- Links for 10-15-14
- What’s the Best Way to Overcome Rising Economic Inequality?
- Economics is Both Positive and Normative
- 'The Mythical Phillips Curve?'
Posted: 15 Oct 2014 12:06 AM PDT
Posted: 14 Oct 2014 07:56 AM PDT
I have a new column:
What's the Best Way to Overcome Rising Economic Inequality?: A debate over the use of progressive taxation and redistribution as a means of solving the problem of rising inequality erupted in the last week or so. The debate began with three publications, one from Edward Kleinbard, one from Nezih Guner, Martin Lopez-Daneri, and Gustavo Ventura, and one from Cathie Jo Martin and Alexander Hertel-Fernandez. They argue in turn that "progressive fiscal outcomes do not require particularly progressive tax systems," "making taxes more progressive taxes won't raise much revenue," and "The way a tax system fights inequality isn't just redistribution. It's by generating enough revenue to fund programs and benefits that help middle class, working class, and poor people participate and succeed in the economy. While talk of taxing top earners may make for good political rhetoric on the left, relying on such taxes cannot pay the bills." This brought responses from Jared Bernstein, Matt Bruenig, and Mike Konczal the three of whom, as Steve Waldman says in a nice summary of this debate, "offer responses that examine what 'progressivity' really means and offer support for taxing the rich more heavily than the poor."
This debate brings up an important question: what is the best way to fight economic inequality? ...[continue]...
Posted: 14 Oct 2014 07:55 AM PDT
Jean Tirole in the latest TSE Magazine:
Economics is a positive discipline as it aims to document and analyse individual and collective behaviours. It is also, and more importantly, a normative discipline as its main goal is to better the world through economic policies and recommendations.
Posted: 14 Oct 2014 07:54 AM PDT
An entry in the ongoing debate over the Phillips curve:
The mythical Phillips curve?, by Simon Wren-Lewis, mainly macro: Suppose you had just an hour to teach the basics of macroeconomics, what relationship would you be sure to include? My answer would be the Phillips curve. With the Phillips curve you can go a long way to understanding what monetary policy is all about.
My faith in the Phillips curve comes from simple but highly plausible ideas. In a boom, demand is strong relative to the economy's capacity to produce, so prices and wages tend to rise faster than in an economic downturn. However workers do not normally suffer from money illusion: in a boom they want higher real wages to go with increasing labour supply. Equally firms are interested in profit margins, so if costs rise, so will prices. As firms do not change prices every day, they will think about future as well as current costs. That means that inflation depends on expected inflation as well as some indicator of excess demand, like unemployment.
Microfoundations confirm this logic, but add a crucial point that is not immediately obvious. Inflation today will depend on expectations about inflation in the future, not expectations about current inflation. That is the major contribution of New Keynesian theory to macroeconomics. ...[turns to evidence]...
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