Bryan Caplan and David Henderson

Fiscal Policy

A Category Archive (447 entries)

Response to Krugman on My Canada Study

Fiscal Policy
David Henderson
UPDATE BELOW I think this qualifies as a cockroach idea (zombies just keep shambling along, whereas sometimes you think you've gotten rid of cockroaches, but they keep coming back.) I thought we had disposed of all this four years ago.... MORE

The Fiscal Prognosis

Fiscal Policy
Bryan Caplan
Here's how bad the CBO's now expects the long-run fiscal crisis to be:The unsustainable nature of the federal tax and spending policies specified in current law presents lawmakers and the public with difficult choices. Unless substantial changes are made to... MORE

Economics: Truer than it seems

Macroeconomics
Scott Sumner
One thing that economists and non-economists have in common is that they underestimate the power of economic theory. More specifically, they aren't able to accurately connect the predictions of economic theory with the behavior that they (wrongly) think they observe... MORE

Boudreaux on Piketty

Business Economics
David Henderson
Piketty reasonably assumes that if government finances its expenditures with taxes, then the rich would pay a disproportionately large share of those taxes. But he unreasonably assumes that debt financing of government expenditures not only allows the rich to escape... MORE

If something can't go on forever, it will

International Macroeconomics: Exchange Rates, International Debt, etc.
Scott Sumner
You may recall a famous saying by Herb Stein: If something can't go on forever, it won't. I don't quite believe that, although I must admit that Stein has me beat on logic. But I've noticed that when people say... MORE

Wolfers on the fiscal consensus

Monetary Policy
Scott Sumner
Justin Wolfers points to a survey showing overwhelming support for the notion of a positive fiscal multiplier in early 2009: The Initiative on Global Markets at the University of Chicago -- hardly a hotbed of liberal or Keynesian thought... MORE

Let's think about (left) liberalism over the last 50 years. By the 1960s, income had become relatively equally distributed. Liberal economists grew increasingly skeptical of labor unions. When the UAW demanded higher wages, the money seem to come out of... MORE

What is monetary policy?

Monetary Policy
Scott Sumner
When I use the term 'monetary policy' it refers to actions taken by the monetary authority aimed at influencing the supply or demand for base money, with the ultimate objective of influencing a broader set of macro variables, such as... MORE

Great Moments in Federal Government Retirement

Cost-benefit Analysis
David Henderson
On Tuesday, I spent all day at a retirement planning seminar with more than 100 other federal government workers. Talking to a few of my colleagues around my same age (63), I jokingly referred to it as an AARP event.... MORE

Prior to 2001, I supported a much smaller government, but I wasn't particularly obsessed about government debt per se. I didn't think that government borrowing was stealing from future generations (the technology for stealing from future generations more or less... MORE

Bastiat just rolled over in his grave

Fiscal Policy
Scott Sumner
The Administration has released a report defending the ARRA program, and it's every bit as embarrassing as you might expect. Where to begin . . . 1. The report seems to ignore the fact that fiscal stimulus failed to produce... MORE

Immaculate inflation and immaculate growth

Fiscal Policy
Scott Sumner
Here's Paul Krugman: Barry Ritholtz reminds us that we've just passed the third anniversary of the debasement-and-inflation letter -- the one in which a who's who of right-wing econopundits warned that quantitative easing would have dire consequences. As Ritholtz notes,... MORE

Keynesian confirmation bias

Monetary Policy
Scott Sumner
When you read Keynesian blogs you get the impression that Keynesians think their model has been somehow confirmed by the events of the last few years. And yet figuring out what their model actually predicts can be maddeningly difficult, like... MORE

Here's Larry Summers: Last month I argued that the U.S. and global economies may be in a period of secular stagnation; in which sluggish growth and output, and employment levels well below potential, might coincide for some time to come... MORE

In a recent post I discussed how Keynesians like Mike Konczal began the year claiming that we were going to have a test of market monetarism, and specifically the doctrine of "monetary offset."  [As recently as 2007, monetary offset (roughly zero fiscal... MORE

Keynesianism: It's not just resting

Macroeconomics
Scott Sumner
During late 2012, market monetarists like myself argued that fiscal austerity in 2013 would not slow growth.  We based that on an idea that was relatively uncontroversial as late as 2007 (even among New Keynesians)---monetary offset.  If the central bank... MORE

Krugman's Kontradictions or Contradictions?

Fiscal Policy
David Henderson
Blogger and frequent Econlib Feature Article contributor Robert P. Murphy has coined the term "Krugman Kontradiction." I believe, and I think Bob agrees with me, that Krugman is very clever and crafty. (Or should that be Klever and Krafty?) And... MORE

Did the Federal Spending Cuts Slow Growth

Macroeconomics
David Henderson
One of Scott Sumner's most important posts in the last few months is his November 8 post, "Mike Konczal: "We rarely get to see a major, nationwide economic experiment at work." Scott quotes blogger Mike Konzcal from last April: We... MORE

Salim Furth: Two Kinds of Austerity

Fiscal Policy
David Henderson
In "Look Closer: Tax Increases, Not Spending Cuts, Are the Harmful Austerity," economist Salim Furth notes two kinds of fiscal austerity: tax increases and budget cuts. He finds that the negative short-run impact of tax increases on GDP is much... MORE

Reply to James Pethokoukis--and a Challenge

Fiscal Policy
David Henderson
Last week, James Pethokoukis of the American Enterprise Institute, an Institute with which I was affiliated in the late 1990s and early 2000s, wrote a piece titled "The dodgy austerity economics of the tea party." Here's a key paragraph: Now... MORE

Krugman on Default

Economic Methods
David Henderson
One of the frustrating things about reading Paul Krugman's blog regularly, as I do, is that I so often have to cut through his nastiness to see if he's actually saying something important and, even better, true. Why do I... MORE

Weekend Wall Street Journal

Economics of Health Care
David Henderson
I rarely do a potpourri of various links but the editorial page of the Wall Street Journal this weekend had 5 good op/eds: the Weekend Interview, the two unsigned "Review and Outlook," and two pieces by non-WSJ authors. 1. Weekend... MORE

Regulating your diet

Economics of Health Care
Alberto Mingardi
Food taxes are apparently proliferating, all over Europe. Finland introduced taxes on sugared products; France now has a special tax on all soft drinks and Hungary increased taxes on food with high fat, sugar and salt content. The trailblazers on... MORE

Solow and Samuelson on the Phillips Curve

Books: Reviews and Suggested Readings
David Henderson
In my critical comment on Robert Solow's slam on Friedman, I pointed out that when I reread Solow's and Samuelson's famous 1960 article on the Phillips Curve as a "menu" for policy makers choosing between low unemployment and low inflation,... MORE

California's Phony Budget Surplus

Fiscal Policy
David Henderson
My personal finances are doing great. I have a "surplus." I saved $1,000 last month after paying all my expenses. Well, not all my expenses. I didn't pay my $1,500 monthly mortgage. But, hey, don't be picky. The above is... MORE

Solow on Friedman

Fiscal Policy
David Henderson
I promised recently that I would post on Robert Solow's views on Friedman once I had got over the shock. I am now over the shock. Because Solow's piece is quite brief, I won't try to summarize it here. Instead,... MORE

John Thacker on Vaccinations and the Sequester

Fiscal Policy
David Henderson
John Thacker, a frequent commenter on this blog, also frequently comments on Scott Sumner's blog. It's safe to say that I have learned something from virtually every comment he has written. On Scott Sumner's blog yesterday, Thacker points out some... MORE

Budget Cuts Seem to Work

Fiscal Policy
David Henderson
Washington Post blogger Mike Konzcal writes that we now have a test of monetary vs. fiscal policy. According to him, fiscal policy won. That is, fiscal policy is more potent and monetary policy is impotent. In fact the very data... MORE

Two public choice theories of fiscal policy: Under Starve the Beast, the spenders tell the tax-cutters, "If you get what you want, that means I can't get what I want."  It's a story of limits to budgets, limits to borrowing, limits... MORE

First things first: A hearty welcome to my new co-blogger Art Carden.To the task at hand: A while ago I wrote on how "Capital should be untaxed" should be the default view in economics: Zero capital taxation should be the... MORE

From the WSJ (h/t Tyler):The Portuguese government is considering a plan to pay public workers and pensioners one month of their salary in treasury bills rather than cash after a high court ruled out wage cuts...One way to read this... MORE

Milton Friedman's theory of Starve the Beast said that there was a "politically acceptable deficit," so a one-time ex nihilo cut in taxes would have to cause a spending cut to keep the deficit stable.  My commenters have revised (or... MORE

The "Starve the Beast" theory predicted that if you gave politicians more revenue, they would just spend it.  However, the last few years in Europe have provided example after example that tax increases are quite compatible with relative spending restraint... MORE

In the last few months here in the U.S. we've had a tax increase followed by a sequester.  Tax hikes coupled with slower spending growth: Here on the internet, we call that "austerity." But for decades, much of the American Right... MORE

Assorted Tweets: Cyprus Speed Bankruptcy Edition

Public Choice Theory
Garett Jones
1: Is the Cyprus bank levy a crude approximation of bankruptcy?  Actually, the bank levy is probably better for depositors than bankruptcy....The reason it's probably better than bankruptcy is because in return for haircuts, Cypriot banks will get cheap money from... MORE

The video of the John Stossel show for February 28 has now been released and is here. In the fourth segment, starting at about the 26:00 point, Veronique de Rugy discusses France's failure to cut government spending and I talk... MORE

There's an old story about a mathematician asking Paul Samuelson for one idea in economics that was simultaneously true and not obvious.  Samuelson's answer is here.  Today, I've got another: The Chamley-Judd Redistribution Impossibility Theorem.  Chamley and Judd separately came... MORE

Friday Night Video: Henderson on Economic Myths

Fiscal Policy
David Henderson
Last November, in his final show before the Presidential election, John Stossel devoted most of the hour to election issues. One segment was on economic myths that the candidates believe or, at least, say they believe. Sallie James of Cato... MORE

Henderson on John Stossel Show

Fiscal Policy
David Henderson
John Stossel's show tonight on the Fox Business Channel (9:00 p.m. EST and 6:00 p.m. PST) is about the sequester, budget cuts, crazy government programs, etc. I sat in the green room and watched almost all of it and it's... MORE

Sequester: This is Supposed to be Scary?

Fiscal Policy
David Henderson
My local newspaper linked to a badly written story about the sequester. The author is Ryan Teague Beckwith of Digital First Media and the piece is titled "Sequester: Seven Specific Cuts the Government is Considering." My comments follow on each.... MORE

The Washington Post reports that if the sequester happens...About 800,000 Defense Department civilians could face 22 unpaid leave days, spread out over as many weeks, amounting to a 20 percent pay cut over that period.Because work requirements will not fall,... MORE

Henderson on Responsibility for Sequestration

Fiscal Policy
David Henderson
Sam Brock of the NBC affiliate in San Jose came down to Monterey on Wednesday to interview me about the coming sequester of government spending. I didn't realize to what extent the interview would be about "who is to blame."... MORE

Bowles-Simpson: Don't Fight the Focal Point

Fiscal Policy
Garett Jones
In today's US News Debate Club, I offer my views on the latest deficit reduction outline offered by Clinton Administration official Erskine Bowles and former GOP Senator and current curmudgeon Alan Simpson.  My closing sentence: We could do worse than the latest... MORE

Part of the reason money growth predicts real economic growth is because banks are in the business of being ahead of the curve: They lend money when they think a boom is likely in the near future, and they cut... MORE

The first rule of empirical social science is that correlation isn't causation: Purchases of baby strollers predict childbirth but few of us believe baby strollers cause childbirth. We're all trained in the post hoc fallacy, we're often looking for solutions... MORE

Assorted Tweets

Monetary Policy
Garett Jones
1.  "OK, who thinks sequestration would cause the Fed to boost QE?"If you're raising your hand, then you think the zero nominal bound on interest rates isn't a zero nominal bound on looser monetary policy.  And you think that the... MORE

Must Default Be Avoided at All Costs?

Fiscal Policy
David Henderson
Default must be avoided at all costs and should not be an option on the table. This is from Jason J. Fichtner and Veronique de Rugy, "The Debt Ceiling: Assets Available to Prevent Default," January 25, 2013. What's their reasoning?... MORE

You've heard the expression "retire in place": You stop putting in a real effort at work because your employer never fires anyone. The web is full of anecdotes about cushy jobs where you can retire in place and spend your... MORE

Government Hiring: An Axiomatic Stabilizer

Fiscal Policy
Garett Jones
Last week I said: It would be great to measure how much reported GDP volatility would fall if we calculated the whole thing the same way we calculate the government part of GDP. Since the government doesn't report profits, and since... MORE

Cowen on the Multiplier: Is it Really "Worth"?

Fiscal Policy
David Henderson
Tyler Cowen recently wrote: So, in these cases [a government giving aid to to another government], a multiplier of one means that a dollar of aid--the alternative to the fiscal consolidation--is worth a dollar. I find that easy to believe.... MORE

Government Hiring: Raising GDP by Definition

Economic Methods
Garett Jones
GDP, Gross Domestic Product. The number gets a lot of attention, deservedly.  You'd be foolish to use it as your sole economic statistic but you'd be just as foolish to ignore it and go with your gut.  Today I'd like... MORE

When is a Spending Multiplier "Big"?

Fiscal Policy
Garett Jones
We're still debating how extra government spending influences the short run economy.  How it influences the long run is a more important question but that's a topic for another blog post.  Recently there's been some buzz that multipliers are on... MORE

Jonah Goldberg tries to play missionary to his Socially Liberal Fiscal Conservative friends.  He promisingly begins:Dear Socially Liberal Fiscal-Conservative Friend...[Y[ou know who you are. You're the sort of person who says to his conservative friends or co-workers something like, "I... MORE

Krugman Speaks Truth to Stiglitz

Fiscal Policy
David Henderson
And, moreover, uses some of Milton Friedman's best work to do so. First, Joe [Stiglitz] offers a version of the "underconsumption" hypothesis, basically that the rich spend too little of their income. This hypothesis has a long history -- but... MORE

Murphy on Fiscal Austerity and Higher Tax Rates

Fiscal Policy
David Henderson
UPDATE: Market monetarist Lars Christensen responds. As these quotations from [Paul] Krugman and [Christina] Romer illustrate, many of today's proponents of Keynesian policy do not simply disagree with their critics, but go further by leading the general public to believe... MORE

How I Was Wrong About Government Debt

Fiscal Policy
Bryan Caplan
When an individual owes three times his annual income, we think it questionable: Okay for recent home-buyers, but probably a bad idea.  But when a government owes 300% of GDP in peacetime, we think it blatantly irresponsible.  I've often been... MORE

Henderson on Medicare: Bay Area NBC Affiliate

Economics of Health Care
David Henderson
Here is a segment on the Bay Area NBC affiliate based, in part, on an interview with me about the Medicare spending in our future. Hat Tip to the reporter, Sam Brock, for doing his homework.... MORE

WSJ's "Roll Your Own" Deficit Reduction

Fiscal Policy
David Henderson
The Wall Street Journal has on its site a list of options for reducing the projected $1-trillion-plus federal budget deficit for 2020. It's a list of cuts in discretionary spending, cuts in so-called "entitlement" spending, and increases in taxes. I... MORE

Popcorn Pork

Fiscal Policy
David Henderson
As the late Professor Olson might have observed, the popcorn subsidy will likely become fiscal law because almost no one, other than the popcorn growers, will notice. Being a small lot, they have all the incentive they need to lobby... MORE

One advantage the United States has that Canada didn't is low interest rates. Interest rates today are much lower than when the Canadian government altered course. The yield on the ten-year Treasury bond in late June 2010, for example, was... MORE

The Coming Tax Increases

Fiscal Policy
David Henderson
Remember when critics of the Romney tax plan claimed that under his plan, the middle class would face tax increases of about 2,000 per family? [Here's just one of many examples.] Well, unless state and local government plans for their... MORE

Tax hikes, according to IMF research praised by Paul Krugman. The surprising thing is this is an IMF study that usually gets cited to show that spending cuts don't grow the economy---that "expansionary austerity" is a mere theorist's dream.  But this same research also provides evidence... MORE

Brinksmanship and the Obama-Bush Tax Cuts

Fiscal Policy
Garett Jones
Matt Yglesias is claiming that POTUS and Congressional Democrats can safely ignore John Boehner: To take the bargaining process seriously at this point you have to believe that come 2013, House Republicans would actually refuse to cut taxes on the grounds... MORE

"Why do Americans work so much more than Europeans?" That's the title of one of Nobelist Ed Prescott's papers.  His story has something to do with high taxes causing low employment, so you might be tempted to begin your yawning... MORE

Josh Barro, Progressive Taxation, and Public Choice

Public Choice Theory
Garett Jones
Josh Barro today claimed that the Romney tax plan can't work. The Romney plan is simple to summarize: Cut income tax rates across the board, then end enough deductions and exclusions (informally, "loopholes") to make it revenue neutral.  Plus, the Romney... MORE

Bloomberg: Prime Minister Antonis Samaras compared Greeks' struggle with economic hardship and political turmoil with the conditions that led to the collapse of the Weimar Republic in post-World War I Germany and ushered in the Nazi era.Remember what Keynes thought about... MORE

From the FT: France's Socialist government has been forced into retreat by an online revolt by entrepreneurs and investors against its plans to raise capital gains taxes.It said it would review the details of its budget proposal to bring taxes on... MORE

Why the GOP is the Bigger Default Risk

Public Choice Theory
Garett Jones
Because Democrats really, really believe in death panels.  Steve Rattner, a former Obama Administration official, used the term (presumably as a form of gallows humor) in the Times a few weeks ago.  Rattner's piece hits some of the same themes... MORE

Treasury Bondholders: Winning in the Senate?

Public Choice Theory
Garett Jones
Many are convinced that the U.S. government will likely either default or hyperinflate its way out of debt.  I disagree: I think Treasury bondholders will win. As I wrote in Econ Journal Watch:A U.S. default is unlikely: As a demographically... MORE

Did the Dot.Com Boom Boost GDP Much?

Macroeconomics
David Henderson
In my August 26 post, "U.S. Federal Budget Cuts in the 1990s," I pointed out that U.S. government spending fell from 21.8 percent of GDP in 1990 to 18.4 percent of GDP in 2000, a 3.4-percentage-point drop. I focused on... MORE

Questions I've asked

Fiscal Policy
Garett Jones
1.  Will Treasury bondholders run our government? Follow-up questions:a. Will they run it better than we did?b. Do they run it already, as if by an invisible hand? I often ask myself, WWBD? And then I ask whether that's close to... MORE

Garett Jones on Krugman

Fiscal Policy
David Henderson
I don't know Garett Jones personally nearly as well as co-blogger Bryan does, but I know his work enough that I also recommended him highly as a guest blogger. Rather than discuss his work generally, I want to highlight his... MORE

U.S. Federal Budget Cuts in the 1990s

Fiscal Policy
David Henderson
The Untold Story that Needs to Be Told I've referred on this blog a number of times to "Canada's Budget Triumph," my 2010 study for Mercatus on the successful budget cuts the Canadian government undertook from 1994 to the early... MORE

Goolsbee on Romney's Tax and Budget Plans

Fiscal Policy
David Henderson
Hard to know, then, if the wider public noticed the spat over a nonpartisan budget think tank's finding that for Mitt Romney's tax plan to avoid increasing the deficit, it would need to raise taxes significantly on the middle class.... MORE

Civil War Watch: Sentences to Ponder

Social Security
Arnold Kling
John Mauldin writes, some people get so angry when you challenge their beliefs. You are literally taking away the source of their good feeling, like drugs from a junkie or a boyfriend from a teenage girl. Keep that in mind... MORE

Speaking of Foreign Languages

Eurozone crisis
Arnold Kling
How do you say "Have a nice day" in Japanese or French?... MORE

Harry Byrd on Keynesianism

Macroeconomics
David Henderson
When I'm at my cottage in Canada, as I am now, I do a lot of reading. I just finished Robert Caro's new book, The Years of Lyndon Johnson: The Passage of Power. It's good, but for those with limited... MORE

John Taylor vs. Ryan Avent

Monetary Policy
Arnold Kling
Taylor writes, The Fed has effectively replaced large segments of the market with itself--it bought 77% of new federal debt in 2011. By doing so, it creates great uncertainty about the impact of its actions on inflation, the dollar and... MORE

The latest survey of the IGM panel of economists poses this: Long run fiscal sustainability in the U.S. will require cuts in currently promised Medicare and Medicaid benefits and/or tax increases that include higher taxes on households with incomes below... MORE

When I first read David's latest post, I mentally reversed the true results.  I thought that every expert on the panel agreed that:A cut in federal income tax rates in the US right now would raise taxable income enough so... MORE

A Fiscal History Lesson

Fiscal Policy
David Henderson
The Hoover Institution's on-line publication, Defining Ideas, has published my article, "A Fiscal History Lesson." In it, I retell the story that I told at longer length in my 2010 Mercatus study, "The U.S. Postwar Miracle." Two highlight paragraphs: In... MORE

Gerald Prante on Means-Testing

Behavioral Economics and Rationality
Bryan Caplan
Gerald Prante of the Tax Foundation, author of the best dissertation I ever chaired, emailed me some interesting comments on means-testing.  Reprinted with his permission:Saw your post with regards to means-testing Social Security and Medicare. Such a system would likely... MORE

Means Testing Isn't "Awesome"

Fiscal Policy
David Henderson
Over two years ago, Bryan Caplan posted on why means testing is "awesome". He didn't actually make that case, though. The case he actually made is that means testing is a good idea. "Awesome" is a step above "a good... MORE

Quotations from Alice Rivlin

Fiscal Policy
David Henderson
My last post was about Sidney Winter's talk at the Naval Postgraduate School on Monday. This is about Alice Rivlin, the co-presenter. The format she and her husband, Sidney Winter, tried was to model a productive discussion between a "liberal,"... MORE

The Good and the Bad

Fiscal Policy
David Henderson
The Good Scott Sumner has an excellent post about Krugman and about fiscal policy in Britain and Sweden. To refute the idea that the Swedish economy is doing well (Krugman admits it's doing well) even though the Swedish government has... MORE

Morning Roundup

Monetary Policy
David Henderson
There are too many interesting things to write about at length this morning and so I'll just say a little about three. EU Dispersion: Check out this graphic of hypothetical monetary unions to see how incredibly diverse are the members... MORE

Chris Edwards on Time-Inconsistent Fiscal Policy

Fiscal Policy
David Henderson
To Keynesians, the short run is always more important than the long run, so it's impossible for them to have a "credible" long-run commitment to deficit reduction. Even today, prominent Keynesian economists are demanding more "stimulus," but the economy is... MORE

Matt Mitchell at Mercatus posted an excellent post on this this a.m. I could try to summarize but Matt is a heck of [that's my inner John Madden talking] a writer: both terse and complete. So I won't bother. I'll... MORE

Econ Bloggers in Kansas City

Fiscal Policy
Arnold Kling
Videos here. Panel 2, on the budget, includes Ezra Klein. He argues that the budget is, in the grand scheme of things, not such an important problem. I would agree that in the universe of problems, others are worse: unemployment,... MORE

A Guide to Budget Rhetoric

Politics and Economics
Arnold Kling
Because the budget is so far from being sustainable, budget rhetoric needs to be re-interpreted. When their side refuses to cut spending because it would be "cruel," they are ensuring that future spending cuts will be even crueler. When our... MORE

DeLong and Summers

Macroeconomics
Arnold Kling
I outsource my comments to Scott Sumner. So let's start over. The Fed is unwilling to provide enough monetary stimulus. OK, now what is the point of this paper? Is this to train our future econ PhD students? Are we... MORE

Real Austerity

Fiscal Policy
Arnold Kling
The Hill reports, Members of the Senate Tea Party Caucus on Thursday announed a plan to balance the budget in five years, cutting spending by nearly $11 trillion compared to President Obama's budget. The plan was proposed by Senators DeMint,... MORE

Griswold on Immigration and the Welfare State

Labor Mobility, Immigration, Outsourcing
Bryan Caplan
Dan Griswold's "Immigration and the Welfare State" was my favorite in the Cato Journal immigration symposium.  Highlights:False stereotypes notwithstanding, immigrants have an awesome work ethic:The typical foreign-born adult resident of the United States today is more likely to participate in... MORE

Fiscal Federalism's Failure

Institutional Economics
Arnold Kling
Below is an excerpt from a video conference with Michael Greve, Reihan Salam, and me on the problems with fiscal federalism in practice. The full half-hour video is here. And, yes, I also created a podcast. It is a good... MORE

Yesterday, co-blogger Arnold Kling referenced my work on the U.S. post-World War II austerity. I had pointed out that Keynesian wunderkind Paul Samuelson had blown it with his prediction of a postwar slump. In the comments, wd40 writes: During WW2,... MORE

No Scott, the future is Portugal

Fiscal Policy
Arnold Kling
Scott Sumner writes, In my view, Japan is the future of the global economy. Not the deflation (I think the Fed will be able to keep inflation close to 2%) but the low real interest rates. In retrospect the 2001... MORE

Concerns with the CBO

Politics and Economics
Arnold Kling
The Wall Street Journal reports The inquiries of the Congressional Budget Office, which haven't been made public, concern the CBO's analyses of some of Washington's most complex and controversial measures, including bills on financial regulation, health care, small-business lending and... MORE

Per Request: Podcasts

Fiscal Policy
Arnold Kling
For those who prefer to listen in the gym, Mercatus has put up Kling-Jones and Minarik-Wallison on prospects for a sovereign debt crisis in the U.S.... MORE

Michael Greve on Fiscal Federalism

Fiscal Policy
Arnold Kling
He describes the growth of state and local spending, the incentive for the Federal government to enact soft bailouts, and finally a future in which we come to resemble Argentina. Medicaid represents well over 40 percent of all federal transfer... MORE

Taylor Rules

Books: Reviews and Suggested Readings
Arnold Kling
John Taylor's First Principles argues for (p.18): predictable policy framework rule of law strong incentives reliance on markets clearly limited role for government On p. 25, he points out that a policy can follow one principle but violate others. An... MORE

The Prospects for a U.S. Default, Continued

Fiscal Policy
Arnold Kling
Nick and I discuss this with Joseph Minarik (former OMB economist under President Clinton) and Peter Wallison. The full half-hour video is here. Below is a 3-minute preview.... MORE

Gridlock vs. Compromise on the Deficit

Fiscal Policy
Arnold Kling
Reihan Salam writes, Suffice it to say, the thought of Chinese military officials deciding on how large a military the U.S. is allowed to retain is a sobering thought. But that, alas, is a foreseeable outcome from the brand of... MORE

A Default Scenario

Fiscal Policy
Arnold Kling
There is a compendium of papers in Econ Journal Watch on the prospects for a U.S. debt default. Garett Jones and I authored two of the papers. We discussed the topic on Friday with Reihan Salam. A preview is below.... MORE

Krugman's Evidence for Ricardian Equivalence

Fiscal Policy
David Henderson
Paul Krugman has been an outspoken critic of Ricardian Equivalence, David Ricardo's idea, revived by Robert Barro in 1974, that, holding government spending constant, when the government cuts taxes and increases deficits, people will save more to pay the inevitably-higher... MORE

Shocks and Deficits

Fiscal Policy
Arnold Kling
Alan Blinder writes, The CBO projects federal spending on all purposes other than health care and interest to be roughly stable as a share of GDP from 2015 to 2035, and then to drift lower. So no, America, we don't... MORE

My Hoover colleague Paul Gregory has an interesting op/ed on how things would look if the media treated Republican congressmen the way they treat Democrats. He takes a New York Times story and rewrites it the way people who oppose... MORE

The Microeconomics of "Stimulus" Policy

Fiscal Policy
David Henderson
But couldn't economic productivity be increased by targeting federal spending on hiring the unemployed either directly to work for government or by subsidizing private firms to hire them? Such an approach makes sense only if it produces more value than... MORE

Christina Romer Breaks with President Obama

Fiscal Policy
Arnold Kling
She writes, We already have a blueprint for a bipartisan solution. The Bowles-Simpson Commission hashed out a sensible plan of spending cuts, entitlement program reforms and revenue increases that would shave $4 trillion off the deficit over the next decade.... MORE

Thomas Sargent on Government Default

Fiscal Policy
David Henderson
Tom Sargent's Nobel prize lecture is quite clear and informative. True to form, Sargent shows some equations at first. This reflects his view that the way to be a "real economist" is to use equations. Yet he does pretty well... MORE

Fiscal Policy: A Counterexample for Krugman

Fiscal Policy
David Henderson
Blame Canada for contradicting Krugman. Paul Krugman writes: And bear this in mind: no country has driven itself into a debt crisis with stimulus -- nor has any country with significant debt regained investor confidence through austerity. Actually, the last... MORE

John Cochrane's Talk at Hoover: His Version

Macroeconomics
David Henderson
On Tuesday, I posted my notes from John Cochrane's December 3 talk at Hoover. When he saw my notes, John sent me his talk and gave me permission to reprint it. Here it is. Comments at "Restoring Robust Economic Growth... MORE

John Cochrane's Talk at Hoover

Macroeconomics
David Henderson
At his Friday talk at Hoover, University of Chicago economist John Cochrane went a mile a minute to try to fit a lot into 10 minutes. He succeeded and the talk was outstanding. But because he went so fast, my... MORE

Mankiw: We Need Fiscal Hawks, Monetary Doves

Macroeconomics
Arnold Kling
He writes, If I understand the news coming out of Europe correctly, the new head of the European Central Bank is offering a simple deal: If fiscal policy becomes hawkish, monetary policy will be dovish. In other words, as government... MORE

A Fable of Two Countries

Fiscal Policy
Arnold Kling
Once, there were two countries, I and U. Each had GDP of $100. Each had nominal GDP growth of 4 percent. Country I was a good country, with government debt of only $60, taxes of $20, and spending on everything... MORE

Me on Fox News Channel Tonight

Upcoming Events
David Henderson
John Stossel's special on government budgets, "The Money Hole," will be replayed on Fox News Channel tonight. It's at midnight EST and 9:00 p.m. PST. In one of the segments in that show, John Stossel interviews me on my Mercatus... MORE

The Balanced-Budget Multiplier

Fiscal Policy
David Henderson
In the "Letters" section of the Wall Street Journal today, Ball State University economics professor T. Norman Van Cott, in praising a recent WSJ critique of Keynesian economics by Allan H. Meltzer, adds to the critique, writing: Particularly egregious is... MORE

Spot the Reporter's Bias

Fiscal Policy
David Henderson
I don't usually gasp when I read the newspaper because not much surprises me any more. But Juliet Williams of Associated Press made me gasp. In an article on California governor's proposals to rein in the pensions of government workers,... MORE

Mankiw's Strange View of Japan

Fiscal Policy
David Henderson
In his New York Times column today, Greg Mankiw writes: The economists in the Obama administration are also well aware of the Japanese experience [slow growth since the early 1990s]. That is one reason they are pushing for more stimulus... MORE

A Tax and Transfer Company with an Army

Fiscal Policy
David Henderson
That's my relabeling for accuracy of an otherwise-excellent Paul Krugman post today. Two excerpts from his post: But this seems like a good time to repeat, once again, the truth about federal spending: Your federal government is basically an insurance... MORE

Henderson on Sargent and Sims Nobel

Macroeconomics
David Henderson
"A Nobel for Non-Keynesians," my piece on the Nobel prize winners, Thomas J. Sargent and Christopher A. Sims, ran in the Wall Street Journal today. I wrote it yesterday a.m., which is why I didn't take time to post on... MORE

From National Affairs

Monetary Policy
Arnold Kling
The current issue (fall 2011) looks quite interesting. Some of the pieces you can now access on line: 1. On means testing for entitlements, Andrew Biggs writes, There is an alternative approach -- one that achieves many of the ends... MORE

What is Fiscal Profligacy?

Fiscal Policy
Arnold Kling
Tyler Cowen writes, In bad times, and when accounting gimmicks are rampant, a government's fiscal policy is best understood as a portfolio of options positions, not in terms of a static balance sheet. Read the whole post. There is much,... MORE

Obama's Budgetary Sleight of Hand

Fiscal Policy
David Henderson
President Obama Double Counts Now, I'm proposing real, serious cuts in spending. When you include the $1 trillion in cuts I've already signed into law, these would be among the biggest cuts in spending in our history. But they've got... MORE

The Stupidest Most Annoying Argument for Stimulus

Economics of Education
Arnold Kling
Mark Thoma recycles a chart from the Center for Budget and Policy Priorities showing cuts in employment in education. Ergo, we need to send stimulus money to state and local governments. I don't mean to single out Mark. Every Democrat... MORE

Warren Buffett--or Howard Buffett?

Fiscal Policy
David Henderson
A non-libertarian economist colleague recommended Warren Buffett's recent op/ed, "Stop Coddling the Rich," to me and I decided to read it for myself. I came away unimpressed. I won't do a full analysis, but I will point out a few... MORE

Good News from Amitai Etzioni

Fiscal Policy
David Henderson
A well-known sociologist shares information about a prominent Democratic Senator that made him despair--and gave me hope. For some reason, I'm on what is probably a very large e-mail list from Amitai Etzioni, the left-wing sociology professor at George Washington... MORE

Beautiful Discussion on the Web

Cost-benefit Analysis
David Henderson
Bryan Caplan has already blogged about the debate between Paul Krugman and Steve Landsburg. I have nothing to add to the substantive issue debated. But I do have four things to add: 1. Notice that Krugman, in a later post,... MORE

The Fiscal Outlook for U.S. States

Fiscal Policy
Arnold Kling
Jeff Miron writes, The analysis here suggests that some of the recent debate about state fiscal situations has been misfocused. Attempts to reduce the power of government employee unions, or to reduce the generosity of pensions for state and local... MORE

Jamie Galbraith Makes an Assumption

Fiscal Policy
Arnold Kling
He writes, But there isn't, in fact, a "long-term deficit problem." So long as interest rates stay below the growth rate, as they are, debt-to-GDP levels eventually stabilize and even decline. The notion that there is a big problem is... MORE

Kipper- Und Wipperzeit Update, August 9

Finance: stocks, options, etc.
Arnold Kling
Livio Di Matteo writes In essence, resolving the crisis in confidence needs the current ad hoc approach to be replaced with the structure of a more formal mechanism that will generate the confidence in the world financial system needed to... MORE

Summers Way Off on FDR and 1941

Fiscal Policy
David Henderson
But for Hitler and the military buildup up he caused, FDR would have left office in early 1941 a failure, with American unemployment above 15 percent. This is from Lawrence Summers, "More Stimulus Needed For Jobs Crisis," in the Huffington... MORE

Compared to What?

Fiscal Policy
Arnold Kling
John Taylor writes, So it is clear that the budget has come a long way from the Administration's first spending proposal--about half way to the House proposal--and it was accomplished without any tax increases. Some are disappointed that Washington did... MORE

A Fragile Financial Order

Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen writes Of the world's share of AAA sovereign debt, we issue 59 percent of it. (Next is Germany with ten percent and then France with nine percent of the total.) You can read this a few ways: 1.... MORE

Another worry about Moody's position is that the firm is frequently represented in the media by economists from Moody's Analytics, such as Mark Zandi. Moody's Analytics is a distinct subsidiary within Moody's Corporation from the rating issuing entity, Moody's Investors... MORE

Tom Saving on the Social Security Trust Fund

Fiscal Policy
David Henderson
President Obama said in a recent interview with Scott Pelley of CBS News, "I cannot guarantee that those [Social Security] checks go out on August 3rd if we haven't resolved this issue [increasing the debt ceiling]. Because there may simply... MORE

Budget Arithmetic

Fiscal Policy
Arnold Kling
Douglas Elmendorf attempts to explain. spending on Social Security and the major health programs is projected to rise from 8.7 percent of GDP in 2007 to 12.2 percent in 2021 Republicans do not like that the Bowles-Simpson plan envisions spending... MORE

Re-Leveraging, Not De-Leveraging

Fiscal Policy
Arnold Kling
Tracy Alloway writes, The turmoil of 2008 shunted some investors from ABS into safer sovereign debt, it's true. But you also had a plethora of incoming bank regulation to purposefully herd investors towards holding more government bonds, plus a glut... MORE

Clarity on the Budget Debate

Fiscal Policy
David Henderson
Most of the media have done a worse job than usual of reporting on the debt ceiling/budget debate. Specifically, when one side or the other offers a deal, the media don't typically tell us when the budget cuts would come,... MORE

Murphy to U.S. Government: Sell Assets

Fiscal Policy
David Henderson
Do you think that if the U.S. government doesn't take on more debt in August, it will have to raise taxes, cut spending, use the Ron Paul/Dean Baker solution of having the Federal Reserve Bank extinguish government bonds, or default... MORE

Is Social Security a Ponzi Scheme?

Fiscal Policy
David Henderson
A couple of years ago, I claimed on this blog that Social Security is a Ponzi scheme. Various commenters objected but didn't persuade me. This week, John Seater, an economist whom I respect a great deal, wrote that it is... MORE

Not in My Interest

Fiscal Policy
Arnold Kling
Tom Coburn and Joseph Lieberman attempt to forge a centrist proposal on Medicare. "We can't balance our budget without dealing with mandatory spending programs like Medicare. We can't save Medicare as we know it. We can only save Medicare if... MORE

Loss of Risk-Free Status

Fiscal Policy
Arnold Kling
Maury Harris and Drew T. Matus write, Even a temporary default would eliminate the safe and liquid nature of the U.S. Treasury market, harming this country's ability to exercise its power, to the detriment of the U.S. and the global... MORE

Me on Fox News Channel

Fiscal Policy
David Henderson
John Stossel's special, "The Money Hole," will air on Fox News Channel this Sunday. The segment he taped with me, in which I discuss my Mercatus piece on Canada's budget cuts, will be in the last part. It will air... MORE

Henderson on Canada's Budget Cuts

Fiscal Policy
David Henderson
I got so busy with my classes in the last month or so that I neglected to highlight a follow-on study I, along with George Mason University student Jerrod Anderson, did for Mercatus. It is titled "Canada's Reversed Fiscal Crisis"... MORE

How a Sovereign Default Plays Out

Fiscal Policy
Arnold Kling
Andrew Lilico writes, What happens when Greece defaults. Here are a few things: - Every bank in Greece will instantly go insolvent. - The Greek government will nationalise every bank in Greece. - The Greek government will forbid withdrawals from... MORE

U.S. Government as ARM Borrower

Fiscal Policy
David Henderson
From my most-recent Mercatus study, "Canada's Reversed Fiscal Crisis," Working Paper No. 11-15, May 2011, co-authored with Jerrod Anderson: The average annual decrease in government expenditures on interest payments due to falling interest rates ranged from about 0.46 percent to... MORE

Two Favorite Lines of the Week

Books: Reviews and Suggested Readings
David Henderson
1. From the blogosphere: Look, I think we should assume honesty of scientific peers until we have reason not to. This is from Daniel Kuehn's excellent statement of the strengths and weaknesses of the Conley and Dupor paper on the... MORE

Welcome to Our Future

Fiscal Policy
Arnold Kling
Business Insider reports, The Irish government plans to institute a tax on private pensions to drive jobs growth I expect our government, too, to punish those of us who try to save for our own retirement. They need the money... MORE

A Buck is a Buck

Fiscal Policy
David Henderson
Nick Schulz takes on Ezra Klein and me, calling our argument "preposterous." Recall that Ezra and I had both argued that in response to 9/11, which I presume Osama bin Laden was behind, the U.S. government spent a lot of... MORE

Gratzer leaves out the tremendous accomplishments of the Liberal Party between 1995 and 2006. Since the early 1960s, when the Liberals won the first of 10 victories in 13 elections, Canadian governance largely focused on welfare statism. Between 1963 and... MORE

The Alternate Universe Problem

Fiscal Policy
Arnold Kling
At the moment, I am very pessimistic about the prospects for the United States solving its fiscal problems without a crisis. Given that we have divided government, a reasonable long-term budget will require a compromise. But the two sides seem... MORE

10-year Budget Projections

Economic Methods
Arnold Kling
Will Wilkinson writes (on Facebook), Tell me what you think about the usefulness/uselessness of 10-year budget/deficit projections. You can think of this as three questions. 1. Are the projections useful? I think they are useful if understood as conditional forecasts.... MORE

Interpreting Data

Economic Methods
Arnold Kling
Two interesting examples. 1. John Taylor attempts to take on Krulong. He writes, For all of 2007, spending was 19.6 percent of GDP. For all of 2021--after the impacts of the recession and the final year of the budget window--the... MORE

Not a Fable, Unfortunately

Fiscal Policy
Arnold Kling
From The Telegraph: On Saturday Jurgen Stark, an executive board member of the ECB, warned that a restructuring of debt in any of the troubled eurozone countries could trigger a banking crisis even worse than that of 2008. Of course,... MORE

A Fiscal Fable

Fiscal Policy
Arnold Kling
Once upon a time, everyone worked for the MyTeaEst corporation, which produced one million loaves of bread in the year 2000. It paid its workers in bread, and they ate the one million loaves. MyTeaEst also gave half of its... MORE

The Long-term Debt Issue

Fiscal Policy
Arnold Kling
The NYT Room for Debate on the S&P downgrade includes some posts that I think contain some really misleading statements. The term "room for debate" is rather inapt, since we write on our own, with no opportunity to comment on... MORE

My Perspective on the Budget Fight

Fiscal Policy
Arnold Kling
I don't think of the long-term budget fight as being between Democrats and Republicans or between rich and poor. I look at it as a fight between people with funded retirements and unfunded retirements. If I have saved enough to... MORE

A Suggested Tax Calculator Tool

Fiscal Policy
Arnold Kling
In a comment on this post, Daniel Kuehn explains what is going on with the new government tax receipt tool. It simply allocates Social Security taxes to OASDI and Medicare taxes to Medicare. What is left to allocate are income... MORE

A Tax Receipt

Fiscal Policy
Arnold Kling
The government now has a tool that supposedly tells you where your tax money is going. You can try it here. I did not have my own tax data handy, so I used the generic family with $80 K in... MORE

Morality and Medicare

Fiscal Policy
Arnold Kling
M.S. writes (for the Economist blog), Mr Ryan's plan ends the guarantee that all American seniors will have health insurance. The Medicare system we've had in place for the past 45 years promises that once you reach 65, you will... MORE

Jeff Frankel Channels Bryan Caplan

Fiscal Policy
Arnold Kling
Jeff writes, Whenever a candidate promises to "give the American people a government as good as they deserve," I can't help thinking, "no, no; don't do that!" Pointer from Mark Thoma, who is not only indispensable but is blogging from... MORE

Economic Advice

Fiscal Policy
Arnold Kling
An open letter signed by Martin N. Baily Martin S. Feldstein R. Glenn Hubbard Edward P. Lazear N. Gregory Mankiw Christina D. Romer Harvey S. Rosen Charles L. Schultze Laura D. Tyson Murray L. Weidenbaum All ten are former chairs... MORE

Discussions of government spending are carried on as if there's a clearcut difference between "discretionary spending" on the one hand and "mandatory" or "entitlement" spending on the other. What do the words mean? Discretionary spending is spending that politicians have... MORE

Kinsley on Budget Cutting

Fiscal Policy
David Henderson
Zinni's article [on why it's absolutely necessary to keep government funding of the U.S. Institute of Peace] is a good example of a genre of literature we'll be seeing a lot of as the president and Congress grapple with the... MORE

The Political Economy of Spending Caps

Economics of Health Care
Arnold Kling
John Goodman writes, On paper, ObamaCare cut Medicare's unfunded liability in half the minute Barack Obama signed the health reform bill. (A reduction of more than $53 trillion -- looking indefinitely into the future!) Going forward, Medicare will grow no... MORE

Your Taxes at Work

Taxation
David Henderson
From Third Way comes this clever exercise in numeracy: seeing how important various parts of the federal budget are by translating it into what you pay in taxes for each part. So you plug in all the taxes you pay,... MORE

The Macro Implications of Monetized Debt

Macroeconomics
Arnold Kling
PIMCO's Bill Gross writes, most of the publically issued $9 trillion of Treasury notes and bonds are now in the hands of foreign sovereigns and the Fed (60%) while private market investors such as bond funds, insurance companies and banks... MORE

A Budget Paradox

Fiscal Policy
Arnold Kling
Consider the following two sentences: 1. It is very difficult to cut Federal government spending, because so much of it is mandatory. 2. It is very difficult to increase Federal government spending, because so much of it is mandatory. Reciting... MORE

Geithner and Debt: A Better Analogy

Fiscal Policy
David Henderson
I posted last week on the dispute between Treasury secretary Tim Geithner and U.S. Senator Pat Toomey and argued that Toomey got the best of Geithner in the debate. I quoted this argument that Geithner used against "prioritizing" federal government... MORE

The Debt Limit Debate

Fiscal Policy
David Henderson
On January 6, 2011, Treasury Secretary Tim Geithner sent a letter to Harry Reid in which he stated: Failure to raise the [debt] limit would precipitate a default by the United States. In context, it's clear that by "the United... MORE

Henderson on Stossel

Fiscal Policy
David Henderson
I was on the John Stossel show on Fox Business Channel last week to discuss my Mercatus study of how the Canadian government turned budget deficits into surpluses. It's called "Canada's Budget Triumph." Here's the segment I was in. It's... MORE

McArdle Waves the White Flag

Fiscal Policy
David Henderson
In a post on a serious proposal to almost double the Illinois state income tax, Megan McArdle writes: The income tax increases, on the other hand, are both workable and necessary. Conservatives will holler, but Illinois is not going to... MORE

Paragraphs to Ponder

Economics of Health Care
Arnold Kling
From the New York Times: Because payroll taxes and firing costs are still so high, businesses across Southern Europe are loath to hire new workers on a full-time basis, so young people increasingly are offered unpaid or low-paying internships, traineeships... MORE

My Review of Hubbard and Navarro

Energy, Environment, Resources
David Henderson
From "Good on Taxes, Bad on Trade," my review of Glenn Hubbard's and Peter Navarro's book, Seeds of Destruction in the latest Policy Review: The strongest chapter, by far, is the one titled, "Why You Can't Stimulate Your Way to... MORE

Local Government Fiscal Stress

Fiscal Policy
Arnold Kling
The Congressional Budget Office discusses the problem here. Where I live, the source of the problem is pretty obvious. The Washington Post editorializes, Since salaries and benefits amount to 80 percent of county spending - and almost 90 percent of... MORE

The Stimulus Worked, Kind of

Fiscal Policy
David Henderson
As Arnold Kling has already pointed out, my Hoover colleagues John Cogan and John Taylor have an op/ed in today's Wall Street Journal (or look here on John Taylor's blog) pointing out that the state and local governments that got... MORE

My Capitol Hill Talk on Budget Cutting

Fiscal Policy
David Henderson
Yesterday I gave a talk on Capitol Hill for Mercatus's Capitol Hill College. The talk is based on my two studies for Mercatus, Canada's Budget Triumph and The U.S. Postwar Miracle. Mercatus is fast: the talk is already on line... MORE

Austrians and hard-core libertarians usually jointly dismiss monetary and fiscal policy.  But among more moderate economists, there's a long-standing tendency for pro-market views to correlate with a preference for monetary over fiscal policy.  Friedman and Samuelson are the classic examples:... MORE

Voucherization of Medicare

Economics of Health Care
Arnold Kling
The Washington Post reports, President Barack Obama's deficit commission on Wednesday debated a dramatic plan to gradually turn Medicare from a system in which the government pays most beneficiaries' medical bills into a program in which seniors would purchase health... MORE

I Agree: Budget Cutting is Easy

Fiscal Policy
David Henderson
Like Arnold and some of his commenters, I found it way easier than I thought it would be to cut the federal budget on the New York Times' interactive site. After I was done, the Times announced that I had... MORE

Can I Have My Prize Now?

Fiscal Policy
Arnold Kling
I played the deficit reduction game at the New York Times. I stopped playing when I had already eliminated the 2030 deficit without raising taxes. The choices that did the most for me were capping Medicare growth after 2013 (I... MORE

Deficit Reduction Politics

Politics and Economics
Arnold Kling
Steve Teles writes, The party base has significantly more leverage over elected officials in the Republican than the Democratic party. The chance of being successfully "primaried" if you are a Democrat is low, and in any case there is not... MORE

Random Thoughts on the Bowles-Simpson Plan

Fiscal Policy
Arnold Kling
Washington Post story starts here. One quote: The Bowles-Simpson blueprint would leave in place the vast expansion of health-care coverage enacted this year, rejecting GOP calls to repeal "Obamacare." 1. This is the huge carrot that Bowles-Simpson offers to Democrats.... MORE

Deficit Commission Co-Chairs' Draft

Fiscal Policy
Arnold Kling
The powerpoint is here. Thanks to Greg Mankiw for the pointer. Lots of tax reform (get rid of the mortgage interest deduction, the health care deduction), and no VAT. Cuts in Social Security benefits, but trying to maintain benefits for... MORE

Budget Myths and Reality

Social Security
Arnold Kling
This paper on the long-term budget outlook was just released. My guess is that I will refer to it often in the future. I encounter a number of arguments that purport to explain why we do not have to restructure... MORE

In a recent article, Bob Murphy responds to my statement that counting the interest cost on the debt generated by war spending is not justified. I argued that it's double counting and that the initial outlay is the correct measure... MORE

The U.S. Postwar Miracle

Fiscal Policy
David Henderson
In the Encyclopedia, I wrote about the German economic miracle. In this piece, "The U.S. Postwar Miracle," just released by Mercatus, I write about the miracle that was right under our noses or, more exactly, right under our parents' and... MORE

A Must-Read on Social Security

Books: Reviews and Suggested Readings
Arnold Kling
A Well-Tailored Safety Net should be read by every policy wonk or would-be wonk who is focused on the long term fiscal outlook in general and on Social Security in particular. There are two reasons to read it. 1. Author... MORE

Taylor-Cogan vs....well, Everybody

Fiscal Policy
Arnold Kling
John F. Cogan and John B. Taylor write, Our main finding is that the increase in government purchases due to the ARRA has been remarkably small, especially when compared to the large size of the overall ARRA package. In fact,... MORE

Christina Romer's Contradiction

Fiscal Policy
David Henderson
Here's a paragraph from Christina Romer's op/ed in the New York Times: Now is not the time [to cut the deficit]. Unemployment is still near 10 percent in the United States and in Europe. Tax cuts and spending increases stimulate... MORE

Austerity Within Reason

Fiscal Policy
Arnold Kling
This month's issue of Reason has an article about fiscal tightening moves that did not cause macroeconomic disaster. I discuss the demobilization after World War II. Maurice McTigue discusses New Zealand 25 years ago. David Henderson talks about Canada 15... MORE

A NCPA study finds When adjusted using a more appropriate discount rate, however, states' unfunded obligations were 22 percent of U.S. GDP. All but 10 states and the District of Columbia have total adjusted unfunded liabilities above 15 percent of... MORE

The Cost of High Taxes

Fiscal Policy
Arnold Kling
Richard Rogerson writes, In 1960, hours of work were actually higher in Germany, France, and Belgium than they were in Canada, the United States, and Australia. That is, 50 years ago the relative work levels of these countries were reversed.... MORE

Social Security: The Privatization Shell Game

Fiscal Policy
David Henderson
Bryan posits a policy in 2005, had Bush succeeded beyond his wildest dreams, of privatizing Social Security. Bryan gives an argument against that. But there's a more basic argument that I made on a late 1990s talk show with Roger... MORE

Money, Inflation and Debt

Fiscal Policy
Arnold Kling
An excellent podcast, featuring Jeffrey Rogers Hummel. He argues that there is not enough tax revenue available from seignorage for governments to inflate their way out of their debts. Because of financial innovation and money substitutes, it would take hyperinflation... MORE

Jay Heflin writes, An August report by the Kellogg Graduate School of Management at Northwestern University found government pension programs in as many as 31 states are headed for financial disaster by 2030 and that taxpayers will likely wind up... MORE

What I'm Reading: 1

Books: Reviews and Suggested Readings
Arnold Kling
Boomergeddon, by James A. Bacon. He sent me a copy after he saw my piece on guessing the trigger point for a sovereign debt crisis. Years ago, I read Boomernomics by William Sterling. That book also raised the issue of... MORE

Bond Bubble Watch

Cross-country Comparisons
Arnold Kling
Jonathan D. Ostry, Atish R. Ghosh, Jun I. Kim, and Mahvash S. Qureshi write, at 5 percent of GDP below the debt limit, the government should be able to borrow at the risk-free rate; but as debt rises by a... MORE

Bond Bubble Watch

Fiscal Policy
Arnold Kling
Nobel Laureate Gary Becker comments on the possibility of a debt crisis. Morgan Stanley's report argues debt/GDP is not a good measure of default risk, and suggests instead the ratio of debt to government revenues. On this measure, the US... MORE

Bond Bubble Watch

Fiscal Policy
Arnold Kling
Brian Riedl of Heritage gives us the good cheer on the Budget. Over the past 50 years, Washington has collected 18 percent of GDP while spending 20.3 percent of GDP. Annual figures have not deviated much from these averages. Even... MORE

Bond Bubble Watch

Fiscal Policy
Arnold Kling
Morgan Stanley's Arnaud Mares writes, The sovereign debt crisis is not European: it is global. And it is not over. Pointer from WSJ Real Time Economics. Mares points out that the current debt/GDP ratios are not the problem. It is... MORE

Sovereign Debt Wonkery

Fiscal Policy
Arnold Kling
I wrote Guessing the Trigger Point for a U.S. Debt Crisis for Mercatus. Don't assume that you understand it the first time you read it. This is a really difficult, subtle issue. Think of the following as an analogy. A... MORE

More Bond Bubble Talk

Finance: stocks, options, etc.
Arnold Kling
At The Economist, pointer from Tyler Cowen. Laurence Kotlikoff writes, current bondholders will get hurt in two ways. The prices of their bonds will fall due to concern about future money creation and the current price level will jump due... MORE

Two from the New York Times

Macroeconomics
Arnold Kling
1. Nobel Laureate Edmund Phelps writes, One reform would be to create a First National Bank of Innovation -- a state-sponsored network of merchant banks that invest in and lend to innovative projects. Another would be to improve corporate governance... MORE

Jerry Jordan on Regime Uncertainty

Fiscal Policy
David Henderson
In this five-minute interview with Karen Gibbs, Jerry Jordan lays out nicely the "regime uncertainty" (Bob Higgs's term) that we face. That is, business people, and the rest of us, for that matter, don't know what future tax rates or... MORE

CBO Says: Have a Nice Day

Fiscal Policy
Arnold Kling
I mean, nothing says "have a nice day" like an issue brief from the Congressional Budget Office on the prospects for a U.S. sovereign debt crisis. On the potential for inflating away the problem, the brief says, On balance, the... MORE

Arnold Kling and I have been discussing what an incredible counterexample to the Keynesian model the post-WWII years are. It occurred to me to check what Keynesians were predicting would happen after the war ended. Here's one of them: When... MORE

The Neo-neoliberals?

Fiscal Policy
Arnold Kling
CNN Money reports, "I don't want to see revenue as a percentage of GDP be much higher than 21%," Bowles said. "At the same time we have to work to make the tough choices to bring spending down to the... MORE

Mankiw on the CEA Stimulus Study

Fiscal Policy
David Henderson
Arnold laid out one of the two ways the CEA estimated the effects of Obama's "stimulus" package. Greg Mankiw has a particularly nice statement about the other way. Mankiw writes: That is, the CEA took a conventional Keynesian-style macroeconomic model... MORE

Laffer on Unemployment Insurance

Fiscal Policy
David Henderson
Arthur Laffer, whose work I've often respected and who, I think, has been underappreciated by the economics profession, has a piece in today's Wall Street Journal on unemployment insurance (UI). It's titled, "Unemployment Benefits Aren't Stimulus." I wish I could... MORE

Various

Macroeconomics
Arnold Kling
Doc Merlin is among those linking to a New York Times story about manufacturers having difficulty finding skilled workers. I would love to say that I find that the story validates my views macroeconomics. Instead, I just find the story...odd.... MORE

Take That, Keynes and Lerner

Fiscal Policy
David Henderson
Paul Martin, the Minister of Finance for Canada from 1993 to 2002 and Prime Minister from 2003 to 2006, was the person most responsible for bringing down government spending and government debt as a percent of GDP. Between FY 1993-94... MORE

The Fiscal Singularity is Near

Fiscal Policy
Arnold Kling
The Congressional Budget Office just released its latest so-called Long Term Budget Outlook. From the summary: this report focuses largely on the next 25 years. However, because considerable interest exists in the longer-term outlook, figures showing projections through 2080 and... MORE

Is the Beast Starved?

Fiscal Policy
Arnold Kling
Tyler Cowen writes, In many respects, the expansionary phase of big government is coming to an end, and quickly. ...It is not that fiscal conservatives have won a grand battle of ideas, but rather that governments realize that the bills... MORE

Budget Hawk, Stimulus Dove

Fiscal Policy
Arnold Kling
It's not my position. But I would think someone would articulate it. It sounds like what Mark Thoma would advocate, for example. That is, someone could advocate: 1 A larger deficit in the short term. 2. Specific, clear measures to... MORE

Bartlett's Final Chapter

Fiscal Policy
David Henderson
My last post on Bruce Bartlett's The New American Economy led, understandably, to a lot of discussion of supply-side economics. I'll deal with that more in future post(s) but meanwhile I'm keeping my promise to post about his last chapter.... MORE

Fiscal Inflation

Fiscal Policy
Arnold Kling
I noticed John Cochrane's paper on fiscal inflation, but I did not have anything pithy to say about it. But a reader emailed and asked me to comment. The shorter version ends on this note: If [high inflation] comes, we... MORE

Bruce Bartlett on "Starving the Beast"

Taxation
David Henderson
I've posted twice now (here and here) about sections of Bruce Bartlett's book, The New American Economy. I found Chapter 6, titled, "Starving the Beast Didn't Work," quite persuasive. First, Chapter 6. Bartlett deals with the idea, popular with many... MORE

From the AER

Economic History
Arnold Kling
The regular issues of the American Economic Review rarely interest me, but the papers and proceedings issue is often better. This year, covering the meetings held in January and arranged by Robert Hall, is particularly good. It seems as though... MORE

Bruce Bartlett on Debt Default

Fiscal Policy
David Henderson
On the prospect of U.S. government default on its debt, Bruce Bartlett writes, after mentioning John Tamny: Tamny is not an isolated crackpot; reputable conservative economists have been writing sympathetically about the idea of default for decades. These include Nobel... MORE

The State of the European Crisis

International Macroeconomics: Exchange Rates, International Debt, etc.
Arnold Kling
Richard Baldwin and Daniel Gros introduce a set of essays on the crisis in the eurozone. The authors unanimously believe that the crisis is not over, and that the Eurozone rescue is not finished. More needs to be done. I... MORE

Cut Their Pay

Fiscal Policy
Arnold Kling
President Obama writes, Already this year, we have lost 84,000 jobs in state and local governments...if additional action is not taken, hundreds of thousands of additional jobs will be lost. Therefore, we need to cut pay for state and local... MORE

Just a Reminder

Fiscal Policy
Arnold Kling
That we do not need one penny of fiscal stimulus to save state and local government jobs. Just cut pay and keep the workers with the same budget. Everyone to my left seems to keep forgetting that option.... MORE

Not as Rich as We Think

Macroeconomics
Arnold Kling
Tyler Cowen writes, This is the era of the rude economic awakening, and Greece is simply an extreme manifestation. The new European bailout plan is a denial of this truth rather than recognition of the new reality that a lot... MORE

The Wall Street Journal's Math

Fiscal Policy
David Henderson
In today's Wall Street Journal, one of the editorials makes the following statement: Arizona got into this crisis because during the boom years--2003 to 2007--then-Governor Janet Napolitano, a Democrat, and Republicans in the legislature let spending climb by more than... MORE

Sovereign Debt and Confidence

Fiscal Policy
Arnold Kling
Robert J. Samuelson writes, In a classroom, limiting government debt in relation to GDP can be defended. The idea is to reassure investors (a.k.a. "financial markets") that the debt burden isn't becoming heavier so they will continue lending at low... MORE

Bailouts: When Will They End?

Fiscal Policy
Bryan Caplan
I've been against bail-outs from the beginning.  So should have all economists.  It's reasonable to debate the merits of contracyclical monetary policy.  It's not reasonable to debate the merits of rewarding failure on a grand scale.Alas, in "practical politics" almost... MORE

Odious Debt

Fiscal Policy
Arnold Kling
Barry Eichengreen writes, Only the delusional can believe that, when everyone else is taking swingeing cuts, Greece's creditors can continue receiving 100 cents on the euro. It beggars belief that Greek government debt can top out at 150% of GDP,... MORE

Theory vs. History

Fiscal Policy
Arnold Kling
Nick Rowe writes, If it prints money and is not in a recession, or has inflation, then that is a problem. Printing money will make inflation worse, and that's a problem. But it's a negative feedback problem. The inflation will... MORE

A Note on Public Sector Pay

Fiscal Policy
Arnold Kling
Michael Mandel looks at the numbers. The chart shows that public and private sector pay rose in parallel from 2001 to 2004. Then the lines diverged. Since early 2005, public sector pay has risen by 5% in real terms. Meanwhile,... MORE

Why U.S. Budget History is Not Encouraging

Fiscal Policy
Arnold Kling
My essay claims, there is no precedent for reducing the ratio of debt to GDP by simply growing our way out of it. My general worry is that the essay is incomprehensible to people who have never walked through the... MORE

Government Fraud

Fiscal Policy
Arnold Kling
Andrew G. Biggs writes, State pension funds are underfunded by over $3 trillion; this is more than six times the $438 billion in underfunding the plans themselves report. Pension shortfalls far exceed explicit state debts. Current state pension accounting practices... MORE

Megan McArdle is rationally pessimistic (apologies to Matt Ridley). But get this: Jürgen Stark, executive board member of the European Central Bank, said on Wednesday that restoring sustainability to the public finances was "even harder for the UK, the US... MORE

The Federal Debt/Income Ratio

Fiscal Policy
Arnold Kling
Country XCountry YFederal Debt$50$100GDP$100$100Debt to GDP50 %100 %State and Local Debt$0$0State and Local Taxes$20$0Federal Taxes$20$40Federal Debt to taxes250 %250 % Think of Country X as a simplified version of the U.S. and Country Y as a simplified version of a... MORE

U.S Government Debt Since World War II

Fiscal Policy
Arnold Kling
In the Washington Post, Joel Achenbach writes, When I spoke to Peter Orszag, the director of the Office of Management and Budget, he expressed optimism that the administration can balance the primary budget -- not including interest payments -- by... MORE

Japan on the Knife Edge

Fiscal Policy
Arnold Kling
Bloomberg reports, "On any measure, Japan is the most indebted sovereign rated by Fitch," Colquhoun, Hong Kong-based director at the company's Asia-Pacific sovereign group, said in a conference call today. ...The yield on Japan's 10-year bond was unchanged at 1.315... MORE

Monterey Tea Party

Fiscal Policy
David Henderson
There's a short Youtube segment done by a local libertarian activist in which he interviews Lawrence Samuels, the libertarian who got me active in grassroots issues early in the decade, and then interviews me. The segment with me starts at... MORE

The Fiscal Singularity is Near

Fiscal Policy
Arnold Kling
In my recent paper, I started with budget projections that had debt held by the public reaching 78.8 percent of GDP by 2020. In fact, the most recent CBO projection of the Administration's Budget offers a forecast of public debt... MORE

Saving the U.S. Budget

Fiscal Policy
Arnold Kling
In this paper, I describe an approach that relies on cuts to future entitlement spending. The most important idea is to transform Medicare into a combination of a voucher and extreme catastrophic insurance. Under the proposal here, as the U.S.... MORE

Canada's Road to Balanced Budgets

Fiscal Policy
David Henderson
Arnold has commented on Tyler Cowen's post on the steps the Canadian government took in the 1990s to reduce budget deficits and turn them into surpluses. The government did it mainly with reductions in the growth of government spending and... MORE

Can Elites Save the United States?

Fiscal Policy
Arnold Kling
Tyler Cowen writes, when I look around the globe for episodes of successful spending restraint I see Canada, Finland, Sweden, and now possibly (probably) Ireland, which is in the midst of fiscal restructuring. I see change coming from elites and... MORE

A Few Quick Hits

Economics of Education
Arnold Kling
Again, I am pressed for time, so not many comments. 1. Tyler Cowen points to a story about an LSU professor teaching a biology course for non-majors who gave bad grades and was removed from teaching the class. LSU cited... MORE

If I Had More Time

Finance: stocks, options, etc.
Arnold Kling
I would comment more on the following links: WSJ blog post about a warning that the average ratio of government debt to GDP could top 100 percent in Europe in the near future. That's ok. They can fix the problem... MORE

The Looting Scenario

Political Economy
Arnold Kling
David Henderson's synopsis of Tyler Cowen's speech brings up two key factors in the long-term outlook. I want to resurrect a table from one of my classic essays, called The Great Race. Four ScenariosMoore's Law FailsMoore's Law SucceedsMedicare is ReformedLow... MORE

Greek by 2030

Fiscal Policy
Arnold Kling
Paul Krugman writes, Greece's public debt, at 113 percent of G.D.P., is indeed high, but other countries have dealt with similar levels of debt without crisis. For example, in 1946, the United States, having just emerged from World War II,... MORE

How Much is Government Costing Us?

Fiscal Policy
David Henderson
A few months ago, in the comments on one of Bryan's posts (I can't remember which one), Bob Murphy asserted that real income per capita would rise by a large double-digit percent within a year or two if the size... MORE

Greg Mankiw on Fiscal Policy

Economic Education
Arnold Kling
He writes, One of the classic hypothetical questions economists ask when referring to healthcare costs is, "Would you rather go back to 1950s medical care and 1950s prices?" If that option were offered at your place of work, my guess... MORE

Response on Means Testing

Fiscal Policy
David Henderson
Bryan writes: I'm a big fan of means-testing the welfare state, but many of my favorite people disagree. I've got a challenge for these hold-outs. Here goes: Right now we already means-test a lot of programs, such as Medicaid, food... MORE

The controversy of the moment is the procedural precedent in the health care bill. No comment on that. What troubles me is the substantive precedent of using future cuts in Medicare benefits as a funding source. This is really weird,... MORE

Socrates Meets Deficit Neutrality

Fiscal Policy
Bryan Caplan
Mankiw tries his hand at Socratic dialog.  It begins:Friend: I am going to take off a few days from work and fly down to Bermuda for a quick vacation.You: But isn't that expensive?  Won't that just add to your growing... MORE

How to Evaluate Government Pay

Labor Market
Arnold Kling
Budget Director Peter Orszag writes, So the bottom line is: when education and age are held constant, the entire difference in average pay between the federal and private sectors disappears. Let me suggest a different indicator: How far could you... MORE

De Rugy on VAT

Fiscal Policy
David Henderson
Veronique de Rugy recently published an excellent article on the perils of a value-added tax (VAT). She gives a nice history of the VAT along the way. Great paragraph: The first thing to note is that Greece collapsed in spite... MORE

Sloppy Reporting on Greece

Fiscal Policy
David Henderson
Demonstrators and police clash Friday near the Greek parliament in Athens. Greece has frozen pensions and increased taxes to cut spending by 4.8 billion Euros in a bid to persuade the EU it can avoid default. See A10. So reads... MORE

Boo Jonathan Rauch

Fiscal Policy
Arnold Kling
I often like him, but not this column, in which he writes, Rep. Paul Ryan of Wisconsin, the ranking Republican on the House Budget Committee, who recently unveiled a new edition of what he calls a "Road Map for America's... MORE

Reply to DeLong

Fiscal Policy
David Henderson
Brad DeLong, in a belated comment at the end of my post, writes: So is your argument really that if not for the stimulus package wages would be falling--and falling wages would be inducing employers to hire lots more workers?... MORE

Bailout Ahead

Fiscal Policy
Arnold Kling
The Pew Center reports, $1 trillion. That's the gap at the end of fiscal year 2008 between the $2.35 trillion states had set aside to pay for employees' retirement benefits and the $3.35 trillion price tag of those promises. ...To... MORE

The Commission, the Deficit, and the VAT

Fiscal Policy
Arnold Kling
Greg Mankiw writes, let's suppose that you are a conservative and you want the fiscal commission to succeed. You will have to agree to higher taxes as part of the bargain. But what should you aim to get in return?... MORE

Budgetary Implications of Defense: Bleg

Fiscal Policy
David Henderson
On the KQED interview I did on the federal budget, I made the following statement: I'm actually an advocate of having the defense budget be the defense budget, not the offense budget. And most of what the government spends now... MORE

DeLong on Horwitz on Bastiat

Fiscal Policy
David Henderson
Warning: I've got to leave for a seminar in a few minutes and so I'll be brief. I won't explain everything Bastiat said, everything Steve Horwitz said, or everything Brad DeLong said. I just want to home in on a... MORE

Russ Roberts is Wrong

Fiscal Policy
Arnold Kling
He writes, The U.S. government borrows money easily because we're the tallest pygmy. But if we keep spending money like a drunken sailor, we will get shorter and more responsible nations will soon tower over us. We are not the... MORE

Economics Bloggers Surveyed

Fiscal Policy
Arnold Kling
by the Kauffman Foundation. It's not a random sample, so the results are not terribly reliable. And even if you had a reliable of sample of economists' opinions, they might disagree on a lot of these issues. And even if... MORE

Obama's Budget Attacked

Fiscal Policy
Arnold Kling
A blogger writes, we will still face unsustainable medium- and long-term deficits. Let us explain this word "unsustainable." For me personally, an unsustainable budget would be if I promised to buy my kids mansions in Paris, Tokyo, and London. I... MORE

The Political Economy of TARP

Fiscal Policy
Arnold Kling
Among the many faults of TARP, the most enduring is probably the way it discredited the concept of fiscal discipline. Now, all restraints on deficit spending have been lifted. For documentation of the huge rise in spending and deficits relative... MORE

Models and Hunches

Economic Methods
Arnold Kling
I am possibly going to speak on a panel in a few weeks on the issue of U.S. unemployment. I am thinking of trying to convey two ideas (is that too many? I only have ten minutes). 1. Do not... MORE

Proposal for a Moral Budget

Fiscal Policy
Arnold Kling
I claim that it is immoral for government to make promises that it does not expect to keep. Today, on the CBO Director's blog, there is in analysis of a proposal that would satisfy my criteria for morality. The Roadmap,... MORE

How Big a Spender Was Bush II?

Fiscal Policy
Bryan Caplan
Compared to all presidents, 1952-2008, here's Bush II's record:Measure #1: Annual Change in Total Real Spending: 4.9% - second only to LBJMeasure #2: Annual Change in Total Real Spending, not counting interest on the federal debt: 4.6% - second only... MORE

Stimulus Without Multipliers

Fiscal Policy
Arnold Kling
Paul Krugman provides an analysis showing arithmetically that the fiscal stimulus will have a declining contribution to GDP growth, even as stimulus spending increases. What is interesting to me about this analysis is that the concept of a multiplier has... MORE

Is Blinder Going Off the Reservation?

Fiscal Policy
David Henderson
Co-blogger Arnold focused earlier this morning on part of Alan Blinder's Wall Street Journal article, "The Case for Optimism on the Economy." Arnold focuses on what he calls "the job assignment problem." Arnold sees the problem as one of people... MORE

Carnival of Catastrophe

Fiscal Policy
Arnold Kling
What do you do about an unsustainable path for the government Budget? Hold a Carnival. A blog carnival, that is, or a collection of posts. I submitted one of my classics to the carnival. One of the more interesting takes,... MORE

Life Extension and the Budget

Fiscal Policy
Arnold Kling
The Chicago Sun Times reports, Life expectancy for Americans by 2050 will surpass government projections by as much as eight additional years for women and five for men, This is good news. The trend is not just for death to... MORE

Recession? What Recession?

Fiscal Policy
Arnold Kling
The USA Today story on the increases in highly-paid Federal workers has been making the rounds. This quote in the story is inevitable: Jessica Klement, government affairs director for the Federal Managers Association, says the federal workforce is highly paid... MORE

Debt Rollover and Inflation

Fiscal Policy
Arnold Kling
Megan McArdle and Russ Roberts discuss the issue in the last quarter of their podcast. If you prefer an academic paper, read Joshua Aizenman and Nancy Marion. They write, in part today's temptation to inflate away some of the debt... MORE

Me on Market Wrap

Upcoming Events
David Henderson
I just completed an interview with Moe Ansari of Market Wrap. We talked about the current recession, the health care bill, and various other things. If you want to listen (I think you'll hear an edited version but they might... MORE

Marginal Tax Rates, Again

Fiscal Policy
Arnold Kling
A reader recommends a paper by Laurence J. Kotlikoff and David Rapson. The reader views this paper as contradicting the article I linked to earlier. Kotlikoff and Rapson report marginal tax rates of closer to 40 percent than 100 percent... MORE

A Proposal to Save Jobs

Fiscal Policy
Arnold Kling
A Wall Street Journal blog writes State and local governments in the U.S. may be forced to cut 900,000 jobs next year without additional help from the federal government, according to a report released by a prominent liberal think tank... MORE

R & R

Finance: stocks, options, etc.
Arnold Kling
Meaning Ken Rogoff and Carmen Reinhart, of course, both of whom appeared on the PBS New Hour November 2 (fast forward to about minute 27), talking about our financial crisis in the context of historical crises. Rogoff's first sentence is... MORE

When Government Gets Desperate

Fiscal Policy
Arnold Kling
Megan McArdle does not approve of California's revenue-raising tactic. No, the government didn't actually increase taxes; it just raised the withholding. They'll give any extra funds back to taxpayers in April, and presumably fewer people will have to write checks... MORE

One Estimate of Multipliers

Fiscal Policy
Arnold Kling
Alberto Alesina and Silvia Ardagna write, Our results suggest that tax cuts are more expansionary than spending increases in the cases of a fiscal stimulus. Based upon these correlations we would argue that the current stimulus package in the US... MORE

The Stimulus and the Economy

Fiscal Policy
Arnold Kling
John Taylor cuts through the BS. the latest Department of Commerce estimates of ... the improvement in GDP growth from the first to second quarter. Growth improved by 5.7 percent (from -6.4 percent to -0.7 percent). Private investment was by... MORE

Thoughts on a Second Stimulus

Fiscal Policy
Arnold Kling
Greg Mankiw recommends reading Emil M. Sunley on the Carter era job creation tax credit. Sunley wrote, No student of public fınance, if left alone, would design a tax incentive as complicated as the jobs credit. Surely the arbitrary distortions... MORE

Afternoon Commentary

Finance: stocks, options, etc.
Arnold Kling
1.Paul Krugman ask another question. why does it have to be a return to shadow banking? The banks don't need to sell securitized debt to make loans -- they could start lending out of all those excess reserves they currently... MORE

Scott Sumner on the Multiplier

Fiscal Policy
David Henderson
Multiply Scott Sumner It seems to me that there are two ways of thinking about how monetary policy would react to fiscal stimulus. One approach would be to ask: "What is the optimal Fed response to fiscal stimulus?" And the... MORE

Recalculation and State and Local Relief

Fiscal Policy
Arnold Kling
Tyler Cowen finds and responds to some criticisms of the Recalculation story. Avent and Yglesias suggest that Kling is making up his own macro but the innovation is simply to call the adjustment process "recalculation," to give it a more... MORE

The Stimulus Debate, Revisited

Fiscal Policy
Arnold Kling
Mark Thoma is raising the issue that it is too soon to back away from economic stimulus. See, for example, Paul Krugman, Robert Reich, Tim Duy, and other recent posts. All of these appeared before this morning's employment release, which... MORE

Morning Commentary

Fiscal Policy
Arnold Kling
Most of these are links in posts by Mark Thoma. Richard Robb says that letting Lehman fail really did cause big problems. However, he concedes, There is plenty of room to debate the larger counterfactual: if the government had never... MORE

Krugman on Federal Debt

Fiscal Policy
David Henderson
Read the following from Paul Krugman in 2003 when the irresponsible people increasing the federal debt (he and I agree here) were Bush and the Republican Congress. Two highlights: That may sound alarmist: right now the deficit, while huge in... MORE

Stringham's A Winner... Again

Fiscal Policy
Bryan Caplan
Two years ago, my co-author Ed Stringham and I won a First Prize in the Templeton Enterprise awards, all thanks to Ed's initiative.  Now another lucky co-author has Stringham to thank for a big prize:Trinity College Associate Professor of American... MORE

Obama's Bait and Switch

Economics of Health Care
David Henderson
In the spring of this year, President Obama argued that one reason for health care reform was to get long-term spending on government health care under control. As he recognized and as every scholar and analyst who has studied future... MORE

Banana Republic Watch

Political Economy
Arnold Kling
Who wrote this? Answer below the fold. The mystery author writes, The finance sector's increasing concentration and growing political muscle have undermined the traditional American understanding of the difference between free markets and big business. This means not only that... MORE

Pile on James Kwak Day

Finance: stocks, options, etc.
Arnold Kling
Many of these links come from the indispensable Mark Thoma. First, we have Gender and banking: Are women better loan officers? by Thorsten Beck and others. And yes, it does strengthen my priors. The Fed's profits are turning higher. Perhaps... MORE

Why I am Not a Republican, Continued

Economics of Health Care
Arnold Kling
Jeff Miron explains, Medicare should be reduced or eliminated. Opposing government health insurance by defending government health insurance is disingenuous, at best, and utlimately counterproductive. Read the whole thing. Meanwhile, Nick Gillespie writes about the late Massachusetts Senator, In an... MORE

"Winterspeak" wonders if I would bet on the U.S. defaulting. Here are the alternatives that I can think of, and the odds I would give to them: 1. Muddle through. No major change in policy, and no major change in... MORE

Will the United States Default?

Fiscal Policy
Arnold Kling
Someone asked for my comments on the Jeffrey Rogers Hummel piece. I think that the U.S. government would enact a wealth tax rather than default on its debt. Other countries that have defaulted have not had the option of enacting... MORE

Hummel Predicts U.S. Government Default

Fiscal Policy
David Henderson
San Jose State University economist Jeff Hummel, in Econlib's feature article, predicts that the U.S. government will default on its debt. The other option he considers is that the federal government will monetize its debt. The problem with this second... MORE

Neil Barofsky's Dog Whistle

Fiscal Policy
Arnold Kling
Apparently, humans cannot hear what the TARP whistleblower is saying, which is that the government bailouts could wind up costing taxpayers $23.7 trillion. Barofsky's estimates include $2.3 trillion in programs offered by the Federal Deposit Insurance Corp., $7.4 trillion in... MORE

Percent or Percentage Points?

Fiscal Policy
David Henderson
After reading news stories today about the House Democrats' plan for levying higher taxes on higher-income people, I found myself confused. It took some digging to end the confusion. No, I'm not talking about almost all reporters' insistence on confusing... MORE

The Fiscal Policy Lag

Fiscal Policy
Arnold Kling
Keith Hennessey has another must-read post. I believe the Administration made an enormous mistake in its legislative implementation of the stimulus. As a result, the boost to GDP will come six to nine months later than it needed to (maybe... MORE

The Anti-Stimulus

Fiscal Policy
Arnold Kling
Greg Mankiw reports that the yield curve is steep, meaning that long-term interest rates have risen. In my view, this is perfectly rational, and it shows that the short-run effect of the fiscal stimulus is negative, as Jeff Sachs predicted.... MORE

Revenue Sharing

Fiscal Policy
Arnold Kling
USA Today reports, In a historic first, Uncle Sam has supplanted sales, property and income taxes as the biggest source of revenue for state and local governments. Thanks to Nick Schulz for the pointer. The gist of the story is... MORE

Obama's Debt Tsunami

Fiscal Policy
David Henderson
I held off posting on this because I thought the press and the bloggers would be all over it. But one of the most shocking things is how little attention has been devoted to the huge increase in the federal... MORE

Tea Parties Never?

Fiscal Policy
David Henderson
I've decided not to go to any of the tea parties this Wednesday. My reason is that some of the people who have been advertising them don't agree with me on everything. And some of the people who will be... MORE

Bob Lucas's Talk

Fiscal Policy
David Henderson
Bob Lucas's talk at the Council on Foreign Relations is well worth reading. Here are some of the nuggets. After pointing out that the forecasted rate of growth of nominal GDP for 2009 is zero percent, he states: So if... MORE

Me on New Hampshire TV

Fiscal Policy
David Henderson
Last Wednesday, I did a 23:00 minute interview on MCAM TV23 in New Hampshire. I can't tell the ideology of these two interviewers, which I find refreshing because at the same time they do have strong views. We talked about... MORE

Tysonomics

Fiscal Policy
David Henderson
In today's Wall Street Journal, Laura D'Andrea Tyson has a defense of "Obamanomics." At least that's the title the Journal gave it. The article is worth looking at for a number of reasons: 1. In discussing President Obama's spending plans,... MORE

Eeyore's Economic Outlook

Fiscal Policy
Arnold Kling
Ken Rogoff writes, As debt mounts and the recession lingers, we are surely going to see a number of governments trying to lighten their load through financial repression, higher inflation, partial default, or a combination of all three. Read the... MORE

DeLong vs. Boldrin

Fiscal Policy
Arnold Kling
Gregory Clark moderates. There is almost no enlightenment, but plenty of rhetorical metaphors. For example, about 38 minutes in, Boldrin says, "If the guy has a broken nose, you don't put a band-aid on his butt." I stopped listening shortly... MORE

More on Mandel, Austrianism, and Keynesianism

Austrian Economics
Arnold Kling
My take is this: there was some productivity growth but much of it fell outside of the usual cash and revenue-generating nexus. Maybe you will live until 83 rather than 81.5 and your pain reliever will work better. In... MORE

Two Perspectives on Deficits and Debt

Fiscal Policy
Arnold Kling
First, from columnist Steven Pearlstein Two trillion dollars sounds like a lot of money, but in a pinch we could pay it all back in just one year if we were willing to reduce household and government spending by about... MORE

Me on Obama and Brown

Labor Market
David Henderson
Just up on Forbes.com is an article by me on tomorrow's meeting between President Obama and Prime Minister Brown. It's titled, "Will Obama and Gordon Brown Cook Up a Tax Cartel?" In it, I talk about what they, as good... MORE

Adolf Hitler's Economics

Central Planning vs. Local Knowledge
David Henderson
Lew Rockwell has an interesting article today on Adolf Hitler's economic policies. His bottom line: Adolf Hitler was a Keynesian. Two highlights: What were those economic policies? He suspended the gold standard, embarked on huge public works programs like Autobahns,... MORE

Obama's Gall

Fiscal Policy
David Henderson
Consider the chronology. . In January 2009, the Congressional Budget Office projects that the fiscal year 2009 budget deficit will be over one trillion dollars, or, specifically, $1,186 billion. It also predicts a deficit in FY2013 of $257 billion. .... MORE

Evening Commentary

Fiscal Policy
Arnold Kling
From Brad DeLong, Michele Boldrin, Clive Crook, and David Brooks. Thanks to Greg Mankiw for the first two pointers. Comments below.... MORE

Summers' Warning?

Fiscal Policy
David Henderson
In a recent NBER working paper, "How Globalization Affects Tax Design," (WP # 14664), James R. Hines, Jr. and Lawrence H. Summers point out that the increasing mobility of capital makes economic activity more sensitive to tax rates, thus increasing... MORE

What Would Keynes Do?

Fiscal Policy
Arnold Kling
I write, If you follow the news media, you may think that the economics profession is divided into two camps: the majority, who favor the stimulus bill; and a minority, who are against any stimulus. In fact, there are many... MORE

Give Back My Wallet

Fiscal Policy
Arnold Kling
Rasmussen reports, Forty-five percent (45%) of Americans oppose the federal government subsidizing mortgage payments for financially troubled homeowners, according to a new Rasmussen Reports national telephone survey. Thirty-eight percent (38%) think government subsidies are a good idea, and 18% are... MORE

Misplaced Priorities

Finance: stocks, options, etc.
Arnold Kling
Consider the following list of candidates for government assistance, via financial bailout or stimulus: a) banks and other financial institutions b) the nonfinancial business sector c) underwater homebuyers d) other consumers e) state and local governments In my view, (b)... MORE

Marginal Tax Rates Will Rise

Supply-side Economics
David Henderson
As I have been saying for the last month or so, when I saw the details of the tax rebate (and I'm sure other marginalists have been saying so too), under the "stimulus" bill that President Obama will sign today,... MORE

Amar Bhide Monday

Growth: Causal Factors
Arnold Kling
In the Wall Street Journal, he writes, The depressions and panics of the 19th century ended without any fiscal stimulus to speak of, as did the gloom that followed the stock-market crash of 1987. Countercyclical fiscal policy may or may... MORE

Evening Commentary

Fiscal Policy
Arnold Kling
Tyler Cowen writes, In my opinion the sophisticated Keynesian view is still that the stimulus won't work. Great, great sentence. Has Jeff Frankel joined the ranks of the deranged? What he writes strikes me as not terribly different from what... MORE

Quoted Out of Context Again

Fiscal Policy
Arnold Kling
[UPDATE Feb. 13 2:40 PM eastern time: Andrew Sullivan of The Atlantic has done the gentlemanly thing and withdrawn the racism charge. Adam Serwer of The American Prospect has apologized for not taking into account the full context. ] I... MORE

Are We Getting to Him?

Fiscal Policy
David Henderson
During President Obama's press conference on Monday, the first question was: Can you talk about what you know or what you're hearing that would lead you to say that our recession might be permanent when others in our history have... MORE

"The President Believes"

Fiscal Policy
David Henderson
In a recent post I wrote about Larry Summers: I doubt that he likes the awful [stimulus] bill, but what I'm pretty sure of is that he likes being on the inside. One commenter, Charlie, wrote: it's amazing how both... MORE

The Stimulus and Black Swans

Fiscal Policy
Arnold Kling
I wrote this for Cato. The present scenario analysis highlights two black swans. The first one is Depression Averted, under which a stimulus keeps the economy from falling in a downward spiral of layoffs and shutdowns. The other black swan... MORE

Sense from Frank Rich

Economic History
David Henderson
Yes, you read that correctly. Frank Rich, the partisan New York Times columnist, has a good column today. In it, he delves into what he calls "[T]he tsunami of populist rage coursing through America." Here's one of the best sections:... MORE

Stimulus Bill or Reparations Bill?

Fiscal Policy
Arnold Kling
I think that President Obama set the bar ridiculously low when he said that 75 percent of the stimulus should kick in within by the end of 2010, but the House bill did not even get over that bar. Why... MORE

John Maynard Keynes writes, So far as employees are concerned, reductions in contributions are more likely to lead to increased expenditure as compared with saving than a reduction in income tax would, and are free from the objection to a... MORE

Morning Reading

Fiscal Policy
Arnold Kling
Greg Mankiw writes I would institute an immediate and permanent reduction in the payroll tax, financed by a gradual, permanent, and substantial increase in the gasoline tax. I think if you put leading economists into a room to negotiate on... MORE

Barro Interview

Fiscal Policy
David Henderson
Check out the interview with Harvard economist Robert Barro. He makes some excellent points, one of the main ones being the important difference between a tax rebate and a cut in tax rates. I made this point in my Forbes.com... MORE

Who is Advising these Guys?

Finance: stocks, options, etc.
Arnold Kling
Ed Glaeser does not like the Republican mortgage plan any more than I do. I am not sure that plan is still alive. It may have been superceded by another ill-conceived idea, a tax break for home buyers. See Tyler... MORE

CBO Stimulus Estimates

Fiscal Policy
Arnold Kling
Doug Elmendorf writes CBO estimates that the Senate legislation would raise output by between 1.4 percent and 4.1 percent by the fourth quarter of 2009; by between 1.2 percent and 3.6 percent by the fourth quarter of 2010; and by... MORE

Russ Roberts on "Stimulus"

Fiscal Policy
David Henderson
In yesterday's Boston Globe, GMU economist Russ Roberts has an excellent piece on the proposed "stimulus" package. The article is directed against the huge spending and tax rebate bill working its way through Congress. Roberts recognizes upfront that even Nobel... MORE

Temporary vs. Permanent

Fiscal Policy
Arnold Kling
Tyler Cowen weighs in on an issue that has been bouncing around the blogosphere. Overall the Keynesian effects can mean either the permanent or the temporary spending boost has a bigger effect and there are also a number of ways... MORE

My Current Outline

Fiscal Policy
Arnold Kling
For my talk at the anti-stimulus conference. Still a work in progress.... MORE

Consumers or Businesses?

Fiscal Policy
Arnold Kling
Hall and Woodward write, One problem with the employment stimulus is that the funds go in the first instance to the owners of businesses and not to consumers generally. This criticism applies to my preferred stimulus, which is to take... MORE

Me on ABC-TV

Fiscal Policy
David Henderson
I was interviewed this afternoon by ABC-TV for Good Morning America. It will play tomorrow (Saturday) morning. Check your local listings. The issue was the "stimulus" package. I found the questions unusually good. We'll see what gets used.... MORE

Masonomists in the Media

Fiscal Policy
Arnold Kling
Ever wondered what Russ Roberts would do as President? He writes, I am recommending the elimination of the payroll tax... --Eliminating all corporate welfare. Corporate welfare rewards those corporations that excel at lobbying rather than serving their customers. Eliminating it... MORE

Reply to Robert Waldmann

Macroeconomics
Arnold Kling
He writes a long post that agrees with some of what I write and disagrees with some of my views.... MORE

An Anti-Stimulus Conference

Upcoming Events
Arnold Kling
See the invitation below. My theme will be "what certified macroeconomists think about the stimulus bill."... MORE

Recommended Reading

Fiscal Policy
Arnold Kling
Justin Wolfers writes, there are about three papers written on monetary policy for each paper mentioning fiscal policy. And there are only a few dozen papers written on the multiplier each year. He has more data. Jerry Muller writes, a... MORE

The Case for Profits

Fiscal Policy
Arnold Kling
I make the case at Forbes online. I first found out about it when Cato posted a copy of the essay on their web site. I wonder how many people actually will click on the "opinions" section of Forbes on... MORE

Harding's Stimulus Plan

Macroeconomics
David Henderson
Floccina writes: David Henderson, Arnold Kling & Bryan Caplan, I would love to read your take on Jim Powell's article about the 1920-1921 depression. Is Jim Powell showing huge bias? Can we learn anything that would be helpful in the... MORE

Podcasts

Fiscal Policy
Arnold Kling
Cato's Caleb Brown recently recorded me in two podcasts. My thoughts on multipliers and stimulus are here (this link may be more reliable). You will also find a link to my recent podcast on co-ordinated health care (I linked to... MORE

Economists Against the "Stimulus"

Fiscal Policy
David Henderson
Posted from San Francisco airport while I'm en route to San Antonio. Today's New York Times carries a full page ad, paid for by the Cato Institute, with a strong statement against President Obama's stimulus package. It quotes his statement:... MORE

Minskynomics

Macroeconomics
Arnold Kling
as explained by yours truly.... MORE

Partisan, Pandering, Permanent

Fiscal Policy
Arnold Kling
From The New York Times: The economic stimulus plan that Congress has scheduled for a vote on Wednesday would shower the nation's school districts, child care centers and university campuses with $150 billion in new federal spending, a vast two-year... MORE

Timely? Temporary?

Fiscal Policy
Arnold Kling
Douglas Elmendorf, the head of the Congressional Budget Office, writes, CBO estimates that enacting the bill would increase federal budget deficits by $169 billion over the remaining months of fiscal year 2009, by $356 billion in 2010, by $174 billion... MORE

Brad DeLong and Kevin Murphy, in English

Fiscal Policy
Arnold Kling
$100 of Government SpendingMurphy's EstimatesDeLong's EstimatesKeynes Effect$50$150Housework Effect-$25-$30Galbraith Effect-$25$0Feldstein Effect-$80-$33The Bottom Line-$80$87 I explain here. [UPDATE: I made two errors in the initial numbers. I believe it is correct as of Jan. 27, 1:40 PM EST]... MORE

John Cochrane Muses on Monetary Theory

Macroeconomics
Arnold Kling
John Cochrane has posted an essay on his take on the economy, stimulus, and so on. I think he gets muddled in several places.... MORE

Forum Today on Financial Crisis

Upcoming Events
David Henderson
Here's an announcement from the Naval Postgraduate School, where I teach. Bottom line: it live streams this afternoon. The times are PDT. It will go in the order below; I will be last. Each of us will present for 15... MORE

William Easterly

Fiscal Policy
Arnold Kling
has a new blog. From his first post: If you are not accountable for promises, if you try to do everything and focus on nothing, and if you obsess about aid money raised rather than results achieved, haven't you already... MORE

What's with the Economics Profession?

Fiscal Policy
Arnold Kling
Will Wilkinson writes When I see Delong more or less indiscriminately trashing everyone at Chicago, or Krugman trashing Barro, etc., what doesn't arise in my mind is a sense that some of these guys really know what they're talking about... MORE

Who Knows Macro?

Fiscal Policy
Arnold Kling
Tyler Cowen does not like the tone of the stimulus debate. A highly respected anti-stimulus economist puts up some anti-stimulus evidence in a highly imperfect test (in Barro's defense, he did cover more than just WWII). The anti-stimulus economist is... MORE

The Most Important Macro Hour

Fiscal Policy
David Henderson
Ever since September, I've been wishing that Milton Friedman were still alive, not just because he was such a good, warm, friendly guy, but also because he would have brought a lot of clarity to the credit crisis, the bailout,... MORE

Two Good Links from Megan

Fiscal Policy
Arnold Kling
1. A panel at The University of Chicago, featuring John Huizinga (my former classmate at MIT), Kevin Murphy, and Robert Lucas. Huizinga makes three points. First, we are hearing a lot of Keynesian macro being tossed around now, and it's... MORE

Morning Reading

Finance: stocks, options, etc.
Arnold Kling
The Wall Street Journal reports on how TARP funds went to politically-connected banks. Barney Frank does a cameo. Andy Harless might agree with what I wrote here (but he might not). Pointer from Mark Thoma. Robert Barro draws an apt... MORE

Talking Points on Stimulus

Fiscal Policy
Arnold Kling
For Seattle public radio, 10:20 AM Pacific Time today. I will add a link to a recording, probably within the next 24 hours. My main theme is that we should have a small, temporary stimulus, not a permanent shift of... MORE

The Case for Stimulating Profits

Fiscal Policy
Arnold Kling
I am going to endorse the idea that Bryan Caplan called smart stimulus. if you cut employers' share of the payroll tax, this puts money in employers' hands, not workers'. But the indirect effect is to reduce the labor surplus;... MORE

The Empire Reaps Tribute

Political Economy
Arnold Kling
Radley Balko writes, After the 2000 Census, the richest county in America was Douglas County, Colorado. By 2007, Douglas County had fallen to sixth. The new top three are now Loudon County, Virginia; Fairfax County, Virginia; and Howard County, Maryland.... MORE

Fama and Fiscal Policy

Fiscal Policy
Bryan Caplan
I disagree with both Fama and Arnold's critique of Fama.  Fama's strangely trying to use an accounting identity to make inferences about causation.  No can do.  But Arnold seems to say that fiscal policy matters as long as there are... MORE

Boo, Eugene Fama

Macroeconomics
Arnold Kling
Readers of this blog know that I am against the Paulson/TARP bailout thingy and against a big stimulus. Some of you may also have read that distinguished (some would say Nobel caliber) financial economist Eugene Fama has a new blog,... MORE

Priceless Macro, Part Two

Fiscal Policy
David Henderson
On Saturday, January 12, the Obama Presidency-Elect (I can't think of a less clunky term) sent out, "The Job Impact of the American Recovery and Reinvestment Plan," by Christina Romer and Jared Bernstein. It would qualify for Arnold Harberger's term... MORE

The Pattern

Finance: stocks, options, etc.
Arnold Kling
ActorThe PromiseThe Reality Financial ExecutivesBrilliant Risk ManagementCatastrophic Losses Eliot SpitzerMr. Clean, Financial ReformerCelebrity Prosecutions, Real Abuses Untouched, and Not So Clean Sarbanes-OxleyFinancial ResponsibilityLarge Costs, No Apparent Benefits Basel Capital StandardsInternational Coordination, Sound BanksWorldwide Banking Collapse Fannie, FreddieStable Mortgage CreditFed the... MORE

Priceless Macro, Part One

Macroeconomics
David Henderson
At a Carnegie-Rochester conference I attended over 30 years ago, when I was an assistant professor at the University of Rochester B-school, Arnold Harberger criticized a pile of economists' papers on Latin American development. One of his criticisms still stands... MORE

Deficits ad Absurdum

Fiscal Policy
Arnold Kling
Brad Setser writes, Facts are facts. The US has already proved it can raise over $1.5 trillion in a single year [in Treasury borrowing] That is a the sort of statement that could come back and haunt someone. It is... MORE

Peacenik Sound Byte of the Day

Fiscal Policy
Bryan Caplan
From War Resisters.com: U.S. military spending - Dept. of Defense plus nuclear weapons (in $billions) - is equal to the military spending of the next 15 countries combined... [O]f the top 15 countries shown, at least 12 are considered allies... MORE

The Best of Times, the Worst of Times

Fiscal Policy
Arnold Kling
The Washington Post reports The number of jobs in the nation increased by about 2 percent during Bush's tenure, the most tepid growth over any eight-year span since data collection began seven decades ago. Gross domestic product, a broad measure... MORE

Why is the Economy Doing Poorly?

Fiscal Policy
Arnold Kling
Tyler Cowen gives eight reasons, and then concludes First, a large fiscal stimulus addresses factor #8 but fares poorly in alleviating the other problems. Of course it may give a band-aid for #5 or #6 and you can tell other... MORE

Be Careful What You Wish For

Fiscal Policy
Arnold Kling
Nick Schulz emailed me this paragraph from the Bureau of Labor Statistics: Eleven of the most populous metropolitan areas are composed of 34 metropolitan divisions, which are essentially separately identifiable employment centers. In November, Detroit-Livonia-Dearborn, Mich., again registered the highest... MORE

The Stimulus and the Somme

Fiscal Policy
Arnold Kling
Mark Thoma gives us Joseph Stiglitz and Martin Feldstein being interviewed by Charlie Rose. I listened to it last night, and I found it so chilling that it adversely affected my sleep. Two issues stand out. 1. Both of them... MORE

Forbes.com just published my article, "Will the Real Christina Romer Please Stand Up?" I'm not thrilled with the title because it seems to hint that Professor Romer has been hypocritical and, as far as I know, she hasn't been. But... MORE

Lectures on Macroeconomics, No. 13

Fiscal Policy
Arnold Kling
Having reached the unlucky number of 13, it is fitting to talk about multipliers and model estimates.... MORE

Against the Big Stimulus

Fiscal Policy
Arnold Kling
After reading Willem Buiter's long piece (pointer from Mark Thoma), I decided that it is time to come out firmly against a large fiscal stimulus. Instead, I would prefer a small stimulus. The case for a large stimulus appears to... MORE

Larry Summers, Neo-Galbraithian

Fiscal Policy
Arnold Kling
He sets out criteria for a stimulus package. Investments in an array of areas -- including energy, education, infrastructure and health care -- offer the potential of extraordinarily high social returns while allowing our country to address some long-standing national... MORE

Krugman's View of Corruption

Economic History
David Henderson
In his column in today's New York Times, Paul Krugman claims that Franklin D. Roosevelt's New Deal was "clean" and avoided corruption. So clean was FDR's Works Progress Administration, writes Krugman, that "when a Congressional subcommittee investigated the W.P.A., it... MORE

Gullibility, Madoff, and Fiscal Stimulus

Behavioral Economics and Rationality
Arnold Kling
Stephen Greenspan, a psychiatrist who lost money in the Bernard Madoff scam, writes, Gullibility is a sub-type of foolish action, which might be termed "induced-social." It is induced because it always occurs in the presence of pressure or deception by... MORE

Banana Republic Economics, Continued

Finance: stocks, options, etc.
Arnold Kling
Carmen Reinhart and Ken Rogoff write, We find that banking crises almost invariably lead to sharp declines in tax revenues as well significant increases in government spending (a share of which is presumably dissipative). On average, government debt rises by... MORE

Finally, Some Good Economic News

Supply-side Economics
David Henderson
From today's Wall Street Journal, an article titled, "IRS Audits of Large Companies Decline for 3rd Year in Row." The article goes on to say: According to 2008 IRS enforcement data released Monday, the IRS audited 15.3% of returns of... MORE

Madoff as Metaphor

Fiscal Policy
Arnold Kling
Paul Krugman writes, How different, really, is Mr. Madoff's tale from the story of the investment industry as a whole? Meanwhile, I've been thinking that Madoff is a perfect analogy for the public sector. The government gives people money, which... MORE

New Deal Panel, II

Economic History
David Henderson
I heartily second Bryan Caplan's endorsement of the Canadian TV show on the New Deal. Bryan focused on the economic content and I want to add my own thoughts to that, but beyond that is the amazing tone of the... MORE

State GovernmentPensions

Fiscal Policy
Arnold Kling
Robert Novy-Marx and Joshua D. Rauh write, The true extent of public pension underfunding has been obscured by governmental accounting rules, which allow pension liabilities to be discounted at expected rates of return on pension assets. This paper takes stock... MORE

When You're in a Hole, Keep Digging

Fiscal Policy
Arnold Kling
Mike Shedlock writes, New Jersey is $60 billion in the hole on pension funding and the Governor is planning on skipping payments in a "pension payment holiday" until 2012 so as to not increase property taxes. Considering that the pension... MORE

Unpresidential Remarks

Fiscal Policy
Arnold Kling
Tyler Cowen writes, If our next president seems flip or overconfident, observers will be skeptical above all else. Tyler mostly talks about idea traps, a notion that I think of as Bryan's. Let me make some remarks that are sufficiently... MORE

The Economics of the Auto Industry

Fiscal Policy
Arnold Kling
President-elect Obama held a press conference yesterday. He said, in part, The auto industry is the backbone of American manufacturing and a critical part of our attempt to reduce our dependence on foreign oil. I would like to see the... MORE

Why I am Paranoid

Fiscal Policy
Arnold Kling
Sovereign debt crises happen suddenly. One day, a country is paying normal interest rates and has full control over its fiscal and monetary policy. Then, investors lose confidence. Within days, the country has collapsed, and within weeks the savings of... MORE

Life in a Banana Republic

Finance: stocks, options, etc.
Arnold Kling
A banana republic is a country where government obligations swamp total wealth. In a typical banana republic, wealthy individuals race to move their savings overseas to safe havens. Those who fail to do so will suffer from taxation, inflation, and... MORE

Numeracy Watch

Fiscal Policy
David Henderson
One factor in the poor reporting of economics is the innumeracy of many reporters. Most people have trouble getting big numbers straight--distinguishing millions from billions, for example. Unfortunately, so do many reporters, even those who report economic news. Today's New... MORE

What Next?

Fiscal Policy
Arnold Kling
John Baden writes, there is diminishing support for institutions that generate wealth rather than redistribute it...both positive and negative values increasingly converge and agglutinate. This promotes substantial class differences. If one is blessed with responsible parents, intelligence, favorable genetics, health,... MORE

McCain vs. Obama

Fiscal Policy
David Henderson
Forbes.com published an article by me today comparing some of the economic policies of McCain and Obama. Note my criticism of both of them for voting to move toward central government planning of financial markets.... MORE

The Long-Term Budget Outlook

Fiscal Policy
Arnold Kling
From the Congressional Budget Office: How would the economy be affected if the projected rise in primary spending under CBO’s alternative fiscal scenario (from about 18 percent of GDP in 2007 to about 35 percent in 2082) was financed entirely... MORE

Despite some skeptical colleagues (not mentioning any names, Alex!), I've never doubted the wisdom of "starving the beast" - opportunistically cutting taxes whenever possible in order to reduce spending eventually. Now Mankiw presents some new evidence in favor of the... MORE

Real Change in Domestic Policy

Fiscal Policy
Arnold Kling
From a web site put together by Congressman Paul Ryan, It is a real plan, with real proposals, real numbers to back them, and real legislation to implement it. Based on the analysis of government actuaries, this plan is projected... MORE

Unchecked Government Marches On, II

Fiscal Policy
Arnold Kling
USA Today reports, Taxpayers are on the hook for a record $57.3 trillion in federal liabilities to cover the lifetime benefits of everyone eligible for Medicare, Social Security and other government programs, a USA TODAY analysis found. That's nearly $500,000... MORE

Fixing Medicare with Vouchers

Economics of Health Care
Arnold Kling
Congressman Paul Ryan is the first politician I have seen with a plan that makes Medicare sustainable. The bill secures the existing Medicare program for those over 55 - so Americans can receive the benefits they planned for throughout most... MORE

The Fiscal Outlook

Fiscal Policy
Arnold Kling
Peter Orszag writes, tax rates would have to be raised by substantial amounts to finance the level of spending projected for 2082 under CBO’s alternative fiscal scenario. Before any economic feedbacks are taken into account, and assuming that raising marginal... MORE

It will be a great day when

Fiscal Policy
Arnold Kling
Megan McArdle notices a story that Virginia has a voluntary taxation program with little uptake. She writes, This is what economists call "revealed preference". What most of us are really in favor of is higher taxes on other people. If... MORE

"Fiscal Responsibility First"?

Fiscal Policy
Arnold Kling
According to the Washington Post (editorial page), this is future President Hillary Clinton on Social Security: "I'm not putting anything on the proverbial table until we move toward fiscal responsibility," she said during Wednesday's debate I really have not been... MORE

Painful Budget Cuts in Maryland

Fiscal Policy
Arnold Kling
An Editorial in the Washington Post tells the story. Gov. Martin O'Malley (D) has begun chipping away at the problem, starting with the outlays. Predictably, he is under attack -- from liberals and unions who say the cuts are pitiless... MORE

Interrupting the Statist Quo

Fiscal Policy
Bryan Caplan
Don Boudreaux's latest observations on "spending addiction" remind me of a line from Phil Gramm that I annually present to my IO class: [I]n the darkest hour of the health care debate, when it looked like Bill Clinton was about... MORE

Krugman Overcomes Pessimistic Bias

Fiscal Policy
Bryan Caplan
Krugman no longer seems very worried about the deficit, but why? Inquiring minds want to know...... MORE

Fiscal Titanic

Fiscal Policy
Arnold Kling
According to the General Accounting Office, the category “all other spending” includes much of what many think of as “government”—“discretionary” spending on such activities as national defense, homeland security, veterans health benefits, our national parks, highways and mass transit, foreign... MORE

The Economic Consequences of Mr. Bush

Fiscal Policy
Arnold Kling
Robert Carroll and Greg Mankiw discuss the Treasury department's analysis of the long-run (supply-side) effects of the Bush tax cuts. The Treasury's main analysis assumes that lower tax revenue will over time be accompanied by reduced spending on government consumption.... MORE

The Kotlikoff Budget Plan

Fiscal Policy
Arnold Kling
Laurence J. Kotlikoff writes, the U.S. government is, indeed, bankrupt, insofar as it will be unable to pay its creditors, who, in this context, are current and future generations to whom it has explicitly or implicitly promised future net payments... MORE

Outside-the-Beltway Mentality

Fiscal Policy
Arnold Kling
Jeff Miron proposes spending cuts, The grand total from this list is $300 billion annually, roughly the deficit projected for 2006. Normal economic growth would therefore mean surpluses in the near future, should these cuts occur. To deal fully with... MORE

Our Fiscal Future

Fiscal Policy
Arnold Kling
Greg Mankiw writes, Economist Glenn Hubbard...reminds us that unless we see significant entitlement reform, taxes are heading higher... There is nothing very new here, but it is good to have Glenn saying it anyway. The history here is that Democrats... MORE

Budget Trends

Fiscal Policy
Arnold Kling
Steve ("the skeptical optimist") Conover writes The two trend lines, receipts and outlays, confirm what I thought I had seen two months ago. Federal tax receipts are growing much faster than federal spending outlays: 15.2% versus 8.5%, respectively. As a... MORE

Admitting We Were Wrong

Fiscal Policy
Arnold Kling
From my latest essay: The two viewpoints might be summarized as follows: --Conservatives: Cutting taxes will help reduce the size of government. --Liberals: Big government is not really so bad. In the face of overwhelming evidence over the past five... MORE

Bernie Saffran Memorial Conference

Fiscal Policy
Arnold Kling
I attended an economics conference held in honor of Bernard Saffran, the Swarthmore economics professor who died last November. I took away observations in three categories: 1. current research: although Steve Levitt was not there, his style of economics permeated... MORE

NRO babble

Fiscal Policy
Arnold Kling
Why does National Review Online embarrass itself with this sort of economic commentary? Budget deficits are only too large if they usurp the private economy’s need for physical capital and labor, thereby precipitating an inflationary surge. So, as long as... MORE

A Serious Budget

Fiscal Policy
Arnold Kling
I'll bet Ken at ChicagoBoyz had fun putting this together: As one who thinks that taxes are plenty high enough, on the rich as well as on everyone else, and that budgetary problems should be solved by budget cutting, it's... MORE

Maybe Brad DeLong is Right

Fiscal Policy
Arnold Kling
From the Washington Times: House Majority Leader Tom DeLay said yesterday that Republicans have done so well in cutting spending that he declared an "ongoing victory," and said there is simply no fat left to cut in the federal budget.... MORE

Give Me Your Tired, Your Young...

Fiscal Policy
Bryan Caplan
Americans have severe misconceptions about what the welfare state does. They believe that it cares for the poor. But in fact, it primarily cares for the old. I shared this misconception before I studied economics. My undergraduates have it before... MORE

Inevitable Tax Increases

Fiscal Policy
Arnold Kling
In the latest WSJ blogger celebrity death match, Max Sawicki says Social Security and Medicare spending will increase faster than GDP, requiring increases in taxes, and there is not a damn thing anyone can do about it Tyler Cowen responds,... MORE

Conservatives and the Bush Budget

Fiscal Policy
Arnold Kling
David Corn writes, What I wonder about is the absence of conservative outrage over Bush's budget numbers. Alex Tabarrok wrote, My prediction is that it will be easier to add $540 billion in Medicare spending than it will be to... MORE

Taxes and Social Security

Fiscal Policy
Arnold Kling
Laurence J. Kotlikoff proposes to replace the payroll tax with a sales tax. replacing the payroll tax with a sales tax is the same as (a) eliminating the payroll tax ceiling, (b) taxing wealth at the payroll tax rate, and... MORE

Economists' Voice on Fiscal Policy

Fiscal Policy
Arnold Kling
The second issue of The Economist's Voice has appeared, and it looks more interesting than the first. Several articles discuss fiscal policy. William G. Gale and Peter R. Orszag write, Looking beyond the next decade, the budget outlook grows steadily... MORE

The Budget Issue

Fiscal Policy
Arnold Kling
How does John Kerry reconcile his spending and tax proposals with his promise to balance the Budget? The Washington Post reports, Kerry says he would offset the cost of those programs with cuts in federal contracting, some agriculture subsidies and... MORE

Economic Policy Analysis

Growth: Causal Factors
Arnold Kling
Whoever is writing the lead editorials for the Washington Post (I suspect Sebastian Mallaby) on economic policy issues in this year's election is providing pieces that are highly educational. Today's editorial is called The Growth Mystery. we don't know how... MORE

Reagan's Economics in Context

Supply-side Economics
Arnold Kling
I decided to put my thoughts into a longer essay. When Ronald Reagan defeated Carter's re-election bid, "incomes policies" were a proven failure. Notwithstanding Milton Friedman's comments quoted above, by 1980 it took a lot less courage to stand by... MORE

Ronald Reagan's Economics

Supply-side Economics
Arnold Kling
Jane Galt writes, High inflation was the result of a dozen years of bad fiscal and monetary policy under two Republicans -- Nixon and Ford -- and two Democrats -- Johnson and Carter -- that was brought under control only... MORE

Bush on Trial

Fiscal Policy
Arnold Kling
Jeff Frankel speaks for the prosecution. they will do anything for a few votes, even if their behavior is against the national economic and security interests and blatantly inconsistent with things they claim to stand for: small government, free trade,... MORE

Welfare State Free Lunch?

Fiscal Policy
Arnold Kling
In his New York Times column last week, Jeffrey Madrick referred to the work of Peter Lindert on the ability of countries to grow in spite of welfare state distortions. Lindert's argument can be found in Why the Welfare State... MORE

Against Budget Surpluses

Fiscal Policy
Arnold Kling
Wayne Angell argues that the Clinton Administration paid down the Federal debt too quickly. The recent peak in federal debt as a percentage of GDP averaging 49% from 1993 to 1996, compared with the all-time peak in 1946 of 109%,... MORE

The Budget Menu

Fiscal Policy
Arnold Kling
In the essay I referred to in my previous post, I also write A President who has only added to future entitlement obligations ought to be judged as having acted to increase taxes. To call this Administration a tax cutter... MORE

Jobs and Tax Cuts

Fiscal Policy
Arnold Kling
Noam Scheiber argues that the Bush tax cuts in fact were stimulative. Liberals in Congress and at places like the Economic Policy Institute complain that the Bushies should have targeted the bulk of their tax cuts toward the working poor... MORE

The Budget Outlook

Fiscal Policy
Arnold Kling
Niall Ferguson and Laurence Kotlikoff paint a dire picture of the fiscal outlook in the U.S. Much of the material is a recital of the prospects for Social Security and Medicare, with which readers of this blog are familiar. One... MORE

Debating Rubinomics

Fiscal Policy
Arnold Kling
Jeff Faux and Brad DeLong revisit fiscal history. In particular, they ask whether Democratic President Clinton sold his soul for deficit reduction. Faux writes, Hopes that the peace dividend from the end of the Cold War would finance major new... MORE

Who Bears the Tax Burden?

Fiscal Policy
Arnold Kling
The 2004 Economic Report of the President contains a chapter on tax incidence. the person who is legally responsible for paying the tax may not be the one who actually bears the burden of the tax...the incidence of a tax... MORE

Bond Market

Finance: stocks, options, etc.
Arnold Kling
Brad DeLong wonders why the bond market isn't punishing the Bush Administration harder for its fiscal sins. He lists a number of possible explanations, including 1. The people who matter in financial markets are expecting either (a) that there will... MORE

Budget Woes

Fiscal Policy
Arnold Kling
Robert E. Rubin, Peter R. Orszag, and Allen Sinai make a case that our Budget deficits are not sustainable. If one includes the cost of the recently enacted prescription drug benefit, assumes that discretionary spending keeps pace with inflation and... MORE

Trade Deficit, Saving, and Tax Policy

International Macroeconomics: Exchange Rates, International Debt, etc.
Arnold Kling
I argue that our trade deficit is really a savings deficit. Increasing exports relative to imports is not a matter of beating up on China to live up to its commitments in the World Trade Organization. It is not a... MORE

California Reality

Energy, Environment, Resources
Arnold Kling
As a dean at Berkeley, Hal Varian has a personal interest in California. In his column today, he offers some plain-spoken economics lessons. Most California voters think the electricity crisis contributed to the state budget deficit. If only things were... MORE

The Budget Debate

Social Security
Arnold Kling
The Congressional Budget Office provides an analysis of the long-term Budget outlook. The projections also assume for analytical purposes that aggregate federal revenues will level out at 19 percent of GDP in 2020, reflecting the higher end of the range... MORE

Politics vs. Economics

Growth: Causal Factors
Arnold Kling
On one of the comment threads, a reader asked me if I disagreed with the economics of Lawrence Kudlow. "Honestly, I never thought he had any to disagree with," was how I began my reply. Let me revise and extend... MORE

Budget Analysis

Fiscal Policy
Arnold Kling
The Washington Post lead editorial for August 29 adjusts the baseline budget forecast for several factors. The largest is discretionary spending, which they argue will grow at the rate of the economy rather than at the rate of inflation. The... MORE

Did the Bush Tax Cut Fail?

Macroeconomics
Arnold Kling
This group of economists with strong Democratic Party ties says that we needed fiscal policy that provided more stimulus in the short run and a lower deficit in the long run. Robert Solow says, There are three characteristics you want... MORE

Did the New Deal Fail?

Macroeconomics
Arnold Kling
Cato's Jim Powell makes the case against the New Deal. Among the material Powell cites: Richard K. Vedder and Lowell E. Gallaway, in their 1997 study Out of Work, estimated that by 1940 unemployment was eight points higher than it... MORE

The Challenge to Cut Spending

Fiscal Policy
Arnold Kling
Recently, Kevin Drum issued this challenge to those who claim to prefer lower government spending. Let's hear what you want to cut. And remember, for bonus points you have to include some programs that you yourself benefit from. I was... MORE

Economic Attribution Error

Fiscal Policy
Arnold Kling
In this essay, I argue that the importance attached to the President or the Fed Chairman in determining economic outcomes may be an instance of what psychologists call the fundamental attribution error. During the Clinton administration, the projected Budget surplus... MORE

Temporary Dividend Tax Cut?

Fiscal Policy
Arnold Kling
Jacob Levy criticizes the Senate's proposed temporary tax cut on dividends. The arguments in favor of repealing the dividend tax have to do with removing distortions from the capital markets and from the incentives faced by corporations, and with improving... MORE

Rethinking Keynes

Macroeconomics
Arnold Kling
In Would Keynes Change His Mind?, I suggest that some key elasticities in the economy have changed since Keynes wrote. Today, the economy is more elastic than it was in the 1930's. Today's recession is a far cry from the... MORE

Social Security Tax Cut?

Fiscal Policy
Arnold Kling
A proposal from former Labor Secretary Robert Reich: The best and the fastest way to get more money into the pockets of people who are likely to spend it quickly is to cut the taxes of average working people. Most... MORE

Comment of the Week, 2003-04-30

Fiscal Policy
Arnold Kling
On the subject of job-creation arithmetic, Paul Zrimsek writes, It's a pity that the great divide-by-ten controversy has diverted everyone's attention from what ought to be the main point: that the comparison Krugman drew between tax losses to the government... MORE

The Budget Debate, IX

Fiscal Policy
Arnold Kling
Jonathan Rauch has a nice summary of the issues in the Budget debate. The economists note that if tax cuts are paid for through higher deficits instead of lower spending, the government borrows back from the economy the capital that... MORE

Spend Less on Education?

Productivity, Baumol's cost disease
Arnold Kling
Sometimes, an economist argues against conventional wisdom, as in this essay, where I question the view that the government needs to increase its spending on education. If we combine the limited extent to which education is a public good with... MORE

Job-Creation Arithmetic, II

Fiscal Policy
Arnold Kling
On his web site, Paul Krugman has posted the textbook macroeconomics of fiscal policy for stimulating employment. In a related post, Krugman explains how this basic macroeconomic model explains what some people (like me, for instance) found puzzling about a... MORE

Job-Creation Arithmetic

Fiscal Policy
Arnold Kling
Paul Krugman writes, The average American worker earns only about $40,000 per year; why does the administration, even on its own estimates, need to offer $500,000 in tax cuts for each job created? Krugman's arithmetic is to take the ten-year... MORE

War Economics

Fiscal Policy
Arnold Kling
We are starting to see articles on the economics of the Iraq war. Some are described in this article by Virginia Postrel and others are described in this post by 'Jane Galt.' Postrel correctly points out that old-fashioned Keynesian theory... MORE

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