The Great Man Theory of Tax Revenue

It appears that David Tepper's move from New Jersey to Florida is going to cost New Jersey hundreds of millions in tax revenue.

I think this story is important for a number of reasons.  Most obviously, it highlights the extreme disparities in wealth that have developed in our society.

Also, you sometimes hear the argument that it is futile to tax the rich because rich people are able to avoid taxes anyway.  That argument is wrong in its stronger forms—if David Tepper could easily avoid taxes, then he wouldn't pay hundreds of millions of dollars in taxes to New Jersey in the first place.

Of course it is true that Tepper can avoid the taxes by moving to Florida.  This is another reason the story is important.  Redistribution at the state or local level is very difficult precisely because rich people can simply move away from high-tax jurisdictions.  This is not to say that states shouldn't do their best—as the article notes, New York, California, and New Jersey all continue to attract wealthy people despite high taxes.  But there are limits on the degree of redistribution that is supportable at a local level.  (This can be seen in a state like Maryland, which is incredibly rich and yet suffers extreme poverty.)  The limits are far less restrictive at the federal level, which is why I've argued for higher federal taxes, with the extra revenue going to states and local governments so that they can provide adequate services without resorting to highly regressive taxes and other regrettable policies like aggressive asset forfeiture.

But finally there is a perverse phenomenon I want to highlight.  As taxes on the very rich increase, the government becomes dependent on them in a way that potentially threatens public policy.  From the article:

Mr. Sullivan [a Connecticut official] said that when one of the state’s rich hedge fund executives planned to move his family and company to a lower-tax state, state officials met with him and persuaded him to leave some of his work force in Connecticut. 

“We knew we were going to lose him,” Mr. Sullivan said. “But we wanted to keep some of the higher-paying jobs.” He said the state worked out a deal to keep the jobs in exchange for an agreement about the owner’s regular visits to family and friends in Connecticut. (Homeowners who spend more than 183 days in the state are considered residents for tax purposes.) He said the state was holding discussions with other top earners in hopes of keeping them. 

“I’m not saying we’re sending fruit baskets and get-well cards,” said Mr. Sullivan, a former Democratic legislator. “But we’re trying to send a more welcoming message to the high earners as a group.”

I hasten to point out that this is not a reason to avoid high taxation.  Better to impose high taxes and then give small concessions than to forego the revenue in the first place.  But inevitably there are going to be distasteful compromises (much like the tawdry deals that attract professional sports teams), and this is a more-or-less inevitable consequence of the situation in which we find ourselves.

A Conspiracy

I have ambivalent thoughts about the concentration of affluent, well-educated people in places like New York City.

Consider that rich libertarians periodically talk about assembling a fleet of ships or something out in the lawless ocean where they won't be taxed or subjected to onerous regulations or whatever.  Of course in reality I don't think their anti-government ideals would survive for long (particularly if they drift near Somalia—but in some ways much more predictable problems like sexual assault would almost certainly rob them of their illusions very quickly).  But the proposal is annoying partly because it contains a grain of truth:  rich people probably would be better off if they could renounce their obligations to society and segregate themselves off into a precious little enclave of fuckery.

But if it's annoying when libertarians propose to do it, it's all the more annoying when rich people actually do it.  And that's basically the path that a lot of smart and/or rich people take:  exclusive college, exclusive grad school (if any), rich suburb or rich urban neighborhood.  They are essentially living the libertarian dream without enduring the opprobrium they would earn if they built a fleet of stateless ships.

And the effects are pretty serious, I think.  A lot of areas of the country suffer permanent brain drain.  The people with the most intelligence, ambition, self-control, and earning potential tend to move away.  Most of the people who are left behind are perfectly good people, but their communities are poorer for the migration.  In extreme cases, you end up with devastated urban areas blighted by crime, drugs, HIV, and no jobs.  Roughly the same thing happens in rural areas.  The people with the resources to struggle against those problems (or provide the tax base to address them) have left.

But on the other hand, most urban areas east of the Mississippi are desperately poor.  New York City, for example, which is far from the poorest of the bunch, is almost unbelievably impoverished.  It is vastly poorer than a western city like Seattle.  (The median household income in New York City is $52,737 and the poverty rate is 20.6%.  The median household income in Seattle is $67,365 and the poverty rate is 14%.  Bear in mind that this understates the level of poverty in New York relative to Seattle because the cost of living is so much higher.)  [Edited to add:  The per capita income disparity is actually even worse.  The per capita income in Seattle is $44,167, while the per capita income in New York is $32,459.  The pay is much better in Seattle than in New York, and yet the cost of living there is lower.]  When rich people live and work in big eastern cities, their taxes help fund the public services that poor people rely on.  If you ride the bus or the subway in New York, or you visit the public library or the park, you will see a lot of poor people whose lives are dramatically improved by the public services that are paid through New York's hefty taxes.  Gentrification is a mixed blessing, but we are far from the point at which New York will be a detestable little shitpool of rich people congratulating each other.  That will probably never happen (or, to put it a different way, it is already happening, but those pieces of shit are being taxed to death to help poor people, so it's okay).

Far worse, I think, are the rich suburbs where poor people truly are excluded, and the (often surprisingly high) taxes go to re-seeding the greens on the golf course or whatever.

But still there is an element of...  wouldn't it be better if people didn't flood the big cities and leave so many poor people stranded in places like Detroit and Kentucky?  I don't know.  My hope is that as people are priced out of the ridiculous cities (New York, Boston, San Francisco, DC), they will start to congregate in the more down-on-their-luck cities (Baltimore, Philadelphia, Cleveland, St. Louis, Detroit) and contribute to their revival.  The other hope, of course, is that the Republican Party will continue to run its self-destructive course and the Democrats will be able to use progressive federal taxation to address social problems (in effect, taking the money back out of the wealthy enclaves and sending it back to the poor areas that have been left behind).  But I'm not terribly enthusiastic.

By No Means First Against the Wall

The limits of the political revolution that Bernie Sanders promises are perhaps best illustrated by his loyalty to the gun industry.  Whether Bernie Sanders genuinely believes that gun businesses deserve to be shielded from liability, or whether he simply finds it expedient to be pro-gun in one of the most rural states in the country, it is fair to say that the gun industry has little to fear from a Sanders administration.  It seems that while corporations in general exert a baleful influence on our country, the gun sector is an exception and it must not be demagogued.

I think this is the sort of blind spot that explains why black voters have overwhelmingly supported Hillary Clinton in the primaries.  And this gets at an important dynamic that I think is underappreciated.  Inadequate gun control imposes obvious costs on our society, especially high-crime areas, in the form of gun violence.  But I suspect there are also large second-order effects:  the omnipresence of guns makes policing much more dangerous, and forces police officers to respond aggressively to perceived threats.  This, combined with the concentration of gun crime in black neighborhoods and a toxic racial dynamic, drives a wedge between police officers and the communities they police.

I'm not saying it's safe or easy to be a police officer in Japan, but I'm guessing it's extremely rare for a Japanese cop to risk getting shot during routine police work.  A Japanese cop can afford to be flexible, to err on the side of restraint, because the likely worst-case scenario is a criminal attacking with his fists or a knife.  Cops in the U.S. don't have that luxury because the likely worst-case scenario is a bullet.  Where cops don't feel threatened in that way (for instance, on college campuses), I bet they are far less likely to respond with overwhelming force.  (Certainly that was my experience on campus, but I am speaking from a position of privilege as a white male with an extremely non-threatening, not to say laughable, physical appearance.)  And this dynamic is self-reinforcing:  a bad community/police dynamic makes it harder and more dangerous to investigate crimes, which makes neighborhoods more dangerous and inhospitable, which makes it harder and more dangerous to investigate crimes...  breaking this cycle could do a lot to improve life for the poorest Americans.

So this is just to say that effective gun control would not only spare us a lot of needless deaths, it would probably do a lot to improve police/community relations, with substantial knock-on benefits, and so it is more than a little disappointing that Bernie Sanders doesn't think of it as a priority.

[Edited to add:  This story is the sort of thing I am talking about.  See also the Officer Down Memorial Page.  Apparently so far this year 16 officers have been intentionally shot to death (a 17th was killed by accidental gunfire).  Based on a back-of-the-envelope calculation, that is fairly close to the total number of gun deaths that would happen in a comparable period of time in Japan, and a large majority of gun deaths in Japan are suicides.  I think it's safe to conclude that the statistical odds that a police officer will be shot to death in the U.S. are vastly higher than the comparable odds in Japan.]

Trading Securities Through Periodic Auctions

A quick question for my readers who are educated in these matters:  U.S. stock exchanges currently operate in "real time," meaning that within our technological tolerances they give priority to orders that come in first, other things being equal, even if the gap is only a microsecond or whatever.

What would be the consequences if we matched orders in an auction conducted every second?  So here is how it would work:

11:31:0025 to 11:31:0075 (that is, between a quarter and three quarters of a second after 11:31 a.m.):

Traders submit orders, which are held in confidence (other traders can't see them).

11:31:01 (that is, a second after 11:31 a.m.):

Orders are matched according to pre-determined, publicly available rules, and a market-clearing price is set, with each trader paying or receiving the same price.  The time at which each order came in is irrelevant (except that all orders must be received in the window specified above).

11:31:011

The results of the auction are published and disseminated.  At this point, orders that were executed are no longer held in confidence—parties are revealed to each other so that they can settle their trades, and the price and volume of the auction are published.

11:31:0125 to 11:31:0175

Traders submit orders.

And so forth.

It's true that this would represent a huge slowing-down of the markets.  But the longest you would ever have to wait for the next auction is a second, and it doesn't seem as though that is a particularly heavy burden for traders to bear.  Furthermore, the auction could be conducted centrally, with each exchange forwarding its buy and sell orders to one location, so that there would be no fragmentation of the market.  (I am assuming that all exchanges, wherever located, are capable of processing and transmitting information within the specified time periods, since a quarter of a second is a very long time in financial markets.  If this assumption is unwarranted, then the process could be slowed down somewhat, with auctions taking place every two seconds or whatever.)

One potential problem that I see with this is that it might not facilitate complicated order types.  In other words, if my instruction is simply:  "buy 100 shares at any price" or "buy 100 shares at any price below $60," then a centralized auction should work.  But if an exchange has set up a very elaborate order type, then the centralized auction might not be able to handle it.

Another potential problem is that traders will be motivated to get their trades in at the very end of the window, so as to take advantage of whatever information has become available since the previous auction.  However, there shouldn't be new market information, since all trading is channeled to the periodic auctions.  There may be real-world information during the trading window (an earthquake or something), but presumably this is not unique to the auction system.  The orders may be clustered at the end of the half-second window, but I'm not sure that confers an unfair advantage on anyone.

Dire Straights

Peggy Orenstein has a new book out:  Girls and Sex: Navigating the Complicated New Landscape, an excerpt of which can be found here.  Gay Talese is also about to publish a new book, this one about Gerald Foos, a hotel owner who spied on his guests and kept a detailed journal of their sexual experiences.  Talese has written about it here.

In general, Orenstein found that straight young women in the United States find themselves in very asymmetrical encounters focused on male pleasure (for instance, young women seldom experience orgasms with their partners, and they often give oral sex but generally don't receive it).  Here's Orenstein, in a Fresh Air interview with Terry Gross:

GROSS: Some of the girls you spoke to were lesbians. And some of them figured that out while they were in high school, some of them knew before that. So if you take gender inequality out of the equation as you do when you have a same-sex couple, what were some of the shifts in, say, you know, pleasure and reciprocity in a sexual relationship?

ORENSTEIN: There was a big shift. So one of the things research shows about college-age women and college-age men is that women are more likely to use their partner's pleasure as a yardstick of their own satisfaction. So they'll say he was satisfied, so I'm satisfied, whereas men are more likely - not all men, but men are more likely to use their own satisfaction as a measure of their satisfaction.

That does not change when girls go into relationships with other girls. They're still very concerned (laughter) about their partner's pleasure, so no surprise - girls are much more likely to have orgasms when they're in same-sex relationships or same-sex encounters.

And what they would say to me were things like - that they felt they could go off the script. And once they got to go off that script of what everybody was telling them - what the culture was telling them about what sex was supposed to be like, they were freer to create their own experience that felt good to them.

Meanwhile, Foos (the hotel proprietor in Talese's story) thought that women were generally unsatisfied by their sex lives, and he made this observation:

He had come to believe that the arrival of the birth-control pill, in the early sixties, which he’d originally celebrated, encouraged many men to expect sex on demand: “Women had won the legal right to choose but had lost the right to choose the right moment.” He felt that the war between the sexes had escalated and that sexual relations were getting worse, not better. (Lesbians, whom Foos admired, were an exception.)

So we have an interesting convergence:  both Orenstein and Foos observe that lesbians are exempt from the generally miserable (and worsening) sexual experiences of American women.  Orenstein finds another exception:  straight Dutch women tend to enjoy much more egalitarian, satisfying sexual relationships than straight American women.

Let's take a moment to develop a simple model of sexual interaction.  Imagine a game with two types of cards.  Each player is given a single card.  Half of the cards are labeled "male" and half "female."  At the end of the game, if two players with different cards have put them together, they get 100 points, divided according to their privately negotiated agreement.  This is basically a version of the "ultimatum game."  All of the players ought to pair off, and the division of the points is difficult to predict.  It will probably vary somewhat with the underlying norms—a norm of fairness might hold the distribution pretty close to 50-50.

Now imagine a second round of the game in which a player receives either a male card or two female cards.  We should still expect all the male cards to pair off, and half of the female cards to pair off, but the distribution of points might very well go 90-10 or even 99-1 in favor of the players holding male cards.  This will again be somewhat constrained by norms and personal quirks, but certainly the players holding male cards should be able to extract a disproportionate share of the points.  This is because the players holding the male cards can refuse to match them up on equal terms, knowing that there are super-abundant female cards to match up with.  Any female card that doesn't match up gets zero points, so a player holding a male card can offer anything over zero to attract a female card.  The "price" of a female card will reflect this dynamic, and will settle somewhere near zero (depending on norms about the division in the "ultimatum game").

There is an intriguing possibility, though.  The players holding female cards could all agree to throw away the second card.  This is in the general interest of players holding female cards, in terms of obtaining a larger share of points in the game, but it only works if there is universal or near-universal agreement.  A single player, acting on her own, doesn't achieve anything by throwing away one of her cards.  If anything she simply loses the handful of points that she might be able to get in the market.

This is essentially the logic behind monogamy and sexual restraint as forces for female sexual empowerment.  As technological and social forces make non-monogamy more feasible, women lose their bargaining power and endure unsatisfying (or minimally satisfying) sex, as documented by Orenstein and Foos.  They give oral sex but don't get it.  The organizing principle of their sexual encounters is generating male pleasure.  (I want to emphasize that the game I've described is only meant to convey the logic that relaxing norms of monogamy can be bad for women, it isn't meant to be precise about the mechanism by which this happens.  Implicit in all of this is that women and men have different sexual preferences.  This seems to be the case, as Ross Douthat has pointed out—and, consistent with the observations of Orenstein and Foos, Douthat's data indicate that our current sexual marketplace seems to be geared toward satisfying male needs rather than female needs.)

This explains why lesbians would be more satisfied than straight women.  Partly it is because their desires diverge less than they do between men and women.  But it's also partly a matter of the way market power is distributed in the "game" that they are playing.  Their sexual marketplace isn't plagued by the unfairness that characterizes the straight market.

The Dutch, though, seem to be doing something right.  It's important to note that good norms can "warm us twice."  First, a norm of monogamy can even the playing field so that women are in a position to demand more attention to their sexual desires (monogamy is like throwing away the second card).  Second, norms also determine the outcome of the ultimatum game no matter what the balance of power happens to be.  If women are encouraged to demand more from their male partners, they may simply walk away from a really unfair division of pleasure, even if they don't have the market power to get it anywhere else at the moment.  Foos, by focusing on the birth-control pill, is invoking the former effect.  Orenstein, who emphasizes the way Dutch adults communicate with their daughters (and other young female relatives/friends), encouraging them to think more about their own sexual pleasure, invokes the second effect.

Not to re-kindle old debates, but I think what we are seeing in the contrast between straight women in the United States, on the one hand, and lesbians and Dutch women, on the other, is that straight women in the United States are not getting a fair shake from our post-sexual-revolution norms.  Some would argue that this simply isn't my business—the only relevant norm is consent, and beyond that it's not for society to say that some other system of norms (like the Dutch one) would be better or more desirable.  To me this seems crazy.  We have good reason to believe that straight women in the United States are dissatisfied, and that our weird norms that serve to maximize male sexual pleasure are to blame.  I know I sound anti-feminist when I say this, but I really think we should consider embracing norms that create a more level playing field and that help women find the sexual satisfaction they deserve.