May 25, 2017Tabarrok on the Great Depression
May 25, 2017What if we had a financial crisis without tight money?
May 25, 2017Nationalism Is Not News
May 25, 2017Does John Cochrane get Italy wrong?
May 24, 2017Larry Summers Trumps Trump
May 24, 2017Trust Assimilation in the United States
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Frequently Asked Questions
One of the big advantages of having been an economist for a long time and having been at the Council of Economic Advisers 30 years ago is that I've gotten to know and follow a lot of people and their thinking. I started at the CEA in August 1982 and finished in July 1984. During that first academic year, I had as fellow senior economists Paul Krugman, Lawrence Summers, Larry Lindsey [almost senior: he was ABD at the time], and Ben Zycher, to name four and as junior economist colleagues Greg Mankiw and John Cochrane, to name two.
Of course they all went on to bigger and better [or, at least, more powerful] things. One of the people in the above list that I am most impressed with, and somehow I informally mentored about dealing in the public debate arena, is John Cochrane, now the AQR Capital Management Distinguished Service Professor of Finance at the University of Chicago Booth School of Business.
His thinking about a wide range of economic issues is on display in a recent lengthy interview done by Aaron Steelman for the Richmond Federal Reserve Bank's publication Economic Focus (EF). I highly recommend the whole thing, which is not to say I agree with the whole thing: I agree with almost all of it.
The size of the financial industry
EF: Many people have asked whether the finance industry has gotten too big. How should we think about that?
Blocks to Economic Recovery
EF: What do you think are the biggest barriers to our own economic recovery?
Policy Challenges for the Fed
I think the big issue for the Fed is going to be "macroprudential policy" and the temptation to turn that into financial dirigisme. The Fed is now expected to micromanage "financial stability" in addition to inflation and employment, and it has a vastly enlarged regulatory toolkit that enables it to tell everyone in the financial system what to do.
In the above, he's pointing out what Jeffrey Hummel pointed out in some detail three years ago here.
The Alternate Maximum Tax
The alternative maximum tax is not my favorite nor a perfect tax code. It's a Band-Aid. Our current tax code is a chaotic mess and an invitation to cronyism, lobbying, and special breaks. The right thing is to scrap it. Taxes should raise money for the government in the least distortionary way possible. Don't try to mix the tax code with income transfers or support for alternative energy, farmers, mortgages, and the housing industry, and so on. Like roughly every other economist, I support a two-page tax code, something like a consumption tax. Do government transfers, subsidies, and redistribution in a politically accountable and economically efficient way, through on-budget spending.
I like it. I would point out, though, that there's a basic enforcement problem. With current tax rates in place, you, an individual taxpayer, are about to go over the maximum. Ok. So which level of government do you get to reduce your tax payment to? The feds, state, and locals will fight over that.
So start with the feds. Have a maximum tax rate of 25 percent for your federal taxes of all types (except federal excise taxes because computations and enforcement get messy and federal excise taxes are a tiny % of federal tax collections anyway.) Why 25? Because that's actually the number that polling data some years ago showed that was the median choice for people in every demographic category for the maximum % you should pay in all taxes, not just federal. If that was the median, then, presumably, a majority would support having 25% as the maximum at the federal level. So you could get wide support for it. The feds are the main threat anyway because it's relatively easy in America to move to a state that taxes you less than those greedy governments do in California, New York, and New Jersey.
EF: Can transfers really help the bottom half of the income distribution?