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June 25, 2014

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Posted: 25 Jun 2014 12:06 AM PDT

'More Capital is Good is Not a Helpful Contribution'

Posted: 24 Jun 2014 11:35 AM PDT

Paul Krugman:

Sympathy for the Trustafarians: A number of people have asked me to comment on Greg Mankiw's defense of inherited wealth. It's a strange piece... But let me focus on two key problems... – one purely economic, one involving political economy.
So, on the economics: Mankiw argues that accumulation of dynastic wealth is good for everyone, because it increases the capital stock and therefore trickles down to workers in the form of higher wages. Is this a good argument? ...
In fact, what we're really talking about here is taxation of wealth, and the question is what would happen to that revenue versus what happens if the rich get to keep the money. If the government uses the extra revenue to reduce deficits, then all of it is saved – as opposed to only part of it if it's passed on to heirs. If the government uses the revenue to pay for social insurance and/or public goods, that's likely to provide a lot more benefit to workers than the trickle-down from increased capital.
The point is that you can only justify Mankiw's claim that inherited wealth is necessarily good for workers by insisting that the government would do nothing useful with the revenue from inheritance taxes. I'd call that assuming your conclusions...
But the larger criticism of Mankiw's piece is that it ignores the main reason we're concerned about the concentration of wealth in family dynasties – the belief that it warps our political economy, that it undermines democracy. ...
If Mankiw wants to argue that the costs of any attempt to limit wealth concentration would exceed the benefits, fine. But "more capital is good" is not a helpful contribution to the discussion.

'Bipartisan Report Tallies High Toll on Economy From Global Warming'

Posted: 24 Jun 2014 11:03 AM PDT

Republicans in Congress will ignore this bipartisan report and continue to block action on climate change. This "toxic mix of ideology and anti-intellectualism" is endangering our future:

Bipartisan Report Tallies High Toll on Economy From Global Warming, by Justin Gillis, NY Times: More than a million homes and businesses along the nation's coasts could flood repeatedly before ultimately being destroyed. Entire states in the Southeast and the Corn Belt may lose much of their agriculture as farming shifts northward in a warming world. Heat and humidity will probably grow so intense that spending time outside will become physically dangerous, throwing industries like construction and tourism into turmoil.
That is a picture of what may happen to the United States economy in a world of unchecked global warming, according to a major new report released Tuesday by a coalition of senior political and economic figures from the left, right and center, including three Treasury secretaries stretching back to the Nixon administration.
At a time when the issue of climate change has divided the American political landscape, pitting Republicans against Democrats and even fellow party members against one another, the unusual bipartisan alliance of political veterans said that the country — and business leaders in particular — must wake up to the enormous scale of the economic risk. ...

'Was the Neoclassical Synthesis Unstable?'

Posted: 24 Jun 2014 10:44 AM PDT

The last paragraph from a much longer argument by Simon Wren-Lewis:

Was the neoclassical synthesis unstable?: ... Of course we have moved on from the 1980s. Yet in some respects we have not moved very far. With the counter revolution we swung from one methodological extreme to the other, and we have not moved much since. The admissibility of models still depends on their theoretical consistency rather than consistency with evidence. It is still seen as more important when building models of the business cycle to allow for the endogeneity of labour supply than to allow for involuntary unemployment. What this means is that many macroeconomists who think they are just 'taking theory seriously' are in fact applying a particular theoretical view which happens to suit the ideology of the counter revolutionaries. The key to changing that is to first accept it.

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