State Nullification of the Federal Income Tax?

Ryan H. Murphy writes,

In principle, the state could effectively end the federal income tax by using two surprisingly simple and straightforward legislative maneuvers—neither of which involves secession. Texas could choose to send its federal taxpayers a check in the form of a state tax credit equal to their federal income tax liability. It could then pay for the credit by increasing the state sales tax in a revenue-neutral way. effectively, that would mean the end of all income taxes in the state while significantly raising sales taxes. This isn’t about cutting taxes per se; rather, this is the tax swap to end all tax swaps.

This is an interesting and original proposal, but surely he has not thought through all of the consequences. For example, if this were enacted, then residents would have no incentive to minimize their tax liability. Go ahead and realize all of your capital gains, because when you pay more Federal taxes, your state sends you a credit. So it seems to me that one consequence would be a huge windfall increase in Federal revenue, financed by higher state sales taxes.

Rent Control, House Prices, and Incomes

A commenter on my earlier post writes,

In San Francisco, over 70% of rental units are rent-controlled. This allows a lot of low-income people to live there, pushing down the median income. Meanwhile, there are no price controls for home sales, and these are pushed up by the shortage of market-rate units.

If you excluded everyone in a rent-controlled unit, I think the price-income ratio would look more reasonable.

Arithmetically, this explanation works. The median income would be artificially low relative to the median house price. But what about the economics?

I expect rent control, along with building restrictions, to lower the quality and quantity of housing services supplied. It also creates a big incentive for owners to convert rental properties into homes for sale. Over a long enough run, these supply effects tend to push up rents. I am a bit reluctant to believe that rent control achieves an equilibrium in which housing is affordable for renters and not for buyers. I am more inclined to side with the view that rent control backfires in the long run, leading to high rents.

Of course, one can argue that there will still be a gap between prices and rents, particularly if conversion of rental units is impeded by regulation. In that case, the only option available to property owners would be to limit maintenance. If the quality of rental units has tended to deteriorate, then that would support the commenter’s explanation.

Incidentally, another commenter suggested that the ratio of wealth to income might be high in cities with a high ratio of house prices to income. This would be very plausible if we were talking about average ratios. It is somewhat less plausible for median ratios, because median wealth tends to be pretty low.

Adam Gurri on Persuasion and Economics

A long post, difficult to excerpt. A few snippets:

One of the things that I found jarring about The Rhetoric of Economics is that McCloskey argues, among other things, that appeals to authority are natural and necessary. That pointing out that an argument involves an appeal to authority does not invalidate that argument.

What I would say is that what people think of as scientific discourse does not rely so heavily on appeals to authority. At some point, you can say, “If you don’t believe in gravity, try an experiment yourself. Jump out of a 10-story window and see what happens.”

But when Olivier Blanchard tells you that every macro model includes an aggregate demand relation, a Phillips relation, and a monetary policy relation, he cannot issue an equivalent challenge. Instead, the literature emerged that way mostly because scholars published papers that borrowed from other published papers.

I would not argue that there is a scientific method that is so pure that it can be operated without any bias or other human characteristics. But clearly there are arguments that are more persuasive than others, and arguments that apply the scientific method can be more persuasive than arguments that rely primarily on authority.

For Smith, trade was never a mechanistic process. The act of offering payment is itself an act of persuasion.

I think this notion of the centrality of persuasion in human affairs, and in markets in particular, is what economics should strive to rebuild itself around. This does not mean that the insights from economists’ contributions up to this point should be discarded, just that we should seek to find their appropriate context.

My Essay on MIT Economics

It covers a number of themes recently discussed on this blog.

My sense is that the MIT-dominated profession has experienced a decline in critical thinking. Instead, once a modeling assumption has appeared often enough in the literature, it no longer is questioned. This creates an element of arbitrariness and path dependence to the professional consensus about the equations used to characterize the economy.

Yuval Levin on Conservative and Libertarian

He writes,

Successful lives in the postwar era involved effectively navigating our large institutions and making the most of the benefits they offered. Success in the coming era will increasingly involve effectively navigating a profusion of smaller networks, and a government that wants to help people flourish will need to retool—focusing more on enabling bottom-up, incremental improvements and less on managing top-down, centralized systems. Both empowering individuals and offering them security will look rather different in this era.

Read the whole thing. Even by Yuval’s standards it is a very pointed, articulate post.

He is responding to Charles C.W. Cooke’s provocative case for conservatarianism. I have a few posts scheduled on that same topic. While recognizing differences, Yuval is focused on the affinity between conservatives and libertarians. So is Veronique de Rugy. (The high quality of commentary on Cooke’s work speaks well for the book itself, which I have not read.) My focus instead will be on the tension between the two.

Lifted from the Comments

On this post.

The question is why are people moving back into the cities, when real estate in the cities is so much more expensive, (i.e. despite the fact that the “rent is too damn high”), the appeal of city life is not noticeably greater than it was a decade or two ago, and the cost-differential is so high that it practically erases the compensation and lifestyle gains?

Read the whole comment.

I see gentrification occurring primarily because of the New Commanding Heights. Education and health care concentrate in cities, in part because of tax advantages. That in turn draws affluent professionals. With enough affluent professionals, you get young people wanting to live in cities to be around other affluent professionals, in order to perpetuate bifurcated family patterns.

Human Capital and Chainsaw Arms

Noah Smith offers this:

So how should we think about human capital? Here’s an analogy that I think works well. You agree that a chainsaw is capital, right? OK, now imagine a chainsaw that you graft permanently onto someone’s arm, like Bruce Campbell in the movie Evil Dead 2. It’s so thoroughly grafted on that you can’t remove it without making it permanently useless.

This chainsaw is very very much like human capital.

My prediction is that this metaphor will become increasingly apt, as implants, drugs, and genetic enhancements become a larger share of human capital. Today’s mouse capital is a preview.

You Won’t Think I’m Being Charitable

Do you think I should submit this essay somewhere?

The central concept of the sociologists is privilege. Privilege is like status, except that it is based on membership in a group rather than in characteristics of the individual. One’s privilege is based on his her membership in a economic class, race, religious group, or sexual category. Rich people enjoy a lot of privilege, while poor people are underprivileged. In America, whites are privileged, while African-Americans and Hispanics are not. Similarly, Christians are privileged, and Muslims are not. Male heterosexuals are privileged, and people with other sexual orientations are not.

It goes on to claim that this is how the Obama Administration views terrorism. I actually don’t think I’m being uncharitable. I think I could pass an ideological Turing test as a sociologist or as a member of the Administration.

Kurzweil Predictions

From an interview with Peter Diamandis.

By the 2020s, most diseases will go away as nanobots become smarter than current medical technology. Normal human eating can be replaced by nanosystems. The Turing test begins to be passable. Self-driving cars begin to take over the roads, and people won’t be allowed to drive on highways.

By the 2030s, virtual reality will begin to feel 100% real. We will be able to upload our mind/consciousness by the end of the decade.

By the 2040s, non-biological intelligence will be a billion times more capable than biological intelligence (a.k.a. us). Nanotech foglets will be able to make food out of thin air and create any object in physical world at a whim.

Similar to mine (which reflect Kurzweil’s influence), but different timelines.