But if it is not done quickly, the economic downturn may be over before the stimulus arrives.
-Economist Greg Mankiw, expounding a literature wisdom that really might be thought of as poor decision making under uncertainty
IS IT OVER, NOW? HOW 'BOUT NOW? NOW? NO? NOW?
September 15, 2008, Lehman Brothers collapse. October, 2010, economists still talking about a double-dip, the outsized consequences of a double-dip in a 'liquidity trap', the overhang of uncleared mortgage markets, the puttering out (non-acceleration) of the instant-gratification stimulus.
In short, still waiting for "the downturn to be over".
Now, one has to give props to Prof Mankiw, because he is really good, even superb, at elucidating concepts, when that is his sole focus.
IF YOU TAX ME, MY KIDS WON'T BE WEALTHY
However, this editorial has to be one of the most convoluted pieces of reasoning to reach a pre-determined conclusion that I've seen.
He seems to argue that, if you tax the income-rich, they will have less money to pass on to their kids. If you compound it by 30 years, the optics of it make it look like it a lot for them to lose. In short, huh? That's an argument against income redistribution (only one form of wealth redistribution)?
Perhaps the reason that we don't see the truth of his argument, the effects of it, in the data, is because the income-wealthy, by character, won't refuse the next $30,000 or $100,000 deal, or speaking engagement, or investment "flip", even at tax rates double the current levels on them? Less income is still income. Hell, most businesses run at barely 5% return on invested capital. You don't see everyone just going home.
Put another way, the average guy, including the income-wealthy average guy, don't heed their marginal tax rate anymore than they consider the odds when buying a lottery ticket. The important thing about income is having it and, for some, having more than the next guy (or more aptly put, being able to have more than the next guy, i.e. non-communism).
PAUL KRUGMAN BAIT?
And I wonder how much he's done slight of hand with "deadweight loss". First, why ignore externalities? Good grief, shouldn't we list them, amply and frequently, rather than ignore them, as educators or even good citizens?
Second, "loss", in his hands, seems to suggest that a society is somehow losing wealth by redistributing it, by taxing the income-wealthy. But, that is not the case, even in his example, if taxes are dedicated to something like social security, which is essentially a forced savings program*. "Loss", unless I'm missing something, which is possible, simply means that society chooses less of one thing in favor of another. Of course, that's taken to be a disutility by some who don't want that choice; but, d'oh.
In a refinement, one might focus, instead, on the cost of government to provide that distribution. Yet, the cost of administering social security, say, is lower, because of scale, than private options, so... The cost of defense programs, not so much.
WHAT ABOUT THE WITCH IN THE WARDROBE?
Finally, you don't see him write about the external debt situation. Does he believe that an economy should have 0% external debt? If the $1,000 he might set aside for his kids, went instead, to remove the nation's external burden, skyrocketed for the first time in peace under Reagan, then wouldn't his kids' future income prospects be brighter? If you compound the interest savings over 100 years of their expected lifetimes, that's a LOT.
*among the chief reasons social security is perceived to be in trouble is because of demographic boom/bust for a program, originally conceived as a cash-balance program, that never made it to 100% accrual basis, in the national accounts (remember Al Gore, "I'll put social security in a lock box!!!" - yeah, not so much George Bush, who didn't think it a priority to do so). Couple that with the fact that Congress spent the surpluses, the receipts that were anticipatory, ahead of the current needs of the program, with Bush admin going along with that more than any other President. (Of course, Obama will soon have that title himself...).
