Economic inequality in the United States is growing and people are pissed off. For a while, this anger was channeled at Wall Street—and given the jaw-dropping profits and dubious economic benefits of recent financial "innovation" this seemed like an appropriate target. However, as financial reform advocates lost momentum in Washington, a new target has emerged that can be stymied locally and is not yet politically entrenched—the sharing economy.
There are few examples where obesity is anything but bad for your health. Obesity—as measured by a body mass index (BMI) above 30—is associated with a significantly reduced lifespan and an increased likelihood to suffer from:
- Heart Disease
Given the overwhelming evidence for a causal—rather than just associative—link between obesity and at least some forms of poor health, public policies that promote exercise and healthy eating are likely to be highly beneficial to overweight individuals who pay heed. Less straightforward, could these policies also be cost-effective for healthier (or "thin") individuals through reduced public health spending and lower pooled insurance rates? In other words, do the health costs incurred by the obese create a negative externality borne by the rest of society?
Daniel Kahneman has done as much to change the way we think about economics as anyone—and yet, he is no economist, or at least not as we would traditionally think of one. Kahneman is a psychologist; a psychologist, however, with a Nobel Prize in Economics and the acclamation for having:
"Pretty much created the field of behavioral economics and revolutionized large parts of cognitive psychology and social psychology."
To illustrate how our brain works, Daniel Kahneman devised two systems of thinking. System 1 is the unconscious thought process that effortlessly manages the majority of our behavior (generally, without error). System 2 comprises our active cognitions and requires concentrated effort to apply. System 1, unbeknownst to System 2, automatically makes a number of serial errors that Kahneman has masterfully identified.
You can be forgiven for not knowing where Bhutan is. It is a small country—its first ever census in 2005 revealed less than one million inhabitants--sandwiched between China and India, governed by a very poor monarchy, that exports little, has no formal diplomatic relations with the United States, and generally embraces reclusion.
Internationally, Bhutan is known for two things. First, they exiled more than 100,000 of their ethnic-Nepalese minority, whose religious and linguistic views made them unfit for citizenship, to live in refugee camps in Nepal--where they were also not wanted and subsequently resettled by third parties (more than 66,000 of them in the United States since the mid-2000s). Second, ironically, is the notion of measuring national success, not by gross domestic product, but by gross national happiness. Measuring wellbeing by contentment rather than income is certainly a noble goal in our gilded age, but how can it be appropriately measured?
An alternate (and very nerdy) theory to the war of five kings
For fans of HBO’s Game of Thrones, it is commonly held that the controversy over royal succession, following the regicide of King Robert, was the main impetus for the series of wars that later ravaged Westeros. While this certainly fueled tensions amongst the lords with a claim to the iron throne, I believe that there was an underlying loss of confidence in the economy that: (1) led knowledgable insiders to believe that regicide was an optimal strategy, (2) reduced the benefits of union and decreased the cost for houses to rebel, and (3) created a social instability that made commoners more open to political upheaval.
King Robert's economic policies
King Robert, like many medieval chieftains, was a profligate spender who indulged in the lavish and whimsically excessive. He had assumed the throne in King’s Landing at a time of budget surplus and ample gold reserves. However, by the time the show catches up to Robert, he had wasted away his treasure and was financing his vices through debt and dubious accounting.
As a result of the financial mastery of Little Finger, revenues had increased about ten fold during King Robert’s reign. While we don’t know for sure, it is safe to say that the increased revenue was neither a result of exemplarily economic growth nor increased bureaucratic efficiency in tax collection. It is therefore likely that the resultant cash windfall was the result of higher taxes—and of course, debt. With winter coming and crop yields falling in the North, along with a likely fixed-sum tax (I assume a medieval society lacked the technical proficiency for progressive tax collection—i.e. a farmer owed X barrels of hay rather than X% of his production), the higher real rate of taxation would have lead to an increasing and disproportionate financial burden across the seven kingdoms (a farmer in the North was producing Y and being taxed X. In winter, he produces Y – W and is taxed X).
Along with King Robert’s reckless fiscal policy, the monetary situation made things doubly bleak. We know that the Lannister gold mines had run dry and the economy was being flooded with creditor’s cash. It is a safe bet that Tywin Lannister was busy debasing the gold supply (diluting the amount of gold in a given coin)—to maintain the appearance of ample gold reserves and news of his exhausted mines quiet—and as a result destroying the currency as a unit of account in the marketplace—new coins are worth less than old coins because they contain less gold, and consumers, because of money illusion (people think of prices/wages in nominal rather than real terms), experience great difficulty in pricing goods and labor appropriately in the short run.
The increased government demand for resources (for the lavish festivities, etc.), financed by debt and high taxation, and backed by a depleted gold supply, was likely driving up consumer prices and deflating the exchange value of the currency—making goods ever more expensive at home and cheap foreign alternatives ever more expensive to import.
Stagflation in Westeros
Stagflation occurs when prices are going up and economic activity is going down. This is the dire situation likely faced in Westeros in the run-up to the War of the Five Kings.
Why was economic activity likely going down? In feudal societies, the vast majority of workers are agrarian. Without increases in productivity, and we are aware of none on Westeros, farmworkers produce an amount that is constrained by their hours of labor and the weather conditions. Due to the coming of winter, we can assume that crop yields were down. We also know that farmers needed to give a fixed amount of their yield to their local lord. As farmers retained less of the yield of their production as profit, they would become less incentivized to supply their labor—as the opportunity cost of leisure was lessened by the substitution effect (keeping less of what you produce is in effect a decrease in wage, making work less attractive—within a set range of incomes). This would compound the weather’s effect on crop yields and lead to a dramatic reduction in economic activity.
To make matters worse, the gold-backed currency was being debased to accommodate government spending. Why does this matter? With less being produced on the farms, the increase in money supply couldn't possibly be representing the underlying economic activity (there was too much money for too few crops!). This means that the price of goods was rising (inflation) and because people weren’t producing as much, their real (rather than nominal) wages were decreasing.
To add to the misery, exchange in the cities would also likely be decreasing. The debasement of the currency would have led to arbitrary income redistribution across local debtors and creditors (old nominal debts can be paid back with “cheaper” new money) and made lenders increase the interest on their new loans— further diminishing economic activity through reduced investment. Inflation would have also made trading more complex as merchants lost faith in the value of the currency (how would the blacksmith set the value of a sword if he doesn’t know the value of the currency?). In all likelihood, merchants would resort to a barter economy, reducing taxable income, and further inflaming the fiscal crisis in King’s Landing.
All in all, a dire situation that to any observant lord was unsustainable.
With farmers and merchants squeezed by falling output, increased prices, and increased taxes, the tension on the streets would have been palpable. In calculating the decision to revolt— beyond those who had a personal vanity in assuming their place on the throne—lords would have considered the following factors in deciding whether to go to war:
Excluding the houses with a personal claim to the throne, which have a different calculus, the SWOT analysis, in my opinion, favors removing King Robert, and after his removal, going to war with the Lannisters.
Why would the Lannisters initiate the removal of King Robert and invite the likely rebellion that would follow? First-mover advantage. Sensing the impending economic disaster, and their own complicity as house of the queen, the Lannisters calculated that their best chance at continued survival was to remove King Robert and seize the levers of power (strategic bridges, city guard, royal fleet, etc.) before an opponent could— providing them with a strategic advantage.
The 1970s were a period of major upheaval in the United States. Prices were going up, output was going down, and faith in the U.S. political system was going out the window. In the midst of the political upheaval, and with a loss of faith in Keynesian prescriptions for economic stabilization, a heretofore-obscure Wall Street Journal editor mapped an economic strategy for Republican resurgence and the Reagan revolution—famously depicted in this clip from Ferris Bueller's Day Off:
I was recently recommended this roadmap, the ostentatiously named How the World Works by Jude Wanniski. Regardless of one’s political persuasions, the book is worth reading if for no other reason than its marked impact on economic policy in the United States and around the world. A justifiably controversial figure—he found common ground in economics with Louis Farrakhan and endorsed John Kerry for President after calling President Bush an imperialist—Wanniski was foremost a conservative intellectual who disseminated his ideas advising the presidential campaigns of Ronald Reagan, Jack Kemp, Steve Forbes, and Bob Dole. In the case of President Reagan, Wanniski fell out of favor because he famously lacked modesty; his ideas had no such ill fortune. So what were these ideas?
John Maynard Keynes, arguably the most influential economist of the 20th century, posited during the 1930s that the great depression was the result of suppressed aggregate demand and inadequate government intervention. As a solution, he suggested that government deficit spending could compensate for diminished consumer spending to boost growth. While this is a very simple accounting of the Keynesian model, it is the basic premise. Wanniski viewed the cause of the great depression—and many other historic upheavals from ancient Rome to the stagflation of the 1970s— differently. Wanniski believed tax policy, and more specifically tax hikes—whether through progressivity, government growth presaging future tax hikes, or inflation pushing incomes into higher real rates— have invited all major economic collapses and faltering empires. Consequently, the best way to encourage growth is to concentrate policy toward creating the right incentives for exchange in the marketplace through low taxation, free trade, and a gold-backed currency to maintain faith in exchange and the debtor/creditor balance. Focus would be shifted to producers (the supply-side) and everyone would benefit as growth increased government revenue, in spite of rate reductions.
The Laffer Curve
Arguing against a proposed tax increase by then President Ford, economist Arthur Laffer sketched the following curve onto a napkin at a dinner table with Wanniski and Ford aides Dick Cheney and Donald Rumsfeld:
The Laffer Curve--as Wanniski coined it— is on the surface uncontroversial, while in its application it can be extraordinarily so. The curve shows that, for any given point in time, there is one specific tax rate that will maximize government revenues. At points on the curve to the left of the maximizing rate, if the already low tax rate is increased, revenues will increase. If, however, the tax rate is to the right of the maximizing point, a further increase in the tax rate will actually reduce government revenues—producers ‘on the margin’ will no longer be incentivized to grow or start their enterprise and will, according to the model, produce less or evade taxation. In contrast, if the tax rate is at a point to the right of the maximizing point and the tax rate is cut, the ensuing economic growth will outweigh the rate reduction and revenue will increase.
It is on this last point that the curve engenders controversy. George H.W. Bush, running for President in 1980, termed it “voodoo economics” and the political left has long derided it as “trickle-down economics”. Either way, the Laffer Curve was fully embraced by President Reagan and has made tax-cutting a mantra of nearly every Republican, and some Democrats, ever since.
What does the economic evidence say?
There is little dispute that there is a revenue-maximizing rate of taxation. At 0% no revenue is collected for obvious reasons and at 100% people are either producing for the glory of their despot or doing nothing. Somewhere in between there is an optimal rate that accounts for the elasticity of response (i.e. an X% tax change leads to an X% change in compliance/production), but the political left and right are at loggerheads over what that rate is. Dylan Matthews of the Washington Post collected an array of purported expert opinions of what this rate is (for various taxes, but here I will focus on the top federal personal income tax bracket) with the responses ranging from 15% to 70%.
Econometrically arriving at a specific rate is extraordinarily difficult because production and (tax) evasion are influenced by virtually every policy. Controlling for this vast array of relevant variables to identify the causal impact of a tax change on revenue is thus nearly impossible—and never without controversy.
Read my lips: no new taxes!
Wanniski, who was not a trained economist and never claimed to be, provides a vast array of anecdotal evidence to support his theory—including the tracking of market fluctuations during congressional debate over the Smoot-Hawley Tariff Act in 1929 and the debasement of Roman currency post-Aurelius in 180 A.D. Regardless of what you think of his arguments and their subsequent policy consequences, the book is worth a read. As the title implies, Wanniski takes a wide and long view of the world and provides plenty of uncontroversial and interesting analysis of past political events and economic forays.
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