Jonathan Weinstein on Fairness in Tax Policy

It is worth reading the whole thing; here is the conclusion:

As a 1st approximation, someone in a highly scalable profession would keep roughly

half their income, since they enter the game with, on average, half the population

present. (See a more carefully worked out example in the appendix.) There are

many possible adjustments to this estimate; for one, if the inventor or entertainer

is extracting rents from network e ects and they are not actually much better than

a replacement, their Shapley value might be much less than half their income. On

the other hand, someone in a non-scalable profession creates roughly the same value

regardless of the size of society, so they would keep more of their income. Whether

these considerations re
ect fairness is, of course, ultimately a value judgment, but a

50% top marginal tax rate is well within the historical range, so such an outcome

would not be radical.

The great intellectual advances that illuminated the enormous bene ts of the free

market, starting with Adam Smith and continuing into the 20th century, have long

since been assimilated into our political discourse. The danger is that in some circles

the lessons have been learned just a bit too well. The free market then becomes a

21st-century deity whose dictates are perfectly fair and should not be questioned,

lest its manna of prosperity cease to rain down upon us. Warning about this is, of

course, unnecessary for economists, who, whatever their political stripe, understand

perfectly the limits of core equivalence and welfare theorems. Keeping any nuance

is very di cult when intellectual advances are distilled for a larger population, so

responsible academics always have to be very careful in how they discuss the practical

impact of abstract results.

(Full disclosure: Jon is my cousin).

Yves Smith gives Five Rules for Private Label Mortgage Securitization

They are:

1. Mortgages must be seasoned 12 months before they can be securitized

2. The originator must retain at least a 5% interest in the credit risk of the assets sold

3. The interest of all parties to a transaction must clearly be disclosed, along with their fees

4. Re-securitizations (meaning CDOs) are severely restricted (note a disconnect here; the e-mailed and verbal reports suggested they were banned entirely; the language at the FDIC website seems to indicate that they are allowed in limited circumstances, but any use of synthetic assets, meaning credit default swaps, in a asset-backed CDO is verboten)

5. Compensation to servicers will include incentives for loss mitigation

The mortgage securitization industry apparently opposed this, which is odd, in light of the fact that it is doubtful securitization will return in the absence of such rules.

Yesterday's NYT: A Secretive Banking Elite Rules Trading in Derivatives

In the aftermath of The Big Short, one would think we would try to stop this kind of thing.  It is one thing to be OK with some people making a lot of money; it is another thing to think it is OK for people to make lots of money because of a rigged game in their favor.  I worry that the extraordinary increase in unevenness in wealth is not the result of merit, but the result of the game being more and more rigged.

Density and the use of public transportation

I am grading papers from students in my Advanced Urban course, and a number are reviewing literature on density and use of public transport.  The literature suggests that doubling density is associated with something like an eight percent increase in public transit use, but of course, it is difficult to tease out cause and effect: I suspect those who like living densely are also more likely to want to use public transportation.

I can't help but think about a trip I made to a UN conference on urban issues.  The conference took place in Barcelona, which has among the easiest to use transit systems in the world--more than half the people there live within walking distance of a metro stop.  As it happens, I went to dinner with some officials from the Bush Administration, and when I suggested we use the metro instead of cabs, my companions were, well, stunned at the very idea.  I pursuaded them to go, and learned that a bunch of people who lived in a city which has an excellent metro, Washington, never used public transportation.

I could be wrong, but my sense was that taking the metro in Barcelona was a foreign adventure for them in all kind of ways, and one that they did not particularly wish to repeat at home.

Some facts about Wisconsin: Presentation to Wisconsin Realtors Executive Conference

I see that the Adminstration's deal on taxes is being characterized as a "compromise"

It is not a compromise.  It is a capitulation.

The Residences at LA Live may become LA's icon

After the Hollywood sign, of course.  I heard Victor McFarlane give a talk last night; MacFarlane Partners did the Residences at LA Live:

The picture comes from the LA Architecture Awards web site.  I drive by this building every day, and enjoy it every day.  The place still needs to stand the test of time, but I love the fact that the building is distinctive and doesn't relay on mass or extreme height to be striking.