Sunday, April 17, 2005

In the last few days I've been involved in some discussions on the Estate Tax at riting on the wall with JB and over at Brad DeLong's Semi Daily Journal. I couldn't help but notice that the sound and fury of the debate exceeds the actual economic importance of the Estate Tax in practice by several orders of magnitude. Why does this particular tax, that is mostly avoided and yields on $ 18-30 billion annually, seem to ignite fervent debate ? ( Dave Schuyler is firmly on the fence on the Estate Tax, an exceptional position)

According to The Economist, the answer might lie in our genes. Researchers are now offering the theory that Homo Sapiens won out in the Darwinian race with their seemingly physically superior Neanderthal cousins because we engaged in trade and specialization while Neanderthals did not. Homo Sapiens, in other words, used a Non-zero sum evolutionary strategy:

"One thing Homo sapiens does that Homo neanderthalensis shows no sign of having done is trade. The evidence suggests that such trade was going on even 40,000 years ago. Stone tools made of non-local materials, and sea-shell jewellery found far from the coast, are witnesses to long-distance exchanges. That Homo sapiens also practised division of labour and specialisation is suggested not only by the skilled nature of his craft work, but also by the fact that his dwellings had spaces apparently set aside for different uses. ...

....Initially, the researchers assumed that on average Neanderthals and modern humans had the same abilities for most of these attributes. They therefore set the values of those variables equal for both species. Only in the case of the trading and specialisation variables did they allow Homo sapiens an advantage: specifically, they assumed that the most efficient human hunters specialised in hunting, while bad hunters hung up their spears and made things such as clothes and tools instead. Hunters and craftsmen then traded with one another.

According to the model, this arrangement resulted in everyone getting more meat, which drove up fertility and thus increased the population. Since the supply of meat was finite, that left less for Neanderthals, and their population declined.

A computer model was probably not necessary to arrive at this conclusion. But what the model does suggest, which is not self-evident, is how rapidly such a decline might take place. Depending on the numbers plugged in, Neanderthals become extinct between 2,500 and 30,000 years after the two species begin competing—a range that nicely brackets reality. Moreover, in the model, the presence of a trading economy in the modern human population can result in the extermination of Neanderthals even if the latter are at an advantage in traditional biological attributes, such as hunting ability. "

Perhaps socialism really does go against human nature.
The modeling the Economist reports on seems to be fairly simplistic. I'm guessing it may be an agent-based model. While fascinating, agent-based models still have a lot of questions associated with their validity. Only one variable is said to have been changed between "neandertalensis" and "sapiens," for example, so there's no way to gauge the sensitivity.

That said, trading and commerce seem to be wired in at a very basic level. Even fish engage in some human-like behaviors with regard to provision of services, Frans deWaal points out in an article in the April Scientific American.

But trade is not the same as socialism.

"Oooh, I really like that cool knife/necklace! Let's see, I think I have a couple of round stones and some badger teeth. And I'll promise to share part of the liver of the next thing I kill."

"Nope, what I want is some of that ocher you've used to make those great lines on your forehead for my clan's religious activities..."

And disabled individuals are found in burials, showing that early humans took care of the less capable.


That was a tongue in cheek comment of course but non-zero sum strategies like trading or, as you point to, acts of reciprocal altruism seem to factor in to Darwinian success stories.

Or social ones.
Mark my old man.

Afraid the socialism remark in re Neander etc. was a bit off mark, but that's covered already.

On the issue of estate tax, I have to say estate taxation is something I am terribly enthusiastic about. If there is one item I dislike is intergenerational wealth transfers. Builds up a rentier class, and if there is one thing I have learned from my time in the developing world, rentier classes do their best to kill entrepreneurship (while wearing its clothes when useful).

Not that this is a near term danger in the United States, but punitive taxation on intergenerational wealth transfer to subsidize real wealth creation strikes me as an attractive thing.
Hey Col-

"Not that this is a near term danger in the United States, but punitive taxation on intergenerational wealth transfer to subsidize real wealth creation strikes me as an attractive thing."

I agree with you on the nature of rent-seeking elites. No argument.It's just that the Estate tax isn't what it purports to be.

Unfortunately an intelligent trade-off of lower ( or non-existent) capital gains taxes and lower marginal income tax rates for a genuinely enforced Estate Tax, with perhaps even higher marginal rates, is not in the cards.
Democratic defenders of the Estate tax are interested in having higher tax rates across the board. The Bush crowd favors established corporations over small businesses and start-ups. Entrepreneurs do not have a lot of political champions these days in Washington.

The Estate Tax as it actually exists today is pernicious. It is enforced with extreme arbitrariness and encourages the super-wealthy to shelter their money in less economically productive vehicles - trusts, foundations and the like.

Vehicles which incidentally, keep foolish heirs from squandering their inheritence and experiencing downward social mobility. For every Bill Gates who exceeds his father, there are a dozen who manage what they inherit like calamity jane.

One personal example, my father,years ago, worked for the late billionaire, W. Clement Stone. Stone turned his Combined insurance conglomerate ( now Aon corp)over to his son who took only three years or so to run his father's exceptionally profitable business empire into the ground. Stone had to emerge from retirement and after stabilizing the company, sell a controlling interest to Pat Ryan.
I am glad I found this post. it helped me with something I was thinking about. Nice blog!

My wifes home crafts shop has similar issues...

Nice to meet you, have a great day!
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