tag:blogger.com,1999:blog-582368152716771238.post5286077226620923945..comments2024-03-29T07:18:14.271-05:00Comments on The Grumpy Economist: CBO and the fiscal cliffJohn H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger28125tag:blogger.com,1999:blog-582368152716771238.post-47355392859547342572013-01-15T03:55:47.808-06:002013-01-15T03:55:47.808-06:00I am not an economist but it seems the the country...I am not an economist but it seems the the country is leading into economic depression and i still have to consult <a href="http://www.edbutowsky.com/media-center/economic-impact-of-the-senates-fiscal-cliff-bill/" rel="nofollow">Ed Butowsky</a> if debt ceiling will be avoided now that the bill had been signed. Paulo McManushttps://www.blogger.com/profile/11853994324774898822noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-27730674637032345392012-08-28T01:12:36.326-05:002012-08-28T01:12:36.326-05:00Hey,
I just hopped over to your site via Stumbleu...Hey, <br />I just hopped over to your site via Stumbleupon. Not somthing I would normally read, but I liked your thoughts none the less. Thanks for making something worth reading.<br /><br />V neck t shirtshttp://www.pro5usa.com/noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-50287884667378100532012-08-27T10:30:15.485-05:002012-08-27T10:30:15.485-05:00An estate tax is probably the least distortionary ...An estate tax is probably the least distortionary tax but it also does not take in very much revenue. If you are wanting the best overall taxes to fund necessary government, be efficiently collected, keep distortions low, and keep the government out of the social engineering racket, then sales taxes are the way to go.KyleNhttps://www.blogger.com/profile/15766641765942339253noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-22424388859201990612012-08-27T10:25:53.617-05:002012-08-27T10:25:53.617-05:00I do not think that is proven at all. I do not think that is proven at all. KyleNhttps://www.blogger.com/profile/15766641765942339253noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-86738956145251334492012-08-27T06:37:10.270-05:002012-08-27T06:37:10.270-05:00Professor, you statement that the fiscal cliff dep...Professor, you statement that the fiscal cliff depends on Keynesian multipliers is not true. The fiscal cliff is simple math.<br /><br />If you cut gov't spending, you cut gov't consumption by the amount you cut spending. If you increase taxes, you decrease private spending by the amount you increase taxes. Do the math.<br /><br />If the gov't doesn't spend $500 billion next year, who is going to make up that spending shortfall?<br /><br />What never seems to get through is that the "economy" doesn't have enough spending, it has no way to discern who is borrowing and who is spending. If you borrow $$$ and buy a car, to the economy it is no different if the gov't borrows $$$ and buys and car (or jeep, tank, or airplane), for spending is spending and we need spending. If you won't borrow, well we have two options: (1) the gov't borrows and spends or (2) there is no spending. <br /><br />Beyond that, we just learned that, given the irrationality at the heart of free-market economics of markets, we are going to have to learn what the "right" amount of saving vs. consumption is (i.e., the level of private debt). Applying Minsky, there is this guy from Australia (Keen) who has more than a few papers explaining the role of private debt. Going forward, we are going to have to reduce private debt if we are ever going to regain footing. <br /><br />Beyond that, the illusion that markets can ever be free is totally false. The key driver of our economy since the 1970s has been oil prices which have never been "free," but are instead external taxes imposed by oil producers, which has gone up 50 fold. Cheap, mispriced goods from China,etc. have been an additional destroyer of wealth.<br /><br />Last, and this is what seems to be most beyond your vision, "free markets" drive toward firms becoming too big to fail, from GM, to GE, to our banks, to even Wal-Marts. Even Hayek understood the irrationality of lenders and borrowers over time, albeit he engaged in about every possible form of intellectually dishonesty to avoid the consequences of his admission.<br /><br /> The Chicago school has been the principal protector of firms getting large enough to become too big to fail, as it has opposed vigorous enforcement of any law intended to promote competition and the last thing you would support is the break up of our large banks.<br /><br />When confronted with the firm too big to fail, we have no choice but to bail out, for the cost of failure, like a nuclear bomb, is not contained and all are exposed to the fallout. For example, had GM totally failed, so too would have Ford and Chrysler, for Ford's suppliers were dependent on GM and would have never survived its failure.<br /><br />Anonymoushttps://www.blogger.com/profile/07904132869021579763noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-83333446155783623442012-08-27T06:01:44.382-05:002012-08-27T06:01:44.382-05:00KyleN
The correlation between wealth inequality a...KyleN<br /><br />The correlation between wealth inequality and growth is negative.Anonymoushttps://www.blogger.com/profile/07904132869021579763noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-70525482595847688162012-08-26T17:18:18.119-05:002012-08-26T17:18:18.119-05:00If there is a direct correlation between economic ...If there is a direct correlation between economic growth and wealth inequality then I say Bring on the inequality!<br /><br />I want the rich people to make many many more times what they have now, as long as I am also better off. <br /><br />Only a person steeped in marxist dogma wants low growth just to spite some rich people.KyleNhttps://www.blogger.com/profile/15766641765942339253noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-4136752312591064932012-08-25T13:33:50.431-05:002012-08-25T13:33:50.431-05:00Yet we have to collect taxes somehow. Certainly so...Yet we have to collect taxes somehow. Certainly some taxes are not distortionary, but rather correct externalities (such as a congestion tax). However, a sales/consumption tax distorts the relative prices of consumption and saving. Is there reason to believe that an estate tax is more distortionary than a sales tax?Joshua Weisshttps://www.blogger.com/profile/10313541087554190148noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-25109622566611315032012-08-24T15:32:11.145-05:002012-08-24T15:32:11.145-05:00yeah :) our main distortion which is unlikely to ...yeah :) our main distortion which is unlikely to ever go away is compassion for those who end up saving too little. How does the calculus change conditional on that ?IndependentVoterhttps://www.blogger.com/profile/10978132678617731242noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-22258735017882457962012-08-24T14:50:55.467-05:002012-08-24T14:50:55.467-05:00Whatever they want, facing undistorted prices and ...Whatever they want, facing undistorted prices and interest rates. I don't think it's the job of ivory-tower academics, Federal bureaucrats, or international organization worthies, to decide what the "right" amount of saving vs. consumption is. That's the heart of free-market economics.John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-59712261650960992832012-08-24T14:46:50.694-05:002012-08-24T14:46:50.694-05:00Thank you for the response. I have been wondering ...Thank you for the response. I have been wondering about that issue related to estate taxes for a while.<br /><br />It seems that you always advocate policies that encourage saving and dislike policies that discourage it. But surely there must be some point at which people are saving too much and consuming too little. What percentage would people need to be saving for you to support estate taxes?Joshua Weisshttps://www.blogger.com/profile/10313541087554190148noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-81000681112185119082012-08-24T14:44:38.137-05:002012-08-24T14:44:38.137-05:00John, you are correct. Estate tax is due to automa...John, you are correct. Estate tax is due to automatically go up in January 1st to 55% for those over 3 million (it is going up in some measure for all those above 1 million).<br />This is the paragon of an "unfair" tax (without forgetting that it is "extremely damaging" to the individual and to the economy).John Galthttps://www.blogger.com/profile/01341516141700687089noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-69220891198719261512012-08-24T14:19:03.403-05:002012-08-24T14:19:03.403-05:00That's an "income effect." Possible....That's an "income effect." Possible. But working an extra hour or saving an extra dollar still has the same payoff. So there is no "substution effect." Your incentives to work are unchanged, only your perception of the benefits and costs is changed. <br /><br />Grandma faced a "substitution effect." Each extra dollar she saved used to be a dollar you get. Now every extra dollar she saves only gives you 45 cents. Call the round-the-world cruise lines. <br /><br />Generally, income effects seem to be much smaller than substitution effects. That's especially true because most government policies, unlike this example, do not involve poverty stricken bloggers getting millions. The income effects of most of the contemplated tax changes for most people are modest. The substitution effects are much larger. <br />John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-8412495215972725152012-08-24T14:14:21.335-05:002012-08-24T14:14:21.335-05:00how can that be? if I know I am about to become r...how can that be? if I know I am about to become rich, doesn't that diminish my desire to work hard to become rich ? I guess I am confused here.IndependentVoterhttps://www.blogger.com/profile/10978132678617731242noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-62862368906785999522012-08-24T13:26:09.973-05:002012-08-24T13:26:09.973-05:00Estate tax is not about incentives to work, it'...Estate tax is not about incentives to work, it's about incentives to save in middle age, then to keep assets invested rather than blow them when old. On the kids, income effects are much weaker than substitution effects. Knowing you have a million coming from grandma does not change your incentives for anything more than being nice to grandma. John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-3308857616461108152012-08-24T12:35:02.774-05:002012-08-24T12:35:02.774-05:00If you believe that an estate tax hurts economic g...If you believe that an estate tax hurts economic growth by reducing incentives of parents to work, then don't you have to acknowledge that a lack of an estate tax hurts economic growth by reducing incentives of those waiting to inherit to work?Joshua Weisshttps://www.blogger.com/profile/10313541087554190148noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-78177457209097632692012-08-24T10:58:32.525-05:002012-08-24T10:58:32.525-05:00Am I correct that estate tax also goes up to 55% w...Am I correct that estate tax also goes up to 55% with 1 million exclusion, and 75% generation-skipping tax on Jan 1? John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-54788592851108984822012-08-24T10:35:02.314-05:002012-08-24T10:35:02.314-05:00Yes, they are. Both, capital gains and dividend ta...Yes, they are. Both, capital gains and dividend taxes are "automatically" scheduled to increase in January 1st, 2013.<br />The tax code is scheduled to go back to pre-Bush tax code, which means that capital gains will automatically rise to 20%, plus the already in the books ObamaCare investment tax of 3.8%, it is an automatic rise to 23.8%. Granted, the implementation of the Buffet rule is on the 2013 budget proposals of Obama and will only become true if Obama wins.<br />Same story and worse with dividend taxes. They will automatically be taxed at regular marginal income rates with a top rate reverting to 39.6%, plus the Obamacare investment tax of 3.8%, to a total of 43.4%, representing an increase of 189%.<br />John Galthttps://www.blogger.com/profile/01341516141700687089noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-23862222691517177212012-08-24T07:09:32.352-05:002012-08-24T07:09:32.352-05:00You state "the overall economy really doesn&#...You state "the overall economy really doesn't care who has the wealth."<br /><br />1) That isn't true. Human capital is directly dependent on who has the wealth: food, shelter, education, health care, and transportation are all factors of human capital that are dependent on who has the wealth. <br /><br />You keep talking about our sudden fall from long run growth. Look at the positive correlation between that event and income and wealth concentration in the .1%<br /><br />2) If true, then why do your friends rush to defend the growing income inequality in this Country, as there is no economic basis for the defense?<br /><br />Could it be that old false canard: the poor won't work because they make too much and the rich won't work because they don't make enough.<br /><br />Last, you model of incentives is wrong. <br /><br />It is been repeatedly shown that compensation is the least important incentive. Why then do you place it first when it ought to be placed last? <br /><br />Did you ever read Drucker or anyone else who has thought and written seriously about these kinds of problems.<br /><br />85% plus of our economy are services. Getting productivity out of a knowledge worker is entirely separate and distinct from a factory floor. You have been fooled by the nomenclature of software. A toolbar or toolbox on a computer screen is not at all like a blast furnace or assembly line.<br />Anonymoushttps://www.blogger.com/profile/07904132869021579763noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-54449080978117474072012-08-24T05:37:19.169-05:002012-08-24T05:37:19.169-05:00Hold on - the fiscal cliff refers to tax/spending ...Hold on - the fiscal cliff refers to tax/spending changes already written into current law. The Buffett rule is not. It may be on the President's wish list, but it's important to remember that rises in Capital Gains/Dividend taxes are *not* automatically scheduled to increase from January 2013.JM Pindernoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-87575940972956947182012-08-23T13:22:51.618-05:002012-08-23T13:22:51.618-05:00Prof, did you write today's Wall Street Journa...Prof, did you write today's Wall Street Journal editorial?<br />:-)Manfred the mamoothhttps://www.blogger.com/profile/07516724901598949627noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-46402485048960755602012-08-23T11:49:00.566-05:002012-08-23T11:49:00.566-05:00In your analysis of Keynesian stimulus and unemplo...In your analysis of Keynesian stimulus and unemployment insurance, you seem to be asserting that whether an economic actor consumes or saves makes no difference to GDP: Keynesian stimulus taxes those who might consume with 60% of their money and spends 100% of it; unemployment insurance takes money from those who might consume with 60% of their money and gives it to those who are likely borrowing constrained and will spend 100% of it. Am I correct that you are asserting this?<br /><br />If I recall correctly, you have previously backed up this assertion by pointing out that investment and consumption both equally enter into the equation for GDP, and saving equals investment, so saving leads to GDP just as much as consumption. However, this would seem to suggest that there cannot be a demand shock. If asset prices fall and people consume less, then they are, by definition, saving more, and so increased saving (investment) will compensate for the decrease in consumption. Is this what you believe?Joshua Weisshttps://www.blogger.com/profile/10313541087554190148noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-32585139317561479422012-08-23T11:46:21.947-05:002012-08-23T11:46:21.947-05:00Good comment. For once I am guilty of understating...Good comment. For once I am guilty of understating the damage. John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-79849643986943325562012-08-23T11:40:27.278-05:002012-08-23T11:40:27.278-05:00I agree that there will be a drag in GDP due to &q...I agree that there will be a drag in GDP due to "chaos and higher marginal tax rates", but I wouldn't categorize it as "mild". That is because it is more than just "marginal tax rates". There are substantial (as unprecedented in their scope) increases in capital gains taxes - up from 58.6% to 100%, if one includes Obama's 'Buffet Rule', dividend taxes - up to as much as 189% (now, that is the definition of "unprecedented"), State taxes, social Security taxes (the exemptions end), the highest corporate tax in the world (with its unique 'territorial' double taxation in place), and regulatory pressures galore.<br />It seems like a master plan for those that want capital to flee in a panic, and it almost doesn't matter where.<br />But perhaps the worst aspect is that GDP will be affected "permanently".<br /><br />We present the dividend case in our piece, "The Coming Tax Ambush On Seniors' Dividends" at America's Chronicle.<br /> John Galthttps://www.blogger.com/profile/01341516141700687089noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-27618579118016997892012-08-23T11:10:56.865-05:002012-08-23T11:10:56.865-05:00Even by Keynesian metrics unemployment benefits ha...Even by Keynesian metrics unemployment benefits have no impact on output. These are transfer payments, which even a Keynesian using Y = C + I + G + X has to admit is not included in G.Joshhttp://everydayecon.wordpress.comnoreply@blogger.com