The Obama White House has dropped the ball again.  While the administration is probably attempting to pin the earthquake on George W. Bush — might I humbly suggest: “George W. Bush left me a weak tectonic situation and Republicans in Congress blocked my every attempt to fix it due to the pernicious influence of the Washington Monument Crack Repairers Lobby” — they’ve missed the bigger issue here: the earthquake was caused by global warming.

It’s come to my attention that scientists believe the earth is made up of tectonic plates and, when one grinds against another, it triggers earthquakes.  Well, with the earth heating up like an adolescent boy holding his first copy of Playboy, it’s obviously causing the plates to expand.  As they continue to expand, it makes them more likely to bump into one another.  As a result, we get events completely unheard of in all of human history (that is, the last 5 years) like earthquakes on the east coast.

Clearly, then, American prosperity and productivity is causing earthquakes.  I don’t want to hear about how American enterprise built the houses withstood a fairly large earthquake with no deaths and limited damage.  If not for greenhouse gasses, we wouldn’t have had the earthquake in the first place.  I’m calling on my fellow conservatives to immediately pressure the White House to stop American technological progress so that we can return to peace with the land — like the people of Haiti enjoy.

A friend of mine is a child psychologist.   While hanging out tonight, she mentioned that quite often parents come in with children showing behavior problems and they don’t know what to do because they give the child everything he wants.  She went on to mention that she would recommend spanking, but these days it’s just too easy for the children to call DCFS and bust the parents.  “Parents today have lost all their rights,” she concluded.

Keep reading – this is not going to be one of those “right to spank” editorials.

This is more than a debate over parenting styles – it is emblematic of a collapse of the West as a whole.  The genius of Western political systems – and America in particular – is decentralization of decision making.  Decisions are made by individuals and, at a government level, by the person closest to the problem.  Thus the idea of a federal government largely concerned with foreign affairs and intrastate trade, while the states were given authority over their borders.  Within the states, cities had large amounts of autonomy.

At an extremely micro level, families were given free rein to raise their children.  Public education existed to teach “reading, ‘riting, and ‘rithmatic.”  Above and beyond that, families had wide discretion to raise their children as they wanted and to instill the values that the families held dear.  Did this mean that all children were brought up in a loving environment of idyllic harmony?  Of course not – Twain’s Huck Finn shows the horrors that some children experienced.  But, on the whole, civilization survived and brought us to the point of dominance that Western civilization enjoyed at the turn of the 20^th century.

Then – following their founder Marx – the cultural elitists started to spread their doctrine.  Spanking – violent and brutal – made a perfect first target.  No end of studies came out claiming that it led to violence.  Somehow, Western civilization had survived 30 centuries of corporal punishment without succumbing to violent lives that were nasty, brutish, and short through sheer luck: but it had to be changed now.

But it didn’t stop there.  Parents may not teach their children about sex correctly, and that could lead to teen pregnancies.  So, the schools took that over with Sex Ed and carrying an egg around to teach them about babies.  (Presumably spanking is covered in modern sexual education courses, but in a very different form.)  From there, education quickly became indoctrination: the role of religion, social programs, the impact of the market, and global warming are all taught to children in an extremely one-sided way.

All of this has been better documented in other places, but it results in the job of teaching and rearing children being taken away from their parents and given to increasingly out-of-touch elites.  In this view of the world, incompetent parents play their strictly proscribed part.  If they were allowed to do too much parenting on their own, they might make mistakes.  The idiotic logical conclusion of this view is found in a recent study that suggests scolding should be removed from the parents playbook.

What’s the result of this brave new world?  A teen pregnancy epidemic.  London and Athens rocked by the have-nots rioting.  The Wisconsin State Fair descending into race riots.  And, of course, complete economic collapse due to the policies of the epitome of modern elitism: Barack Obama.  Wasn’t this exactly the outcome the elites told us would come if they didn’t have their way?

A century and a half ago Alexis de Toqueville warned that America had the potential for the most devastating tyranny of all time if people started to rely on the government instead of themselves and their neighbors.  The elites have spent a century making de Toqueville’s nightmare a reality.  The time is now or never to reverse the trend.

About a week ago, Warren Buffett started the latest round of soak the rich talk with an editorial entitled “Stop Coddling the Super Rich.”  There’s been a lot written to contradict Buffett (see here, here, and here), but not a lot on one particular passage:

Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.

I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off.

On the left, James B. Stewart picked up on this quote and used it to justify an increase in capital gains rates across the board.  This statement needs to be explored if it’s going to be the centerpiece of a hike in capital gains rates.

Buffett is probably telling the truth here; he’s never had someone back out of a profitable investment because of taxes.  But does it necessarily follow that higher taxes don’t impact investment?  No.

Economists talk about the intensive and extensive margins, and the concepts are important here.  The extensive margin refers to changes in the number of people who engage in an activity based on changing an underlying factor, while the intensive margin refers to how much people engage in an activity based on that change.  For example, if we are looking at a labor market and the wage increases, at the extensive margin we would expect the number of workers to increase as more people enter the market.  At the intensive margin, the number of hours that each worker works to go up to take advantage of more money per hour.  (That’s a gross simplification just to get the point across.)

Buffett’s statement refers to the extensive margin.  It actually makes sense that an increase in the tax rate is going to have relatively little impact on the extensive margin.  Buffett oversimplifies with his “People invest to make money.”  It’s fairer to say that people use some of the money above and beyond what they need to live to invest.  The investment is designed to provide more money in the longer term for more consumption and a comfortable retirement.  Given money above and beyond subsistence, people are always going to want to invest some of it.  Changing the rate that investment is taxed at is likely to have a very small impact on the extensive margin.  A few people may invest who otherwise wouldn’t have, but this is going to be quite small.  Moreover, these are going to be unsophisticated investors who Warren Buffett is unlikely to have ever talked to.

Where taxes can have an important effect, though, is at the intensive margin.  People have many different uses for that money.  In addition to investing it, they could go on a nicer vacation, buy a nicer car, redecorate their living room, install a pool, etc.  In economic terms, people choose between consumption today and consumption tomorrow (investment).  While – as state above – people will usually choose some of each, a higher tax on capital gains is a tax on future consumption.  As with everything else, we expect that a tax on a good leads to less consumption of it.  So, while Buffett may be right that no one chooses not to invest in a good investment, people may choose to invest less in it.

Is there any evidence to back this up?  A 1988 CBO report looked the impact of the capital gains tax rate.  They point out that adjustments to the capital gains tax rate in 1978 and 1981 reduced the maximum tax on long term gains from 49% to 20%.*  (p. xiv)  This reduction led to an increase in the ratio of realized capital gains to GDP of 2.2% in 1978 to 2.8% in 1982 and 4.1% in 1985.  In dollar figures, realized gains more than tripled from 1978 to 1982.  (p. 25)  Realization of long term capital gains means that people were selling their stock after the decrease in the capital gains tax.  Was this due to increased investment activity overall?  The same report (p. 27) shows that common stock ownership grew at an annualized rate of 5% between 1954 and 1978 but at an annualized rate of 15% between 1978 and 1985.

Thus, economic theory serves to back up Buffett’s anecdotal argument, while saying that the anecdotal argument misses an important part of the story.  The data backs up that there is an important impact on investment.  Why is this important?  Despite what many of Obama’s supporters would argue, investing is not simply the rich trying to make more money.  Investment is giving money to entrepreneurs in order to start a new business or grow an existing business.  We know that someone chose to forgo a new BMW in 1982 in order to fund a small technology company named Apple, the result 30 years later is one of the world’s largest companies and almost 50,000 jobs.  Investment is the key to our future.  Less investment means less wealth in the future.

What are we left with?  While Warren Buffett may well be the best investor of his era, he isn’t even close to the best economist.

*As an aside, this also puts the lie to Buffett’s claim that tax rates in the 1980’s and 1990’s were higher and thus high tax rates lead to economic growth.