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Gordon Longhouse
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I think you are right about issues of "luck" versus hard-work having little impact on the issue of tax rates and tax bases. It is nevertheless useful to counter the rhetoric -often heard in Republican circles including by its most recent presidential candidate- around taxes being in some way a penalty or punishment for being rich.
Toggle Commented Nov 13, 2012 on Luck and Taxation-Becker at The Becker-Posner Blog
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This post is way out there! I love it!
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Gordon Longhouse added a favorite at The Becker-Posner Blog
Nov 12, 2012
Banking is no more or less corrupt, in general, than any other industry. Banking today especially in the US and UK are systemically corrupt today for a number of reasons. 1. Bankers and other experts have an information advantage over customers. Previously bankers were reluctant to push this advantage to their own short term advantage our of concern that the long term loss of goodwill would be worth more than the short term gain. This is no longer the case: transaction by transaction banking is in; relationship banking is out. 2. Bankers have internalised the whole unregulated free market ideology that says that pursuit of self-interest will be self-corrected by the market and that accordingly there is no reason not to do so. 3. Many, but not all, governments have pursued the chimera of being a world financial centre. Until now at least that has meant putting up a facade of safety and regulation for bankers to hid behind while ensuring that there is no reality to it. London is the leader in this regard. It is no co-incidence -as The Economist would have it- that AIG, JP Morgan and Lehmann Bros did their most nefarious trades in London nor that LIBOR was set in London and was corrupt. This meant that there was no political will to resist bankers who complained of "exzcessive" intrusive regulation hence no will to engage in intrusive regulation. 3. Unlike an airline when a large bank goes bankrupt it brings a multitude of other businesses and creditors down with it. When an airline goes bankrupt it leaves some stranded passengers. I know whereof I speak as I was stranded when an airline collapsed and am solvent still. Posner correctly points out that banking is an inherently unstable business: short term liabilities support long term assets. That is why traditionally bankers have tried to look safe, boring and trustworthy. A sound banking system that permits depositors to access their money and be kept safe and borrowers to carry out business safe in the assurance that their borrowings cannot be recalled prior to term without cause is a public good. Regulators and their political bosses need to recognise this and tell banksters waving campaign contributions to jump in the nearest lake.
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While government intervention to prevent obesity can be justified the manner and form such intervention should take is far from clear. Bloomberg's proposal is likely to do no good and its eventual failure will limit the credibility of other perhaps more effective intervention proposals. Smoking is not a good analogy. Nicotine is known to be an addictive drug; there is no known similar addictive agent at the heart of obesity. Second hand smoke is a negative externality of smoking; there is no similar externality for obesity. The fact is that we don't know enough about human eating behaviour and effects to know how to intervene to prevent its worst effects. Until we obtain more information any intervention beyond information campaigns cannot be justified.
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Becker's point around US sub-prime mortgages is well taken: they were far more toxic to lenders than they were to borrowers. Mortgages in the US are extremely risky instruments for lenders because the lender does not simply lend money secured by property, it also agrees to accept the property in lieu of the loan. This is economically identical to the lender granting a put option over the property to the borrower with a strike price equal to the value of the loan. Where the property is acquired without down payment this means that the put option as at the money. Such an option ought to be very expensive and this expense ought to have been reflected in the interest rate on the loan. It wasn't and so the promoters of these products and those who financed them were doomed. The borrowers had to suffer the trauma of being thrown out of the house, but in a financial sense they were much better off than the lenders. Politically speaking it is impermissible to say so.
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A coupe of thoughts. Posner identified high school drop out rates in the US as contributing to crime rates and this sounds right. Improving these would have the added bonus of adding to human capital for the economy. American Courts seems to be particularly fierce in their sentencing of first offenders. Also, as has been mentioned all over the place here, punishment seems to be the only proposed solution to drugs. Although there are a hard core in any society for whom prison is the only answer, I would suggest that those numbers are much lower than the US imprisonment rate would suggest. Finally I would commend Posner for bravely comparing the US to comparable countries. One of the many negative effects of the ideology of American exceptionalism is the notion that nothing that applies elsewhere could possibly apply the USA. The US is not that much different from other prosperous countries. Lots of us have benefited from copying ideas from the US (with necessary changes). Americans could likewise learn to deal with the fact that other people do somethings better than you do. Watch and learn.
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Dec 2, 2011