Tech Drives Productivity, Not Psych Notwithstanding the current attacks on Keynesian economics and the role of countercyclical fiscal policy in countering recessions, most economists, regardless of what doctrine they espouse should agree with Keynes that “animal spirits” are a key factor in the operation of the business cycle. If consumers, producers and investors all think that the economy is weak, they will spend, produce and invest less than optimal for the economy. But to argue as Schiller does that these animal spirits affect productivity in the short and long term is to fundamentally misunderstand the sources of productivity growth. Let’s look… Read more
The question, "can the Fed still stimulate without serious risks to the dollar and the credit-worthiness of the United States?" assumes that a risk to the dollar is a bad thing. In fact, a falling dollar would be one of the best things to happen to power a robust short-term recovery and a long-term improvement in U.S. economic competitiveness. A lower dollar would spur exports and reduce imports. And according to work by economist Lori Kletzner exports have twice as large an impact on job creation than domestic consumption. This suggests that the Administration could in fact spur faster recovery… Read more
The advantage of spurring economic growth through either private or public investment is that it not only spurs jobs in the short run (by producing the goods or services involved in the investment), but it spurs productivity and innovation in the moderate to long term. Unfortunately, Washington is caught in an ideological dispute between those who favor public investment and those who favor private investment. When Bruce Bartlett says that "Republicans should try to be the party of investment, because Democrats are basically the party of consumption," he's really saying that he does not believe that public investments broadband, smart… Read more
In thinking about the causes of the financial collapse I have been puzzled as to how so many knowledgeable people in Washington and on Wall Street did not realize that the long history of housing prices, at least since WWII, has followed a pretty steady trend and that the dramatic increase above trend that began in the early part of this decade simply could not be sustainable and had to revert to the mean – either gradually, or as we have seen, dramatically. Krugman provides the answer: the dominant neo-classical economics doctrine equates value with price. If value equals price,… Read more
To build of Bill Gales, comment, I would argue that raising taxes on high earners is neutral economic policy, good health policy, good budget policy, and great leadership. Better to do this than to finance it out of deficit spending or raising taxes on lower income Americans. As to Bruce Josten's comment that the top 1 percent of earners pay more than they used to, that's because they earn a lot bigger share of national income than than used to. With regard to arguments that higher taxes on the wealthy limit growth, the evidence is at best mixed and in… Read more
The state of the debate on tax reform suffers not only from political constraint, as the question here suggests, but also from intellectual constraint. For perhaps the most widely held view of tax reform is that greater simplicity should be a key outcome of any reform. Both the question posed here (“other than the general goals of broadening the base and lowering rates, what should the commission focus on?), and Bill Gale’s response (“The sina qua non of meaningful tax reform is to clean out and rationalize the exclusions, exemptions, deductions, and credits in the tax system), reflect this tenet. … Read more
While the causes are many of the current economic crisis, at the core there is one: the belief in the primacy of unfettered markets that let most of Washington ignore the mistakes that have led to the largest financial meltdown since the Great Depression. This belief is not just some random notion that happens to be in vogue. Rather, it lies at the heart of today’s prevailing economic doctrine: neo-classical economics. Indeed, since the late 1970s neo-classical economics, with its belief in the primacy of markets and the inherent limitations of government, has been the dominant economic doctrine shaping most of… Read more
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