Taxes Needn’t Discourage Philanthropy

HOW high can taxes go? In 1944, the federal personal income tax rate reached 94 percent.

You might expect that such a high rate would lead to economic disaster or class warfare — or both. But it didn’t. Despite it, people prospered back then, and at least in some respects, American society was harmonious.

World War II was raging, and perhaps because of it, people seemed to be more giving, while the government more actively encouraged altruistic acts. There are important lessons to be learned from that time.

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Bubbles without Markets

A speculative bubble is a social epidemic whose contagion is mediated by price movements. News of price increase enriches the early investors, creating word-of-mouth stories about their successes, which stir envy and interest. The excitement then lures more and more people into the market, which causes prices to increase further, attracting yet more people and fueling “new era” stories, and so on, in successive feedback loops as the bubble grows. After the bubble bursts, the same contagion fuels a precipitous collapse, as falling prices cause more and more people to exit the market, and to magnify negative stories about the economy.

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