krugman.blogs.nytimes.comEconomics and Politics by Paul Krugman - The Conscience of a Liberal - The New York Times

Sections Home Search Skip to content The New York Times Paul Krugman Search Subscribe Now Log In 0 Settings Close search Site Search Navigation Search NYTimes.com Clear this text input Go Site Navigation Site Mobile Navigation Supported by Paul Krugman New York Times Blog Search Dec 6 4:04 pm Dec 6 4:04 pm The Blog Moves On A message for regular readers of this blog: unless something big breaks later today, this will be my last day blogging AT THIS SITE. The Times is consolidating the process, so future blog-like entries will show up at my regular columnist page . This should broaden the audience, a bit, maybe, and certainly make it easier for the Times to feature relevant posts. It will also, for technical reasons, make my life simpler — you’d be surprised how many hoops I have to go through to get these things posted. But that’s not the reason. Anyway, I expect to be doing the same sort of thing, mixing regular columns with stuff, usually wonkish, that doesn’t belong in the regular paper. Old blog posts will remain available! Dec 4 3:01 pm Dec 4 3:01 pm Leprechauns of Eastern Europe Photo Credit Over the past couple of days we’ve had two very good critiques of the Tax Foundation “model” of tax cuts, which comes closer than any other to telling Republicans what they want to hear. Greg Leiserson takes on TF’s bizarre treatment of the estate tax, which should make no difference in the small-open-economy approach they claim to be following, but somehow becomes a huge growth factor in their analysis. Matt O’Brien follows up, among other things, on my point about leprechaun economics : If your claim is that tax cuts will induce huge inflows of foreign capital, you should be projecting large future payments of income to foreigners, so that domestic income doesn’t grow nearly as much as GDP. TF somehow doesn’t. So are there real-world examples of the latter issue aside from Ireland? Actually, yes — the so-called Visegrad economies of eastern Europe. These economies have attracted huge capital inflows from Western Europe, in part because of low wages, in part because of low corporate tax rates . This has helped GDP grow — but national income has lagged, because so much of the growth has gone to foreign investors: Average households have not seen enough of the fruits of economic growth. Those rewards have gone disproportionately to the owners of capital, and in these countries, that tends to mean foreigners. In the Czech Republic, Hungary, and Slovakia, the most important sectors are largely or wholly foreign-owned. You can see what this has meant for the Czech Republic in the figure. For what it’s worth, the lag of GNP behind GDP shown there is several times as large as most predictions of extra growth from U.S. tax cuts. Now, I don’t believe this tax “reform” will produce anything like the capital inflow its defenders claim. But even if it does, Americans won’t see much of the benefits. Dec 3 10:16 am Dec 3 10:16 am La Trahison des Clercs, Economics Edition Photo Credit Yesterday a former government official at a meeting I was attending asked a very good question: have any prominent Republican economists taken a strong stand against the terrible, no good, very bad tax legislation their party just rammed through the Senate? I couldn’t think of any. And this says something not good about the state of at least that side of my profession. We can divide Republican economists into three groups here. First are those enthusiastically endorsing the specific bill, like the 137 signatories of the letter Trump has tweeted out . They’re a pretty motley crew, many not economists at all, some apparently nonexistent, and some with, um, interesting backgrounds: Other names on the economists’ letter may raise eyebrows. John P. Eleazarian is listed as an economist with the American Economic Association. But membership to the AEA is open to anybody who coughs up dues, and membership simply grants access to AEA journals and discounts at AEA events. Eleazarian is a former attorney who lost his law license and the ability to practice law in California after he was convicted and sentenced to six months in prison for forging a judicial signature and falsifying other documents. His current LinkedIn profile lists him as a paralegal at a law firm. Second are people like the Nine Unprofessional Economists – all of whom have, or used to have, real professional reputations, who signed that open letter asserting that corporate tax cuts might produce rapid growth. As Jason Furman and Larry Summers pointed out, they misrepresented the research they claimed supported their position, then denied having said what they said . The nine economists’ original Nov. 25 letterestimated that under the House and Senate proposals, “the gain in the long-run level of GDP would be just over 3 percent, or 0.3 percent per year for a decade.” … The conservative economists wrote to Summers and Furman on Thursday, saying the 3 percent growth assertion “did not offer claims about the speed of adjustment to a long-run result.” So that’s explicit aid and comfort to tax cutters, with an extra dose of dishonesty and cowardice. Read more... Nov 28 8:53 pm Nov 28 8:53 pm Incidence and Welfare Effects of Corporate Tax Cuts (Extremely Wonkish) OK, folks, this is basically to scratch my own intellectual itch — later this week Senate Republicans either will or won’t enact the biggest tax scam in history, and analysis won’t make any difference. But inspired by the Furman-Summers beatdown of Republican economists lending cover to disgusting dishonesty by their political masters, I found myself looking for a simple analytical representation of the effects of cutting corporate taxes. By simple, of course, I mean for economists: for anyone else this may as well have been written in cuneiform. You have been warned. OK, so the naive, super-optimistic version of what corporate tax cuts will do — roughly speaking the Tax Foundation version, without the incompetence — treats America as a small, perfectly open economy that faces an infinite, perfectly elastic supply of foreign capital at some given rate of return. It also ignores leprechaun economics — the potentially large difference between GDP and national income when foreigners own a lot of your capital stock. Meanwhile, America is neither small nor perfectly open, so that the rate of return to foreigners depends on how much capital we suck in — and since around a third of corporate profits already go to foreigners, they’re likely to collect a significant fraction of the gains from a tax cut. So, can we put all of that in a simple framework? I think we can. In fact, just one diagram, although for those not raised on traditional trade geometry it may look a bit intricate, But it’s all very simple, believe me! Starting point: we can think of a downward-sloping demand for capital, reflecting its marginal product. We can also think of an upward-sloping supply of capital, with the upward slope reflecting both the size of the US — we’re probably around half of the world’s capital market not subject to capital controls — and the imperfect nature of capital mobility, even now. We can think of corporate taxes as putting a wedge between the rate of return to capital before taxes — which is assumed equal to its marginal product — and the after-tax return received by investors. So it’s kind of like an excise tax on capital, and looks like Figure 1: Read more... Nov 27 5:11 pm Nov 27 5:11 pm Choice and the Insurance Mandate A key part of the Senate tax bill is repeal of the individual health insurance mandate. The budget scoring relies on this repeal reducing Federal deficits by $318 billion — and the bulk of these spending cuts would hit lower-income families. Republicans argue, however, that these families won’t really be hurt, because they’ll be making a voluntary choice not to be covered and collect government subsidies. This argument might make sense in a world of hyper-rational indiv...