December 31, 2007 12:55

February-December romances and their impact on Social Security

Here's something interesting I just learned from the Social Security Administration's website: There are 70 women aged 25 or younger in this country who are earning Social Security benefits as the spouses of retired workers. To qualify, they must be married to men 62 or older and have children 16 or younger, or older children who receive disability benefits. These women are not a major burden on the system's finances (70 recipients X $419.60 average monthly benefit = $352,464 a year) but, uh, kinda weird, no?

Meanwhile, the youngest male recipients of such benefits are 53 (there are 3 of them; average monthly benefit, $302).

December 31, 2007 9:10

The "Peak 2007" crisis

I feel remiss amiss for not having addressed this important subject before. But I guess I'll just leave it to Mr. Juggles at Long or Short Capital:

Time and time again, people say we are running out of 2007. These cries began as early as January; by July, some were even claiming that there was less 2007 remaining than the amount of 2007 which we have already consumed. They call this condition “Peak 2007″.

Time and time again, people say we are running out of something, but science always shows that all these chicken little cries are for naught, as profit incentive combine with human ingenuity to preempt any shortage or problem. We didn’t run out of food as feared in the 60’s and 70’s since technologies to improve crop yields were disseminated to the third world. At the turn of the 20th century experts forecast a dire shortage of coal. And 2007, we are not going to run out of you.

There's more excellent analysis after that, so I would advise reading the whole post. We'll find out tomorrow if the gloomy so-called experts or the magic of economic incentives will prevail.

December 28, 2007 7:01

Even before the Internet, news was pretty close to free

LA Times business columnist David Lazarus argues this week that newspapers are crazy to be giving away all that valuable information they produce (via Romenesko):

Newspapers, including this one, give away the store online, all the while wringing their hands about declining revenue and circulation. Everyone says the Net represents the future of journalism, and that's probably true. But at this point, no one knows how to make much money at it.

I'm scratching my head trying to come up with another financially challenged industry that found salvation by charging people nothing for its output.

It's a favorite theme for Lazarus, who garnered a lot of withering commentary from uppitty bloggers for a column he wrote a few months ago, when he was still at the SF Chronicle, arguing that

It's time for newspapers to stop giving away the store. We as an industry need to start charging for -- or at the very least controlling -- use of our products online.

This time around he talked to a bunch of students at his alma mater, some fancy private school in Santa Monica, who told him they're happy to pay for music via iTunes but would never pay for online news.

Now that was interesting. These bright, info-hungry, computer-savvy kids willingly paid for the latest cuts from Alicia Keys or Fergie. But they couldn't imagine having the same relationship with the New York Times, say, or the much-respected, widely esteemed news outlet you're currently enjoying. "A lot of this has to do with a big generation gap," explained Phoebe, 15.

Actually, no, it's not really about a generation gap. News was already pretty close to free long before the Internet came along. It was free on TV, free on the radio, and effectively free in newspapers when you consider all the valuable stuff that came packaged with it for 25 or 50 cents, from comics to crosswords to classifieds to supermarket ads. And unlike, say, a song--which was free on the radio but worth spending money on to be able to play again and again whenever you wanted to hear it--a day-old newspaper was usually less than worthless.

What's hurting newspapers now is not the fact that people were willing to pay for news offline and aren't willing to do so online, but that their days as the monopoly conduit of timely written information into Americans' homes are over. The delivery boys have been displaced by Comcast and AT&T and Google and Yahoo, and there's no way newspapers will ever reclaim that role.

Those that produced such valuable content that people were and are willing to pay a premium for it offline, such as the New York Times and Wall Street Journal, are in a different and less leaky boat. (And both of those news organizations, which have demonstrated that they can get hundreds of thousands of people to pay for their content online, are nevertheless headed in the direction of giving everything away free because they think they can make more money that way.)

For metro dailies like the SF Chronicle and LA Times, though, the new reality is a terribly frightening one. I don't see how they'll ever be able to make anywhere close to the kind of money online that they did offline in the good old days. But charging people for content that they've always gotten more or less for free certainly doesn't seem like a promising path to salvation.

Update: Lifted from a comment by Gregg Turk:

I started my career in newspaper circulation many years ago. Our purpose was to get the paper in front of eyeballs for our advertisers without losing any money. In other words we were revenue neutral. It seems to me that the internet does that quickly and easily today.

Exactly. The "stop giving away the store" argument is mostly a red herring for newspapers, because they were already giving away the store. Among general interest publications in the U.S., only a few (the NYT, the New Yorker, and People are the three that spring immediately to mind) charge serious money for print subscriptions. With business and special-interest publications the equation has always been different: Some chose to charge serious money (like my former employer American Banker, which currently costs $995 a year) while others went for free but controlled circulation (like Institutional Investor). For them, the question of whether to charge for or otherwise restrict access to online content is a serious one that most have answered in the affirmative. But for newspapers, in particular the metropolitan dailies that Lazarus is talking about, virtually every attempt to charge for something that they've effectively been giving away for decades has resulted in such dramatic declines in readership that the suits have decided to pull the plug. I guess that, in theory, newspapers and wire services could create some kind of cartel (the Organization of News Exporting Corporations, say) whose members would all agree to charge for news. But that just strikes me as way too far-fetched (and probably illegal) to seriously contemplate.

December 20, 2007 12:02

The well-hedged wisdom of sometime socialist and Wall Street titan Alfred Winslow "Ribbie" Jones

As part of what I guess is now a continuing series of excerpts from ancient alumni publications, here's some stuff from Alfred Winslow Jones, the man generally credited with inventing the hedge fund. He didn't, really: In the 1920s, Benjamin Graham ran a limited investment partnership that bought some stocks and sold others short--the distinguishing characteristics of the fund Jones launched in 1949--and surely others did too.

Jones did invent the name, although he called his a "hedged fund" and thought "hedge fund" was a grammatical abomination. And he inspired a bunch of imitators in the 1960s, a handful of whom (Michael Steinhardt is the only name that springs to mind) survived the 1970s bear market and inspired the "industry" that brings such joy to so many people today (hey, if you're a Paulson & Co. investor you're pretty happy right now).

As a youth, Jones was known as "Ribbie" (or maybe "Ribby") because he was so skinny. That's not in any of the Harvard Class of 1923 publications I consulted; it's something Jones's high school and college classmate Al Gordon told me a couple of years ago. "When he got into an amount of money, he asked us to stop calling him Ribbie," said Gordon, who did a lot of fundraising for Harvard. "I’m sorry to say that after that we all called him Alfred, because we were hoping to get money from him."

Jones's post-college activities, culled from his entries in the Class of 1923's 25th and 50th reunion yearbooks, started with a job as purser on a tramp steamer making a round-the-world trip and continued with stints in the export-import and investment counseling businesses. Then he signed up with the Foreign Service, which posted him in Berlin in the early 1930s, where he "saw strange things happen."

In the 1920s he'd been a "moderate liberal" reader of The New Republic and newspaper columnist Heywood Broun. In Germany, “I became what my German Marxist friends would have called a rebellious liberal.” Then he decided he was a socialist, and went to Columbia University to get a Ph.D. in sociology (because that's what socialists study, I guess). His dissertation was a study of Akron, Ohio during the Depression that was later published as Life, Liberty and Property.

Fortune magazine published an excerpt from the book, and subsequently hired Jones as an editor. He spent the war years there, and then:

I gave up the high-powered, chromium-plated operations of Henry Luce to go as head of editorial research for Marshall Field’s Project X, which was to have resulted in the publication of a magazine called U.S.A. But with a slump in magazine publishing the effort came to naught.

He then worked on a magazine project for Encyclopedia Brittanica, but that also didn't go anywhere.

So, in the late 1940s, with a wife and two children, I needed something more lucrative, and turned to Wall Street, where I shaped up what I called a hedged fund, mostly with the money of other people, for whose confidence I am eternally grateful.

That's all he wrote about his hedged fund, apart from this:

I suppose I am not, and never was, the Wall Street type that I should have been. In any case, I fairly soon began to slope away from full time for A.W. Jones & Company.

He and his wife traveled to a lot of exotic places, much of the time on behalf of the newly founded Peace Corps. He launched a charitable foundation. And he gave up on isms:

Decades ago I called myself a socialist and for a time I was a follower of Norman Thomas. Now not only have the ism’s been dead or dying for many years but no one seems to be able to bring forth a valid, new program with hope for the future, the New Left being so arrogantly nihilist.

December 19, 2007 10:49

The horrors of 1918 China, where the gin was too strong for highballs

Like I said, I'm working on cleaning up my book manuscript this week. While doublechecking something in my notes on Alfred Cowles III, a Chicago Tribune heir and major figure in the rise of the efficient market hypothesis, I came across a paragraph I had written down from the Dec. 1918 issue of The Eavesdropper, the Yale Class of 1913 alumni magazine. The author was King Lee, a classmate of Cowles (Cole Porter was in the class too) who had apparently moved back to his native China and wasn't too happy about it:

Very few or perhaps nobody know what awful conditions there can be in Whang Hi Duck. The people are all ignorant and immoral. Pigs sleep in their houses and snore terribly at night. They many time have fleas that poison everyone. All the young people get drunk, roll in the muddy streets and smoke opium. You see old men eating snakes gladly. Bandit robbers, led by a man named One Bum Lung, come down to the village to murder, rape, burn, destroy, kill and beat with loud cries. After this they go home. They carry the women and even the pigs with them. They have no doctors and no knowledge. Their gin is too strong for highballs. In brief, the whole country is rapidly becoming all shot to Hell!

I think living conditions have improved in China since then. The availability of quality gin certainly has. And this reminds me that one can find great things in old college alumni publications. Maybe we have the makings of a continuing series here. Or even a media empire.

December 18, 2007 10:29

Recycled post: An attempt to explain supply-side economics

Since I'm on a work slowdown and people are having so much fun commenting on my most recent post on tax cuts and government revenues, I thought I'd recycle a something I wrote in October 2006 when this blog was over at CNNMoney.com and hardly any of you folks were reading it:

I got an e-mail a couple of weeks ago from Ben Etheridge, a high school senior in Marietta, Georgia, who had come across a 2003 article I wrote on the Bush tax cuts. Ben said the article was "more helpful in trying understand supply side economics than many other sources on the Internet" but that, well, he still didn't understand supply-side economics.

This may indicate that I don't understand the subject either, but Ben asked me if I could take another stab at explaining it. With the midterm elections less than two weeks away for a Congress loaded with apparent supply-siders, now seems as good a time as any to try:

(Sadly, the great popularizer of supply-side economics, former Wall Street Journal editorial writer Jude Wanniski, is no longer around to critique what I come up with--although you can read his annotation of my 2003 article here.)

At its core, supply-side economics is the economics that reigned before John Maynard Keynes came along. You could also call it traditional economics, neoclassical economics, or mainstream economics. It assumes that people respond rationally to economic incentives, and unfettered markets arrive at something close to optimal results. Saving, in this worldview, is a good thing--because savings are always put to use in productive investments that make the economy grow.

During the Great Depression of the 1930s, with banks failing and people stuffing the money they still had in mattresses, English economist/investor Keynes became convinced that savings weren't always put to good use and government needed to intervene to stimulate economic activity with tax cuts or--better yet, since the money from the tax cuts might get stuffed in mattresses too--spending.

Keynes's argument was vindicated by the American experience during World War II, when massive deficit spending brought full employment and strong economic growth. A few years later, monetary policy was added to the picture--many economists came to believe that the Federal Reserve could reliably fight unemployment by keeping interest rates low (and putting up with moderate inflation). Economic policymaking in the U.S. thus came to focus on manipulating demand through taxing, spending and tweaking interest rates. This wasn't just a Democrat thing. Declared Republican President Richard Nixon in 1971: "Now, I am a Keynesian."

Not long after Nixon said that, though, Keynesianism seemed to stop working. Despite government deficits and high inflation, the economy sputtered. The strong growth in productivity (usually measured as economic output per hour worked) that had brought vastly increased prosperity from the 1940s through the 1960s slowed to a Perimeter-at-rush-hour crawl.

To explain why this was happening, economists found themselves returning to pre-Keynesian ideas about incentives and the importance of savings and investment. I think it's fair to say that most academic economists now think that while Keynes was onto something about short-run economic fluctuations, it's more productive to focus on what drives long-run growth. That means things like the incentive effects of tax policy, the human capital created by education, and the ways in which legal and regulatory systems enable investment and entrepreneurship. It's the supply side (labor supply, capital supply, etc.) that interests them more than the demand side.

Most of these economists would, however, cringe at being called "supply-siders." That's partly because the term has become identified with the Republican Party and, even though economists are perceived as the right wingers on most college campuses, they're still on college campuses, which means they're usually Democrats. But it's also because Wanniski attached the label to a wildly oversimplified version of traditional economics in which the only thing that mattered was tax policy, and tax cuts were always a good idea.

Wanniski arrived at the Journal editorial page in 1972 knowing nothing about economics. Watching how flummoxed the Keynesians were by the strange events that followed, he soon concluded that most economists didn't know much about economics either. But he was impressed by two professors who had seen at least some of the troubles of the mid-1970s coming: Robert Mundell of Columbia University (who won a Nobel in 1999 for his work in international economics) and Arthur Laffer of the University of Southern California (who now runs an economic consulting firm).

Wanniski's contribution was to take what he learned from Mundell and Laffer and adapt it to political reality. He adopted the term "supply-sider" after being labeled as such by the chairman of Nixon's Council of Economic Advisers, Herb Stein (Ben's dad). He converted his boss at the Journal, Robert Bartley, to the cause and wrote a 1978 book, How the World Works, that laid out his philosophy in detail. He became an adviser to presidential hopeful Ronald Reagan, and after Reagan won in 1980 he helped craft the dramatic tax cuts that Reagan pushed through Congress in 1981.

Wanniski's rallying cry was what he dubbed the "Laffer curve," a simple chart illustrating how lower tax rates can bring in higher revenue by stimulating economic activity (or at least cutting back on tax avoidance). According to Wanniski, Laffer sketched the curve on a napkin during a December 1974 dinner at the Two Continents restaurants in the Hotel Washington with him and White House aides Dick Cheney and Donald Rumsfeld, whom you might have heard of. Laffer himself later cast some minor aspersions on this account. He also disclaimed authorship of the idea, giving earlier economists (among them Keynes!) all the credit. But the name "Laffer curve" stuck.

The Laffer curve enabled Wanniski to sell his supply-side ideas as a free lunch, which is what made them so politically successful. You could cut taxes, yet not cut spending--the best of all worlds for an elected official.

Economists generally don't believe in free lunches, but most agree with Laffer that when tax rates get high enough, lowering them brings in more revenue. The question is how high the rates have to be, and no one has a reliable answer to that. With personal income tax, it's probably somewhere upwards of a 50% marginal rate. (The top marginal rate was 70% when Reagan took office and 28% when he left; it's 35% now.) With taxes on capital gains, dividends, and interest, the cutoff is probably might be lower. That's partly because such taxes are easier to avoid, but also because they weigh more directly on the savings and investment that bring long-run growth.

The reduction of the top income tax rate in the Reagan years did have a Laffer effect, but his tax cuts as a whole did not. Are we in Laffer curve territory now? I wouldn't be entirely surprised if a reduction in the U.S. corporate income tax rate eventually brought in higher receipts, given as how it's currently among the highest on the planet. Beyond that, I'm doubtful.

Serious economists with supply-side leanings--like former Bush economic adviser Glenn Hubbard, now the dean of Columbia Business School--think the dividend, capital gains and income tax cuts enacted during the Bush presidency can increase economic growth by several tenths of a percentage point a year. (That may not sound like much, but compound three-tenths of a percentage point in added growth over 50 years and you get $7,000 more dollars a year in the pocket of the average American.)

I haven't been able to find any such economists, though, claiming that the tax cuts paid for themselves, Laffer-style. That sort of talk has been the sole province of polemicists and politicians. Here's how President Bush put it in a speech in February:

What happened was we cut taxes and in 2004, revenues increased 5.5 percent. And last year those revenues increased 14.5 percent, or $274 billion. And the reason why is cutting taxes caused the economy to grow, and as the economy grows there is more revenue generated in the private sector, which yields more tax revenues.

The problem with this argument is that the economy, and with it tax receipts, would have grown in 2004 and 2005 even if there hadn't been any tax cuts. Growing happens to be something the U.S. economy does most every year (you can look it up). The tax cuts may have have made it grow a little bit faster, but not enough to make up for the revenue loss caused by the lower tax rates.

This isn't just my opinion; it's also the verdict of the Congressional Budget Office, the nonpartisan maker of deficit projections currently run by a former Bush administration economist. Even after making some pretty liberal assumptions about how much the tax cuts will boost long-run economic growth, the CBO estimated earlier this year that extending them past 2010 would still reduce government revenue, not increase it.

Even tax cuts that don't pay for themselves can be a good idea--I happen to be a big fan of the cut in taxes on dividend income that the President (egged on by Hubbard) pushed through Congress in 2003. But such cuts do eventually have to be paid for, either by cutting spending or raising some other tax. The current administration has so far opted to shunt this burden to future generations (or current generations, a few years down the road).

As I've written before, the Bush administration's deficit spending isn't necessarily a disaster. But neither is it really supply-side economics, because the increased saving by individuals and businesses enabled by the tax cut has been largely gobbled up by increased government borrowing. That makes it either (1) a wartime necessity, (2) closet Keynesianism, or (3) buck passing.

UPDATE: I've responded to one of the comments, which claims that "every time major individual tax cuts have gone through, tax receipts go up considerably quicker than they did during the preceding period," here. (This refers to a comment to the initial post, and all those comments got wiped out when the Curious Capitalist was moved to Time.com early last year.)

December 17, 2007 9:28

Seasonal (and authorial) slowdown

I've got no column in the current Time, and I won't be in the next issue either (Person of the Year). Then we're taking a week off from magazine making before returning with an issue the first week of January. I've been using the time to yes, yet again, try to make my book manuscript a part of my past. In the interest of speeding that process, I'm going to go slow on the blogging for the next couple of weeks. I'll still post when I feel the urge, but doubt I'll keep to any kind of daily schedule. And the posts might be heavy on things like, say, photos of the Curious Capitalist family's first batch of Christmas cookies.

December 14, 2007 9:20

Continuing with the 'shameless commie propaganda' on tax cuts and revenues

The comment screening software here seems to have gone hyperactive in the past few days, and has been shunting lots of perfectly legit comments (especially but not exclusively those with links) into the junk file. The folks at Time.com don't know why it's happening, so I can't guarantee a fix. But I will try to fish regularly in the junkpile, where I find gems like this comment to one of my Arthur Laffer posts from alex:

Shameless Commie Propaganda (I simply refuse to believe that you are that stupid)

1. Mr. Laffer did state the evident and nothing else: (1) if government will collect 100% nobody will show up for work, (2) if government won't collect nothing it will have no revenues and (3) there is a maximum somewhere in between.

2. So "diminishing returns" is far from being the biggest danger of raising taxes, the biggest dangers is sliding into area of negative impact on Laffer's curve.

3. Tax cuts did paid for themselves: e.g. in 1984 federal revenue were greater than in 1982 and grew up until 2001 and again after tax cut of 2003, revenues in 2004 were greater than in 2002 and are growing ever since

http://www.irs.ustreas.gov/pub/irs-soi/table_6_2006_dp.xls

Now I simply refuse to believe that alex, or WSJ editorialista Stephen Moore, who makes similar claims to #3 all the time, is that stupid. So what does that make them? Definitely disingenuous, maybe something worse.

If you take the very simple step of adjusting for inflation, you'll find that real federal revenues were lower in 1984 than in 1982, and lower in 2004 than in 2002. So alex's claim #3 is, on its face, false. But that's not really the issue: Eventually, tax revenues did come to surpass their 1982 and 2002 levels in real terms. Which proves absolutely nothing about the efficacy of tax cuts. The U.S. economy has a tendency to grow, whether or not Congress is cutting taxes. And over time, that tendency will produce higher government revenues, whether or not Congress is cutting taxes.

Now I'd like to believe that well-designed tax cuts can make the economy grow faster. But would any non-charlatan want to argue that all of the economic growth post-1982 and post-2002 was tax-cut-induced? Of course not. Arthur Laffer certainly didn't when I quizzed him on it. So the question becomes a far more complex one of separating the tax-cut-induced growth from the rest. Now I'm pretty sure alex and Stephen Moore are too stupid to figure out answers to that. I know I am. So I rely on the verdict of economists who study tax matters, who are pretty much unanimous in concluding that the Reagan tax cuts were, taken in their entirety, a big money loser for the federal government and that the Bush tax cuts will turn out the same way.

The final refuge of the tax-obfuscation scoundrel is usually to point out that those pointy headed economists at the Congressional Budget Office and elsewhere are often way off in their projections of future tax revenue. It's true: Since 2003, revenues have risen faster than anyone at the CBO or even the White House projected. But it's not like they're biased toward the downside: The fall in tax revenues between 2001 and 2003 was also much sharper than any of the pointy heads projected.

The main reason for this inaccuracy is that any such projection depends heavily on forecasts of future economic growth. Economists really aren't any good at forecasting recessions and recoveries, so what the CBOers and their ilk usually do is plug in numbers based mostly on estimates of long-run growth, which will inevitably be undershot during downturns and overshot during booms. Lately this undershooting and overshooting has grown more pronounced. My guess is that it's a result of increased income inequality: An ever bigger share of government revenue is coming from a small group of high-end taxpayers (not because their tax rates are higher than they used to be, but because they're making much more money than they used to), and those high-end incomes include a lot of stock option gains, performance bonuses, and the like that are extremely sensitive to even slight changes in economic growth.

December 13, 2007 7:13

The home equity cash machine has still been a big prop for the economy this year. That won't last

Calculated Risk has gotten the latest numbers from Fed economist James Kennedy on net equity extraction (the spending money that Americans pulled out of mortgage refinancings and home equity loans) in the third quarter of this year. It was $133 billion, or 5.2% of disposable personal income. Which is way down from 2004-2006, but still a lot. Here's the chart, again from Calculated Risk:

With house prices (a.k.a. home equity) declining and banks raising lending standards, it seems like that number ought to head back down to somewhere near zero in the next year or three. And I don't really see how that happens without a seriously sharp (a.k.a. recessionary) downturn in consumer spending. Not that I'm an economic forecaster or anything.

December 12, 2007 4:51

Tax cuts for all but the almost-rich

On Tuesday the Congressional Budget Office released its latest estimates of how much of their incomes Americans of various income groups fork over in taxes (pdf; xls). Here's a graphic represention:

There's something in this chart for everybody--the rich pay much more of their income in taxes than anybody else, but they've also been able to lop the most off their tax bills over the past 36 years. What's striking to me is that while the top 1% is much better off tax-wise than in 1979 (their rate is 5.8 percentage points lower), the top 20% as a whole fared worse than any other quintile (2.0 points lower). Which would seem to mean that the 19% just below the top 1% barely benefited at all from the dramatic tax changes of the Reagan-Bush-Clinton-Bush era (RBCB, as it's known among the cognoscenti).

December 12, 2007 3:12

Getting a recession preview in Detroit

I awoke this morning in my Birmingham, Mich., hotel room to the dulcet tones of my old friend Jamie Samuelsen (I used to babysit the guy!) talking about the interminable Les-Miles-Michigan saga on his WDFN radio sports call-in show.

Then he moved on to an article in Tuesday's Detroit Free Press about how the Red Wings can't seem to sell out Joe Louis Arena these days, even though they have the best record in the NHL. I know, I know, Jamie started out, everybody's going to say it's the tough economy. But the Tigers set attendance records this year, so that can't be it. After which pretty much every caller proceeded to say, Hey, money's tight (and Tigers tickets don't cost as much).

The economy of metropolitan Detroit has been in downturn mode for a while. Michigan's unemployment rate, at 7.7%, is by far the highest in the country (and no, it's not that unemployment is always high there; in 2000 it was below the national average, at 3.7%). It's not the 1980s all over again or anything (Michigan unemployment hit 16.9% in November 1982), but it does look an awful lot like a recession. So now that the rest of the country may be on the verge of tipping into one of those, too, what can one learn from a 24-hour visit to Detroit?

Well, first, that there may be tough times ahead for second-tier sports like hockey. Soccer, too, I'm afraid.

Second, the people I dealt with in stores, my hotel, etc. were bend-over-backwards nice. Not just regular Michigan nice, but on a new level. So those who still have money to spend should expect excellent service over the next couple of years.

Finally, and more seriously, a recession or even just a slowdown brings major government money problems. The Detroit papers have been full for months now with stories about school funding cuts, budget battles in Lansing, and the like (not so much today, actually; there was a some really juicy murder-trial testimony from a German au pair that took up all the space). Expect to start reading similar bad news soon from Sacramento, Tallahassee--and Washington, D.C., where the big gains in federal income tax receipts over the past couple of years seem to have plateaued and are likely to plunge if the economy really does shift into reverse.

December 11, 2007 3:13

The Fed's no-surprises approach to monetary policy

I've got to admit that I really have no opinion whatsoever on the adequacy or inadequacy of the Fed's quarter-point rate cut (clearly I have no future in monetary policymaking). But it is interesting that the rate cut and its size were pretty much what recent Fed economic forecasts and pronouncements by Fed officials had hinted at for weeks. Wall Street was still disappointed: A "large minority of economists," as the WSJ put it, had expected a half-point cut. On the whole, though, the Bernanke Fed telegraphed its decision pretty well. The era of no- (or at least few-) surprises monetary policy may finally be upon us. So now we can find out if it's really such a great idea.

December 11, 2007 2:49

Putin's liberal/loyalist successor and the human tendency to seek support in the news for prexisting beliefs

I was in the airport this morning about to catch a flight to Detroit when I saw the big headline in the FT: "Putin favours liberal as successor." Interesting, I thought.

Then I saw the headline in the WSJ, which didn't say anything about Dmitri Medvedev being a liberal: "Putin Chooses Young Loyalist as Successor." The second sentence of the article reads, "But while he may soften the Kremlin's image in the West, there is little sign the 42-year-old protégé of President Vladimir Putin will alter Russia's authoritarian direction."

The NYT also chose loyalty over liberalism: "Putin Backs a Young Loyalist As His Choice to Follow Him" (although the online headline on that story is a noncommittal Putin Backs Deputy Prime Minister as Successor).

At first I thought that maybe the FT just had a particularly naive headline writer. Then I saw my daily e-mail from the Dutch Volkskrant, headlined "Putin chooses the liberal, not the hawk" (well, similar words to that effect in Dutch).

So I was all ready to declare a major difference in attitude between Western Europeans and Americans, with the Europeans desperately wanting to see something positive in Putin's choice and the Americans full of skepticism. Subsequent visits to the websites of the Frankfurter Allgemeine ("One like Putin"), NRC Handelsblad ("Strongman Putin chooses the weakest son"), El Pais ("Putin picks his hombre de confianza to succeed him in charge of Russia"), and Helsingin Sanomat ("Riskeillä kuohuvaa") didn't really back that up.

But I'd already typed five link-filled paragraphs, so I certainly wasn't going to let a few inconvenient counterexamples stand in the way of transitioning to Paul Krugman's observation a few weeks ago that the FT and others in the European press are being far more alarmist about the global credit crunch than most American media are. So are economists originally hailing from elsewhere, by the way. The three of the most prominent U.S. economic bears over the past year have probably been Goldman Sachs' Jan Hatzius (Germany), Merrill Lynch's David Rosenberg (Canada), and NYU's Nouriel Roubini (Italy).

Lately these gloomy guys have been right more often than their congenitally optimistic American-born peers have. But that's not really my point. My point is that when somebody is making pronouncements about big, uncertain things like the future direction of the global economy or of Russian politics, his initial opinions and prevailing attitudes probably affect his assessment at least as much as the currently available facts do.

And why am I in Detroit? To be the entertainment at a dinner for some local clients of UBS. No, they're not paying me, except in the sense that UBS buys ads in Time and these days magazines often promise a bit of dinner entertainment in the course of landing an ad deal. I assume these people will want to know what I think of the prospects of the U.S. economy, and the Michigan economy. So should I go with gloomy or sunny?

December 10, 2007 10:45

Do tax cuts ever raise revenues?

Mark "Economist's View" Thoma was appalled by my statement in this post that, "Some tax cuts do raise revenues, of course." So much so that he took back a bunch of nice things he'd just said about my column on Arthur Laffer.

Chastened at having so disappointed the alarmingly prolific man from Eugene, I briefly contemplated changing my wording to, "In some extreme circumstances, tax cuts do raise revenues, of course." But that wasn't substantively different from what I had already written, so there didn't seem to be any point. And I'm certainly not going to say that no tax rate cuts have ever raised revenues. Would Mark Thoma say that?

Just two off the top of my head: The 1964 Kennedy reduction of the top marginal income tax rate from 91% to 70% (it was enacted after JFK's assassination, but it was his bill), the 1981 Reagan reduction of the top marginal rate from 70% to 50%. I'm not at all an expert on this, but I don't think it's too controversial among economists to assert that those particular changes (but not the rest of the of Kennedy and Reagan tax legislation) were a break-even or better for the Treasury. (Brad DeLong on the 1980s tax cuts: "As I read the evidence ... reducing the top tax rate from 70% to 50% is probably a revenue gainer and surely not much of a loser. From 50% to 28% is, I think, very different: a big revenue loser.")

The common thread is that these were cuts in punitively high marginal rates. They paid off in large part because they removed incentives to shelter income from taxes. The other benefits that supply-siders like to talk about--making people work harder and longer and encouraging capital investment--are there too, but probably not in great enough measure to offset the tax cut.

Which is why it's awfully hard to imagine any cut in current tax rates (or the rates that were prevailing when George Bush took office in 2001) that would pay for itself. The only possible candidate, I think, would be the corporate tax rate. The U.S. corporate rate is, at 35%, the highest among the world's wealthy nations (throw in state taxes and our average rate, at 39.3%, comes in just behind in Japan's). Corporations can often easily move their activities from jurisdiction to jurisdiction, and also often have big staffs of very smart people who spend all their days figuring out ways to reduce the company's tax bill. Give them less incentive to do so by lowering the tax rate, and we might be pleasantly surprised by the result. It certainly has worked out okay for Ireland.

That's pure speculation, though, unencumbered by a single calculation. And correct me if I'm wrong, but I don't think Rudy, Mitt & Co. are making the rounds in Iowa promising to cut corporate taxes (although maybe they are doing that at some of their fundraisers). So I agree with Mark Thoma that journalists ought to be asking, every time a Republican candidate says cutting taxes will increase revenues, "Have your economic advisors informed you that there's no basis for that claim, and if so, why are you making it anyway?" But that's a long ways from arguing that tax cuts never raise revenues.

Update: Mark Thoma, as he notes in the comments, responds here. It sounds like our main disagreement is definitional: The 1964 and 1981 tax cuts consisted of much more than just cuts in the top marginal rates. Thoma thinks focusing on just the cuts on high-end taxpayers and saying they paid for themselves is misleading. He writes:

I suppose with a narrow enough focus we could find somebody who paid more taxes after the change, even a group who did, but to me that just confuses the issue - overall these tax cuts did not pay for themselves, and even the statement that they did for small subgroups at the very top is debatable and subject to interpretation.

December 7, 2007 12:28

Talking to Arthur Laffer about taxes, taxes, taxes and Barack Obama

My column this week is about the persistence of the Republican canard that tax cuts raise revenues. Some tax cuts do raise revenues, of course, and many others deliver economic benefits that offset some of their cost. But it has apparently become required of Republican politicians at the national level that they speak as if tax cuts always and everywhere pay for themselves.

Denouncing this nonsense has become a standby for wonky mainstream journalists, and with the presidential campaign heating up there's been a noticeable increase in such screeds. The Washington Post editorial page has been on a tear lately about the "tax fairy." The New Yorker's normally mild-mannered Jim Surowiecki weighed in on "the great lie of supply-side economics." And Jonathan Chait of The New Republic has a whole book out that's devoted in large part to debunking the tax myth.

An excerpt from Chait's book ran in TNR in September, and caught the attention of Arthur Laffer, the economist who got this whole tax-cuts-pay-for-themselves thing going back in 1974. He wrote a 12-page response (warning: pdf), which inspired me to give him a call. A few quotes from our conversation are in my column--and the dead-tree version is illustrated with a brand-new drawing of the Laffer Curve that the great man rendered at my request, on a napkin. But I figured I should share more.

What follows is an edited and much-abridged transcript of our conversation. It's still really long. But there's entertainment galore. Reading through it, I see lots of points that I should have pressed him much harder on. He's just so effervescently nice. And I'm clearly too well-mannered to ever make it in this journalism business.

I noticed that there's been a lot of chatter in places like The New Republic and the New Yorker about supply-side economics. And I noticed that you had noticed too.

I did I did I did. It's fun, isn't it?

I understand their frustration with every Republican candidate saying tax cuts increase revenue, and the current administration saying that all of its tax cuts have been long-term revenue increasers. I'm not convinced that on every form of the tax code we're on the wrong side of the Laffer curve these days.

You shouldn't be, so you're correct so far.

But I am sympathetic with the idea that in the 1980s, the Reagan tax cuts, at least the ones on the top marginal tax rates, did have ...

That's unambiguous, that really is unambiguous. I mean, the amount of revenues in the top 5% that went up, it was just huge.

Do you think the Bush tax cuts ...

When you talk about the Bush tax cuts, which were tax cuts across the board, all the inframarginal tax cuts were dead-weight revenue losers, period.

Inframarginal?

Yeah, the nonmarginal tax rate. Let's say you make $100,000 and let's say we're talking just about you, Justin Fox, and let's say there's no chance on earth your income would fall as low as $50,000. All those tax cuts we do on Justin Fox up to $50,000 for sure are dead-weight revenue losers. You just lose the money from now until the cows come home. That's clearly true. I don't think you'll find many people who disagree with that. So the lowest end of the rate cuts, what I call inframarginal, those things do lose the money.

So you talk about a Bush tax cut, he had two sets, the first one I wrote not only wasn't going to pay for itself, but probably wasn't going to stimulate anything. The second one was a lot better. The second one was when he got panicked, as he probably should have.

Now there are parts of the tax cut he did, for example child-care tax credits, those are dead-weight revenue losses. There is no feedback effect on those at all, because they don't effect the marginal rate at all.

The ones that have the feedback effect the most are those at the highest bracket. I can give you an example of this. Let me use Kennedy, so I can get away from current politics.

Kennedy cut the highest federal marginal income tax rate from 91% to 70%, and he cut the lowest tax rate from 20% to 14%. He cut all the rates in the middle, too, but I'm just going to take the two extremes for you.

Before the tax cut, one second before the tax cut, a guy would earn a buck in that highest tax bracket, he would have to pay 91 cents in taxes, and he would be allowed to keep 9 cents after tax. That's his incentive for working. Now after the tax cut, the guy would earn that same pretax dollar, he'd now pay 70 cents in taxes and he'd now be able to keep 30 cents after taxes. The increase in that incentive for doing the exact same job for the exact same gross pay would be 233% .

Now let's take the lowest tax bracket guy. Let's assume that it's the guy that's on the margin. That guy makes a buck before tax, paid 20 cents in taxes, he got to keep 80 cents. That was his incentive on the margin for doing that work. Now Kennedy cut that from 20% to 14%. The guy went from 80 cents after tax to 86 cents for that exact same job. That's a 7.5% increase in incentives.

The top tax bracket he cut from 91% to 70%. That's a 23% cut in tax rates with a 233% increase in incentives. That's a 10-to-1 benefit-to-revenue-loss number.

Now you take the guy in the bottom bracket. The guy in the bottom bracket had a 30% cut in tax rates, from 20% to 14%, and he had a 7.5% increase in incentives. So that's a 1-to-4 benefit-to-revenue-loss calculation.

You can see why it's far more efficacious, why you'd far more expect revenue feedback to be positive in the upper brackets than in the lower ones.

And that's leaving aside the ability to avoid taxes.

The guy in the upper bracket intuitively has a lot more options open to him or her than the guy in the lowest bracket. So you're probably dealing with a far more elastic supply curve than in the lowest bracket. The guy could take a job in London. He can probably do a tax shelter with a lawyer or an accountant.

That's part of the argument on capital gains taxation, it's more flexible.

Exactly, that's why it's even more effective with capital gains.

But obviously there are diminishing returns as you get down that scale.

Of course there are. Now there are a lot of taxes I haven't included. For example, there are sales taxes, there are state taxes, there are auto taxes, blah blah blah blah. So the 91% is really not the marginal tax rate after all taxes. It's even more exaggerated.

I'm not going to push a lot harder on this thing, but that's why you find these enormous responses in the upper brackets. These guys fire their lawyers and accountants and actually pay their taxes. Yay! Isn't that what we want them to do?

But do you think that going from 39% to 29% [actually, it's 35%] is enough to have that much of a feedback effect?

Is it across the board, or is it just on the highest income earners?

That part of the Bush tax cut.

You're getting close in there, and let me talk to you a little bit about getting close. And I don't know the answer to these things obviously, so I'm just talking with you. Let's imagine we cut tax rates just on the upper income groups, how do you go about calculating what the revenue feedback is?

No. 1, the cost to collect a dollar from a guy is a far more than the dollar you collect from him. When you look at the government, when the government collects a buck, it's not free. They have to spend resources, the IRS, audits, all this sort of crap, to collect the dollar. I'm not assuming any Laffer curve effect here at all. There are just transactions costs of collecting that money. None of these guys look at that.

No. 2, in addition that, there are all sorts of costs of evasion, avoidance, underground economy, going out of work, moving to another location, or producing more or less. All of that goes in the calculation as well.

I'm just raising these as thoughts to you, Justin, not to give you answers. You've got to make up the answers youself. But if you cause that guy to work another hour by cutting his tax rate by 1%, what happens to all the people he employs, to the people he works with, all this other sort of stuff? You will collect more payroll taxes. You will collect more capital gains taxes. You'll collect more tariffs. Sales taxes, all these other taxes in the system.

You want to look at the overall long-term dynamic impact here. Let's imagine that I have a profits tax rate of 10%, and, based on that presumed tax rate of 10%, I build a factory. I finish the factory and on exactly the day that I finish the factory you bop that tax rate up from 10% to 90%. What do I do? Do I tear that factory down? Of course not. I operate with it. You've got me in an inframarginal position. But when the factory wears out, I don't replace it. You're going to collect a lot more revenues in the first year and as the years go on you're going to collect less and less and less. You follow me?

Let's take the Bush tax cuts, although I'd much prefer to stay with Kennedy because it's so far away no one gets emotionally involved. The question is, did the Bush tax cuts change output growth? Did they change retail sales tax receipts? Did they change state and local taxes? Did they change property taxes? If they did, how much? And how long did it take to materialize?

Now I'm going to tell you what I believe to be true. Bush put in his tax cuts in 2001 and he phased his tax cuts in, the tax cuts actually came into full effect on Jan. 1 2003. If you know they're going to cut tax rates next year, what do you do this year? You defer all the income you can, don't you? So what happened to GDP growth in the first quarter of 2003. It went from almost zero to 6.5%. [I just checked; it really went from 0.2% to 1.2%.] And we've just seen the last quarter, the third quarter of 2007, at 4.9%. Do you believe those tax rate reductions influenced the growth path? Then if so by how much.

I'd say yeah but I have no idea on the how much.

Me neither.

I've got to think most of it is just the economy had been down and thanks to low interest rates and other things it was coming back.

That's right. But I don't know what that number is.

The longer you're willing to wait, the more you'll get that feedback effect. I don't know whether it pays for itself or not fully. But I do know it pays for itself partially if not fully.

Let's say it doesn't pay for itself at all. Does that mean you should raise taxes to 100% of GDP? No.

The Laffer curve is an interesting concept, and it is a true concept. There are offsets that do take place in the system that make the cost of a tax cut less or much less or maybe even positive. And there are costs to tax increases that are much worse than people think, maybe they even lose money.

But when you look at the whole operation, the Laffer curve should not be the reason you raise or lower taxes. It is a consideration, but it's not the reason.

But Jude Wanniski really built it into something at one point. [Wanniski was the Wall Street Journal editorial writer who popularized the Laffer Curve and supply-side economics in the 1970s.]

I'm sorry, you know, you journalists have to control yourselves! I had been lecturing this stuff forever, and all of a sudden they liked that argument. It's not a wrong argument, it's a correct argument.

I would say every single economist I've ever talked to agrees with you on that.

They didn't beforehand, let me tell you.

Really?

You raised tax rates by 10%, you increased revenues by 10%. Everyone did it back then. That was totally true. You go back and look at any of the textbooks and you find that Laffer curve in them before me. Now, if you go back 100 years you'll find it everywhere. I just brought it back. I didn't invent it or anything.

There are so many considerations here. Raising taxes is not a frivolous venture that you do on the editorial page of The New Republic for god sakes. It's something that you really have to think about and go through carefully.

No one says that taxes are everything, but you know they're a pretty big part of everything. Taxes are not trivial, they're a huge portion of this overall economy. And that's why I focused on them. Some people may talk about lemon laws and reselling used cars. I don't think they're quite as relevant as I am. [This would seem to be a dig at Nobelist George Akerlof, America's nicest economist™.]

You moved to Tennessee because you were sick of California taxes?

Yeah, plus I also thought California was going straight to hell in a handbasket, which it has.

Tax rates aren't everything with regard to incentives to work. I would probably work at a 100% tax rate next to a nude modeling studio. I'm joking, but you know what I'm saying. There's a lot more to it than just tax rates. It's economics that I do, I don't do nude modeling studio economics. People do respond to taxes. They may respond to lots of other stuff too, but they respond to taxes, and that's what my work is.

The studies over the last 10, 15, 20 years have moved very much in my favor.

Within academic economics I think of Marty Feldstein ...

He's much better now than he was when I first met him.

But even he, starting in the 70s, was pushing these ideas of deadweight loss from taxation.

Yes, that's true. He did that and he was very good and I don't want to take anything away from him. He's much better now than he was back then, let me tell you. With the president in 1981 and '82 [Feldstein was chairman of Reagan's Council of Economic Advisers] he wasn't that good. He and Stockman were right together. Larry Lindsey was good, though.

I think of somebody like Greg Mankiw, who generally wants lower taxes but at the same time in his textbook he goes off on the Laffer Curve.

Why would he do that? Because I don't get it. I've never said all tax cuts pay for themselves. I never even said Reagan's tax cuts would pay for themselves.

The evidence I cited there on Kennedy, it's clear. Kennedy went from a deficit to a surplus with the tax cuts and the pro-growth policies. I do not believe that was luck. I don't believe that Reagan was luck. I don't believe that Bill Clinton was luck. I think Clinton did a great job as president.

But Clinton had, very early in his first term ...

One income tax cut that almost cost him almost everything. Then he became more Reagan than Reagan the day afterwards. He lost the House, he lost the Senate, he lost the governorships, he lost the state legislatures. And then he became more Reagan than Reagan: He got Nafta through Congress, against the unions, against his own party. He reappointed Reagan's Fed chairman twice. He signed welfare reform, that you actually have to look for a job to get welfare. He cut government spending as a share of GDP by 3.5 percentage points. No president ever has come anywhere near him on that. He had the biggest capital gains tax cut in our nation's history in '97. He got rid of the retirement test on Social Security. This guy was a great president and I voted for him twice.

You like him better than the current president?

I like Clinton and I like Bush as economic presidents.

What does your firm do now?

We have two firms. One is a research firm, a fairly large research firm on economics for institutions, pension funds, banks, trust departments, money management firms. And then we have a money management firm which is co-owned with General Electric.

There are all sorts of other issues in life besides economics. I mean abortion, pornography, Panama Canal, all that stuff. Iraq. Those aren't issues I'm into. I'm really into making this economy fly. I'm really into trying to relieve the poverty levels here in the U.S. I wrote enterprise zones god knows when, 100 years ago. I did that one. I have tried to remove the marginal tax rates be it at the lowest end or the highest end. My original proposals on enterprise zones were because the marginal tax rates on inner city dwellers are horrendously high. Every dollar more they make they lose all their welfare benefits. Which is stupid.

What Chait did in his article was he said the income disparity has increased dramatically. I'll stipulate that, counselor. There's no question that income disparity has risen. I don't mind rich people making more money. That doesn't bother me. What bothers me is poor people making less money. That bothers me a lot.

Now the question is, how do you raise the income levels of the lowest group? If you wanted to reduce income distribution discrepancies, let me go to the extreme, you would reduce it to zero. Everyone who made above the average wage, you would tax them 100% of the excess. And everyone who made below the average wage, you'd subsidize them up to the average wage.

That will reduce income discrepancies. That will. But you'll have everyone making the same at zero. And that's intolerable.

I don't believe that Chait and these other people are aware or care about that by reducing the incomes of the upper incomes you're going to lower the incomes of the lower incomes. That I really believe is true. That to me is far more important than any goddamned Laffer curve. I don't mind running deficits, if you make people better off. Do you?

It's what you're investing the money in. With Reagan it ended up looking like a good investment to spend all that money on the military.

And with Clinton he did it perfectly correctly paying down the debt. He didn't need the money. What Clinton did was he gave Bush the fiscal flexibility to do what was right, fiscally. By the time Bush took office on Jan. 20, 2001, we were in the midst of a real problem. The market had been crashing for a year. And then we get bombed 8 months later. What was the guy supposed to do? Raise taxes on the last three people working? He needed to stimulate the economy and spend for defense spending, and Clinton gave him the ability to do that. I mean, my hat's off to Clinton. As I told you I voted for him twice.

Was there any president in the last 30 years you didn't like?

Bush Senior I did not. But the last 30 years have been very wonderful years.

Did you work in the Nixon or the Ford administration?

I worked Nixon and Reagan. The only reason I worked in Nixon was my boss went there. I was George Shultz's right hand person. That's why I went. I wasn't a Nixon person.

I was the first chief economist at the OMB. I told my mom, "I just wrote a speech for Nixon, mom. He used it, verbatim. Well, he did make two changes: Everywhere I said 'is' he said 'is not' and everywhere I said 'is not' he said 'is.' But other than that, mom, it was exactly the same speech." Everything Nixon did was the antithesis of what I believe in.

[After this we headed off in other directions for a while, finally returning to current politics.]

My guess is you're going to have a Democratic president. My guess is you're going to have a filibuster-free Democratic senate majority. My guess is you're going to have very strong Democratic House control. You're going to have a lot of Democratic control of the state legislatures and also the governors. They're not the old-line Democrats, they're not my Democrats. They're not Wilbur Millses, they're not Jack Kennedys, they're not Lloyd Bentsens. They are going to put through a series of policies. What I would like to do is make a conditional bet with you as to what happens with the budget and the economy when they do it.

Whoever takes over is going do so with an economy coming out of a recession or at least a slowdown.

The economy has done so well. It's the best performing economy ever on earth. It's really hard to make it better. And yes, it'll be coming slower. But now, when you and I look at the future, and these guys do what they're planning on doing, I want to make a conditional forecast with you, and make a bet.

But there are a lot of people--I don't know about the Democratic candidates, but I do know about [Obama adviser] Austan Goolsbee ...

I know him too. And he's crazy on this thing. What's he talking about is raising the highest rates because it's a consumption tax cut. That's silly. Consumptions don't work.

I'm on Larry's show [Kudlow & Company] with him last Wednesday, and I love Austan, he's a great guy, great papers. And he's with Obama and he says, "Oh, Art, I'm doing a middle class tax cut by raising up rates to stimulate consumption." I said, "Austan what are you telling me guy? Consumptions don't work." You've got to make it more worthwhile for someone to give up leisure time to work, or to give up consumption to invest. You've got to make the supply of work effort more attractive, and low-end tax cuts don't do that.

He knows that. The question is why did he do the job with Obama? Because that was the girl that said yes.

And because he saw Obama as pretty moderate ...

Not from what I read. I love Obama and I think he's a hell of a neat guy and a smart guy. But he'll destroy the economy if he puts in what he says. Then I'll make you the bet.

I don't want to speak for Chait and others, but I don't think they're saying they want to go back to pre-Reagan tax levels. They're just saying that clearly it didn't kill the economy in the 90s to have a 39.6% top tax rate.

You've got to put the whole package together. There are things other than tax rates. There is monetary policy, there's trade policy, there's incomes policies, there's all sorts of things. I did not dislike Clinton even though he did raise the highest marginal rates. I didn't support that part of it, don't get me wrong. But what he did with monetary policy, what he did with trade policy and all these other things more than offset what he did with tax policy. And then after the first two years he was great on tax policy. And he was terrific on government spending. He was great all around. I think the only real mistake he made on the economy was that first-year tax increase.

December 7, 2007 7:24

New column: Arthur Laffer on the strengths and limits of his famous curve

My new column is in the issue of Time with an empty-pocketed Mahmoud Ahmadinejad on the cover and online here. It begins:

If there's one thing that Republican politicians agree on, it's that slashing taxes brings the government more money. "You cut taxes, and the tax revenues increase," President Bush said in a speech last year. Keeping taxes low, Vice President Dick Cheney explained in a recent interview, "does produce more revenue for the Federal Government." Presidential candidate John McCain declared in March that "tax cuts ... as we all know, increase revenues." His rival Rudy Giuliani couldn't agree more. "I know that reducing taxes produces more revenues," he intones in a new TV ad.

If there's one thing that economists agree on, it's that these claims are false. We're not talking just ivory-tower lefties. Virtually every economics Ph.D. who has worked in a prominent role in the Bush Administration acknowledges that the tax cuts enacted during the past six years have not paid for themselves--and were never intended to. Harvard professor Greg Mankiw, chairman of Bush's Council of Economic Advisers from 2003 to 2005, even devotes a section of his best-selling economics textbook to debunking the claim that tax cuts increase revenues.

The yawning chasm between Republican rhetoric on taxes and even informed conservative opinion is maddening to those of wonkish bent. Pointing it out has become an opinion-column staple. But none of these screeds seem to have altered the political debate. So rather than write yet another, I decided to find out what Arthur Laffer thought. Read more.

For those who might want evidence of the claim that "Virtually every economics Ph.D. who has worked in a prominent role in the Bush Administration acknowledges that the tax cuts enacted during the past six years have not paid for themselves," there's an excellent roundup here.

I'll post my Q&A with Laffer later today.

December 6, 2007 10:47

Breaking news: Somebody thinks the new YouTube ad technology really works!

You may have heard the argument that YouTube is totally over, meaning either that Google was st