EppsNet Archive: Greg Mankiw

I Don’t Understand What Warren Buffett is Talking About

27 Nov 2012 /
Warren Buffett speaking to a group of students...

Warren Buffett

In an op-ed for the New York Times, Warren Buffett argues that higher taxes won’t keep the super-rich from trying to make money:

Suppose that an investor you admire and trust comes to you with an investment idea. “This is a good one,” he says enthusiastically. “I’m in it, and I think you should be, too.”

Would your reply possibly be this? “Well, it all depends on what my tax rate will be on the gain you’re saying we’re going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.” Only in Grover Norquist’s imagination does such a response exist.

Really, Warren? It’s an investment, right? It’s not a sure thing. It’s not a giveaway. I’m being asked to put money at risk. That’s the difference between an investment and a savings account.

So the number one thing that I want to understand before making the investment is what kind of a net return can I expect — worst case, best case, most likely case. Then I can decide if I’m being adequately compensated for the risk that I’m taking on.

And by net return, I mean after taxes, after commissions, after everything. How much money will I actually get to keep? And if I don’t think I’m being adequately compensated for the risk, then yeah, I’ll leave the money in my savings account.

Assuming a tax rate of, say, 35 percent, why does it not make sense to say, “I would take that risk for an expected return of $X, but not for an expected return of 35 percent less than $X?”

Related Links


Educating Oligarchs

14 Nov 2011 /

Education not only increases the average income a person will earn, but it also changes the entire distribution of possible life outcomes. It does not guarantee that a person will end up in the top 1 percent, but it increases the likelihood. I have not seen any data on this, but I am willing to bet that the top 1 percent are more educated than the average American; while their education did not ensure their economic success, it played a role.

Let me give you a couple examples. I am comfortably in the top 1 percent. I believe that Paul [Krugman], with his Princeton professorship, regular Times column, speaking fees, and moderately successful textbook, is there as well. I suspect (although cannot prove) that if he and I had stopped our educations after finishing high school, we would not have been anywhere near where we are in the income distribution. If that is correct, might it be better to think of education as the key rather than focusing on the growing influence of oligarchs?


The Rich Get Poorer

26 Oct 2011 /
Shocked Monopoly man

Here is a fact that you might not have heard from the Occupy Wall Street crowd: The incomes at the top of the income distribution have fallen substantially over the past few years.

According to the most recent IRS data, between 2007 and 2009, the 99th percentile income (AGI, not inflation-adjusted) fell from $410,096 to $343,927. The 99.9th percentile income fell from $2,155,365 to $1,432,890. During the same period, median income fell from $32,879 to $32,396.

These recent numbers illustrate the broader phenomenon, discussed in this paper, that high-income households have riskier-than-average incomes.


Twitter: 2009-09-21

21 Sep 2009 /
  • Why Health Care Will Never Be Equal – http://bit.ly/F1e8P #
  • RT @Lileks: I'd paint that with a hammer! #failedcatchphrases #

Unicorn Dust and Pixie Wings

26 Jul 2009 /

Donald Marron points out that another one of those great cost-saving ideas in the healthcare debate (the Independent Medicare Advisory Council) has taken a hit:

CBO estimates that the proposed legislation would save a paltry $2 billion over the next ten years, less than 1/500 of the 10-year cost of health reform.

Damn that CBO! They keep killing all these great ideas with, like, analysis and numbers and all that stuff. Everything would work out just fine if only they would close their eyes, click their heels together three times, and say, “There is no policy like reform…there is no policy like reform….”


Trust

26 Jul 2009 /

I tend to distrust power unchecked by competition. This makes me particularly suspicious of federal policies that take a strong role in directing private decisions. I am much more willing to have state and local governments exercise power in a variety of ways than for the federal government to undertake similar actions. I can more easily move to another state or town than to another nation. (I am not good with languages.)