Megan McArdle is “Very Sorry”

In this blog post about Small Business and Income Tax, Megan McArdle explains that ‘we’ [presumably meaning the government] need to raise taxes:

So I end up thinking that it [tax increases] will effect small business, that I’m very sorry about that, but that we need to go ahead and raise the taxes anyway.  I feel the same about taxes on the middle class.

…we need money to cover promises we shouldn’t have made decades ago.  The current structure of our federal budget isn’t sustainable, which means we’ll all have to learn to get by on a little less–including small business owners, and the people they employ.

Two questions for Megan:

  1. What if raising taxes on small business and the middle class reduces the net present value of the value of the money needed to “cover promises we [again with the we?] shouldn’t have made decades ago”?
  2. Have you considered lowering government spending?

Earlier in the blog post, Megan expresses doubt that small business is the job growth engine Republicans claim it to be:

…Republicans… have been…exaggerating the extent to which the average small business creates jobs (job growth is mostly concentrated in a handful of fast-growing ones that don’t stay small).

While it’s not entirely clear why Megan included that remark, the only reason I can think to include it is that she thinks this concentration, if it exists, matters.

Is she reasoning that not all small businesses matter that much for job growth, just those that are growing fast?

If so, I disagree.  It’s hard to predict which small businesses will not “stay small.”  Read The Black Swan.  We wouldn’t do ourselves any favors by hampering small businesses.  We should be happy with as many small business experiments as we can get.  Only a small percentage will grow big.  Reduce the number of small business experiments and you may reduce the number of those that grow big.

Even without the “grow big” argument, I see no reason to hamper small business.  Small businesses employ significant numbers of people and they make our lives better through the products and services they offer us.

It is a bit frustrating when I see someone like Megan, who admitted on an EconTalk podcast about her struggles to manage her personal finances (i.e. make tough choices), who wants to force tough choices on others because she thinks its the right thing to do.

It’s even more frustrating when someone like her makes such suggestions without considering that she might not have thought it through well enough and thought through other options, like cutting government spending.

UPDATE: At least in this post, Megan thinks that small businesses that don’t grow large have value.

It Doesn’t Matter

There’s been a buzz in blogland lately about the Laffer Curve.  For those of you who don’t know, the Laffer Curve is napkin sketch made by economist Arthur Laffer that illustrates that there is a diminishing return to government revenue after raising tax rates beyond a certain optimal rate.  The idea being that as the government share of productivity rises beyond that level, people do less and work harder to find loopholes.

For example, if I were to choose between working an extra job at night and spending time at home, how much I take home from that extra job matters.  If the government taxes my income on that extra job so that I take only 25% – 50% of what I make, I’ll be more likely to skip the extra job.

Laffer himself points out the concept was not original and has been around since at least the 14th century.

Recently, Washington Post columnist Ezra Klein asked a group of economists where the Laffer Curve bends, which sparked quite a discussion the blogosphere.

First, the discussion pleasantly surprised me.  It seems like just a short while ago, the left didn’t want to admit the Laffer Curve existed.  In fact, I had discussions  where I was treated as a moron for believing in such nonsense.  So, it was pleasantly surprising to Continue reading

Media Bias

Here’s an interesting real story of media bias from David Henderson of EconLog.  Thanks to Megan McArdle for the link.

The issue:  Mainstream media typically attaches ideological labels to conservative sources, but not to liberal sources.

David Henderson wrote about when this happened to him in the L.A. Times and how he confronted the reporter.  Not only did the reporter ascribe an incorrect ideology to Henderson, he didn’t subscribe an ideology to the liberal sources in the same article.

I persisted and asked him why he didn’t ascribe an ideology to the other economists quoted, who clearly had ideologies. He explained that I was the only one quoted who was critical of the Obama team.
“Did you hear what you just said?” I asked. “Only those who are critical are given ideologies.”

We can talk about media bias, but it’s always good to have specific things to point to.  This is one. There’s no reason not to be fair and consistent and ideological labeling.  Either label everyone or don’t.

I think we all tend to do that in our own minds as well.  Those who agree with us get no labels.  Those who disagree are labeled to explain away the disagreement.  Much easier to do that than to actually think about the disagreement.