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November 7, 2011

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The Public Mission of Economics: Overcoming the Great Disconnect

Posted: 07 Nov 2011 02:34 AM PST

This is an essay I did for the Social Science Research Council's initiative on Academia and the Public Sphere:

New Forms of Communication and the Public Mission of Economics: Overcoming the Great Disconnect

The papers that are part of the initiative examine how the connections between the public and various social science disciplines have changed over time. [Comments from Henry Farrell at Monkey Cage.]

Paul Krugman: Here Comes the Sun

Posted: 07 Nov 2011 12:24 AM PST

Who doesn't like solar energy?:

Here Comes the Sun, by Paul Krugman, Commentary, NY Times: ...We are, or at least we should be, on the cusp of an energy transformation, driven by the rapidly falling cost of solar power. That's right, solar power. If that surprises you,... blame our fossilized political system, in which fossil fuel producers have both powerful political allies and a powerful propaganda machine that denigrates alternatives.
Speaking of propaganda..., let's talk briefly about hydraulic fracturing, aka fracking.
Fracking — injecting high-pressure fluid into rocks deep underground, inducing the release of fossil fuels — is an impressive technology. But it's also a technology that ... contaminates drinking water; there is reason to suspect ... that it also contaminates groundwater; and the heavy trucking ... inflicts major damage on roads.
Economics 101 tells us that an industry ... should be required to "internalize" those costs... Yet ... the industry and its defenders demand ... that it be let off the hook... Why? Because we need that energy! ...
So it's worth pointing out that special treatment for fracking makes a mockery of free-market principles. Pro-fracking politicians claim to be against subsidies, yet letting an industry impose costs without paying compensation is in effect a huge subsidy. ...
And now for ... the success story you haven't heard about.
These days, mention solar power and you'll probably hear cries of "Solyndra!" Republicans have tried to make the failed solar panel company ... a symbol of government waste — although claims of a major scandal are nonsense...
But Solyndra's failure was actually caused by technological success: the price of solar panels is dropping fast, and Solyndra couldn't keep up with the competition. ... If the downward trend continues — and if anything it seems to be accelerating — we're just a few years from the point at which electricity from solar panels becomes cheaper than electricity generated by burning coal. ...
But will our political system delay the energy transformation now within reach?
Let's face it: a large part of our political class, including essentially the entire G.O.P., is deeply invested in an energy sector dominated by fossil fuels, and actively hostile to alternatives. This political class will do everything it can to ensure subsidies for the extraction and use of fossil fuels, directly with taxpayers' money and indirectly by letting the industry off the hook for environmental costs, while ridiculing technologies like solar.
So what you need to know is that nothing you hear from these people is true. Fracking is not a dream come true; solar is now cost-effective. Here comes the sun, if we're willing to let it in.

Links for 2011-11-07

Posted: 07 Nov 2011 12:06 AM PST

"The Problem With Flat-Tax Fever"

Posted: 06 Nov 2011 01:26 PM PST

There's nothing particularly new here, but it's still worth emphasizing that a flat tax doesn't have the magical properties that supporters claim, and that its distributional consequences are tilted heavily in favor of the wealthy:

The Problem With Flat-Tax Fever, by Robert Frank, Commentary, NY Times: Close watchers of presidential politics weren't surprised to see many of this year's Republican hopefuls proposing ... a flat tax. Such plans reliably surface every four years...
Yet none will be adopted, for at least two reasons. One is that a flat tax would do nothing to make filing tax returns any simpler. But, more important, it would greatly exacerbate longstanding growth in income inequality. ...
The contention that a flat tax would be simpler because it involves only a single rate is flatly wrong. The complexity of the current system has nothing to do with its multiple income brackets.
The hard step in figuring your tax bill is to compute your adjusted gross income — roughly, the amount you earn, less the myriad exemptions, deductions and various other offsets described in the 3.4-million-word code of the Internal Revenue Service. You'd also have to calculate your adjusted gross income under a flat tax. But once you've completed that step under either system, you consult the tax tables to see how much you owe..., so this step is no harder than it would be under the tables for a flat tax.
The much more serious concern is that a flat tax would reinforce the trends toward greater income inequality that have been seen over the last several decades. ...
According to an analysis by the nonpartisan Tax Policy Center, Mr. Cain's proposal would increase the annual tax bill of a typical family of four earning $50,000 a year by more than $4,000, but would reduce the taxes owed by a similar family earning between $500,000 and $1 million by almost $60,000. The center also estimated that families in the top one-tenth of 1 percent of households would enjoy an average annual tax reduction of nearly $1.4 million... Similar distributional effects are common under all flat-tax plans, not just Mr. Cain's. ...
For the time being, then, our best bet is to do all we can to reduce the gratuitous complexity of our progressive income tax.

"The Politics of Austerity"

Posted: 06 Nov 2011 08:46 AM PST

This discussion of the politics of austerity supports the point I was trying to make yesterday in the post on hypocrisy. However, it's not just the politics of austerity that is important, the power behind the politics matters too and I will be curious to see how much of the long-run deficit problem is solved by cutting programs for the less powerful (or in the case of a flat tax, increasing their tax burden) rather than asking the powerful to pay more, or at least give up deductions like home mortgage interest. To state the more than obvious, the powerful have the upper hand:

The Politics of Austerity, by Thomas Edsall, Commentary, NY Times: The economic collapse of 2008 transformed American politics. In place of shared abundance, battles at every level of government now focus on picking the losers who will bear the costs of deficit reduction and austerity. ...
The new embattled partisan environment allows conservatives to pit taxpayers against tax consumers, those dependent on safety-net programs against those who see such programs as eating away at their personal income and assets.
In a nuanced study, "The Tea Party and the Remaking of Republican Conservatism," the sociologist and political scientist Theda Skocpol and her colleagues at Harvard found that opposition to government spending was concentrated on resentment of federal government "handouts." Tea Party activists, they wrote, "define themselves as workers, in opposition to categories of nonworkers they perceive as undeserving of government assistance."
In a March 15 declaration calling for defunding of most social programs, the New Boston Tea Party was blunt: "The locusts are eating, or should we say devouring, the productive output of the hard working taxpayer."
The conservative agenda, in a climate of scarcity, racializes policy making, calling for deep cuts in programs for the poor. The beneficiaries of these programs are disproportionately black and Hispanic. ...
Less obviously, but just as racially charged, is the assault on public employees. "We can no longer live in a society where the public employees are the haves and taxpayers who foot the bills are the have-nots," declared Scott Walker, the governor of Wisconsin.
For black Americans, government employment is a crucial means of upward mobility. The federal work force is 18.6 percent African-American, compared with 10.9 percent in the private sector. The percentages of African-Americans are highest in just those agencies that are most actively targeted for cuts by Republicans...

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