tag:blogger.com,1999:blog-582368152716771238.post6985834238880891483..comments2024-03-28T14:41:03.793-05:00Comments on The Grumpy Economist: Testimony 2John H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger20125tag:blogger.com,1999:blog-582368152716771238.post-32480517631417298722016-09-22T09:52:24.600-05:002016-09-22T09:52:24.600-05:00If we increase growth and double real GDP per capi...If we increase growth and double real GDP per capita in a generation it would not help Medicare or Social Security much:<br />1) we can reasonably expect that doctors nurses and every other health care provider to reasonably expect that their incomes would double in real terms;<br />2) the historical experience is that our definition of poverty would change (and the cost of personal services the elderly need would double) so there would be enormous pressure to increase Social Security payments. <br /><br /> Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-14455073729113456902016-09-20T04:56:13.579-05:002016-09-20T04:56:13.579-05:00I learned a lot of insightsI learned a lot of insightsYancheng Qiunoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-90613942269631974612016-09-19T23:38:13.636-05:002016-09-19T23:38:13.636-05:00Absalon,
"With interest and depreciation ded...Absalon,<br /><br />"With interest and depreciation deductible in calculating income, an existing profitable business in America can get capital for new projects at a cost that is insignificant. "<br /><br />It's called the zero bound. The right kind of tax reform breaks through that barrier.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-69566743630770977542016-09-19T11:01:18.468-05:002016-09-19T11:01:18.468-05:00Jefftopia - start with George Stigler's concep...Jefftopia - start with George Stigler's concept of regulatory capture.<br />His original paper is dated, almost 40 years old or so, but still so relevant.Manfred the mamoothhttps://www.blogger.com/profile/07516724901598949627noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-70297577882434409212016-09-19T10:59:17.717-05:002016-09-19T10:59:17.717-05:00Professor, again, I am not sure I completely agree...Professor, again, I am not sure I completely agree with you here. The way I read Public Choice is not that politicians and bureaucrats find themselves in a "system" that swallowed up their noble intentions. No, the way I read Public Choice is that those politicians and bureaucrats *have their own objective function from the get-go*, and such objective function may or may not coincide with the public interest. I do not mean to speak for Philo, but that is the way I interpreted it.<br />Here is an entry by William Shughart at Econlib.org:<br />http://www.econlib.org/library/Enc/PublicChoice.html<br /><br />"As James Buchanan artfully defined it, public choice is “politics without romance.” The wishful thinking it displaced presumes that participants in the political sphere aspire to promote the common good. In the conventional “public interest” view, public officials are portrayed as benevolent “public servants” who faithfully carry out the “will of the people.” In tending to the public’s business, voters, politicians, and policymakers are supposed somehow to rise above their own parochial concerns.<br />...But public choice, like the economic model of rational behavior on which it rests, assumes that people are guided chiefly by their own self-interests and, more important, that the motivations of people in the political process are no different from those of people in the steak, housing, or car market. They are the same human beings, after all. As such, voters “vote their pocketbooks,” supporting candidates and ballot propositions they think will make them personally better off; bureaucrats strive to advance their own careers; and politicians seek election or reelection to office. Public choice, in other words, simply transfers the rational actor model of economic theory to the realm of politics."<br /><br />In this definition, there is *nothing* saying "the system made me do it", or "those poor politicians fell into the hands of a bad system", as you seem to imply. No. Their objective function *from the get-go" is selfish and driven by their own objective function, which may or may not include the public interest at large.Manfred the mamoothhttps://www.blogger.com/profile/07516724901598949627noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-62992710744581273822016-09-19T10:38:13.662-05:002016-09-19T10:38:13.662-05:00And another thing ...
It seems to me that the ide...And another thing ...<br /><br />It seems to me that the idea that tax reform will yield significant growth is contrary to the evidence we see around us.<br /><br />The argument seems to be tax reform will spur investment. We live in a world awash in capital. We don't need to encourage more saving. <br /><br />Interest rates have been trending down for thirty years. The equity premium seems to be compressing significantly. REITs and MLPs pay no tax. Investments are available that are not taxable (municipal bonds, 401(k) plans, IRAs, pension funds.) <br /><br />With interest and depreciation deductible in calculating income, an existing profitable business in America can get capital for new projects at a cost that is insignificant. <br /><br />If you want to reform corporate taxation you could copy Canada's "integration". The income taxes that a company pays are effectively credited back when a taxpayer pays taxes on dividends. If the taxpayer is tax exempt then they cannot utilize the credit. Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-33350647271364970702016-09-19T10:22:31.115-05:002016-09-19T10:22:31.115-05:00Sure - Fixing regulation is a mother hood issue. ...Sure - Fixing regulation is a mother hood issue. Except of course, there are powerful, and legitimate, political elements who don't want development and who favor a regulatory process that blocks projects like Keystone Xl. A stream lined and more open and efficient process that respects public opinion might simply get to "NO" faster. No growth there. (A comprehensive study of why the well recognized rail bottleneck at Chicago persists would be interesting.)<br /><br />A lot of the reforms seem to be one shot gains. You might move the needle from 2% to 4% growth for a decade (giving a material 20% gain) but then you are going to fall back to the sub 2% trend. To suggest that you can move to 4% compound growth for an extended period of time is unrealistic. The future is not like the post war era. The only thing that could make it more like the post war era is scientific breakthroughs. We could have major scientific breakthroughs all though I tend to the view that any breakthrough is likely to be of the sort that increases consumer surplus a lot more than it increases GDP. What effect would a ten dollar cure for cancer have on consumer surplus? what effect on GDP?, what effect on the budget? Medicare costs would go down but social security costs would go up. <br /><br />If the United States cuts social security and medicare and reduces taxes then you might get growth in <br />"average" income but with all of that increased income going to the top 10% of households and the bottom 50% of households falling. <br /><br /><br /><br />Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-4424463377502295692016-09-19T10:00:24.545-05:002016-09-19T10:00:24.545-05:00I'm a huge fan of public choice analysis. Whic...I'm a huge fan of public choice analysis. Which says that good people, well motivated to serve the public interest, find themselves in a system that forces bad outcomes. Philo attacked their morals and motivation. Public choice exactly denies the conventional analysis that the people involved are immoral, and we just need to kick out the evil ones (the other party) and put in good ones (your party). No, the people are by and large hard working and well intentioned, but the rules of the game result in bad outcomes. That's public choice, and a far more subtle and profitable analysis of the situation. John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-15379943216406623672016-09-19T09:56:56.138-05:002016-09-19T09:56:56.138-05:00"Also, median income can rise while total inc..."Also, median income can rise while total income is flat or declines. Redistribution can have that effect."<br /><br />True but the Census survey still shows the average income increasing by a little over 4.5% during a span in which GDP growth was under 2%.<br /><br />Your points 1 and 2 both make some sense with regard to GDP, but that still seems to leave a large gap between the Census household income numbers and the BEA numbers for per capita income and consumption expenditures.<br /><br />Looking at the website it looks like the survey methodology has been redesigned several times over the years, most recently in 2014. Perhaps that explains the discrepancy.Zack Mnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-20946486622778056762016-09-19T09:28:39.520-05:002016-09-19T09:28:39.520-05:00Professor Cochrane, I do love your stuff, but in t...Professor Cochrane, I do love your stuff, but in this reply to Philo, I have to very respectfully disagree.<br />There is a whole literature, a whole sub-discipline, called Public Choice, (James Buchanan, a Chicago alumn I might add, comes to mind) that supports Philo's comment. Would you condemn Public Choice as "a pretty damning insult"?Manfred the mamoothhttps://www.blogger.com/profile/07516724901598949627noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-31395001313752217942016-09-19T08:17:51.802-05:002016-09-19T08:17:51.802-05:00Dr. Cochrane, do you have any books you can recomm...Dr. Cochrane, do you have any books you can recommend on cronyism and dysfunctional regulation in the US? Jefftopiahttps://www.blogger.com/profile/05005211633248766565noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-71282897953497535012016-09-18T12:11:15.031-05:002016-09-18T12:11:15.031-05:00"This is not true?" That is a pretty dam..."This is not true?" That is a pretty damning insult with little evidence. In my view and experience, most congresspeople are motivated to serve the public interest -- some with different ideas about how to go about that than I do, but that's all. John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-31106890601281106872016-09-18T11:53:33.427-05:002016-09-18T11:53:33.427-05:00You address Congress as if its members were motiva...You address Congress as if its members were motivated primarily to serve the public interest. Because this is not true, I predict that your sensible proposals will have little political salience (even if, as you say, Congressional staffers are "listening" to you). Philohttps://www.blogger.com/profile/02814125172453918700noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-56296971264039461572016-09-18T10:32:48.353-05:002016-09-18T10:32:48.353-05:00Zack,
I haven't looked at the numbers in dept...Zack,<br /><br />I haven't looked at the numbers in depth, but here are a couple sources of increased income that may not show up in the GDP numbers:<br /><br />1. Increased transfer payments (unemployment benefits, Social Security, etc.)<br />2. Increase sale of used goods<br /><br />Also, median income can rise while total income is flat or declines. Redistribution can have that effect.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-33433609733706339112016-09-18T10:17:49.711-05:002016-09-18T10:17:49.711-05:00"So, the way to think about the dangers of de..."So, the way to think about the dangers of debt is not like a predictable problem that comes to us slowly. View the issue as managing a small risk of a catastrophic problem, like a war or pandemic." <br /><br />"The easy answers are straightforward. Sensible reforms to Social Security and Medicare are on the table. Fix the indexing, improve the incentives for older people to keep working. Convert medicare to a premium support policy."<br /><br />Is this more urban myth that passes for truth?<br /><br />The three largest drivers of the recent increase in federal debt are<br />1. Unpaid for wars<br />2. Banking bailouts<br />3. A refusal to sell equity in lieu of debt<br /><br />Your "sensible" solutions address none of the above.<br /><br />And finally:<br /><br />"But our large debts leave our fiscal position sensitive to interest rate rises. At 100% debt to GDP ratio, if interest rates rise to just 5%, that means the deficit rises by 5 percentage points of GDP, or approximately $1 Trillion extra dollars per year."<br /><br />In terms of federal debt, we just crossed the 105% Debt / GDP ratio.<br /><br />https://fred.stlouisfed.org/series/GFDEGDQ188SFRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-87159075704926527162016-09-18T09:10:09.557-05:002016-09-18T09:10:09.557-05:00"Above all, undertake a pro-growth economic p..."Above all, undertake a pro-growth economic policy. We grew out of larger debts after World War II; we can do that again."<br /><br />We didn't grow our way out of large World War II debts. The debt burden shifted from the public sector (federal government) to the private sector.<br /><br />https://fred.stlouisfed.org/graph/?g=7dmS<br />FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-62234371499165489142016-09-18T00:30:28.155-05:002016-09-18T00:30:28.155-05:00In general, I agree a nation should tax and regula...In general, I agree a nation should tax and regulate productive behavior the least. <br /><br />Still, it is dispiriting that the US spends about $1 trillion a year on "national security" (DoD, VA, black budget, prorated debt), yet here are are debating infrastructure programs, which completely dwarfed by the magnitude of spending on "national security." <br /><br />George Bush and Barack Obama have spent $16 trillion on "national security." After $16 trillion in spending, taxpayers are informed the military has to re-built, dangers are mounting everywhere. <br /><br />In truth, beyond the heinous annoyance of terrorism, the US faces zero military threats. <br /><br />Trump's infrastructure plan, considered over the top, calls for $600-odd billion in additional infrastructure spending. Hillary Clinton's infrastructure plan appears to be a mishmash of ideas that will render little upside with a $300-odd billion price-tag that appears bogus. <br /><br />Still, the Trump and Hillary infrastructure plans are pre-dinner peanuts next to the federal government annual "national security" main course. <br /><br />BTW, the US plans to spend about $1.5 trillion for the F-35 jet fighter, despite the fact that even military agencies now say it is not stealthy due to change in radar technology, but gave up too much performance to be stealthy. No matter, the F-35 is a jobs and contract program at this point, divorced from national defense. The program will proceed.<br /><br />The airframes for the F-35 will be made in Turkey. Why Turkey? They make the best airframes? No, so they will buy the jets. Yes all that super-duper secret technology will be in the hands of Islamics. In short, nothing about F-35 makes sense, from the taxpayer perspective. <br /><br />Keep your eye on the ball!<br /><br /><br /><br /><br /> <br /><br /><br /><br /><br />Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-36108350547484274782016-09-15T21:28:54.617-05:002016-09-15T21:28:54.617-05:00"There was lots of buzz at my hearing about a..."There was lots of buzz at my hearing about a recent census report that median family income was up 5%"<br /><br />Year after year I'm perplexed by how much attention these surveys get. During the time frame in question here, real GDP grew by less than 2%. According to the BEA, real disposable income per person grew by a little over 2% over the same span while real personal consumption expenditures were closer to 1.5%. Yet according the the Census Bureau survey the median household and median personal income levels jumped by over 5%? It also shows the median income in Pennsylvania increasing by more than $5,000 in 2015. Admittedly I have my personal biases, but I find this impossible to believe. <br /><br />Back on topic though, great essay. I agree with the vast majority of it, particularly on the tax code. Although I'm a bit more skeptical that American people are really ready for "fundamental changes" on most of these issues.Zack Mnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-50594096727725472762016-09-15T20:32:49.443-05:002016-09-15T20:32:49.443-05:00Thanks for your comment, and its constructive and ...Thanks for your comment, and its constructive and polite tone. But I did cede (and suggest that others cede -- this isn't my job!) that ground. It's right there -- add a redistribution code. A consumption tax can be as progressive as you like. For example, you can have a flat VAT, checks for poor people, and a supplemental individual consumption tax collected via the income tax mechanism. Isn't your second paragraph also exactly what I suggested? John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-28245096470425601242016-09-15T20:15:28.572-05:002016-09-15T20:15:28.572-05:00Prof. Cochrane: You're falling into the trap o...Prof. Cochrane: You're falling into the trap of asking for too many things at once, and all those things favor precisely one political side. You really should emphasize which reforms are most likely to generate growth the quickest, and mention which areas you're willing to cede ground to the opposition. For example cutting capital taxes (money moves faster than people) and deregulation of the cronyist industries (like health care) should take absolute priority in a Republican administration. On the other hand, I would suggest ceding ground on higher income taxes for the wealthy. Republican leaders have become too focused on reducing income taxes for the middle class, when the evidence of the Bush tax cuts suggest we may have hit the point of diminishing marginal returns of those tax cuts. <br /><br />How about this compromise? Conservatives agree to raise a carbon tax and income tax on the rich. Liberals agree to cut corporate tax and capital gains tax. Conservatives agree to spend more on infrastructure. Liberals agree to prioritize deferred maintenance and deregulate the procurement process. Johnhttps://www.blogger.com/profile/12142023935426755508noreply@blogger.com