Greg Mankiw's Marginal Educational Product Is Negative

Part of the New York Times death spiral watch...

Greg Mankiw writes:

Economic View - The Problem With the Corporate Tax: AT this point in the presidential campaign, Senator John McCain is the candidate of ideas on issues of tax policy. Too many ideas, in fact. While some of his ideas are great, others are almost laughable.

The one that has received the most attention recently — a gas-tax holiday — falls in the second category.... It is hard to find [any]one who thinks that a temporary cut in the gas tax is a sensible response to the current spike in gas prices.

Lost in this hubbub, however, is a bigger idea that Mr. McCain and his economic team have put forward: a cut in the corporate tax rate, to 25 percent from 35 percent. It is perhaps the best simple recipe for promoting long-run growth in American living standards...

No. An UNFUNDED tax cut is not the best simple recipe for promoting long-run growth in American living standards. It is the best simple recipe for promoting long-term decline in American living standards. You see, the government has a budget constraint: if it does not tax now to fund its activities it must tax later, one way or another. And unknown, uncertain future taxes in the long run plus the medium-run costs of carrying the debt until those taxes are levied--they are almost surely a significant net drag on the economy. McCain has no plan to fund the corporate tax cut save the same two dodges Republican politicians have been using for thirty years: First, the magic asterisk ofcutting "waste, fraud, and abuse." Surely by now this argument is well-past its sell-by date and thoroughly rotten? Second--and this Mankiw spends a couple of long paragraphs on--the Laffer curve applies and so the tax cut won't lose but will raise revenue.

Some editor should have held this up. Some editor should have called Mankiw and said: "Greg, you have written a piece that analyzes McCain's corporate tax cut as if its revenue loss is offset by an equal contemporaraneous revenue gain elsewhere in the system--as if McCain is proposing a funded tax cut. But he isn't. He is proposing an unfunded tax cut. What gives?" And Mankiw would have been forced to work much harder to come up with the pro-McCain column he wants to write. Perhaps something that informed readers--or at least did not disinform them so grossly--would have emerged.

But no editor had the smarts to do that. And the case for closing down the Times gets stronger.

Why oh why can't we have a better press corps?

---

UPDATE: In other New York Times death spiral watch news, public editor Clark Hoyt writes a column that I cannot see as other than a call for the immediate firing of op-ed editor David Shipley:

Entitled to Their Opinions, Yes. But Their Facts?: On May 12, The Times published an Op-Ed article by Edward N. Luttwak.... Many Times readers saw the article as irresponsible... or false... assertions that Luttwak did not know what he was talking about. The Times Op-Ed page, quite properly, is home to a lot of provocative opinions. But all are supposed to be grounded on the bedrock of fact. Op-Ed writers are... not entitled to get the facts wrong or to so mangle them that they present a false picture.

Did Luttwak cross the line from fair argument to falsehood?... [F]ive Islamic scholars, at five American universities, recommended by a variety of sources.... All of them said that Luttwak’s interpretation of Islamic law was wrong.

David Shipley, the editor of the Op-Ed page, said Luttwak’s article was vetted by editors who consulted the Koran, associated text, newspaper articles and authoritative histories of Islam. No scholars of Islam were consulted.... That’s a pity....

Luttwak... said he was not out to attack Obama and regretted that, in the editing, a paragraph saying that an Obama presidency could be “beneficial” was cut for space.

Shipley, the Op-Ed editor, said he regretted not urging Luttwak to soften his language about [the] possible assassination [of Barack Obama], given how sensitive the subject is. But he said he did not think the Op-Ed page was under any obligation to present an alternative view, beyond some letters to the editor.

I do not agree...

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UPDATE 2: Some commenters complain that Mankiw has a plan to fund the tax cut via a gasoline tax. Well, yes. But that's Mankiw's plan, not McCain's. And Mankiw calls McCain's unfunded cut the "bigger idea that Mr. McCain and his economic team have put forward... [that] is perhaps the best simple recipe for promoting long-run growth in American living standards..."

It would be overkill to point out that Mankiw has now used the gas tax to (very partially) fund the extension of the Bush tax cuts, Medicare Part D, and the structural long-term deficit. Double-counting is one thing. Quadruple-counting another.

Comments

[jerry]

I'm just an ignorant caveman, but are you suggesting the New York Times Editor should have more economic understanding of tax policy than Greg Mankiw who quite literally wrote the book you hope those editors read in college?

Unlike others, I don't think I've ever mentioned how in the tank you are for Mankiw, but good god Brad, you're in the tank for Mankiw. He knew exactly what he wrote, and I think you know that too.

[Tushar]

Wow, Brad.
I usually like reading your scathing commentary on the right generally always trusting your intellectual honesty. But this is completely disingenous. Did you not read the whole Mankiw column? Half his column was devoted to pondering how to FUND the tax cut.

[I'm afraid not. Paragraph 17 is the only one in which McCain's... well, we can't call them 'plans' can we?... In paragraphs 18 and 19 Greg talks about funding the corporate tax cut via a gasoline tax--but the problem is that Greg has already used the gasoline tax to partially repair the hole that he helped rip in federal finances with Medicare Part D, to pay for the extension of the Bush income tax cuts, and to cover the long-run structural deficit as well. You cannot use the same tax four times...]

[Alex F]

Brad, I love you, but Mankiw isn't proposing an unfunded tax cut. Here he is, later in the column, proposing funding for it:

[McCain is proposing an unfunded tax cut...]

[Aaron]

Did you miss the part at the end where Mankiw proposes a large gasoline tax incrase to offset the revenue loss from a corporate tax cut? He proposes this without mentioning that his candidate recently proposed eliminating the tiny Federal gasoline tax we do have for the Summer months. Face it. They guy's a hack.

[gjn3eione]

And for the bright idea McCain did not voice but many individuals of proven worth would find appropriate: CHAIN GANGS. America is about people striving. And recession means that some people are not striving because if they were striving they would be working and they are not. The old liberal approach was to have some non-working population exist as a way to insure that those currently working would not place any unreasonable demands on those who created the jobs for them. However it is clearly the time for new approach. Those who exhausted their unemployment benefits can be placed into chain gangs to perform some forms of public service, such as digging really deep ditches in case FOREIGN TERRORISTS come to attack us. On weekends they can be paraded through the downtowns so those currently not in chain gangs can see what awaits them. It is time we stop coddling those who would not lift themselves from joblessness. Chain gangs are the true future of America.

[David Lloyd-Jones]

"david" above repeats a frequently published error, that baby bommers' retiring will cause a draw-down of Social Security - and impllicitly of national wealth.

The funding of Social Security was charged off to the budget in the years when the money went into the fund: it's already paid for.

The marginal propensity of age-cohorts to invest increases monotonically with age: on average "retirees" just keep on saving and investing, and more so than their kids or grand-kids.

[tai]

Because of globalization and multi-lateral trade agreements, there really is no competitive advantage to having non-essential operations located in the US. Let's see, there's stricter environmental regulations, a higher labor costs, and some of the highest corporate tax rates in the industrialized world. The problem is getting much worse as (1) US companies generate more revenue internationally and (2) foreign companies buy domestic ones on the cheap. Lowering corporate taxes is not so much "trickle down", but rather repatriating some of the wealth abroad. Look no further than the Intellectual Property sheltering that fueled the Celtic Tiger economy.

[Robert Waldmann]

I think Brad may well have been fair to Mankiw. I have not yet read the column, but from the post and the comments so far it seems to be a bait and switch. Mankiw claims that McCain has made a good proposal concerning taxes. Mankiw does not think that such a tax cut without a compensating tax increase (as proposed by McCain) and with all the cuts in spending McCain will manage is a good proposal. Thus, perhaps because he is less optimistic about how much spending can be cut and perhaps because he actually cares about the deficit, Mankiw concludes that McCains tax change proposal is bad. He then describes a different proposal which, he claims is good. This to support his claim that McCain made a good proposal. His argument (as summarized here) does not support his claim "Lost in this hubbub, however, is a bigger idea that Mr. McCain and his economic team have put forward: a cut in the corporate tax rate, to 25 percent from 35 percent. It is perhaps the best simple recipe for promoting long-run growth in American living standards" Mankiw defends a different proposal.

Now adding a huge increase in the gas tax is not a minor modification. It is something that won't happen any more than McCain's magic spending cuts. Acting as if a proposal with and without an increase in the gas tax is the same is, at the level of arguing that there is no difference between the present tense and the future tense or between 155,000 and 132,000. In short about standard for McCain supporters, but way beneath the level we have a right to expect from Mankiw.

Oh Jerry, Brad is not suggesting that editors know better than Mankiw. He is stating that Mankiw knows better than what he wrote in the column and is deliberately deceiving.

OK I have read the op-ed. The problem is that the discussion is completely unlinked from McCain's actual proposals. Thus the assertion ""Lost in this hubbub,..." is made but not supported by evidence or argument. This is dishonest.

Now I will pretend that Mankiw did not falsely claim he was talking about McCain's tax proposals and discuss for a moment Mankiw's very very different proposal. I have one criticism to make. His principal argument in favor of cutting the corporate income tax is that if we cut ours and everyone else leaves there's the same, capital will flow to the USA. Now I think it immoral to aim to make the second richest country richer at the expense of poorer countries (and a tiny bit from Luxembourg the worlds richest country which got rich by ... you've guessed).

I will accept that only US interests matter. I still have a problem. Other industrialized countries would not let us get away with it. Luxembourg can suck in enough capital to get rich because it is small -- the USA can't count on infinite patience from our trading partners. Cutting corporate taxes to get capital is a major no no in international economic policy. If the US throws away the rule book (as on many other issues) the result will be very different from that which Mankiw imagines in which everyone else acts as if he hadn't done so.

Anyway, on the honesty of Mankiw's column
I conclude that Brad was absolutely fair to Mankiw. Mankiw admits that the proposal would add to the deficit. He does not compare the cost of the tax to the cost of the deficit. Instead escapes into fantasy switching from discussing the proposal McCain made to proposing a totally different plan. Mankiw's gas tax proposal has nothing to do with evaluating McCains policy proposals.

Also Mankiw does not mention the huge number of other tax cuts proposed by McCain. Since his defence of McCain is that the corporate income tax causes high distortions compared to revenues raised, his conclusion is that it should be cut and other taxes raised (for any spending path). McCain is basically proposing to cut all taxes, thus, according to Mankiw, he is proposing cutting a tax which is relatively damaging. So he is also proposing cutting taxes which are relatively less damaging or actually pigouvianly sound. How can Mankiw include a gas tax increase in his discussion of McCain's tax policy when McCain has proposed a gas tax cut ?

By totally dishonest baiting and switching that's how.

[Robert Waldmann]

More on Mankiw's proposal (cut corporate income tax balance with increased other taxes). Much of the open economy effects of the corporate income tax have nothing to do with flows of capital or investment or which countries get rich. A multinational corporation can decide which subsidiary is making profits. The current system requires the corporation to say that goods are sold from one subsidiary to the other. They decide the price. Thus they can make the subsidiary in a low tax country report high profits. This is part of the indirect effect of the tax cut on revenues. Now Luxembourg and Lichtenstein and Andorra can get away with this game. If we try it, however, the costs to everyone else is so great that they might decide that something has to be done.

If they got really mad, they could Californicate us. California decided that they would tax worldwide profits times the fraction of total corporate value added which was added in California. Now California is big, but their corporate tax is low so this didn't have repercussions beyond several too many articles in The Economist about how California is right, of course, but getting to a totally Californicated corporate tax system world wide is impossible and would be costly so they should just act as the rest of the world does.

US tries to suck accounting profits out of the rest of the world, US asks for retaliation. The general approach of we do what we will and the rest of the world suffers what it must has not worked very well. In particular when international finance is involved such an approach is ill suited to a debtor nation. Given even odds I would certainly bet that Europe rolls over again (Japan goes without saying). However, I see no compelling reason to take the risk.

[bigTom]

While Greg have have proposed an offsetting gas tax, and using an offsetting gas tax to pay for a tax cut that is targetted to help the economy (I'm not one to judge whether corporate tax rates are the most efficient place for this) would be a good tradeoff. The numbers gotta add up, as well as the probabilities of actually getting the offset have to be figured in. And of course if the offset is proposed to cover several other cuts, then it has to be that much bigger. Our problem is we have seen Republicans play this game before, cut here, and offset there, but then push comes to shove, and there is no there there. So if we are to agree to anything of the sort, we have to insist that the cut be contingent on the presense (and proper scale of) the offset.

[Matt]

I don't get any of this, quite frankly.

Is or is not the federal government providing services for corporations, especially international corporations?

How much? I bet you they provide services right now approximately equal to the price that corporations pay, over the cycle.

Mankiw is smarter than that, and I suspect Mankiw in hinting that corporation need to change their relationship with government. I do not see how lowering the price for services does that, Mankiw, if he is libertarian, would want taxes raised much higher so there is no gain from a partnership between corporations and government.

I think Brad is a bit disingenuous when he fails to note that lower taxes would increase the relationship between corporations and government, expanding government and making the deficit increase more than the tax reduction.

[jerry]

"Oh Jerry, Brad is not suggesting that editors know better than Mankiw. He is stating that Mankiw knows better than what he wrote in the column and is deliberately deceiving."

I can buy that explanation, thank you.

[christofay]

Really why do we need a Republican Party? If we respond to that line in one of Arnie's more successful movies, "come with me if you want to live," we save time by assuming at once that the Republican train of thought is junk science/economics/manners/golf; and we get on with living rather than dying.

All of this writing already but Waldman has summed it up in a couple of sentences:

How can Mankiw include a gas tax increase in his discussion of McCain's tax policy when McCain has proposed a gas tax cut?

By totally dishonest baiting and switching that's how.

[christofay]

It's sort of giving reason to taxing the Ivies' stash of booty.

Mankiw: a new breed of lap poodle from a profession that has been producing them in flowery abundance.

Speaking of lap poodle, has Tony brought peace to the Middle-east now that he has free time? If not, has he spent more time giving hi-pay lo-content speeches than being the brave peace crusader?

[pgl]

"are you suggesting the New York Times Editor should have more economic understanding of tax policy than Greg Mankiw who quite literally wrote the book you hope those editors read in college?"

In case Jerry wants to peruse the book Greg wrote, I link to it over at Angrybear. That book agrees with what Brad wrote. Of course - as others have said - one could cut tax rates and seriously reduce government spending. But McCain is NOT proposing fiscal restraint. After all, he wants more defense spending and those proposed reductions in earmarks are pennies on the dollar.

[pgl]

"are you suggesting the New York Times Editor should have more economic understanding of tax policy than Greg Mankiw who quite literally wrote the book you hope those editors read in college?"

In case Jerry wants to peruse the book Greg wrote, I link to it over at Angrybear. That book agrees with what Brad wrote. Of course - as others have said - one could cut tax rates and seriously reduce government spending. But McCain is NOT proposing fiscal restraint. After all, he wants more defense spending and those proposed reductions in earmarks are pennies on the dollar.

[pgl]

"are you suggesting the New York Times Editor should have more economic understanding of tax policy than Greg Mankiw who quite literally wrote the book you hope those editors read in college?"

In case Jerry wants to peruse the book Greg wrote, I link to it over at Angrybear. That book agrees with what Brad wrote. Of course - as others have said - one could cut tax rates and seriously reduce government spending. But McCain is NOT proposing fiscal restraint. After all, he wants more defense spending and those proposed reductions in earmarks are pennies on the dollar.

[christofay]

pgl boil a tea keetle state of angry and can not stop making the same point

As Mankiw does not read his own text book, can I sell it used on e-bay?

[a]

"Oh Jerry, Brad is not suggesting that editors know better than Mankiw. He is stating that Mankiw knows better than what he wrote in the column and is deliberately deceiving."

I don't know, but then maybe the best way to phrase this is "Harvard Economics Department Death Spiral Watch", rather than pin it on the NYT.

[Matt]

"..one could cut tax rates and seriously reduce government spending.."

One cannot do that.

One could raise taxes on corporations, and their lobbyists will work on methods to do things themselves rather than have government do it. One's net thus reduces by taking on nore expenses, And therefore, one's goverbnment is reduced, thus bring one's corporate tax back to equilibrium.

If one's textbook says otherwise, than one's textbook, forgot supply and demand. One's textbook should recognize that one's government and customers work with long equilibrium cycles and that is why textbooks get it wrong.

[robertdfeinman]

The basic error is think that newspapers are "neutral". In the early days papers had explicitly stated philosophical viewpoints, that's why publishers created them.

For most of the 20th Century "everyone" knew that the NY Times represented Main Street Republicanism, with a bit of a lean towards civil rights because of its location in multi-cultural New York City.

It was also well understood where the Chicago Tribune stood as well as the Hearst papers. The fallacy is in thinking that this bias no longer exists.

Newspapers are big business and support the big business community and this also implies support of administrations that will further their economic interests. That's why the Times has flacks like Brooks, Kristol, Mankiw and Ben Stein appearing regularly.

If you want other viewpoints you will have to turn to the political opinion magazines like "The Nation", "The Progressive", "In These Times", and "The American Prospect". You will also need to read them with an appreciation of their biases as well.

[Ralph Hitchens]

Edward Luttwak is a brilliant military historian but his each and every foray into the opinion pages must be scrutinized six ways from Sunday. He's been spectacularly wrong or misleading on other occasions -- e.g., predicting high Coalition casualties in the first Gulf War, later stating that he did so not because he believed it but in an attempt to persuade the first Bush administration not to go to war; and more recently praising the counterinsurgency capabilities of Rome and Nazi Germany, ostensibly to persuade us that to win in Iraq we must be more ruthless, and since we can't do that we should probably disengage. In this latest instance I don't know what motivated him, but he was certainly far removed from his core competence in dealing with an issue of such theological complexity, and the editors should have realized this and passed on it. Done Ed and all of who admire him a favor.

[Ralph Hitchens]

Oops! Add an "us" in that last sentence!

[Student]

PGL modestly fails to state that over at Angry Bear

http://angrybear.blogspot.com/

there is a post which points out that since 2000 effective corporate tax rates have in fact declined from about 35% to about 25%. We have thus had a natural experiment testing whether the benefits Mankiw claims will in fact eventuate. Where are they?

[Bruce]

I do think this really encapsulates the way that Brad's obsession with the press corps sometimes borders on, well, obsession (by which I mean that it's unreasonable in the standard of behavior it demands, even if based on real failings and legitimate frustrations).

Even if we concede that Mankiw is guilty of bad economics, I find it hard to conclude that this is the fault of the New York Times. They are just newspaper, after all--one that puts it pants on one leg at a time. The editors went to a leading academic, who has both a deep knowledge of policy and a sterling reputation among his peers (not to mention a long trail of peer-reviewed publications). And they published (after Mankiw wrote) a piece that contained no factual errors--just a logical flaw.

Is it really the job of a press corp to correct the best and the brightest among economists when they make logical errors?

Should the science reporters be checking all the equations of a string theorist before reporting on an important new paper?

I think the relevant concept here is division of labor. The Times's job is to find interesting writers who have established themselves in their fields as people worth listening to. And then the writers are supposed to live up to the standards of excellence they are thought to embody. And, finally, it's the job of experts in the field--like, say, well-regarded, tenured professors at Berkeley, who also have sterling academic reputations and one foot in the realm of policy/politics--to take on the task of correcting bad economics.

A good deal of the prestige of the academic profession is supposed to turn on the tradition of peer review. Well, the New York Times isn't peer reviewed. And no daily newspaper could be. So here's the second economic concept here--a tradeoff, in this case between immediacy and quality. While the Times is a fine paper, it's still, on a very good day, only the first draft of history. And the first draft of argument too.

One last point: It's way way too easy to criticize the press everytime the press publishes something stupid. But the fallacy here comes back to the division of labor point. Look at the broad range of topics that the NYT covers each month. Even a team of 10 polymaths like Brad--and this is not a snide remark, Brad DOES have legitimately and admirably broad interests and expertise--could not really have the knowledge to seriously engage a bunch of subject-mattter experts to push them to state all hidden premises and address all lurking counter-arguments. And even if ten such people could be found, they would surely rank among the nation's best and brightest--and is there highest and best use really editing the New York Times op-ed page, as compared to, say, inventing a more fuel-efficient car or being a professor of economics at Harvard/Berkeley?

Anyway, my point is that the Times I think pretty reasonably reflects the slice of reaonably well-educated, affluent, and over-self-satisfied America that comprises its primary readership as well as its writers. You know, the B+ students at top 40 universities--who have some critical thinking abilities but often accept ideas or arguments that confirm their biases without trying to look for contradictions or impure motives.

Yes--it's worth exposing this lazy thinking. But is it really reasonable or even plausible to be shocked that the press corp, taken as a whole, is miles above the cognitive abilities of the actual people who make up the press corp?

Or, put differently, would we really want to live in a world of a "better press corps?" What it boils down to is the very best and brightest devoting themselves to popular journalism--and not specialization. If all the best aircraft engineers are fact-checking the occasional op-ed piece on flying, would you trust the planes that the former fact-checkers are engineering?

[nbecker]

I have several comments on the Mankiw article: Mankiw asks, rhetorically, why give a tax cut to corporations when it won't win votes? One answer to that question is that it may win campaign contributions from corporations. Mankiw gives examples that show that corporations are able to pass a good share of their tax costs on to labor in the form of lower wages. He does this to show that labor may benefit indirectly from corporate tax cuts. Corporations might pass some of the tax savings back to labor in the form of higher wages and improvements in productivity, via increased investment, would lead to job and wage growth. The problem with this line of reasoning is that corporations are not likely to lobby for tax cuts so that they can pass a large share of the benefit on to labor. Certainly, labor has not shared in productivity improvements in recent years as it has in the past. Mankiw recognizes that if one want to change tax policy to benefit labor, Obama's proposal to cut taxes to working families is more direct. His argument shifts to giving reasons why cutting corporate taxes is a better solution. He refers to a CBO study that shows that distortions induced by corporate taxes are large compared to the tax revenues generated. The implication is that cutting corporate taxes is better for the economy than cutting taxes on labor. He acknowledges that cutting corporate taxes by $100B would be irresponsible given its impact on a federal budget faced with rising entitlement costs. He attempts to answer this question by citing a study by a conservative think tank (AEI) that argues that the lost corporate tax revenue would be replaced by tax revenues generated by the purported growth in the economy due to the corporate tax cuts. He also suggests that the candidate who proposed a summer gas tax holiday (McCain) might pay for the corporate tax cut by raising the gas tax. In essence, Mankiw is suggesting that a very definite loss of $100B in tax revenue can be balanced by a gas tax that, is politically unlikely, or by a forecast of economic growth from a conservative think tank forecast of economic growth that is subject to the risk of all economic growth forecasts in response to tax cuts. This is irresponsible.

[jerry]

The basic error is think that newspapers are "neutral". In the early days papers had explicitly stated philosophical viewpoints, that's why publishers created them.

I think this is exactly right. The whole problem with newspapers is the fallacy that reporters are neutral, unbiased, and report objectively. Isn't the lesson of the 20th century from Heisenberg on including HS Thompson that humans cannot report objectively on anything?

Can someone from the Journalism School explicitly point out to me the classes that students are taking and the processes they undergo that render them objective, neutral and unbiased? J-School students party as hard as anyone. They have opinions, they practice writing op-eds, what is it about j-school that leaves them unbiased?

(And the same with judges.... How can lawyers that spend a career being partisan suddenly become unbiased when they put on a robe?)

[Barry]

Bruce, you're forgetting context and history and all of that. Mankiw is not just leading academic; he's (a) a Bush appointee (and therefore dishonest until proven otherwise) and (b) somebody who didn't even let his own textbook get in the way of his opinions - so long as they were amenable to his political beliefs, and the desires of his bosses.

One very important lesson of the past several years is 'Yes, he can be dishonest, no matter what his reputation, or background, or how the press f*ll*tes him'.

[howard]

i'm not going to miss my latest chance to note that for guild reasons, the prof obviously goes easy on mankiw here: the real conclusion is that greg mankiw is not to be trusted. he was a bush administration enabler; not a single bush adminsitration enabler should ever be trusted again. period.

as soon as the prof publishes a post in which he concedes that mankiw has forfeited his right to be taken seriously as an economist, i'll congratulate the prof for overcoming guild blinders; until then, it's one of the very few examples of poor judgement by our host.

PS. remember, our host cited mankiw as an expert witness in making the case that hillary clinton has a "character" problem, which remains the single most apalling thing our host has written. someone who worked for and enabled the bush administration cited as a "fact" witness!

[Richard Sims]

The principle argument that Senator McCain uses to support his argument for a corporate tax cut is that our business tax rate is the second highest among our major trading nations. He says that he only wants to lower our taxes to the average rate of those nations. Guess what? The World Bank says that is exactly where we are now.

http://www.ourfuture.org/stories/mccains-wish-comes-true

[howard]

jeff h, since he is not showing us how he plans on funding (as the prof noted up above), he is calling for an unfunded tax cut.

[Tomas]

"SOME economists think that these effects are strong enough to make a corporate rate cut self-financing. A recent study by Alex Brill and Kevin A. Hassett of the American Enterprise Institute, looking at countries in the Organization for Economic Cooperation and Development, supports exactly that conclusion. But even if that turns out to be too optimistic, both theory and evidence make it reasonable to expect a significant discount from the sticker price. In the end, the net budgetary cost of the tax cut might be, say, $50 billion a year."

Note the "even if". You see kids, even IF the magic of the market economy fails to make a free lunch, we have a clever backup plan. You see, Uncle McCain will create a new gas tax (after cutting it) and fund the whole corporate taxcut.

But, of course, this is only if Mr. Dow 36000 & co. is somehow wrong and the whole thing isn´t self-financing. So how about we cut the tax first and see what happens?...We can always make a gasolinetax to fix it.

You can collect your pony in 2012.

[John Emerson]

For decades I've been trying to figure out the proportions of analysis and theorization, empiricism and factual grounding, and ideology ("fundamental principles") in economics. For a lot of economists "fundamental principles" like "Taxes and regulation are bad, and there will always be enough resources, and unions are bad" ultimately seem to trump everything else. And this makes you think that for all the scientific apparatus, at crunch time the scientific part of economics is not usually adequate to decide the questions economists are asked to decide, and that far too often economists just use their scientific credentials as a justification for enforcing their guy feelings.

[John Emerson]

"Gut feelings", though they're mostly guys.

[J Thomas]

Somebody already brought up the pony.

It's unfair to say this proposal is an unfunded tax cut just because he doesn't say how he's going to fund it.

"I want a pony, and I'm sure if I'm elected President I can have a pony" is not an unfunded pony. It just doesn't say how the pony will be funded.

"I want a corporate tax cut, and if there's any problem funding it we can just raise taxes on labor and on consumers." You can't expect a politician to say that straight out. It would be an unpopular thing to say. It would sound bad.

[baileyman]

How about a "Mankiw Death Spiral Watch"?

[tegwar]

Mankiw is, basically, offering growth magic to support cutting the corporate income tax- i.e. capital accumulation will flourish and we'll grow faster and all will become richer. Is this really a credible claim? Especially when we're also told (by Mankiw) that capital pays a smaller share of the actual tax incidence than labor.

[Matt]

Hassett and Alex Brill, report: (as quoted by Mankiw)

"{The second study, “Revenue-Maximizing Corporate Income Taxes: The Laffer Curve in OECD Countries” by Hassett and Alex Brill, examines international corporate tax rates and revenues and finds evidence of the existence of an international corporate income tax Laffer Curve, where high corporate income tax countries actually collect less tax revenue than countries with lower rates."

Idiot economists who do not get equilibrium always say that if you raise taxes, companies will just avoid the tax. Yes, that is the point. They avoid the tax by equilibriating, putting more expenses under the corporate umbrella and less under the government umbrella.

No matter how much we wish it were not true, it is the libertarian idea, raise taxes to the extent that few business use the services of government.

It is a blind spot, a desire to have government guarantee our "safe returns". No, unfortunately for the dreamer, it is a supply and demand, though inefficient, an equilibrium process, just like any other.

That is why Mankiw is not a libertarian, he believes corporations should rely on government more, not less.

[Deng Jintao]

There have been loads of terrible op-eds in the Times these past few years. I can barely stand to look at it any more.

Remember this one, by two Heritage Foundation researchers? Turned out to be complete hooey.

No Atheists in a Foxhole? No Idiots, Either
By TIM KANE and MACKENZIE EAGLEN
Published: November 8, 2006

http://www.nytimes.com/2006/11/08/opinion/08kane.html?scp=2&sq=military+recruiting+heritage+foundation&st=nyt

Or check out anything by NYT op-ed contributor Danielle Pletka, AEI hack and former Jesse Helms staffer. Back in 2003 she argued in the pages of the Times that more troops was not the answer to increasing violence in Iraq, and just this March she was given space to say the problem in Iraq is that the Iraqis don't have a "freedom gene."

The only explanation I can think of is that these op-eds are printed so as to increase the sales of blood-pressure medications at Manhattan pharmacies. I can think of no other reason why such a storied institution as the NYT would want to live down its reputation by printing so much patent nonsense, instead of living up to it.

[economistmom]

This thread is so interesting! I have jumped into this late, but I think Brad and Greg don't disagree as much as it may seem, and I've posted such on economistmom.com.

[Terry Hughes]

In fact, a full one-third of Mankiw's column is devoted to exactly the funding of the corporate tax cut that DeLong bizarrely asserts Mankiw did not consider. Specifically, DeLong's quoting and understanding of Mankiw omits all of this:

"Of course, a corporate tax cut would affect the federal budget. And any change in tax policy has to be made against a background of a looming fiscal crisis, which threatens to unfold as baby boomers retire and start collecting Social Security and Medicare. In 2007, corporate taxes brought in $370 billion, representing 14 percent of federal revenue. Cutting the rate to 25 percent would seem to cost the Treasury about $100 billion a year.

"Part of that revenue loss, however, would be recouped through other taxes. To the extent that shareholders would benefit, they would pay higher taxes on dividends, capital gains and withdrawals from their retirement accounts. To the extent that workers would benefit, they would pay higher payroll and income taxes. Increased economic growth would tend to raise tax revenue from all sources.

"SOME economists think that these effects are strong enough to make a corporate rate cut self-financing. A recent study by Alex Brill and Kevin A. Hassett of the American Enterprise Institute, looking at countries in the Organization for Economic Cooperation and Development, supports exactly that conclusion. But even if that turns out to be too optimistic, both theory and evidence make it reasonable to expect a significant discount from the sticker price. In the end, the net budgetary cost of the tax cut might be, say, $50 billion a year.

"Senator McCain wants to fill that hole in the budget by restraining spending. If he can stop bloated legislation like the recent $300 billion farm bill from becoming law, more power to him.

"But in case that quest proves quixotic, I have a back-up plan for him: increase the gasoline tax. With Americans consuming about 140 billion gallons of gasoline a year, a gas-tax increase of about 40 cents a gallon could fund a corporate rate cut, fostering economic growth and reducing a variety of driving-related problems.

"Indeed, if we increased the tax on gasoline to the level that many experts consider optimal, we could raise enough revenue to eliminate the corporate income tax. And the price at the pump would still be far lower in the United States than in much of Europe."

DeLong "overlooked" all of that - one third of Mankiw's entire column. When DeLong drives, does he also "overlook" all the cars in an entire freeway lane? How about the oncoming traffic? DeLong posited "early onset of Alzheimer's" as an explanation of Faust's denial of Christy Romer's Harvard appointment. Is Brad getting a bit of that himself?