My bad. Friedman's NIT implementation seems to be the exact same thing I wrote. NIT seems like a really lousy name for it though, given that it naturally lends itself to the interpretation in my previous comment ; as a fixed percentage bonus added to your salary by the government within some wage band.
I spent a bit of time looking at the details of Negative income tax. It is possible that I am not understanding the subtleties of Negative income tax but it appears that what I proposed is different and better than Negative Income tax. The reason for this is the following. In my scheme if a person is making wage y which is less than some threshold wage x, the state pays him (y-x)/2 which satisfied two objectives (1) People who are poorer get more state aid (2) People are still incentivized to work harder and make more money since their total payout (wages + government aid) is an increasing function of their wage. Let's take a negative tax rate of say -100%. Here a person making $1/hour gets another $1 from the government and a person making $4 per hour gets another $4 per hour from the government. This satisfies objective (2) above but not objective (1). Of course, one would argue that there would be tax slabs and consequently even different negative tax rates at different levels, but this problem exists within each tax slab. One could make each tax slab infinitesimally small and achieve the same effect as my proposal but that would be much like saying a function is linear, when it is really exponential and you are approximating it piecewise linear with really small pieces.
| perhaps you have the good habit of translating the general thoughts in your mind into
|exemplary exemplary (sic) words,
Yes I do and it has served me very well with regard to being a clearer communicator. It's all the more helpful when communicating with people less used to talking abstractly. I strongly suggest you try it. You'll save time and be more clear 95% of the time unless the people you are communicating with are some really biased sample.
| in which case you wouldn't have had this specific hint that this post was fairly off topic by its narrowness.
I have no idea what you are saying here :)
I am amused at this comment more than anything else. Of course it should have been (x-y)/r where 1<r<infinity. And of course correspondingly there is no reason to set x to exactly current minimum_wage* 1.5. Your preferred method of writing and talking reminds me a lot of what I tended to do as a Computer Science undergraduate who studied discrete mathematics and formal logic and liked to make statements unambiguously in first order logic. This was all the more because I was doing a bunch of courses that involved mathematical proofs which obviously lended themselves to that format.
The reason why this kind of writing is sub-optimal is the following:
That kind of precise writing is needlessly hard to parse.
Even after people parse it, to see the intuition behind it, people necessarily have to ground it in some typical/decent instantiations of values. It is therefore much better and you transfer more bits of information from mind to mind per unit time if you directly give people the specific example and allow them to generalize the idea behind the theory in their minds.
Admittedly I could have written what I did above and still given you the generalized thing stating the different knobs that could be tweaked in the example. I however thought that at least the knobs above were perfectly obvious to any person intelligent enough to understand my example. I saw no point to treat my reader with kid gloves here.
Again, I wasn't proposing a final solution that should be implemented tomorrow! And unless you are among a weird rare set of people incapable of reading anything other than bullet proof first order logic I find it hard to believe that you can ever read such a thing into this. In fact I would argue that there is no easy way to tell the optimal parameters above and possibly even in additional generalizations without any real empirical data regarding the utility functions of different people, how they respond to incentives, what is the histogram of people at different levels of wage in a world with no prevailing wage floor in different places etc. You would also need to evaluate if any fresh perverse incentives get created if this is implemented in some places and not others. All these go for any idea that is economics related and it is foolish to not put an idea up for discussion until you have collected data from all over the world and analyzed it thoroughly to get the optimal set of parameters, have guarded for perverse incentives thoroughly etc.
I am now an internet entrepreneur and have realized that the main objective with communication in most settings (writing research papers, pitching VCs, pitching other companies for partnerships etc.) is to transfer maximum bits of information in the shortest possible time. It is not necessary to get verbose and guard yourself against any possibly misinterpretation in the world. Such language is best used only in the context of an adversarial scenario such as a debate or a legal battle where the other party has every incentive in the world to misrepresent any of your statements, throw red-herring arguments your way etc. This is exactly why legal language is so tedious and annoying - to avoid adversarial parties at any point coming up with responses such as yours. In most normal non-adversarial scenarios, this approach is extremely sub-optimal for communication.
Thanks, orthonormal! Yes I had not heard of it and the idea seems very similar.
Agreed. But does this problem not exist in even bigger measure when you have min wage and social security for those unemployed as a result of minimum wage. The social security cannot be equal to the min wage, since otherwise no one would work at min wage. However the social security would presumably be something like 2/3 of min wage to ensure that those who are unemployed are able to have some decent standard of living. And this per your argument would put the implicit tax rate of those earning minimum wage at 67%!
It's not obvious that it's a subsidy. This would be a subsidy only if an employer would have to pay a person less here compared to a market with no minimum wage laws and no social security. For example, imagine that in such a market a person's wage is $4 per hour (who is currently almost certainly unemployed in California due to the $8/hr min wage). Now let's analyze what happens to the prevailing wage of a person of similar skill with the above scheme where the government ensures that a person makes at least $6 an hour. The marginal utility of money is lower for the aforesaid person given that he is already guaranteed $6 an hour. This will cause some of the people to not work (whereas in the min wage + fixed social security for the employed scheme, all the people fitting the above profile wouldn't be working). Since there are smaller number of people of the same skill level competing for the jobs, employers will actually have to pay more money to make it worth the while of the employees! So if anything it is the very opposite of a subsidy for the employers who will now be employing all the people who cannot command minimum wage, and are unemployed now.
This seems to be a good idea. But the only problem with it is that the labor market is not as liquid as a
financial market. It is in principle quite possible for a person in a free market to be commanding 1.5 * minimum_wage in a
part time job or for part of the year, but unable to find work for the rest of the year or rest of the free time, which
would push his annual salary below minimum wage. Theoretically there should be absolutely zero unemployment
with no minimum wage laws. However in practice it would still be a couple of percent due to liquidity holes in the
market, with people in between jobs, in the process of talking with multiple employers etc.
In my method, there is still incentive for people earning above min wage to work as hard as possible, since
the state subsidy is only (x-y)/2 and not (x-y). I agree with your point though, that the incentives would be
stronger in the event of replacing earnings with "hourly wages", if only you could handle the issue of genuine
unemployment due to liquidity holes that prevent the person from making min wage averaged across the year.
The ridiculous amount of activity by the untrained and uninformed on the stock markets seems to suggest that people could use a significantly higher amount of "zero sum" bias there. There are tons of people who would not peg their investment skill in the top 1%, who nonetheless think they have a good chance of making money in short term trades. There certainly seems to be the thinking that the stock market is a source of profits for one and all, regardless of investment skill and understanding.
This bias however is most prevalent in the idea that getting rich cannot possibly be a noble act, a point extensively addressed in Paul Graham's essays.
You are right about competition serving quite a useful purpose in the real world. However the real world is not like financial markets where you have liquidity by the milli second with regard to competing offers. If competition did a great job of providing an alternative in real time, they would be no need to do the following in pretty much any negotiation
Pretend that your "last price" is very different from your true last price.
If competition were doing an amazing job, there would be no reason to do 1-3 above.
You say above "you can just get a competing dealer to make an offer which becomes the upper bound". If you are a person who is putting time to productive use, it would not be unreasonable to value your hour at well over $50. The question is therefore whether you can find competing offers without spending 10-20 hours which would pretty much erode your whole margin of savings.