I like Stephen Williamson but does he ever have a blind spot about Krugman. He just feels that Krugman has somehow been this skunk at the garden party of 'modern macro' over the last 40 years, pooh-poohing all this great work that has been done.
"Where I part ways with Krugman is mainly in his lack of respect for the majority of people who are actively engaged in macroeconomic research, and for some of the people who made key contributions to the profession in the last 40 years. That lack of respect is both uninformed and unnecessary."
http://newmonetarism.blogspot.com/2013/12/phillips-curves-and-fisher-relations.html
See this is the paradox of SW: how you both claim that what we have right now is a liquidity trap and what we need to do right now is to actually increase public debt and yet hate Krugman and think he was the bad guy in the fight between him and Cochrane back in 2009 in the stimulus?
Much of SW's complaints with Krugman sound pretty provincial-'Harumph! While he's out there as a big star blogger over at the NYTimes other people are doing real research that he scoffs at!'
Well one such person in the academic field is of course, Ed Prescott. Noah Smith today argued that his Theory of Labor is looking kind of shaky-the idea that the way to induce greater work effort is to cut taxes. It has more than a passing family resemblance to the Laffer Curve, et, al.
"Ed Prescott - he of RBC model fame - is also known for advancing a theory of why Americans work more than Europeans. In this 2004 paper, Prescott attributed the difference to taxes - Europeans are taxed much more than Americans, in order to pay for their generous welfare states. Like many other economists (e.g. Greg Mankiw), Prescott thinks that high taxes make people work a lot less.
When I studied the Prescott paper in grad school, the instructor noted that Canada might be an exception to the high-tax, low-labor pattern. Now, David Andolfatto brings us even more dramatic news of Canadian exceptionalism. Andolfatto (a hard-working Canuck himself) breaks down the Canadian labor force participation rate by age and gender, and shows that young and prime-age Canadians work more than do their American counterparts, and that this has been true since around the year 2000."
http://noahpinionblog.blogspot.com/2013/12/a-blow-to-prescott-theory-of-labor.html
Later, Frances Woolley responds and while she questions whether or not Canadians really work more than Americans, she agrees that whatever effect tax rates have on work effort is likely small-because there are income and substitution effects.
"Frances Woolley, another industrious Canadian (They're everywhere! Auuughhh!), responds. I think her response really validates my points, since it points out lots of other factors besides effective marginal tax rates that can affect labor supply. In other words, Prescott's analysis was just hopelessly simplistic."
For me I never get why we even necessarily want to be the country that works more hours than anyone else. If tax cuts do this maybe we don't need them. Ms. Woolley actually reveals some very interesting facts about the Canadian labor force.
"I'm still not convinced that Canadians are working more than Americans. There are just too many quirks in the data. E.g., look at the data for women. In Canada employed women are typically take a year of maternity/parental leave, and are counted as being employed while they're on leave (lots of men take parental leave also, but they aren't entitled to quite a full year). If that's on average one year of leave per employed woman, that's enough to make a difference in the participation rate numbers. (As you know, there is far less maternity/parental leave in the US, and I don't know if people on leave are counted as employed on your side of the border.) I would strongly suspect that people on maternity/parental leave don't figure into annual hours/worker calculations however."
http://worthwhile.typepad.com/worthwhile_canadian_initi/2013/12/so-we-work-harder-in-canada-eh.html#more
She also nails it in another post:
"The basic lesson of economics is that people - including governments - aren't stupid. If it was possible to generate an immediate increase in tax revenues by reducing tax rates, taxes would be cut instantly. Taxes are what they are in part because reducing taxes creates an immediate revenue short-fall."
"The ultimate impact of a tax cut depends upon how that revenue short-fall is met. Are basic government services, such as transportation infrastructure or the legal system, cut? Inadequate infrastructure is an obstacle to doing business, just like high taxes, and can impede economic growth. Does the government borrow to maintain spending levels? High levels of government debt are hardly good for the economy. Is redistributive spending, such as social security and medicare, scaled back? It might promote economic growth, but it would be political suicide."
"There are no twenty dollar bills lying on the sidewalk. Cutting taxes has consequences, and not all of them are pleasant."
http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/04/the-impact-of-tax-cuts-on-government-revenues.html
The only tax cuts I favor are for those with lower income. She mentions raising the exemption rate which I wholeheartedly would support. Our exemption in the U.S. is very low. If it went up from where it is now-only $10,000 or so for a single person to $25.000 tomorrow that would be very beneficial for demand. Another great tax cut would be payroll taxes for those beneath a certain income level.
Here is another quote from here where she really nails it:
"It is true that circumstances change. If other countries cut corporate tax rates, the country that tries to stick with its existing regime may face a loss of revenue. The Internet makes it easier to run a business from a Barbados beach house than it was 20 years ago. The first question to ask someone who proposes cutting taxes is: "What has changed? Why is the previous tax rate no longer optimal?" The second question to ask is: "What is a reasonable estimate of the likely behavioral response?"
That is a very good question to ask when some wild eyed Supply Sider is demanding another deep tax cut for the rich-what has changed since these levels were established?
"Where I part ways with Krugman is mainly in his lack of respect for the majority of people who are actively engaged in macroeconomic research, and for some of the people who made key contributions to the profession in the last 40 years. That lack of respect is both uninformed and unnecessary."
http://newmonetarism.blogspot.com/2013/12/phillips-curves-and-fisher-relations.html
See this is the paradox of SW: how you both claim that what we have right now is a liquidity trap and what we need to do right now is to actually increase public debt and yet hate Krugman and think he was the bad guy in the fight between him and Cochrane back in 2009 in the stimulus?
Much of SW's complaints with Krugman sound pretty provincial-'Harumph! While he's out there as a big star blogger over at the NYTimes other people are doing real research that he scoffs at!'
Well one such person in the academic field is of course, Ed Prescott. Noah Smith today argued that his Theory of Labor is looking kind of shaky-the idea that the way to induce greater work effort is to cut taxes. It has more than a passing family resemblance to the Laffer Curve, et, al.
"Ed Prescott - he of RBC model fame - is also known for advancing a theory of why Americans work more than Europeans. In this 2004 paper, Prescott attributed the difference to taxes - Europeans are taxed much more than Americans, in order to pay for their generous welfare states. Like many other economists (e.g. Greg Mankiw), Prescott thinks that high taxes make people work a lot less.
When I studied the Prescott paper in grad school, the instructor noted that Canada might be an exception to the high-tax, low-labor pattern. Now, David Andolfatto brings us even more dramatic news of Canadian exceptionalism. Andolfatto (a hard-working Canuck himself) breaks down the Canadian labor force participation rate by age and gender, and shows that young and prime-age Canadians work more than do their American counterparts, and that this has been true since around the year 2000."
http://noahpinionblog.blogspot.com/2013/12/a-blow-to-prescott-theory-of-labor.html
Later, Frances Woolley responds and while she questions whether or not Canadians really work more than Americans, she agrees that whatever effect tax rates have on work effort is likely small-because there are income and substitution effects.
"Frances Woolley, another industrious Canadian (They're everywhere! Auuughhh!), responds. I think her response really validates my points, since it points out lots of other factors besides effective marginal tax rates that can affect labor supply. In other words, Prescott's analysis was just hopelessly simplistic."
For me I never get why we even necessarily want to be the country that works more hours than anyone else. If tax cuts do this maybe we don't need them. Ms. Woolley actually reveals some very interesting facts about the Canadian labor force.
"I'm still not convinced that Canadians are working more than Americans. There are just too many quirks in the data. E.g., look at the data for women. In Canada employed women are typically take a year of maternity/parental leave, and are counted as being employed while they're on leave (lots of men take parental leave also, but they aren't entitled to quite a full year). If that's on average one year of leave per employed woman, that's enough to make a difference in the participation rate numbers. (As you know, there is far less maternity/parental leave in the US, and I don't know if people on leave are counted as employed on your side of the border.) I would strongly suspect that people on maternity/parental leave don't figure into annual hours/worker calculations however."
http://worthwhile.typepad.com/worthwhile_canadian_initi/2013/12/so-we-work-harder-in-canada-eh.html#more
She also nails it in another post:
"The basic lesson of economics is that people - including governments - aren't stupid. If it was possible to generate an immediate increase in tax revenues by reducing tax rates, taxes would be cut instantly. Taxes are what they are in part because reducing taxes creates an immediate revenue short-fall."
"The ultimate impact of a tax cut depends upon how that revenue short-fall is met. Are basic government services, such as transportation infrastructure or the legal system, cut? Inadequate infrastructure is an obstacle to doing business, just like high taxes, and can impede economic growth. Does the government borrow to maintain spending levels? High levels of government debt are hardly good for the economy. Is redistributive spending, such as social security and medicare, scaled back? It might promote economic growth, but it would be political suicide."
"There are no twenty dollar bills lying on the sidewalk. Cutting taxes has consequences, and not all of them are pleasant."
http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/04/the-impact-of-tax-cuts-on-government-revenues.html
The only tax cuts I favor are for those with lower income. She mentions raising the exemption rate which I wholeheartedly would support. Our exemption in the U.S. is very low. If it went up from where it is now-only $10,000 or so for a single person to $25.000 tomorrow that would be very beneficial for demand. Another great tax cut would be payroll taxes for those beneath a certain income level.
Here is another quote from here where she really nails it:
"It is true that circumstances change. If other countries cut corporate tax rates, the country that tries to stick with its existing regime may face a loss of revenue. The Internet makes it easier to run a business from a Barbados beach house than it was 20 years ago. The first question to ask someone who proposes cutting taxes is: "What has changed? Why is the previous tax rate no longer optimal?" The second question to ask is: "What is a reasonable estimate of the likely behavioral response?"
That is a very good question to ask when some wild eyed Supply Sider is demanding another deep tax cut for the rich-what has changed since these levels were established?
Ive never understood the supply siders mantra that income taxes tax work and you get less of what you tax. It really is a n overly simplistic analysis.
ReplyDeleteEspecially today, who has any control over how much they work? I mean of the working class that is. They could cut my taxes and I might want to work more but I can't just show up at the hospital and say "Hey, Im ready to work a few OT hours!!"
There are parcels of work that are done at each business, these parcels are all directed towards selling what ever product each business sells. The number of people and hours is strictly related to how many man hours are needed to service the customer completely. Giving all those employees tax cuts will not make them ABLE to get more hours at their work. Now, if they have more spending money due to tax cuts they might, as a result of their new consumption spending, be able to induce some other business to hire more people OR get more work out of their current people but there is no magical connection between lowering taxes and getting more work.
And I agree whole heartedly with the question you asked ,Why do we want more work? We want more production, more output, more sales and more purchases, and we want all that with as little work as possible. Comparing Europeans hours worked to hours actually makes us look worse. We work more hours for marginally higher incomes (mostly to the 1%) but we have less time off to enjoy and we are stressed out and shooting one another. Sorry, I think Europe wins this round.
"We want more production, more output, more sales and more purchases, and we want all that with as little work as possible."
ReplyDeleteNothing to say but 'Amen, brother.' We want more production and output with less and less work. That's the standard.
"We want more production and output with less and less work. That's the standard."
ReplyDeleteIn order to get to that, you need to front load an investment of time, labor (mental and physical) and money in labor saving devices. High tax rates reduce the amount of time people SHOULD work, and Im sure there are hard-working frenchman who would WORK MORE if the return to their labor wasn't penalized so much
Again, though Edward your glossing over the point we're making. Why do Frenchmen want to work more if they are getting only marginally lower incomes than we do?
ReplyDeleteYou seemed to agree and were talking about labor saving devices. Then you revert to talking about the need to get people to work longer hours. We're saying that we want less hours worked for more production and output. You're saying cut people's taxes so they will work longer. We don't want to work longer.
People work however much it takes to meet their monthly obligations and save some. That doesn't change if my taxes go up next month. I will likely try to work more if I am taking less home after taxes and my obligations and savings desires haven't changed.
ReplyDeleteAlmost none of us get to say how much we'll work. We are obligated to work an amount determined by our boss not our tax rate and if we want to work more, its not as easy as wanting to, if our job doesn't need more work we won't get it unless its at the expense of someone else's. At the macro level we can't just all work more and make more money. The money gets put on the table first (demand) and then we work/compete for it.
Supply side is such an incoherent philosophy.
Yes absolutely, Greg. This is why Unlearning Econ says you have to unlearn what these academics tell you. It's obvious that if you make less money you have to work longer and it's also clear that we don't get to pick our own hours. Unless, maybe if you're a high powered CEO or mananger who is on salary.
ReplyDelete