Paying workers more is better for everyone

[Lagmonster]

Could it be said that people are better with basic resources, but lousy the more layers you stack onto it?

For example, if a hunter-gatherer tracks a deer, I figure he knows exactly how much food that represents. It's a direct relationship between the size of the animal and his awareness of how much food he and his family will eat. Scale it up; if a bronze-age village farmer owns a few head of cattle, he's probably pretty certain how much food that represents, and also that it may represent excess with a variable value, with which he can accumulate other, different resources. It's an additional layer of resource management, but he can at least separate out what he needs to keep his household above water - a critical element of personal financial management - and then "wager" the rest in the local trade market. Now, give a middle-class person a huge book of numbers and a damn near international economy in which to spend it, comprised of hundreds of thousands of products of varying quality and necessity. Wouldn't there be a point somewhere between our hypothetical bronze-age village farmer and the modern urbanite where our monkey-brains just say "fuck it"?

[folti78]

Could it be said that people are better with basic resources, but lousy the more layers you stack onto it?

For example, if a hunter-gatherer tracks a deer, I figure he knows exactly how much food that represents. It's a direct relationship between the size of the animal and his awareness of how much food he and his family will eat. Scale it up; if a bronze-age village farmer owns a few head of cattle, he's probably pretty certain how much food that represents, and also that it may represent excess with a variable value, with which he can accumulate other, different resources. It's an additional layer of resource management, but he can at least separate out what he needs to keep his household above water - a critical element of personal financial management - and then "wager" the rest in the local trade market. Now, give a middle-class person a huge book of numbers and a damn near international economy in which to spend it, comprised of hundreds of thousands of products of varying quality and necessity. Wouldn't there be a point somewhere between our hypothetical bronze-age village farmer and the modern urbanite where our monkey-brains just say "fuck it"?

Well, one local financial advisor's theory after some 10+ years dealing with people's financial habits* is something like this, but more related to the default resource management of hunter-gatherers. Going from memory, his claim is:

Caveat: it's his personal theory, not an accepted anthropological or any other scientific field's theory.

Ancient hunter-gatherers generally didn't have the means for long term food storage(lack of technology or resources, hostile climate and so on), so any food they acquired, had to be eaten fast, before it spoiled. Because of this, any large catch has been shared by the whole tribe, so even the tribe's slackers can count on the success of the more skilled members. Food shortages dealt with the group migrating to greener pastures so there wasn't any need for long term planning or resource storage. Going after high value but rare resources, like fruits (high sugar content, but only available for a limited time) or anything salty, altered the way our reward circuitry works, turned the general decision making process more impulsive ("I need X now!").

These behaviors probably became imprinted in the species' genetics through the eons spent being hunter-gatherers and haven't been cleaned out in the short time since we became farmers. People can unlearn them, with proper education or upbringing, but when the need seems to be gone, they reset back into the "genetic default" behaviors after some time. Various sales tricks playing on our monkey brain and the complexity of modern finances** as you mentioned makes it even worse for the average Joe.

* granted, the recent (~100 years) Central European history was unfriendly for the small people who wanted to save for the long run. With some kind of turmoil every 20-30 years and scarcity driven command economies, you're damned to try to plan saving for the future.
** which are rather abstract to boot, something the "monkey brain" has problems.

[Surlethe]

That's why it can be good economic policy to set a target for nominal GDP growth even if it results in a slightly higher inflation rate in the short term (such as 4% instead of 2%). That type of inflation not only encourages spending, it is also more or less the same thing as lowering wages in the face of decreased demand (since the real value of the wages goes down).

Well, I'd go a little further and argue that "inflation" is less meaningful than NGDP. It's a useful concept in disentangling monetary and real quantities in the long run, but it obscures short-run relationships between income and wages.

(btw, see in my sig where it says "may become excited about monetary policy"? That really means "evangelical market monetarist." )

In many cases raising the salary of a US employee will not significantly increase their net income and may in fact reduce it.

Yes, that's a fucking sick phenomenon. In fact, we just jumped off one of those cliffs. My wife has a writing career that's starting to take off. Combined with money I make on the side as a private tutor, our income just fell several thousand dollars. I hate that progressives are so focused on raising the top MTR from 35% to 40% that they completely ignore the 100+% MTRs on poor people.

It's funny how people always complain about how complex the tax code is, and yet things like tax rates and social benefits are generally based on ultra-simplistic discontinuous flat rates instead of a smooth mathematical function. In short, the tax code is loaded with massive legalese, but its mathematical complexity sits at around a grade 3 level.

I wonder how many people realize even that a "marginal tax rate" is the derivative of taxes paid with respect to income. When you realize that, you start to wonder why the tax code is even piecewise linear, and not (say) a hyperbola with asymptotic slope .6.

A lot of people also just think inflation will destroy any savings they have within a few years, and as such all savings are futile. I suspect people with this mentality somehow think that the value of money in a bank account is disconnected from the prices on store shelves.

None of them seem to realize that inflation means higher incomes and higher asset values. How many people understand that deflation (=good, right?) means the value of their house falls? I guess it's because when people hear "inflation" they intuitively think of a supply shock, rather than a secular rise in prices and wages.

Could it be said that people are better with basic resources, but lousy the more layers you stack onto it? <example>

I think part of what you're describing is specialization. Consider, for example, that the hunter tracking the deer knows precisely how much meat there is in the deer, but only has a rough idea how much food could be gotten from a typical strawberry bush, while the person gathering berries knows about how many berries to expect on the bush, but only has a rough idea how to chip out a sharp obsidian blade.

In modern society, specialization has just become sharper, so that everybody has a damned good idea what it takes to do his job, but has very little knowledge about everything else. I know a lot about (insert math and teaching here), and I don't know a damned thing about mechanical engineering, yeah?

[Simon_Jester]

I wonder how many people realize even that a "marginal tax rate" is the derivative of taxes paid with respect to income. When you realize that, you start to wonder why the tax code is even piecewise linear, and not (say) a hyperbola with asymptotic slope .6.

Have you tried teaching differential calculus to normal people? Really, deeply normal people? As in, including the ones too dumb to get into the college you're working at?

Well maybe so. If so, you have my profound sympathies.

[Darth Wong]

I wonder how many people realize even that a "marginal tax rate" is the derivative of taxes paid with respect to income. When you realize that, you start to wonder why the tax code is even piecewise linear, and not (say) a hyperbola with asymptotic slope .6.

Have you tried teaching differential calculus to normal people? Really, deeply normal people? As in, including the ones too dumb to get into the college you're working at?

Well maybe so. If so, you have my profound sympathies.

The average person doesn't even care what "marginal tax rate" is anyway. Applying a more complex mathematical function to determine your own tax rate (which is the only thing an average person would need) would be quite easy: the formula need not be absurdly complex. It could be something that looks sort of like this:

y = -1/(x+1.414)&sup2; + 0.5

Admittedly, that is more complex than "30% unless you're Mitt Romney" (and I didn't bother fitting it to actual tax rates; I just made up something that starts at 0,0 and is asymptotic to 50%). But anyone who is incapable of using such a simple equation is too stupid to be doing his own taxes anyway.

[Simon_Jester]

Look at it from the point of view of the IRS auditors who have to deal with all the crap resulting from people who sincerely think they can do it correctly, and get it wrong, and therefore write a check of the wrong size, or don't pay at all, or overpay.

[Grandmaster Jogurt]

It should be incredibly easy to release a free program to everyone that would solve the equation, and for those who still don't use the Internet, a step-by-step pamphlet on how to do it by calculator would also be easy. You could even include a table of values to compare against (say you made $36000, you could look to see if you're between the 30k and 40k results).

A distressingly large portion of the country doesn't currently understand how tax brackets work (they think that if you're one dollar into the top bracket, all your income is taxed at 35%, for example), so I wouldn't see this being much worse.

[Surlethe]

I wonder how many people realize even that a "marginal tax rate" is the derivative of taxes paid with respect to income. When you realize that, you start to wonder why the tax code is even piecewise linear, and not (say) a hyperbola with asymptotic slope .6.

Have you tried teaching differential calculus to normal people? Really, deeply normal people? As in, including the ones too dumb to get into the college you're working at?

Well maybe so. If so, you have my profound sympathies.

Yep! Well, I've taught calculus to students with very poor mathematical backgrounds.

It should be incredibly easy to release a free program to everyone that would solve the equation, and for those who still don't use the Internet, a step-by-step pamphlet on how to do it by calculator would also be easy. You could even include a table of values to compare against (say you made $36000, you could look to see if you're between the 30k and 40k results).

The IRS has painstaking step-by-step pamphlets to do this, with clear explanations of various exceptions and deductions and credits and so on, written at a 3rd grade level. A significant part of the problem is how complicated the US tax code is; even following the simplest step-by-step instructions, you can get lost in a forest of conditionals.