tag:blogger.com,1999:blog-582368152716771238.post7891711388306803182..comments2024-03-28T14:41:03.793-05:00Comments on The Grumpy Economist: Fiscal cliff or fiscal molehill?John H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger41125tag:blogger.com,1999:blog-582368152716771238.post-73842389029722627572012-12-29T13:03:02.671-06:002012-12-29T13:03:02.671-06:00The man is called Buffett, not Buffet.The man is called Buffett, not Buffet.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-89091951052897156922012-12-29T11:54:54.799-06:002012-12-29T11:54:54.799-06:00Where is the money in the US economy that isn'...Where is the money in the US economy that isn't the result of borrowing?peterjacobswayzehttps://www.blogger.com/profile/09018906305417370382noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-75150299968363838772012-12-28T17:33:43.372-06:002012-12-28T17:33:43.372-06:00No, anonymous. Club Sweden is only around 8 milli...No, anonymous. Club Sweden is only around 8 million people. Yes, diversity is a positive, but only in a dynamic society with a culture of innovation. And so is a large population in that case. In a zero-sum socialist society, a small homogenous group works much better. The Scandinavian countries, despite some real liberalism (in the classical sense), racism is the norm and youth unemployment in Sweden is over 24%. <br /><br />It's interesting how proponents of socialism gravitate toward Scandinavia, but I see little in common with Scandinavian countries and much more in common with their Southern neighbours.<br /><br />Finally there's the straw man of killing growth. No serious libertarian, no serious economist will say that all growth is killed by a socialist state. People are imaginative and we did not survive as a species by throwing our hands up and laying down to die because life became tougher. And people still have to eat. Where the welfare state grows, everything grows much more slowly and the standard of living is much lower. Yes, even in the beloved Scandinavian states. Houses and cars are smaller, the number of personal items lower. They are forced into smaller, less rich lives. They are limited. Except for the politically connected, of course. That the standard of living in large welfare states is much lower is well supported by empirical evidence. Methinkshttps://www.blogger.com/profile/17278490832490933652noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-39816846494406741742012-12-28T17:16:18.816-06:002012-12-28T17:16:18.816-06:00Yes, thank you for that. You can't imagine I ...Yes, thank you for that. You can't imagine I often I've referenced those links since you first posted them.Methinkshttps://www.blogger.com/profile/17278490832490933652noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-46701312209568383302012-12-28T09:39:47.051-06:002012-12-28T09:39:47.051-06:00As the size of Government increases, the opportuni...As the size of Government increases, the opportunity for rent-seeking increases.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-74226270072689121842012-12-28T09:25:46.058-06:002012-12-28T09:25:46.058-06:00No, anonymous it is you who dodged the discussion,...No, anonymous it is you who dodged the discussion, I asked you a straight forward question, in what way is the USA NOT a big welfare state? We have spend both on the federal and local level trillions of dollars on public welfare, If the results are not what you would like to see then we go back to what I said, maybe it is because our government is incapable of making good decisions. <br /><br />Statists always use the example of the Scandinavian nations to prove that socialism works. But they always leave off the fact that every one of those states have moved toward lower taxes and less spending in recent years. Why?, because they had to to compete in the world marketplace.kyle8https://www.blogger.com/profile/13299846346032212714noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-51002484082957315392012-12-28T09:20:36.987-06:002012-12-28T09:20:36.987-06:00Well, I agree that tax rates are not as important ...Well, I agree that tax rates are not as important right now as much as overwhelming regulatory excess. But you have to understand that the Party in power is devoted to just such regulatory excess. It gives them enormous leverage in dealing with big business and with industry in general. Since their regulations can make or break a company, they can get any sort of concessions, contributions, kickbacks out of them.kyle8https://www.blogger.com/profile/13299846346032212714noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-35290842052536126782012-12-28T00:52:04.957-06:002012-12-28T00:52:04.957-06:00Not in my lifetime. The Republican party / the Ro...Not in my lifetime. The Republican party / the Romney campaign were smart enough to hire economists such as Taylor, Mankiw and Cochrane, but will they ever be brave enough to listen to them? <br /><br />Romney made a calculated decision to NOT run on a "first principles" platform but instead chose two important but smaller pieces. 1) lower rates and cap rich people deductions as opposed to lower rates and remove all deductions and 2) repeal obamacare rather than a comprehensive health care (supply!!!) proposal such as suggested by Professor Cochrane in this blog. WRT fiscal cliff negotiations, I believe Republicans should accept higher rates in exchange for pro growth policies. A list could include: consolidate regulatory agencies, remove czars, increase legal immigration (please stop sending PhD students away after we educate them), reduce tort, repeal VC regulation, extend treasury maturities, replace Dodd Frank craziness with higher bank equity and money market fund equity tranches, create stricter SSDI standards to increase the labor force, reform medicaid / food stamps / section 8 housing to reduce the poverty trap, remove farm subsidies, reduce ethanol quotas, approve the TC pipeline ... (and i'm sure the readers of this blog can compile a better list). <br /><br />Higher rates are bad, but we could tolerate higher rates if we offset them with other pro growth policies. Our biggest fear should be the reduction in the expected long run real growth rate. <br /><br />I wish the Republican house put together a "take your rates, let's grow the economy" bill then Obama could claim his higher rates grew the economy. Both sides would rather everyone looks bad then risk the other side looking good. A year ago, Washington "burned their ships" and said unless we solve this issue we'll go over the cliff. The cliff hurt the American people, not Washington politicians. I'd have some respect for Washington if the cliff dropped every single elected official's compensation immediately to unemployment insurance and Cobra until the issue was resolved. <br /><br />Back to Tirole ...Parth Venkathttps://www.blogger.com/profile/09830285782100016152noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-51703699337021100842012-12-27T15:56:09.026-06:002012-12-27T15:56:09.026-06:00So basically anonymous and kyle8 are back to throw...So basically anonymous and kyle8 are back to throwing insults around and away from a data driven conversation:<br /><br />anonymous: Denmark, Sweden, Germany, Netherlands, Finland, Norway is close to 80 million people and they are pretty diverse culturally and otherwise. In any case, cultural diversity is an asset not a liability for a country<br /><br />Kyle8: that's your way of saying you don't know I guess.<br /><br />there is a simple answer, I think. The idea that large welfare state kills growth is not supported by data to the degree that John and other libertarians assertAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-74776981412559644042012-12-27T14:57:52.671-06:002012-12-27T14:57:52.671-06:00"(stable long term fiscal and monetary polici..."(stable long term fiscal and monetary policies, rule of law not man, good energy, strong property rights, lower tx costs (see litigation), reducing labor market frictions ...)."<br /><br />What planet are you living on Parth ? I have not seen any government with those sorts of values for many many decades.kyle8https://www.blogger.com/profile/13299846346032212714noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-32259560621705781112012-12-27T14:11:58.909-06:002012-12-27T14:11:58.909-06:00In what way is the USA not a socialist state? Is i...In what way is the USA not a socialist state? Is it true that we have less government spending per capita than those other nations?<br /><br />You ask why can't we be like them? Well maybe the answer is that because we are who we are; with a very poorly run and corrupt government which makes stupid decisions. And a very stupid electorate which responds to the empty promises of cynical politicians. kyle8https://www.blogger.com/profile/13299846346032212714noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-41638054030831034642012-12-27T14:10:13.142-06:002012-12-27T14:10:13.142-06:00“All Romney had to do to crush the "assault&q...“All Romney had to do to crush the "assault" was to give details that actually added up.”<br /><br />1. Added up to what? There was a successful myth created by the Tax Policy Center in that debate that they somehow have the ability, via “simple math” and their own magic micro simulation model (details of which are a carefully guarded secret), to add up a few numbers and thus “prove” that Romney’s plan did not “add up”. I’ve got some news for you—no such model or computer program exists that can do that. The last time I checked, the TPC had claimed, still based on a number of their own erroneous assumptions, that Romney’s “plan” came up about $37 billion short. In reality that $37 billion was an estimate that is subject to a huge margin of error in either direction. This is not math and it is not science. It is an imprecise exercise, subject to numerous assumptions, that at the end of the process comes up with a very, very rough estimate. A bit more humility on this general topic in the future would serve the TPC and everyone else quite well. <br /><br />Consider, for example, the following statement of Peter Orszag, then head of OMB and formerly head of the CBO when it turned out that Obama’s deficit numbers were going south from prior estimates:<br /><br />http://www.whitehouse.gov/omb/blog/09/03/20/CBOsNewNumbers<br /><br />Here’s another source on the same general subject you may want to consider:<br /><br />http://scholar.googleusercontent.com/scholar?q=cache:6daRgmwu7sgJ:scholar.google.com/&hl=en&as_sdt=0,33<br /><br /><br />The TPC claim that Romney’s numbers did not add up as a matter of “simple math” was a claim that should never be made in any revenue projection business. We simply don’t have the ability to predict with much accuracy (much less within $37 billion which is well, well within the range of error) what the revenue effect of a large tax reform package will be. The TPC overplayed their ability and their hand in this case in a very political way. That’s unfortunate because real tax reform is likely going to be one of the main casualties of that effort.<br /><br />2. The kind of “details” you are presumably looking for are the kind of things that tax writing committees, not presidential candidates, come up with. I frankly do not understand the logic under which someone thinks they have sufficient “details” to do some definitive simple math and yet in the same breath complain that the person putting forth that plan did not come up with enough details to do the job. As noted under 1) even with more “details” any projection of the effects would have been no better than a rough estimate anyway. <br /><br />3. If you want “simple math” then I suggest that you engage in an exercise that can result in a reasonably accurate number:<br /><br />Add up the total revenue over the past four years and subtract total outlays. <br /><br />Does that result “add up” for you? <br /><br /><br />Vivian Darkbloomhttps://www.blogger.com/profile/18362419878968863283noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-33459690766797343102012-12-27T13:33:14.341-06:002012-12-27T13:33:14.341-06:00"I think the process happens in reverse, and ..."I think the process happens in reverse, and alas is not so easily attributed to evil motives but to the natural operation of a system with terrible incentives that ensnare even well-meaning politicians, of which there are many."<br /><br />No need to attribute this to "evil motives". I'm absolutely convinced that those "conspirators" honestly believe they have everyone's best interests at heart (including their own). They really do think that more taxes, bigger government (and more power to folks like themselves who know better and will steer us all to a better world) actually do believe this is the best course of action. Never believe any argument that is predicated on the assumption that one's opponent has subjectively "evil motives". That's a cop out. <br /><br />As far as which came first, that's a chicken and egg problem. It's a re-iterative operation, I think.Vivian Darkbloomhttps://www.blogger.com/profile/18362419878968863283noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-74021185420572966012012-12-27T11:21:29.289-06:002012-12-27T11:21:29.289-06:00for state driven investment into K through 12 educ...for state driven investment into K through 12 education, college education and healthcare....<br />So you don't actually know what we spend, right? look here: http://nces.ed.gov/programs/coe/pdf/coe_ifn.pdf<br />The US spends 8% more per student in Elementary and Secondary Education, 68% more in Post-Secondary than the countries you mentioned. We have tripled per-student expenditures, in real terms, during my lifetime. That alone should tell you--the problem isn't the amount of "investment".<br />In general, I love the "why can't we be Norway" argument...Yeah, why can't we be like a country of 5-6MM people, with a gusher of petrodollars, racially and culturally homogeneous (with significant cultural strengths), bordered entirely by first-world nations...when you ask the question in that manner, the answer presents itself.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-84873299322828230432012-12-27T11:01:38.279-06:002012-12-27T11:01:38.279-06:00I think the process happens in reverse, and alas i...I think the process happens in reverse, and alas is not so easily attributed to evil motives but to the natural operation of a system with terrible incentives that ensnare even well-meaning politicians, of which there are many. <br /><br />"Special interests" come to demand favors. And who can resist helping the company in your town, the corn farmer in your state, a little deduction here, a little credit there. Lots of it hides in policy goals; deduction for your windmill, credit for your snazzy electric car. Even the big ones, mortgage and charitable deductions, come from all sorts of well meaning people. Let's help the homewoner, and the construction industry. Let's help the universities.<br /><br />But then, the tax code being full of Swiss cheese, it's not raising any money. The crisis comes, and we raise rates to compensate for the swiss cheese, as part of "responsibility." <br /><br />And start all over again. John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-40489856513464070822012-12-27T10:48:50.344-06:002012-12-27T10:48:50.344-06:00"Interesting concept, but I doubt they all si..."Interesting concept, but I doubt they all sit down and conspire to raise taxes so they can grab more power."<br /><br />Not all of them, naturally, but quite a few of them do. I can imagine that it took quite a bit of sitting down and conspiring to come up with the additional 3.8 percent tax on investment income and 0.9 percent tax on other income over $250K needed to partially fund ObamaCare, as well as the additional taxes (aka penalties) on persons who don't sign on to the program and purchase insurance through the exchanges. And, the additional taxes on health insurance plans that are considered too generous. And on the new taxes on medical devices. And the new taxes on indoor tanning salons. And, the 15 or so other new taxes in that power-grab of a bill. All of that took a lot of sitting down and conspiring. The purpose of all that conspiring was not to reduce the deficit, either. It was to increase dramatically the scope of government and the power of those writing and enforcing the regulations that go along with it. <br /><br />It also took a lot of sitting down and conspiring to come up with increased taxes "on the rich" on top of what I've mentioned in the prior paragraph. The brilliant thing about that conspiracy was that it was intentionally planned to be in two stages, so that by the time the second round of tax hikes would be discussed, the first round, while not yet in force, would already be part of the "baseline" for calculating future increases. The idea was that the first round would then have been largely forgotten by the majority of voters. It worked! That sitting down produced a brilliant strategy that thus far has not been politically suicidal. Quite the contrary. <br /><br />The unfortunate thing is that the bulk of these new taxes has already been committed to additional spending (and then some). The purpose of raising these taxes has not been to pare down the deficit, much less the debt. That would not have been a power grab (except when designed to pay for stuff that those same conspirators bought and intentioally failed to previously pay for). The purpose of the taxes is to help pay for new government programs. If you've been following the current discussions on the cliff, you will have noted that in addition to the new taxes, there are a bunch of new proposed spending programs, too.<br /><br />Of course, these taxes will not be enough because these "conspirators" have no real plan or even intent to cut back on spending. So, there will be a lot more sitting down and conspiring to figure out how taxes can be raised even more in yet another round. A number of people are now sitting down dreaming of how much more government we could have if only we could add a VAT on top of (not instead of) everything else and conspiring as to how that might be made possible. I think the same group is discussing new taxes on financial transactions, among many other things. These folks have even conspired to "educate" the public that all these new taxes are not only not bad for the economy, they will help the economy grow.<br /><br />People sitting down and conspiring to raise taxes so that they can grab more power? I would not doubt that for one minute.Vivian Darkbloomhttps://www.blogger.com/profile/18362419878968863283noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-53100510594290790172012-12-27T07:10:04.629-06:002012-12-27T07:10:04.629-06:00"High marginal tax rates give politicians muc..."High marginal tax rates give politicians much more leverage in doling out favors (or denying them)"<br /><br />Interesting concept, but I doubt they all sit down and conspire to raise taxes so they can grab more power. Raising taxes is almost suicidal in politics.<br /><br />Nevertheless, once taxes are raised or new ones imposed I would agree that the power inherent in the ability to grant favors does increase. Exhibit #1: the ObamaCare exemptions being handed out, and to whom. JB McMunnhttps://www.blogger.com/profile/15468282698533043544noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-14237051787521254452012-12-27T00:04:15.759-06:002012-12-27T00:04:15.759-06:00I'm not sure why anyone would argue that the s...I'm not sure why anyone would argue that the spirit of the Romney tax plan is bad ... though our president does. <br /><br />I think Romney made a poor decision to be very specific on the popular piece (20% reduction of all marginal rates) and not very specific on the unpopular piece (what deductions to eliminate). My belief, is that Mankiw, wanted to pay for the marginal rate reduction by removing certain deductions completely (mortgage interest, health insurance, muni bonds, state and local income tax). While this would not effect anyone who is poor (doesn't pay income tax), someone with a good salary but awesome health care could be adversely affected. (God forbid they'd respond and switch to the amount of health care they actually want ...). While this change would still be progressive, SOME high earners would benefit and SOME medium earners would suffer. Because of the stigma that is "raising taxes on the middle class", (good thing Obamacare is not a tax on the middle class, oh wait, sc ruling...) Romney changed his tune to limiting deductions for just high earners. Still better than nothing, but he should have put some numbers on paper, (the wsj post you mentioned was probably by Dr. Feldstein on potential Romney plan ideas) and said, we can float the marginal tax cut % from 20 to a smaller number to make the numbers work statically for the CBO (dumb idea, but at least it's a political non starter then). <br /><br />I also think he hurt himself by allowing this to be the central piece of his campaign and not getting us back to number 1 on the "ease of doing business list" (stable long term fiscal and monetary policies, rule of law not man, good energy, strong property rights, lower tx costs (see litigation), reducing labor market frictions ...). I think the campaign did a poor job of explaining to the American people reasons for why the recovery was so poor and how a president advised by Taylor (love me some first principles) could have done SOOO much better. <br /><br />Sorry to be slightly off topic but I agree with the user above. "It's not me being stubborn, it's not politics, it's just math" should tell us all we want to know about whether the President cares about the economy or winning political points. Parth Venkathttps://www.blogger.com/profile/09830285782100016152noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-16242297245544017752012-12-26T19:11:09.551-06:002012-12-26T19:11:09.551-06:00I think the Wall Street Journal published the deta...I think the Wall Street Journal published the details of the plan after the debate. It was an interesting idea that never seemed to get any traction. As I recall, the plan specified the amount of deductions (e.g., $15,000) and let the taxpayers choose which deductions (e.g., mortgage interest) to use. Romney/Ryan could then avoid targeting a specific deduction to eliminate.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-14270710870764812782012-12-26T17:32:34.605-06:002012-12-26T17:32:34.605-06:00"Let's dispense with non data-driven expl..."Let's dispense with non data-driven explanations."<br /><br />I assume that comment is directed at me. The distribution of value systems is a potential data driven explanation.<br /><br />In the 1800s Sweden and Denmark were hit hard economically by the rise of competing agricultural producers - principally North America. Sweden responded by industrializing and Denmark responded by upgrading its agricultural production through government funded agricultural research. Denmark also had some industrialization (for example, Burmeister & Wain). By the 1930s Sweden had the highest standard of living in the world.Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-84386024929560318012012-12-26T17:09:45.305-06:002012-12-26T17:09:45.305-06:00Not True!
In one of the debates Romney said that h...Not True!<br />In one of the debates Romney said that his approach would have been to limit the amount of deductions for high earners, and let them decide which ones to use.<br /><br />With regards to the cliff, I think Obama is looking for someone to blame for all the problems that he knows that Obamacare could cause.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-26213773396351408902012-12-26T15:06:19.391-06:002012-12-26T15:06:19.391-06:00Let's dispense with non data-driven explanatio...Let's dispense with non data-driven explanations. Sweden used to be very poor in the 19th century and was still Lutheran.<br /><br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-89927127595887478792012-12-26T14:42:25.211-06:002012-12-26T14:42:25.211-06:00"Sweden, Norway, Denmark, Germany, Netherland..."Sweden, Norway, Denmark, Germany, Netherlands, Switzerland, Finland"<br /><br />Lots of Lutherans with some Calvinists, not so many Anglicans, Catholics or Baptists. :-)Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-74042132035926012412012-12-26T14:09:11.795-06:002012-12-26T14:09:11.795-06:00"Unfortunately, it appears that any serious d..."Unfortunately, it appears that any serious discussion of true tax reform was obliterated at the same time the partisan assault on Romney's "math" succeeded."<br /><br />The "partisan assault" basically went like this:<br />1) Romney: "I have a plan that will reduce current tax rates across the board and make up the lost revenue through base broadening."<br />2) Liberal: "I can't find opportunities for base broadening that could balance your proposed cuts in rates. Please give us the details of your base broadening plan."<br />3) Romney: "I refuse to give the details of my plan."<br />4) Liberal: "Q.E.D."<br /><br />How could there be a serious discussion of tax reform when Romney (and Ryan) expressly refused to give details? All Romney had to do to crush the "assault" was to give details that actually added up.Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-82720433453071216022012-12-26T12:23:22.165-06:002012-12-26T12:23:22.165-06:00"Quid pro quo here, though, rich people and t..."Quid pro quo here, though, rich people and the CEOs who recently visited the White House had better line up and support the Administration if they want their special deal, deduction, credit, Obamacare waiver, and no visits from the NLRB, EEOC, EPA, consumer financial protection bureau, and so on. <br /><br />High statutory rates, a Swiss cheese of loopholes renegotiated in every annual crisis, and an army of regulators on the prowl, are a recipe for permanent Democratic government."<br /><br />This is a very important point. High marginal tax rates give politicians much more leverage in doling out favors (or denying them). If the general marginal tax rate is 10 percent, the ability to deny or create deductions against that rate is significant, but not necessarily economically determinative of business decisions. However, when the general (federal) marginal tax rate climbs to 43.4 percent then this power has increased exponentially. (I'm talking about the marginal rate including the ObamaCare surcharge on investment income takes effect next year---this does not include state or local tax or the double corporate/individual taxes on corporate earnings). The power of government to dole out or deny a tax deduction for preferred constituents and activities becomes much greater. Creating high marginal rates with the ability to create "exceptions" to generate much lower effective rates is a politician's dream, particularly a politician who believes that he should also be the central planner. Add the ability to regulate or to exclude from regulation, and the power is enormous. In a similar manner, any crooked cop knows that the ability to shake someone down grows in proportion to the penalty associated with the alleged offense.<br /><br />Many readers may have missed the fact that the capitalization of "Democratic" in the following phrase "a receipt for permanent Democratic government" was likely meant to refer to the party rather than the process. There is nothing inherently democratic about how favors are doled out via tax expenditures. <br /><br />Republicans have been known to hand out tax favors, too; however, in general, Romney's proposal to reduce marginal tax rates across the board *and* eliminate deductions in a progressive manner to pay for them would have had the result of reducing the ability of government to exercise this power through the tax code. Unfortunately, it appears that any serious discussion of true tax reform was obliterated at the same time the partisan assault on Romney's "math" succeeded. Vivian Darkbloomhttps://www.blogger.com/profile/18362419878968863283noreply@blogger.com