Matt Yglesias

32 Responses to “Questions”

1. gordon gekko Says:
   November 25th, 2008 at 11:09 am

   Ha, ha! But wait this can’t make sense since it implies exogenous taxes (like capital gains taxes) would have to affect wealthy peoples’ behaviour. And this is not just a small effect on wealthy peoples’ behaviour. She’s talking about a tax rise of 1% of GDP lowering overall GDP by 3%!
   What I want to knows is if rich people don’t care about how many millions they have (so long as they have at least a few millions) why tax rates are relevant to them? It is not like rich people will invest more and take greater risks when taxes are lower.

2. bob mcmanus Says:
   November 25th, 2008 at 11:28 am

   Romer is a hardcore deficit hawk (suspended for recessions), a tax cutter approaching Lafferism, a firm believer in monetary over fiscal policy. Read some of the papers on her Berkeley homepage. She thinks Milton Friedman was just wonderful, and the 60s and 70s an economic nightmare. Loves that Great Moderation that destroyed the Middle Class. Mankiw and the WSJ are delirious.

   Her husband, and they apparently have always worked as a team, is a much more explicit supply-sider and neo-classicist.

   Obama to Outline Budget Cuts

3. bob mcmanus Says:
   November 25th, 2008 at 11:34 am

   Tax cuts are stimulative and deficits are contractionary?

   Can we take the “Keynes” out of “New Keynesianism” already and just call it “monetarism”? Maybe “New Monetarism?” Mankiw & Congdon would be fine with the more accurate label.

4. Pithlord Says:
   November 25th, 2008 at 11:50 am

   I like how Drum says Europe’s GDP is comparable to the US per hours worked and that refutes the proposition that high levels of taxation are bad for growth. Surely it has occurred to him that Europeans work less because of high personal income taxes?

5. Pithlord Says:
   November 25th, 2008 at 11:57 am

   What on Earth is wrong with being a deficit-hawk, with said hawkery suspended for recessions? Keynes would sign on to that. The problem with W. was that he ran a fiscally unsustainable structural deficit.

6. gordon gekko Says:
   November 25th, 2008 at 12:20 pm

   DTM,

   From the report:
   …controlling for government spending has little impact on the estimated effects of exogenous tax changes.

   She says the output decrease from more taxation goes down .25% (from 3%) when controlling for government spending. If progressive want to make an economic case for increasing taxation during periods of normal growth they have to show that tax revenue increases GDP by more than threefold (like that will ever happen). Of course your right this is unsurprising and intuitive, tell that to Matt.

7. bob mcmanus Says:
   November 25th, 2008 at 12:25 pm

   “Kalecki argued that in order to maintain full employment in capitalist economies the deficit would probably have to grow continuously, but this need not increase the burden of the national debt. The ratio of debt to poutput need not rise, provided the latter grew at a sufficient rate (given by the rate of growth of employment and labour productivity). Moreover, for Kalecki even an increase in interest on the national debt as a percentage of output need not involve any disturbance in output and employment if it were financed by a capital tax, levied on wealth (including ownership of government securities). A similar result could be be brought about by a modified income tax, imposed on gross unearned income only (before deduction of depreciation) and where all investment in fixed capital was deducted from the taxable amount.” …Elgar Companion to Post-Keynesian Economics

   Hey, I am just an old-fashioned conservative 60s hippie. Deficits are always stimulative, and taxes on wealth are also always stimulative. Budget deficits and debt can be regressive, but that only means we need to tax interest rents away. Tax cuts are inflationary for nominal GDP, but contractionary in real terms. And tax cuts are guaranteed to create bubbles and other financial disturbances.

   I pretty much claim that we have had minimal growth since the early 80s, if any at all. All bubble. Great Moderation, my ass.

   I also like the Dead.

8. roger Says:
   November 25th, 2008 at 12:31 pm

   Gordon, no they don’t. They have to make a case that the business cycle has not magically ended during a boom. Which means that you want to have money to spend during a downturn. For instance, you might want to spend two trillion dollars, say, in the improbable event that investment in the tech companies and the internet became a bubble and popped. Now, wouldn’t it be nice if there was a surplus of two trillion dollars lying around? I think that would be a wonderful surprise.

   In addition, raising tax rates is one way of slowing down potentially malignant growth. Let’s say a heavier tax had slowed down the growth in derivatives in the mid naughties, so that it hadn’t gone from a notional 100 trillion to a notional 550 trillion dollars in the space of 5 years. I know, that would be terrible for the honest, hardworking billionaire! But it might be the case that greed is bad. Especially short term greed that massively misallocates capital by creating fictional high yield products that attract money which would otherwise have to be content with boring investment in (sigh) real things and services. You know, that the peons enjoy. Tat, basically.

9. bob mcmanus Says:
   November 25th, 2008 at 12:39 pm

   John Judis on Romer.

10. gordon gekko Says:
    November 25th, 2008 at 12:55 pm

    roger,

    That is why governments should only raise taxes (i.e. use fiscal policy) during periods of unstable growth.
    All this report is saying is a higher tax rate, generally, means a lot less output (three times less output roughly). So, if you want those schools or trains or whatever either argue it is a worthwhile investment, because it increase output by more than three times, or it is worth the costs. Or you could even argue that some new taxing method is fundamentally better and won’t cost the economy in such high rates of lost output.

11. grad student Says:
    November 25th, 2008 at 1:04 pm

    I am skeptical of identification strategy used by Romer and Romer. Specifically, it is not clear that changes in tax revenue forecasts represent exogenous changes in tax policy. For a good discussion of this point as well as formalization of the narrative technique, see this paper by Leeper et al.

12. Barbar Says:
    November 25th, 2008 at 1:07 pm

    Judis on Romer:

    “Fiscal policy, in contrast, contributed almost nothing to the recovery before 1942,” Romer wrote in a 1991 paper for the National Bureau of Economic Research. That’s a view that would lead one to emphasize monetary over fiscal fixes–that is, changes in the federal funds rate and money supply over increases in public investment and cuts in taxes.

    Actually, that’s a view that reflects an understanding that fiscal policy in the 1930s was *not tried*.

13. Robert Waldmann Says:
    November 26th, 2008 at 5:41 am

    The Romers’ result is exactly what any Keynesian would expect and has no implications for the long term consequences of tax cuts (3 years is not long term and note that the graph of the estimated impact then heads back towards zero).

    Full story here

    http://angrybear.blogspot.com/2008/11/kevin-drum-asks-romers-some-questions.html

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