This is one of Sumner's preferred fiscal policies just like it was Milton Freidman's before him. Say what you want about Sumner-and you know I have and will-but I freely admit he really is Milton Freidman 2.0 Because Monetarists and conservatives like the two MFs like it I think you have to be a little bit circumspect about the idea. Just remember where the true battle lines are if you are a Keynesian or liberal. Sumner never loses sight of that:
"Fiscal policy can’t really do anything in the AD/NGDP area. So what do people like Larry Summers mean when they talk about a preference for using fiscal policy? They aren’t advocating the use of fiscal policy to get the right level of NGDP growth; you can do that with monetary policy. They are not recommending that fiscal policy be used to attack unemployment, they are recommending that fiscal policy be used to attack the private sector. And that’s because they believe that when interest rates are low the private sector is not efficient, at least compared to the public sector."
"So please don’t waste my time with silly arguments about the advantage of fiscal policy over monetary policy, unless you are advocating barter. Say you want fiscal policy because you think the economy needs more socialism and less capitalism. That a perfectly respectable argument, so make it. Don’t beat around the bush."
http://diaryofarepublicanhater.blogspot.com/2014/01/yes-scott-ive-rejected-neoliberalism.html
Another way to put this is that this is not primarily about NGDP and AD per se for Scot himself. Though he presents it as only those who propose fiscal policy have such lurid political agendas it's clear that this is really what's at stake for him too-he wants to shrink the government sector. For the record his claim that you deal with AD purely in monetary terms is not a fact either, at least it's hardly been conclusively demonstrated certainly not in his own victory laps where he claims so. However, as he himself says this is not really the point. We could turn the argument around on him. We can certainly deal with our AD problems while using fiscal policy but that wouldn't be acceptable to him: because it's not about AD it's about shrinking the size of government.
So when we discuss the wage subsidy it's important to realize that to the extent that conservatives support it, it's because they imagine it's a way to cut the size of government. Liberals have also found the idea attractive-going back to James Tobin. However, liberals don't envisage it as cutting the size of government but probably expanding it. Bearing all this in mind I find it an intriguing idea-though unlike conservatives I don't see it as a way to cut the welfare state.
I'm just finishing up a book about that rarest of diamonds in economics a natural experiment. It's regarding the negative income tax
http://www.amazon.com/Work-Incentives-Income-Guarantees-experimentation/dp/0815769768/ref=sr_1_1?s=books&ie=UTF8&qid=1390058905&sr=1-1&keywords=work+incentives+and+income+guarantees%3A+the+new+jersey+negative+income+tax+experiment
In the late 60s and early 70s there was a 5 year experiment with a negative income tax in the state of New Jersey. It was actually commissioned from Washington and New Jersey was chosen as the state to do it-for complex reasons. One was because they hadn't had a state welfare program. Ironically the year the experiment started the state passed such a program.
Anyway, very interesting chapter in American history but it's striking that so much of the focus at the time was worry over this effecting the labor supply-that a good number of people receiving the subsidy would work less. Looking back on it I think they were too focused on this worry about someone getting something they didn't deserve or someone shirking work.
For one thing, I suspect that they overestimate how much people prefer leisure to work. Experiences like the government job program in Argentina in 2002 seem to argue against this thesis-there most people with the choice sitting at home and getting a government check and working in a government jobs program for the same money chose the latter.
Is it possible to imagine a society evolved enough to just not care if there are a few parasites out there assuming it's not epidemic? I know that with what I make a week at my job as a telemarketer-selling snake oil to maintenance guys over the phone-my own personal 'supply of labor' is pretty much 100% 'inelastic.'
Partly this is because I'm still taking home a-very considerable amount-less than I want to. In economics there's the idea that people have an ideal amount of money they want to take in. I'm well beneath whatever that would be for me. After taxes I take home about $330 a week. There are bonuses, like this past week I won the office bonus by having the most paids-as our sales are on a trial balance or 'consignment' we only get credit towards a bonus when there is an actual payment. I won the bonus this week but after taxes it only gave me about $65 more than I usually make.
So if the government was to give me effectively $100 dollars a week this would hardly cutback my work effort as even then I'd be averaging about $430 a week-better but still nothing to get too excited about. For me to get really excited I'd say I'd have to see at least close to $600 per week-after taxes I should stipulate. However even a subsidy that accrued to me over that wouldn't cut back on my work effort.
The trouble is that it's not really up to me anyway. I work 9 to 5, everyone does. There's no ability for anyone to work any different hours or work less than the full 40. So my labor here is purely inelastic. This is true of many American workers. So what we could say about the effect of a subsidy on work effort is that no one who makes less than their ideal income stream would cut back-and most people that would eligible for the subsidy would be in this group. In any case a large chunk don''t have any say over how many hours they can work anyway.
Another notable part of the experiment is the idea of a tax rate on those gaining the subsidy. How how to make it? This I guess is like what they do with SSDI payments where if a beneficiary earns above a certain amount the government begins to cut back on their payments. I've met many people lie this who get a $800 check every month from SSDI but are not allowed to make more than $400 at a job before the benefits begin to be cut back. It's been argued that this is necessary for the good of those who truly need the payment but what it also does is discourage the very work effort that it such a concern. There is a complicated reason why that's necessary apparently-to stop the system being gamed by those who don't really need it. Still, if you're in SSDI they really kill any iniative you might have to work. These are people who may well have disabilities that mean they're going to need some of the benefits of being on SSDI-if they lost their check they could also lose their housing, health benefits, etc.
We can argue what it means to be poor but I can point to what it looks like when you're not. This other guy in my office who's been there awhile was saying yesterday that he had to cash last week's paycheck-he had forgotten to. Now that's what Simone who's getting decent money sounds like. Even he can't decide to work less though.
At the end of the day, what I think the wage subsidy should do is make it a lttiel easier for workers to get to that next level-to make upward mobility a little easier. How recipients spent it would be less of a worry-if they 'wasted it' on 'frivolous consumption' that's still not a problem in fact that's a positive as it increases demand.
"Fiscal policy can’t really do anything in the AD/NGDP area. So what do people like Larry Summers mean when they talk about a preference for using fiscal policy? They aren’t advocating the use of fiscal policy to get the right level of NGDP growth; you can do that with monetary policy. They are not recommending that fiscal policy be used to attack unemployment, they are recommending that fiscal policy be used to attack the private sector. And that’s because they believe that when interest rates are low the private sector is not efficient, at least compared to the public sector."
"So please don’t waste my time with silly arguments about the advantage of fiscal policy over monetary policy, unless you are advocating barter. Say you want fiscal policy because you think the economy needs more socialism and less capitalism. That a perfectly respectable argument, so make it. Don’t beat around the bush."
"PS. And don’t call it fiscal stimulus either. Tax cuts are fiscal stimulus, and as you might have noticed almost all the Keynesians favored the tax increasesObama adopted a year ago. You don’t favor fiscal stimulus; you favor more government spending. And not transfers, those are tax cuts too. You favor more government OUTPUT. You’ve rejected neoliberalism, so say so."
http://www.themoneyillusion.com/?p=25886&cpage=2#comment-313381http://diaryofarepublicanhater.blogspot.com/2014/01/yes-scott-ive-rejected-neoliberalism.html
Another way to put this is that this is not primarily about NGDP and AD per se for Scot himself. Though he presents it as only those who propose fiscal policy have such lurid political agendas it's clear that this is really what's at stake for him too-he wants to shrink the government sector. For the record his claim that you deal with AD purely in monetary terms is not a fact either, at least it's hardly been conclusively demonstrated certainly not in his own victory laps where he claims so. However, as he himself says this is not really the point. We could turn the argument around on him. We can certainly deal with our AD problems while using fiscal policy but that wouldn't be acceptable to him: because it's not about AD it's about shrinking the size of government.
So when we discuss the wage subsidy it's important to realize that to the extent that conservatives support it, it's because they imagine it's a way to cut the size of government. Liberals have also found the idea attractive-going back to James Tobin. However, liberals don't envisage it as cutting the size of government but probably expanding it. Bearing all this in mind I find it an intriguing idea-though unlike conservatives I don't see it as a way to cut the welfare state.
I'm just finishing up a book about that rarest of diamonds in economics a natural experiment. It's regarding the negative income tax
http://www.amazon.com/Work-Incentives-Income-Guarantees-experimentation/dp/0815769768/ref=sr_1_1?s=books&ie=UTF8&qid=1390058905&sr=1-1&keywords=work+incentives+and+income+guarantees%3A+the+new+jersey+negative+income+tax+experiment
In the late 60s and early 70s there was a 5 year experiment with a negative income tax in the state of New Jersey. It was actually commissioned from Washington and New Jersey was chosen as the state to do it-for complex reasons. One was because they hadn't had a state welfare program. Ironically the year the experiment started the state passed such a program.
Anyway, very interesting chapter in American history but it's striking that so much of the focus at the time was worry over this effecting the labor supply-that a good number of people receiving the subsidy would work less. Looking back on it I think they were too focused on this worry about someone getting something they didn't deserve or someone shirking work.
For one thing, I suspect that they overestimate how much people prefer leisure to work. Experiences like the government job program in Argentina in 2002 seem to argue against this thesis-there most people with the choice sitting at home and getting a government check and working in a government jobs program for the same money chose the latter.
Is it possible to imagine a society evolved enough to just not care if there are a few parasites out there assuming it's not epidemic? I know that with what I make a week at my job as a telemarketer-selling snake oil to maintenance guys over the phone-my own personal 'supply of labor' is pretty much 100% 'inelastic.'
Partly this is because I'm still taking home a-very considerable amount-less than I want to. In economics there's the idea that people have an ideal amount of money they want to take in. I'm well beneath whatever that would be for me. After taxes I take home about $330 a week. There are bonuses, like this past week I won the office bonus by having the most paids-as our sales are on a trial balance or 'consignment' we only get credit towards a bonus when there is an actual payment. I won the bonus this week but after taxes it only gave me about $65 more than I usually make.
So if the government was to give me effectively $100 dollars a week this would hardly cutback my work effort as even then I'd be averaging about $430 a week-better but still nothing to get too excited about. For me to get really excited I'd say I'd have to see at least close to $600 per week-after taxes I should stipulate. However even a subsidy that accrued to me over that wouldn't cut back on my work effort.
The trouble is that it's not really up to me anyway. I work 9 to 5, everyone does. There's no ability for anyone to work any different hours or work less than the full 40. So my labor here is purely inelastic. This is true of many American workers. So what we could say about the effect of a subsidy on work effort is that no one who makes less than their ideal income stream would cut back-and most people that would eligible for the subsidy would be in this group. In any case a large chunk don''t have any say over how many hours they can work anyway.
Another notable part of the experiment is the idea of a tax rate on those gaining the subsidy. How how to make it? This I guess is like what they do with SSDI payments where if a beneficiary earns above a certain amount the government begins to cut back on their payments. I've met many people lie this who get a $800 check every month from SSDI but are not allowed to make more than $400 at a job before the benefits begin to be cut back. It's been argued that this is necessary for the good of those who truly need the payment but what it also does is discourage the very work effort that it such a concern. There is a complicated reason why that's necessary apparently-to stop the system being gamed by those who don't really need it. Still, if you're in SSDI they really kill any iniative you might have to work. These are people who may well have disabilities that mean they're going to need some of the benefits of being on SSDI-if they lost their check they could also lose their housing, health benefits, etc.
We can argue what it means to be poor but I can point to what it looks like when you're not. This other guy in my office who's been there awhile was saying yesterday that he had to cash last week's paycheck-he had forgotten to. Now that's what Simone who's getting decent money sounds like. Even he can't decide to work less though.
At the end of the day, what I think the wage subsidy should do is make it a lttiel easier for workers to get to that next level-to make upward mobility a little easier. How recipients spent it would be less of a worry-if they 'wasted it' on 'frivolous consumption' that's still not a problem in fact that's a positive as it increases demand.
Good post Mike
ReplyDeleteYou are right that conservatives are overly concerned with free riders. The mount they are willing to spend to stop free riders is often beyond what the cost of the free riders are in the first place. The efforts to drug test UI recipients was pretty much an example of that. They found so few that the cost of testing them all exceeded what they saved from what I understand. Now, to look at that only form the perspective of how much the drug testing costs vs how much the saved benefits are can have its own flaws too. I don't buy the idea that spending on the drug testing is pure waste. Spending on the drug testing means people who are doing the drug testing, people who make the machines to do the testing and the kits that the urine or blood samples go in are receiving income. That may very well be a better way of spending money.
For example, if we want to make sure NO pilots are ever intoxicated while flying and we pay to drug or alcohol test every one of them before they get into a plane, we might indeed spend way more on the testing than what the finding of a couple pilots who are barely over might actually save, because how do we know how much a slight inebriation actually affects the successful completion of every flight. Most planes today probably could be flown safely by slightly inebriated pilots, the technology is so good and most decisions are rather routine but could we really credibly argue against it not being a good standard to say "Pilots, you need to be drug or alcohol free when flying" ?
That is something worth spending more than you might save just on principle. The whole drug testing of UI recipients is pure nastiness. It saves nothing and its simply a way to socially stigmatize a group of people who are very hard on their luck, which unfortunately describes much of the modern American conservative movement today, petty assholes.
Some sort of income support as a BIG or a neg income tax is the least that is necessary. Personally I favor a JG type program that eliminates involuntary unemployment. Basically I would like to see the day where neoclassicals are right, unemployment IS a choice. We are far form that now.
I favor JG as well. I'd take income support if it's not used the way Sumner wants it-to cut the welfare state. No doubt without this he might not be interested. Speaking of petty assholes I was just reading about Chris Christy again. The Republican minority leader can't believe he could have lied for an hour-as he's a 'charismatic leader.'
ReplyDeleteDo you guys know who Greg Ransom is?
ReplyDeleteIve heard the name.... why?
Delete