• Harlem Children’s Zone
• Milwaukee Project
• Abecedarian Project
• Perry Preschool

The most complete summaries of these programs, including extensive bibliographies, come from the Coalition for Evidence-Based Policy, such as:

• Do Early Childhood Intervention Programs Really Work?
• Social Programs That Work

While the programs do report success in improving social outcomes, they don’t seems to do much with IQ over the long term, and even the social improvements appear to be moving the participants from the very lowest rung to the next highest rung, certainly not into the stable middle class. For instance, the improvements over the control group for the Perry Preschool Project include:

• 28% served prison time
• 57% out-of-wedlock births
• $1,856 median monthly income at age 40 ( 2006 or so )
• 65% graduated from high school

Yes, those are the stats for the improved group. The project reports that the intervention was a worthwhile expense for the reduction of social problems, but it also sets lower expectations for what interventionist compensatory education can reasonably achieve.

The result of sky-high marginal rates, this anecdote was supposed to prove, was declining productivity and economic growth. Is this true? Let’s look at a graph of the nominal top marginal tax rate in any given year and GDP growth in that year.

Then Spitzer shows the pretty graph, two squiggly lines that don’t seem to have much relationship to each other. Obviously, when two lines squiggle, each with apparent disregard for the squigglings of the other, there is no connection between the things the lines are purported to represent.

A caveat—obvious but critical—is in order. Simultaneity does not equal causation. Annual growth rates are a consequence of many factors, macro and micro, and the isolated impact of marginal tax rates on growth is hard, if not impossible, to discern from these numbers alone.
That said, it’s obvious that there is no correlation between higher marginal tax rates and slowing economic activity.

Let me translate that last paragraph: “Even though this analysis is completely invalid, I’m going to use it anyway.” Spitzer is making an economic argument based on (relatively) complex statistical analysis that he does, apparently, in his head. Economists have to use computers to do what comes so naturally to Spitzer (the numbskulls). He doesn’t actually have to compute the correlation, because it is obvious. He also doesn’t have to do any more detailed study on the issue because it was so obvious. But he does provide academic support for his conclusion:

More sophisticated efforts to analyze this relationship also produce decidedly murky results. An excellent review of this in the Yale Law Journal, “Why Tax the Rich? Efficiency, Equity, and Progressive Taxation,” concludes that there is scant, if any, legitimate academic support for the proposition that moderate, as opposed to dramatic, increases in marginal rates have any impact on the willingness of the wealthy to participate in the economy.

So a lawyer has referred to other lawyers for support for his position on an issue in economics. Furthermore, the referenced article is a book review, not, for instance, a scholarly review of the economics literature. The book, Does Atlas Strug? is a collection of papers, concerned entirely with taxing the rich. If the “rich” are the top 1% of us taxpayers by income, the rich have about a 14% share of US income. So, what Spitzer is telling us is that changing the tax rates by, say +/- 5% on the people who contribute 14% of US GDP, and who don’t really need to work anyway, doesn’t change GDP much. What an amazing insight! What that does not answer is what is the effect of  high marginal tax rates on the other 86% of the economy.

Maybe someone should ask the economists? These days, asking scholars is really easy, using Google Scholar.

Well, Alan Reynolds, an economist, says “Lower Tax Rates Mean Faster Economic Growth”. Reynolds is from CATO, so maybe you’ll want to discount him, but Engen and Skinner also report that lower taxes result in higher growth, although the effect is modest.

The issue of the relationship between tax rates and GDP doesn’t seem to have gotten as much study as the relationship between tax rates and hours worked, a supporting topic in Spitzer’s article. Spitzer notes that “Central to the intellectual debate about marginal tax rates has been the question of whether higher rates discourage people from working.” Let’s see what economists have to say on this topic.

In “Does It Pay to Work?”  and “Does It Pay to Work And Save?” Gokhale  Kotlikoff, and Sluchynsky (economists, not lawyers) write:

First, thanks to the incredible complexity of the U.S. fiscal system, it’s impossible for anyone to understand her incentive to work, save, or contribute to retirement accounts absent highly advanced computer technology and software. Second, the U.S. fiscal system provides most households with very strong reasons to limit their labor supply and saving. Third, the system offers very high-income young and middle aged households as well as most older households tremendous opportunities to arbitrage the tax system by contributing to retirement accounts. Fourth, the patterns by age and income of marginal net tax rates on earnings, marginal net tax rates on saving, and tax-arbitrage opportunities can be summarized with one word – bizarre.

In “Why Do Americans Work So Much More than Europeans?”, Edward Prescott (an economist at the Minneapolis Fed, not a lawyer) notes:

The surprising finding is that this marginal tax rate accounts for the predominance of differences at points in time and the large change in relative labor supply over time.

A study of “Taxes and entrepreneurial risk-taking” reports:

We first show theoretically that taxes can affect the incentives to be an entrepreneur due simply to differences in tax rates on business vs. wage and salary income, due to differences in the tax treatment of losses vs. profits through a progressive rate structure and through the option to incorporate, and due to risk-sharing with the government. We then provide empirical evidence using U.S. individual tax return data that these aspects of the tax law have had large effects on actual behavior.

In “The Effect of Taxation on Human Capital”, Alan Reynolds, (an economist, not a lawyer) says:

This study finds a significant negative effect of proportional income taxation on human capital. Of the few earlier studies to address this issue, most suggested a negligible effect of taxation on investment on human capital. This earlier conclusion is shown to be incorrect by using a model that is more general in several respects than the models used previously.

In “Workforce 2005: The Future of Jobs in the United States and Europe.” Reynolds (still not a lawyer) writes:

In many European countries, as the OECD Observer article quoted above points out, “additional work effort leads to little or no increase in net (after-tax) income because incremental gross earnings are largely, or even fully, offset by marginal income taxes and the reduction, or complete loss, of benefit payments” (OECD Observer, 1993).

The Showalter and  Thurston (both economists !)  study “Taxes and labor supply of high-income physicians” found that high taxes are disincentives for the most entrepreneurial doctors:

We use the 1983–1985 Physicians’ Practice Costs and Income Survey, supplemented with federal and state tax rates, to estimate the effect of variation in marginal tax rates on work hours for high-income physicians. We find that self-employed physicians are much more sensitive to the marginal tax rate than would be suggested by previous labor-supply studies, while those who are employees have no discernible sensitivity to marginal tax rates.

In their study of the 1998 tax flattening in Canada, Sillamaa and Veall (an economist and a statistician) write:

…Navratil (1995) finds evidence that tax-price responses are higher for high income individuals for both episodes of United States tax reform he studies….

…However our results are consistent with a tax price response by the self-employed and those with high incomes that is much larger than the overall response….

…Using that approximation, these estimates suggest that for a population of these higher income individuals, revenue would be maximized by a marginal tax rate of about 45% for the working age population, which is slightly less than the top marginal rate at the time….

So, in less than an hour, I’ve found 7 papers, written by actual economists, that disagree with Spitzer on the relationship between taxes and incentives to work.

Of course, on any complex subject, there is disagreement, and it is reasonable to supposed that I have preferred to include only the papers that support my conclusion. (I’ll let you guess what that conclusion is.) But I didn’t find much research that  indicated that tax rates don’t have an effect on hours worked.  The authors of Taxation, Human Capital, and Uncertainty suggest that tax policy has little effect on the number of hours worked by middle-aged male workers and  the blog Angry Bear would support Spitzer’s argument.

My impression is that there is substantial debate on the relationship between taxes and growth, with researchers finding everything from no relationship to a substantial relationship. This isn’t too surprising: GDP is a nation-wide measure that encapsulates all of the things going on in the entire economy, so it should be hard to pick out any one correlation. But economists generally support the statement that increased taxes are a disincentive to work, contradicting Spitzer.

Supporters of  Darwin’s theories or Anthropogenic Global Warning base the bulk of their arguments on the scientific consensus, the preponderance of scientists that support these theories. But the same people (well, people in the same ideological camp) have a complete disregard for any consensus in economics about how people respond to incentives, preferring to take their lessons in economics from lawyers rather than  economists.

(The portrait image is of Frédéric Bastiat, the author of  an insightful and entertaining refutation of protectionism, Economic Sophistries, in 1845. )

Where in this process of raising awareness does a hungry or oppressed person get food or freedom? How does skipping a meal give food to the poor? Do the organizers think that the Third World can be lifted out of poverty with good thoughts? If these events result in nothing more than people spending an hour chanting and feeling good about themselves, they are worse than useless, because the participants have done nothing but express their expectation that someone else solve the problem.

When I am concerned about poverty I write a check to Heifer International, because people can eat cows, but they can’t eat awareness. If you actually care about poverty, skip the awareness building, accept that you can do something about the problem, and donate you money or time. If you do go to an awareness event, bring your checkbook and demand that your friends do the same.

My expectation is that the people who are likely to request a CCW are not likely to commit crimes. Criminals would carry regardless of a CCW permit, so allowing concealed carry in a state should not increase the number of criminals that have firearms.

Florida has issued over 1.6 million CCW permits since 1987 and only 167 have been revoked because the permit holder committed a crime with a firearm. That implies that only 0.01% of CCW permit holders commit firearm-related crimes. Florida revoked  0.3%  for all reasons combined. North Carolina reports 0.2% revocations for any reason.

Since most permit holders are male (85%) , and most crimes are committed by males (91% for weapons crimes), we can compare the revocation rates to male crime rates. There are about 300,000 assaults and robberies per year committed with firearms, and about 150M men, a whole-population rate of  commission of firearm-related crimes of 0.2%.

This suggests that CCW permit holders commit firearm related crime at a rate of about 1/20th of the rate of the general population. You should actually feel safer among CCW holders than the average population.

I’m still worried. We don’t know what the next 20 years will bring. If those years are as prosperous as 1945 to 1965, a larger debt, and associated spending, may be a net benefit to our economy, but there is a deeper problem. Here is a graph from the GAO report A Citizen’s Guide to the 2008 Financial Report of the U.S. Government that shows the sum of the US Government’s expenses, from 1970 to 2080:

That red bar is payments on the Government debt, and the black line is total revene, estimated to contine in the future at the historical 18% of GDP. Notice the expenses grow exponentially, and the revenues doesn’t change much at all. That situation is very bad.

The report says:

These large and growing deficits could increase Government debt levels as a percentage of GDP to unprecedented and unsustainable heights – from 170 percent by 2040 to over 600 percent by 2080 – far exceeding the historical high of 109 percent that occurred immediately following WWII and far exceeding the Government’s ability to fund program expenditures.

The problem isn’t just the payments on the debt, it is the debt plus all of the other mandatory government expenses. And, this report was written before the current health care debate, the resolution of which may increase mandatory expenditures even more. Our government has much higher expenses today than in 1945, and we can’t count on the next 20 years being as prosperous as the post war years.

The GAO offers a very direct instruction:

With respect to entitlement spending, the nation must change course before the deficit and debt reach unprecedented heights. The Government must act to bring social insurance expenses and resources in balance. Delays will increase the magnitude of the reforms needed and will place more of the burden on future generations.

Robert Reich’s dad was wrong about Roosevelt’s debt, and Reich is wrong about about today’s debt; it will be a burden to our grandchildren.

The California Redemption Value (CRV) like other deposit charges, and the Oregon Bottle Bill that preceded it, were largely intended to decrease roadside trash and increase recycling rates. They are very effective because of the economic principle that people respond to incentives. If there is enough of a benefit to either not throwing a bottle away, or picking it up after it has been discarded, the bottle will not end up in the trash or the roadside. The same thing happens on the beach, where bathers will intentionally leave aluminum cans behind because they know someone will pick them up.

These deposit charges are a classic market solution, and are an excellent way for the government to shape society. Rather than trying to jail or fine people who litter, governments can use financial incentives to encourage the desired behavior. This mechanism is also know as “internalizing negative externalities” or a Pigovian Tax.

The incentive works, and it works very well. I doubt that the recycling collection on my street gets anything except paper. I’d expect that this effect results in the recycling program being lees financially viable, since people are removing the most valuable recyclables from the program and claiming the CRV  and recycling value for themselves. We could get upset about this, and make trash picking illegal, or we could use the effect to make recycling programs more effective.

One possible improvement would be to add a redemption value for all recyclables and replace recycling bins with low, wide bins that make it easier for trash pickers to remove items, which would allow governments to eliminate collection of recyclables. This scheme would require adding the CRV to all recyclable containers, which would raise the price of many products, making it politically unpopular, and many progressives would oppose the plan because it encourages the poor to take on a low wage job. But despite these hurdles, employing incentives is one of the most powerful ways for governments to encourage socially valuable behavior.

One of the important implications of the law of supply and demand is that when the price of something drops, demand increases, and if the price is zero, people will probably demand more than there is supply of the thing. If the thing is plentiful, like air, there isn’t much problem. For for everything else, a price of zero usually means lines, shortages or rationing. Imagine anytime a company like Starbucks or McDonalds gives it’s products away: the offer generates a crowd, and all the free stuff is gone before you get there, so you don’t get any.

A second important economic principle is that “people think on the margins.” This means that most economic decisions are based on the price of one more thing, not the price of the things you already have. If you have already had an ice cream cone, you probably won’t want to pay $2 for another one. But if the price is free, you will probably take it. You decision is based on the fact that the next cone is free, not that the average price for both cones is $1.

When most people get health insurance, they pay a fixed price up front, or have their employers pay  that cost, and the cost of any of the procedures after that is small. The real cost of going to the doctor one more time may be $200 per visit, but with health insurance, that marginal cost is $20. The same thing is true for most other procedures.  This means that regardless of what the  average cost of a procedure is to a person, the marginal cost is very low relative to the actual cost.

So, we have a low marginal cost, and that means that people are going to demand more of it. If going to the doctor for a cold cost me $200, I would only go if I am really sick. But for $20, I’ll go just to find out what I’ve got. Thus the low marginal cost results in a higher demand. Since people naturally want to stay healthy, they will demand to get more health care than they have actually paid for. Since the health care company cannot rely on price to regulate demand, they have to rely on an administrative procedure, which takes the form of denying claims. If they didn’t deny any claims, everyone would spend more than they paid, and the insurance company have cost overruns, possibly going broke. The NHS may already be in this situation. That’s not a criticism of the NHS, just a sign of the natural desire for everyone to get more (service) and pay less (taxes).

If the US had a single-payer system like the NHS, the marginal cost of health care would drop even more; it would be marginally free to everyone, so the demand would increase even more. A single payer health care system would have to deny even more claims than the system we have now. That alternate system could be an improvement over the system we have now, but we should expect that the number of claims it will have to deny would actually increase.

So, the general act of denying claims is not an evil; it is a necessary component of any system where the marginal cost of care is less than the actual cost.  What is evil is when a health care provider denies a claim that they have agreed to pay as part of the contract with the insured. This case, however is a matter of contract law, and if it were widespread, it would be handled very effectively through class-action lawsuits.

( Image from Solid Threads. Please visit them so they don’t sue me for stealing their image. )

Today, the Daily Mail reports that an Indian teen-ager has created an inexpensive solar cell from human hair. It is an inspiring story about a plucky teen who will one day change the world.  The only way for it to be a better story would be for it to be true. I’d be happy if it just were not jibberish.

As with many hoaxes, there is an element of truth. Melanin,  a component of dark human hair, is a semiconductor and is photo-reactive, and you can use it to create a solar cell. However, these cells, like most solar cells made from organic semiconductors, are not very efficient, about 2.7%. Unless the cell is virtually free, 2.7% is not going to change the world.

So, it is possible to do, and it has been know to be possible for about 40 years, but it isn’t economically feasible. Also, it isn’t very easy to do. You have to extract the melanin from the hair (pdf)  into a solution or a substrate, and one of the electrodes is copper wire coated with silicon.

What is certain not to work is to string the hair along thumbtacks on a board, which is what it appears the intrepid teenager did. The probable problems with this arrangement are numerous:

• Hair is not a conductor.
• The melanin in the hair is likely to be too diffuse to be useful.
• The melanin in the hair is not in contact with any electrode.
• The hair has far too small of a cross section to collect any energy.

Don’t forget the simple economist’s argument: The photoelectrochemical properties of melanin have been known to science for 40 years, so if it was a reasonable way to build a solar cell, they would already be doing it. There is too much money going into green tech to leave an option like this unexplored.

It is instructive to read the comments to the Daily Mail article. The ones that praise the kid for his accomplishment are rated very highly, and the ones that call Bullshit are rated very low. I suppose it is natural to prefer a fantasy, but it doesn’t help to save the world.

Edward Criag Hyatt has a much more detailed explanation of the problems with the hair solar cell. Basically, the student made a cupric oxide solar cell, and the hair, which was soaked in salt water, is simply an electrode.

BTW, I think the story-behind-the story is very inspiring. Way to go Milan Karki! You punked the Daily Mail!  The kid is clearly very intelligent, because the science is plausible, and he got his mug spread worldwide while spraying the Brits with rotten veg. That is an accomplishment worthy of respect, although not as much as hoaxing the BBC. ( Although, as Hyatt explains in his article, this is likely to be a case of poorly understood science, not an intentional hoax. )

Note: I’d made an error in the original article, writing “BBC” where it should have been “Daily Mail.” I caught the error immediately after posting, but Google picked it up within minutes and still has the wrong title in the cache.

When have we asked if this is a reasonable goal? Are any Entrepreneurs bold enough to ask VC how many of their portfolio companies have actually his $50M in 5 years?

Fortunately, Christian Chalbot of IPO Dashboards has done some analysis to determine how long it takes technology startups to reach $50M. His answer is about 8 years, but that value is determined from studying the top 100 technology companies in the US, ranked by revenue. The number is certainly a gross underestimate, because it doesn’t include any of the companies that did not IPO, failed, or were not in the top 100. In short, even among the most successful US companies, it still takes and average of 8 years to reach $50M in revenue.

So, Entrepreneur, next time you are showing your hockey-stick graph, what you are really saying is: “My company will be more successful that Microsoft, Adobe or Novell. ” Really, why should anyone believe you?

Today, Techcrunch summarizes additional proof that, despite the popular image of the scrappy young entrepreneur, most entrepreneurial activity, and the most successful startups, is run by grey-hairs. This report from the Kaufmann Foundation puts Techcrunch’s hunches to numbers.

The average and median age of U.S.-born tech founders was thirty-nine when they started their  companies. Twice as many were older than fifty as were younger than twenty-five.

So, while I can be happy that for the last two companies, I was a “young entrepreneur” for the next one I will be firmly in the norm. And that path is probably also very typical, since entrepreneurs are likely to start more than one company.

Here is the distribution of startup-founder’s ages fro the Kaufmann report:

To be fair, Venture Capitalists don’t seems to have a consistent age prejudice, but the younger founders to seem to get more attention.

Here is one more study that presents the demographics of entrepreneurs.

It finds that most founders came from middle-class or upper-lower-class backgrounds, are well-educated and married with children. The strongest motivation for starting a company was to “build wealth”. Other popular motivators included capitalizing on a business idea; the appeal of a startup culture; a desire to own a company; and a lack of interest in working for someone else.

So, not only are entrepreneurs middle aged, they aren’t typically rich or single. So, not only do Old Guys Rule, but the old, pasty, middle-class ones start companies.

Mr. Lind doesn’t daly. His opening sentence lays out his theme:

Today is Labor Day, when we celebrate the wealth destroyers – at least if the libertarian right is to be believed.

I’ve never hear such a ridiculous idea — that laborers destroy wealth — expressed by any libertarian, in words nor in print. How did Lind come to think that this idea is typical of the libertarian right? Maybe he is just being dramatic, as his second sentence moderates a bit:

According to many free-market conservatives, economic growth is almost exclusively the result of investment decisions by a small number of rich individuals – the “wealth creators.”

Clearly these the first and second sentence are of different magnitudes, with the implicit “all” of the first statement becoming “many” of second, and “wealth destroyers”, we discover are simply not those who created the wealth. (  If Lind is equivocal  in his hyperbole, don’t fret; he will hit his stride later. )

More significant is the term “small.” Free market conservative do not believe that a small number of the rich create all of the wealth. They believe that the free market allows the entire population to participate in the creation of wealth. Lind’s bogey men are actually oligarchs, not free-market conservatives. At least these statements are simply mischaracterizations, not gasping exaggerations. But, by paragraph three, he’s back to the overwrought satire.

If you believe this theory, then Labor Day should be a cause for national mourning. We should all pause to mourn the loss of capital that might have gone to a fifth or a sixth mansion or a private jet, but instead was conscripted against its will to pay for a public school or higher wages in a factory.

To advance his attack on the straw-men conservatives, no American icon is sacred. Lind takes license wherever he can, impressing a series of Lincoln quotes into service as an argument against promoting capital over labor. Ultimately, the message of the quotes, that labor is independent of capital, and that capital wealth has the antecedent of labor, is both obvious and irrelevant. But, since the quotes employ both the word “labor” and “capital”, and they were spoken by the flexibly authoritative Lincoln, we must assume the quotes to be both insightful and incisive.

By the time the reader suspects Lind is presenting a false dilemma, by offering only the two economic world views of laborers as the creators or destroyers of wealth, Lind explicitly states that he is , in fact, committing the logical fallacy of a false dilemma:

The alternative theory is that the true creator of wealth is, ultimately, the commonwealth – not only the political community, but the civilization that it shares with other nations

There are certainly more than two theories, such as the theory that libertarians, and economists, actually believe, that capital is a lever that makes labor more productive. A worker can be productive on his own, but he is more productive when using tools, machinery and factories, the manifestations of capital. Conservatives do tend to focus economic remedies on production, and they aren’t fond of labor unions but Conservative don’t hate laborers or the labor they do. However,  it is hard to foam at the mouth and fling spittle attacking the much milder ideas that Conservatives actually believe.

Ultimately, the article is polemic sophistry  ( a genre with which readers of Salon.com are familiar ) , and while we may appreciate his homage to labor, Lind’s rhetorical tactics are transparent, tiring, and very unproductive.