from fossil fuels (coal, oil and gas) to alternative fuels (nuclear, solar, biomass, etc.) has a huge range of estimated external costs. The cost estimate range for every energy source overlaps with the cost estimate range for every other energy source. How can we rationally choose which ones should be taxed at what level vs. the others for the purposes of pricing the externalities? Or are we to tax all energy production vs. other economic activities? Surely, this would provide an even higher-level challenge than comparing different methods of energy production, which is one we’ve failed. There is a world of difference between accepting the concept that pretty much any important activity has large external effects, and believing that a government has the ability to measure these externalities and tack them onto existing market prices in a rational manner.

We have to make policy decisions in the face of incomplete information all the time, but if we decide that it’s a good idea to use less oil for geopolitical or other reasons, we shouldn’t pretend it is some kind of fancy, analytical construct called “pricing an externality”. In practice, the actual level of a carbon tax would be set entirely politically, that is, based on the bargaining power of various interest groups, rather than through some abstract economic logic.

Here's a link to the research paper that I reference:
http://www.handels.gu.se/econ/seminar/Article1.pdf