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August 28, 2012

Latest Posts from Economist's View

Latest Posts from Economist's View

Posted: 26 Aug 2012 12:06 AM PDT
Posted: 25 Aug 2012 01:45 PM PDT
Robert Frank:
Carbon Tax Silence, Overtaken by Events, by Robert Frank, Commentary, NY Times: ...Mitt Romney ... has been equivocal about whether rising temperatures are caused by human action. But he has been adamant that uncertainty about climate change rules out policy intervention. ...
Climatologists are the first to acknowledge that theirs is a highly uncertain science. The future might be better than they think. Then again, it might be much worse. Given that risk, policy makers must weigh the potential cost of action against the potential cost of inaction. And even a cursory look at the numbers makes a compelling case for action. ...
The good news is that we could insulate ourselves from catastrophic risk at relatively modest cost by enacting a steep carbon tax. ... A carbon tax would also serve two other goals. First, it would help balance future budgets. ... If new taxes are unavoidable, why not adopt ones that ... make the economy more efficient? By reducing harmful emissions, a carbon tax fits that description.
A second benefit would occur if a carbon tax were ... phased in gradually, only after the economy had returned to full employment. High unemployment persists in part because businesses, sitting on mountains of cash, aren't investing it... News that a carbon tax was coming would create a stampede to develop energy-saving technologies. ...
Some people argue that a carbon tax would do little good unless it were also adopted by China and other big polluters. It's a fair point. But access to the American market is a potent bargaining chip. The United States could ... tax imported goods in proportion to their carbon dioxide emissions if exporting countries failed to enact carbon taxes at home.
In short, global warming has a fairly simple and cheap technical solution. ...
Update: I didn't do a very good job of highlighting Robert Frank's point that we shouldn't "expect to hear much about climate change at the Republican and Democratic conventions," but "Many climate scientists ... are now pointing to evidence linking rising global temperatures to the extreme weather we're seeing around the planet." Thus, "Extreme weather is already creating enormous human suffering, and "If the recent meteorological chaos drives home the threat of climate change and prompts action, it may ultimately be a blessing in disguise."
Posted: 25 Aug 2012 12:47 PM PDT
If we had nearly a trillion in additional tax revenue over the next ten years, it would help the budget picture quite a bit:
CBO: Ending High-Income Tax Cuts Would Save Almost $1 Trillion, CBPP: The Congressional Budget Office's (CBO) new report shows that allowing President Bush's 2001 and 2003 income tax cuts on income over $250,000 to expire on schedule at the end of 2012 would save $823 billion in revenue and $127 billion on interest on the nation's debt, compared to permanently extending all of the Bush tax cuts.  Overall, this would mean $950 billion in ten-year deficit reduction, a significant step in the direction of fiscal stability.
Posted: 25 Aug 2012 09:19 AM PDT
As a follow up to this post on Inflation Lessons from Paul Krugman:
Demand-siders like me saw this as very much a slump caused by inadequate spending: thanks largely to the overhang of debt from the bubble years, aggregate demand fell, pushing us into a classic liquidity trap.
But many people — some of them credentialed economists — insisted that it was actually some kind of supply shock instead. Either they had an Austrian story in which the economy's productive capacity was undermined by bad investments in the boom, or they claimed that Obama's high taxes and regulation had undermined the incentive to work (of course, Obama didn't actually impose high taxes or onerous regulations, but leave that aside for now).
How could you tell which story was right? One answer was to look at the behavior of ... inflation. For if you believed a demand-side story, you would also believe that even a large monetary expansion would have little inflationary effect; if you believed a supply-side story, you would expect lots of inflation from too much money chasing a reduced supply of goods. And indeed, people on the right have been forecasting runaway inflation for years now.
Yet the predicted inflation keeps not coming. ... So what we've had is as good a test of rival views as one ever gets in macroeconomics — which makes it remarkable that the GOP is now firmly committed to the view that failed.
Note what's been happening to estimated inflation expectations lately:
[Source: Cleveland Fed]
The Fed has used fear of inflation to argue against doing more for the unemployed, but what's the Fed so afraid of? Where's the evidence fo their fears?
(When fear of inflation fails as an argument against further easing, as it has, the Fed also relies upon a vague fear that further quantitative easing would somehow break overnight money markets. But as FT Alphaville has noted several times -- and I've noted this as well -- those fears are hard to understand, and the minutes from the last Fed meeting seemed to indicate they were largely unfounded.
So I, too, "remain curious to get some details about exactly what Bernanke meant when he said that further easing shouldn't be undertaken lightly because it would pose a risk to 'market functioning' and 'financial stability.'" That's especially true in light of the statement in the the most recent FOMC minutes that they have looked at this worry and determined that, repeating a quote from FT Alphaville, there is "substantial capacity for additional purchases without disrupting market functioning."
Thus, it appears the biggest worries about further easing -- inflation and market disruption -- are unfounded, and it will be intersting to see what new excuses are invented to forestall action. I'm guessing it will be the old, "it's not in the data yet, but just wait, you'll see, inflation really will be a problem. Soon. Very soon." Never mind that we've been hearing this for years already.)

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