Will reducing the corporate tax rate actually lead to increased wages?

Democrats and others are claiming that the proposed Republican tax package’s reduction in the corporate tax rate is a sham and a ruse to benefit the one percent. It would actually only lead to enriching corporations and have zero effect on wages. A brief review of what real economists say will be refreshing.

Start here with David Henderson’s short post on the subject.

Let me quote the most germane part of Professor Henderson’s post:

So let me explain in simpler words by noting that the key assumption in the above is the assumption of a perfectly elastic long-run supply of capital. Why would it be perfectly elastic? Because capital is quite mobile across countries, so when one country’s government cuts its tax rate on capital, that draws in capital from around the world.

Why does this matter? The greater the stock of capital, the higher is the ratio of capital to labor, and, therefore, the higher is the marginal product of labor, and, finally, the higher is the real wage.

Thus increasing the marginal product of labor, i.e. the value of labor, entails rising wages.

If you follow the link to Professor Mankiw’s blog post you will see that he shows there is a multiplier bonus effect: every dollar of tax cut to capital (on a static basis) raises wages by $1.50.

Bingo. QED. Try explaining this to denialist Democrats with a vested interest in naïve counterfeit economics.    


Addendum: it might be helpful to say that there is a tight relationship between the marginal product of labor and wages (total compensation.) Greg Mankiw shows that as the former goes up, so does the latter. See  here  especially point #4 for a fuller, yet still simple explanation.



Gun control? The debate and the true message

Mollie Hemingway, my favorite television commentator, on Fox News’s Special Report spoke with unusual simplicity and wisdom:

We’re pretending we’re having a debate about gun control, but we’re really having a debate about the nature of evil and whether a big enough government can contain it.

You can see her comments here at about 1:54 into the clip. Kudos to a  post by Andrew Klavan for highlighting her apercu. He follows up with truly touching reflections about evil in our fallen world. Well worth the little bit of time it would take to read and digest it.

A few thoughts come to mind regarding those who believe that for every evil there is a government solution, or at least a good government response. This leads to faith in a millenarian telos achievable by collective action, i.e. all powerful government. We saw the fruits of this in the horrors of the totalitarian states of the 20th century. To hold this faith amounts to belief that evil exists only by our collective inaction, thus denying the permanence of evil in the world. As individuals we can do little except support bigger government. If the remedy is collective and fails, we as individuals, pointing the finger at others,  can absolve ourselves and justify not acknowledging that the evil around us also exists in us.   


Blind and Deaf versus Blind, Deaf, and Dumb

Paul McGann, who is blind and deaf, successfully sued a movie theatre chain under the Americans with Disabilities Act (ADA.) The 3rd U.S. Circuit Court of Appeals upheld his claim, initiated by the group Disability Rights Pennsylvania and supported by the U.S. Dept of Justice, that the theatre should be required to provide him with “tactile interpreters” so he would be able to appreciate movies by feeling the hands of American Sign Language interpreters provided by the theatre.

More details about this absurdity here.

I do not wish to write churlishly about the truly disabled, including Mr McGann, who deserve  our every sympathy. But in Mr McGann’s case our courts are legally blind to common sense, deaf to pleas to stop abusive law suits, and just plain dumb. Feeling the hands of tactile interpreters will not permit Mr McGann to appreciate movies. Nothing will, pace the ADA law: he is deaf and blind. It is a fraud to think this decision will do anything positive for Mr McGann. But it does satisfy one interpretation of the letter of the law. And it does something for the disability lobby, which labors to expand the definition of disability to increase the rolls as well as the scope and cost of the ‘remedies’ demanded. Just like the Medicaid expansion which includes childless working-age adults who have no disabilities, crowding out funding for the truly disabled who have children.

Many if not most Federal mandates over time have led to great abuse and needless expense, as seen in the lawsuits against the EPA by environmental groups and most notoriously by the trial bar’s abuses of the ADA and fraudulent suits alleging racial or sexual discrimination. Legislation creating legal ‘rights’ are inherently suspicious. These fictitious ‘rights’ favor some groups over others and create havoc in the legal system, not to speak of our economy. One sixth of the adults in Puerto Rico are on Federal disability. Overreaching, expensive , and inflexible legal rights for the disabled seem like empty symbolic gestures designed magically to deny the reality of their crippling conditions and are very poor substitutes for medical and technical advances, not to speak of human compassion. Such legislation betrays a naïve belief that for every perceived problem there is a government solution, and these solutions can be trusted to be wise, effective, and beneficent and would never ever have negative unanticipated consequences or lead to the entrenchment of powerful special-interest groups. After all who would believe that ‘common-sense’ gun-control legislation could ever lead to confiscation?   

Troglo (L. H. Kevil)