Monday, October 16, 2006

Edmund "Three Card Monte" Phelps

On the streets of New York City, you can occasionally run into card sharks who make it appear damn easy to win money off them by picking the red card out of three cards-where the other two cards are black cards.

Our advice, if you happen to pass by these scammers, is to just keep walking. You won't win. They have shills in the crowd to rope you in and the card dealer is a card shark.

In the world of economics, there are also sharks. They have mad schemes to "improve" the economy, and they occasionally have shills to rope you in and entice you to pay attention to the madness. The Royal Swedish Academy of Sciences has got to be one of the better washed, most refined shill operations the world has ever seen. They don't play at street level. They are far above it all. They award Nobel Prizes. In the field of economics this year, they awarded the Prize in economics to Edmund C. Phelps. And, yes, it did rope us in to check Phelps out.

Since he was named a Nobel recipient, we have published below two other blog posts about Phelps. But what really got us to pay attention to Professor Phelps, with additional caution, are his comments today in the Wall Street Journal. They would make any Three Card Monte dealer jealous with envy.

In fact, to keep our Three Card Monte analogy going, Phelps is only dealing with two cards--two black ones, but he tries to convince you that you can pick the red card from his lot of two black cards. Smooth man, smooth.

But let's take a closer look at his double dealing.

Phelps wants to raise taxes on low income earners. This is how he puts it inthe WSJ interview:

Over the last couple decades, the federal government has virtually abolished taxation of a wide swath of people with smallish incomes. This was a mistake, because we need all the tax revenue we can get. It's inefficient to have low marginal tax rates on low incomes, because people with upper middle incomes and high incomes get the same breaks, but they don't get any incentive to work harder. What you want to do is give tax breaks that give people an incentive to earn income that would not otherwise be earned. So in my view, President Bush should have restored the taxes on the low-income people rather than lowering the taxes on the
high-income people.

And what does Phelps want to do with this new tax revenue? He wants to give it to low income earners. From WSJ again:

I think economic justice is all about pay rates at the low end relative to those in the middle. So the government needs a lot of tax revenue to meet the problem of low-wage workers. Too many people in America suffer joblessness, and when they are employed they can't earn a decent living. I've been advocating a solution: subsidies that would be paid to companies for the ongoing employment of low-wage workers.

Are you seeing the double dealing here, tax low-incomes and use the money to subsidize low incomes? Of course, it runs through the government bureaucracy where who knows how much is siphoned off. Smooth, very smooth--that is if you love big government shell games and double dealings.

Phelps also thinks there is too much wealth in the economy, and he wants you to give it to the government:

I have the eccentric view that there's too much wealth sloshing around the American economy. This wealth has bad incentive effects on the supply of labor, employee performance and maybe even innovation. We have become wealthy thanks in part to unsustainably low tax rates. From that point of view, it would be a good thing for the federal government to raise taxes and run big surpluses until we have retired the public debt. In the short run the higher tax rates might be unpleasant.

Notice the card he isn't showing here. What about cutting the size of government, instead of raising taxes, to reduce the deficit?

And just exactly who has stopped working today because taxes are too low?

Don't get in a card game with this character.

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