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March 8, 2013

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Posted: 03 Mar 2013 12:03 AM PST
Posted: 02 Mar 2013 10:08 AM PST
One more quick one, then I'd better hit the road: Dean Baker explains how you can tell if Republicans (a) are philosophically inclined toward a smaller government, or (b) rent-seekers on behalf of the wealthier members of society:
The Philosopher Politicians Reappear at the New York Times, by Dean Baker: ..."At bottom, it is the oldest philosophic battle of the American party system — pitting Democrats' desire to use government to cushion market outcomes and equalize opportunity against Republicans' desire to limit government and maximize individual liberty."
Really, this is a battle of philosophy?
Let's try an alternative explanation. Let's assume that Republicans answer to rich people who don't want to pay a dime more in taxes and would actually prefer to pay many dimes less. Let's imagine that these people are not stupid and that they understand completely what conservative economists like Greg Mankiw, Martin Feldstein and Alan Greenspan have been telling them for years, tax expenditures are a form of spending. In other words, if we give someone a housing subsidy of $5,000 a year by cutting their taxes by this amount if they buy a home, it is the same thing as if the government sends them a check that says "housing subsidy."
If we take the philosophy view of this debate then Republicans would be all for eliminating the tax expenditures that mostly go to line the pockets of rich people. On the other hand, if we think this is a debate about whose pockets get lined then Republicans who are opposed to spending would be opposed to eliminating tax expenditures for rich people. ...
Posted: 02 Mar 2013 09:20 AM PST
Greg Mankiw's post today reminds me that I meant to post this interview with Emmanuel Saez on "taxing away inequality":
Taxing Away Inequality, Interview by David Grusky: David Grusky: In the thirteen years since you secured your PhD, there have been two big developments: first, your research on income inequality, especially its recent takeoff, has taken the world by storm. And, second, the national conversation about income inequality has completely shifted. In fact in the last presidential election it was one of the key topics. I would argue that those two developments are related in the sense that you're the one, more than anyone else, who has brought about precisely that change in the national conversation.
That said, I suspect that there are some features of your work that you think have been misunderstood or, at the least, inadequately addressed in current debates about inequality. Could you talk a bit about this underappreciated side of your work?
Emmanuel Saez: I did this key work on income concentration in the United States with my colleague Thomas Piketty, and we were indeed quite surprised by how successful our research has been in the public debate. Initially this was really academic work building on the long tradition of the famous economist Simon Kuznets, who started the data series back in the 1950s. So we never approached it in a way that would necessarily be easy for the broader public and the press to use. We had to adjust over time to try to talk to the public and present our findings in a way that was the simplest, because we've discovered that to have an impact in the broader world, the way you present your research—the design, the framing—has a tremendous impact.
Naturally the public has focused mostly on the very recent period. But the key goal of our study was to show a very long perspective—a century long perspective—and to think about long-term changes rather than year-to-year changes. And I think there's a lot to learn about how those long-term changes are related to policy making and government action.
DG: I'm prompted by your last point to suggest that another underappreciated feature of your work is that it delivers rather provocative hints about the causes of the increase in inequality. That is, it not only lays out the descriptive trajectory of income inequality, but also suggests what's driving that descriptive trajectory.
We participated in a Boston Review debate on one account of the sources of the recent takeoff, namely the expansion of rent, where rent is understood as sweetheart deals, corruption, backdating stock option contracts—all sorts of pay-setting practices that permit those at the top to secure more than they would in a competitive market. On the basis of your research, do you think that rent is an important source of the recent growth in income inequality?
ES: If we define rent in terms of situations where pay doesn't correspond to what economists call 'marginal productivity'—that is, the economic contribution a person is providing—I would say yes, because the evolution of income concentration over time and across countries has a number of features that are inconsistent with the story where pay is everywhere equal to productivity. The changes in income concentration are just too abrupt and too closely correlated with policy developments for the standard story about pay equaling productivity to hold everywhere. That is, if pay is equal to productivity, you would think that deep economic changes in skills would evolve slowly and make a gradual difference in the distribution—but what we see in the data are very abrupt changes. Basically all western countries had very high levels of income concentration up to the first decades of the 20th century and then income concentration fell dramatically in most western countries following the historical narrative of each country. For example, in the United States the Great Depression followed by the New Deal and then World War II. And I could go on with other countries. Symmetrically, the reversal—that is, the surge in income concentration in some but not all countries—follows political developments closely. You see the highest increases in income concentration in countries such as the United States and the United Kingdom, following precisely what has been called the Reagan and Thatcher revolutions: deregulation, cuts in top tax rates, and policy changes that favored upper-income brackets. You don't see nearly as much of an increase in income concentration in countries such as Japan, Germany, or France, which haven't gone through such sharp, drastic policy changes. ...[continue]...
There's also, as Greg notes, a video:

Emmanuel Saez discusses income equality at Stanford's Center for Ethics in Society. (Jan. 24, 2013)

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