Category: Equitablog

Must-Read: The bad thing about President-elect Donald Trump is that he has no clue about policy debates. The good thing is that he has, in the past, taken every single possible policy position on both sides in an off-the-cuff fashion. Thus there may be opportunities, depending on who can convince Jared Kushner that his father-in-law needs policies that will actually work:

James Kwak: The Last Chapter Problem: “Bernstein, to his credit, gets the description of the problem out of the way in the first two chapters…

…He devotes the rest of the book to solutions: policy tools that can not only increase growth but, just as importantly, ensure that the benefits of growth are widely shared… expanding automatic stabilizers, spending more on infrastructure, universal pre-school, and maintaining a symmetric monetary policy—that is, not pretending you have an inflation target when what you really have is an inflation ceiling…. Bernstein focuses on the importance of using economic policy to change the pre-tax distribution of income—bolstering the bargaining power of workers so they can demand a larger share of the gains from increases in their own productivity… unions, subsidized jobs and apprenticeship programs to help people gain skills, and ban-the-box rules…. But, as Bernstein writes, turnout by Democratic constituencies “may well hinge on whether they believe a candidate will try to implement a set of policies that convincingly relinks growth and their living standards.”… Democrats… [need to] convince the public that we care about something more than fiscal responsibility and overall economic growth.

Must-Read: Nathanael Johnson: What the New York Times missed with its big GMO story: “A big piece [by Danny Hakim] that made the front page of the New York Times… takes aim at…

…[the claims that] genetically modified crops… increase yields… and reduce pesticide use…. The article concludes that GMO seeds are no better at either than any other form of breeding…. The story is an odd one…. The most mild interpretation of the piece–GMOs haven’t dramatically improved yields, but they are useful… is really not news…. If your takeaway… is that GMOs just aren’t useful, then it runs contrary to loads of evidence–which the story almost completely omits. And it makes comparisons that sound compelling, but don’t actually tell you much…. The problem here is that there’s enough data that you can easily pick the evidence to support your favorite narrative, depending on where you focus….

The most balanced approach is to look at all the available evidence–and that’s what the National Academy of Sciences report already did. Hakim cites the report where it supports his conclusions, but not in the places it contradicts them…. Perhaps the most compelling stats in Hakim’s story come from a comparison with France, which has reduced insecticide use by 65 percent… [while the] United States has only reduced insecticide use by 33 percent…. But… zoom in and you can see that France started with crazy-high pesticide application levels…. It’s also odd that Hakim would single out France: Pesticide use there has been declining, but it’s been increasing in other parts of Europe….

Because most of us aren’t farmers, we have a hard time seeing the GMO age at all. But U.S. farmers can see it. Farmers aren’t backward dupes…. They clearly think they’re getting something valuable when they pay the extra money for GMOs…. And GMOs really aren’t all associated with industrial farming. The disease-resistant papaya is a wonderful innovation. The insect-resistant eggplant seems to be reducing pesticide use in Bangladesh. This banana, this cassava, and this rice could all truly improve the lives of small farmers if those new crops make it over the technical and political hurdles…. It would be a shame if we on the liberal coasts decided the technology was useless just because we have a hard time seeing the benefits that are clear to Midwestern farmers…

Must-Read: Federal spending needs to rise significantly if the government is to accomplish its missions:

John Perr: Inflation-Adjusted Federal Spending Has Fallen Under President Obama: “It is an article of conservative faith that federal spending under President Obama is ‘out of control’…

As the 2016 GOP Platform states in an amazing revision of recent history:

The Administration’s policies systematically crippled economic growth and job creation, driving up government costs and driving down revenues. When Congressional Republicans tried to reverse course, the Administration manufactured fiscal crises — phony government shutdowns — to demand excessive spending.

As the data and history show, every claim in those two sentences is flat-out wrong.

Must-Read: A very nice framework document for the economic policy dialogue:

Mark Thoma: My Voter’s Guide to Economic Policy: “Now we can finally come together as a nation and begin to make progress on important economic, social, and political issues (I can dream, can’t I?)…

…The Capitalist System: Let’s begin with an overview of how the two parties view the capitalist system. Both Democrats and Republicans believe the market system is the best way to satisfy our economic needs. Where they differ is the degree to which government should use social insurance to protect individuals and their families when the economy goes into a recession, when technological change destroys jobs, when jobs are moved to other countries, and so on. Democrats believe these risks should by widely shared…. That is, they believe in a system known as “social democracy.” Republicans have a different view. Social insurance, in their view (not mine from the evidence I’ve seen), creates dependency on government programs and blunts the incentive to work…. 

Market Failure: As just noted, both parties believe that when markets work they are the best way to meet our economic needs. But markets can fail for many reasons such as a high degree of monopoly power, differences in information about a product between the buyer and seller (e.g. patients who are unable to evaluate medical procedures, or a car owner knowing more about the quality of the car than the buyer), and the presence of externalities (e.g. firms that pollute the water or air without incurring the costs of doing so) – the full list is fairly long. And there are some goods, economist call them public goods, which the private sector will not produce at all (national defense is the classic example). Democrats believe the government ought to intervene when there are market failures…. Republicans became leery of government intervention during market failures…. 

Response to Recessions: Consistent with their views that government should intervene when the economy experiences problems, Democrats favor the use of monetary policy to combat mild recessions. In severe recessions, when monetary policy alone is not enough, they also favor the use of fiscal policy, particularly government spending…. Most Republicans agree that monetary policy should be used to smooth fluctuations in output and employment, but they would constrain the Fed’s behavior more than Democrats…. As for fiscal policy, they do not favor the use of government spending in severe recessions, even on things such as infrastructure. They do, however, favor another type of fiscal policy, tax cuts for businesses and the wealthy…. Some Republicans go even further and argue that the government should not intervene at all when the economy goes into a recession….

Inequality: Some degree of inequality is needed to create the correct incentives in a market system, but the two parties differ on whether excessive inequality reduces economic growth, the degree to which the income of those at the top is earned and hence deserved, and the need for government to address the inequality problem. Republicans argue that… people deserve what they get. Any attempt by government to redistribute income would blunt the incentive of those at the top to pursue innovative, entrepreneurial activity and reduce our rate of economic growth. Democrats… believe much of the income of those at the top is… due… unfair bargaining between workers and firms that redirects income upward, market failures, political power that has undermined unions and protected wealthy interests, cronyism on corporate boards, and so on….

Perhaps the difference between the two parties on economic policy can be summarized by the Republican’s faith in markets and their belief that when government tries to help it tends to make things worse rather than better versus the belief among Democrats that capitalist economies need government to keep them on track, to fix market imperfections, to promote equity and equal opportunity, and to ensure that the costs associated with economic shocks are broadly shared through social insurance. My support for Democrats comes, in part, from the belief that they have the stronger hand by far when it comes to economic policy, but whatever your views happen to be, please vote!

Must-Read: Smart thoughts from Nancy Cartwright and Angus Deaton:

Nancy Cartwright and Angus Deaton: The Limitations of Randomised Controlled Trials: “A well-conducted RCT can yield a credible estimate of an ATE in one specific population, namely the ‘study population’…

…Sometimes this is enough…. Yet the study population is often not the population that we are interested in…. More generally, demonstrating that a treatment works in one situation is exceedingly weak evidence that it will work in the same way elsewhere; this is the ‘transportation’ problem: what does it take to allow us to use the results in new contexts, whether policy contexts or in the development of theory? It can only be addressed by using previous knowledge and understanding, i.e. by interpreting the RCT within some structure, the structure that, somewhat paradoxically, the RCT gets its credibility from refusing to use. If we want to go from an RCT to policy, we need to build a bridge from the RCT to the policy. No matter how rigorous or careful the RCT, if the bridge is built by a hand-waving simile that the policy context is somehow similar to the experimental context, the rigor in the trial does nothing to support a policy; in any chain of evidence, it is the weakest link that determines the overall strength of the claim, not the strongest….

We have a better chance of transporting results if we recognise the issue when designing the experiment–which itself requires the commitment to some kind of structure–and try to investigate the effects of the factors that are likely to vary elsewhere. Without a structure, without an understanding of why the effects work, we not only cannot transport, but we cannot begin to do welfare economics; just because an intervention works, and because the investigator thinks the intervention makes people better off, is no guarantee that it actually does so. Without knowing why things happen and why people do things, we run the risk of worthless casual (‘fairy story’) causal theorising, and we have given up on one of the central tasks of economics.

Why I reacted badly to journalists who asked me to analyze Trump’s economic plans. The first, last, and only correct thing to say was that there never was any coherent plan. To say anything else was to try to normalize the unnormalizable. Everyone who wrote as if there was a plan should be deeply ashamed of themselves.

Here Alan Cole gets it… less wrong than most. He is still trying to normalize the unnormalizable. But he is honest about how difficult it was for him to attempt the task:

Alan Cole: _On Twitter: “This is my 407th (and, I expect, final) day covering Donald Trump’s tax proposals for @taxfoundation…

…Here’s what we’ve learned.

Donald Trump’s initial effort at tax reform this cycle came in September 2015. My analysis showed it reducing revenues by a huge amount. We put it at a $12 trillion tax cut. At first, the campaign disputed this number. I remember this day well. https://t.co/RuxyeYLiwZ:

This came back when John McKinnon was the WSJ’s tax reporter. (Since then, he has moved to other issues and @RichardRubinDC does tax.) John was going back and forth between us and Hope Hicks, essentially transcribing an argument between me and her that lasted all day.

The initial plan was a gigantic tax cut for both the rich and the middle class, but not all narratives in September 2015 got that right. For example, Trump claimed (wrongly) that his September 2015 tax plan would cost him a fortune https://t.co/ZvpXZlQ0pB.

Note what is going on here: Alan Cole is claiming to know more about Donald Trump’s tax plan than Donald Trump. Since Donald Trump’s tax plan is presumably what Donald Trump plans to do, if Donald Trump plans to do something other than his tax plan–if Donald Trump knows that his tax plan is not what he plans to do–attempts to analyze it have already collapsed into incoherence.

It wouldn’t.

But what is “it” here? Is it Donald Trump’s tax plan, which Alan Cole know better than Donald Trump? Or is it what Donald Trump plans to do on taxes? And how, metaphysically, can what Donald Trump plans to do on taxes be different from his tax plan? If Donald Trump plans to change the tax law in ways that cost him a fortune, it what sense can his tax plan offer him a tax cut?

Simultaneously, many liberals attacked him for cutting taxes on the rich and doing nothing for the middle class, which I thought unfair.

I wrote some analysis trying to set the narrative right. The loser from the 2015 Trump plan was the US Treasury https://t.co/s2KbFgPtVw.

Needless to say, “right” here has no meaning…

Eventually the deficit number became the main story (and rightly so.) @JebBush attacked the plan in the October debate. Unfortunately in the fiscal policy part of the debate, Bush also talked about giving “a warm kiss” to Democrats, which was weird.

By 2016, @larry_kudlow was looking at ways to reduce the revenue loss from the 2015 Trump tax plan https://t.co/Obm0wnUyrT. Whispers of a new tax plan kept on happening throughout the summer, without anything concrete happening. Trial balloons were floated. In some cases, the responses to the trial balloons actually made a difference, such as here: https://t.co/y38V6c6mH2. Tax experts like @lilybatch criticized the pairing of expensing with interest deductions. Apparently this had an impact!

In the end, the campaign made expensing/interest deductibility an either/or choice, probably because of the @RichardRubinDC article. A Detroit speech, still on Trump’s website, was the main source of info on the “new” tax plan for a while. https://t.co/X1w3MjFwPH Contained in the Detroit speech was this passage, including a key pledge to a major Republican constituency: pass-through businesses:

That pledge was one of the biggest tax stories. It was promised, un-promised, re-promised, and then collapsed into confusion.

All of that came to a head on the day of the release of the new tax plan, on a Thursday in September 2016. https://t.co/GRoCF0W8Vi. I was told this, which seemed to be backed up by the website at the time, mentioning only “corporate” rate:

Email response from Trump Deputy Policy Director: “the 15 percent rate only applies to businesses that are taxed as corporations.”

Key small-biz advocates were unhappy with the development, as reported by me:

Trump just quietly walked back the single best aspect of his tax plan to save a buck http://taxfoundation.org/blog/details-donald-trump-tax-reform-plan-september-2016

But eventually the NFIB “reacted” to the plan with this statement, praising it for keeping the promise: https://t.co/iISZMAKmHv.

Further, the website changed! As noted by this “baffled-tone” tweetstorm from the time:Alan Cole added,

Richard Rubin @RichardRubinDC: Campaign site https://twitter.com/RichardRubinDC/status/776586854720163840 says 15 is for big and small that “want to retain the profits within the business.” Whoa there…

The next day, Friday, @BCAppelbaum charged hard at the story and released this piece: https://t.co/ZjB4EJryxp.

The idea of the piece: Trump wanted tax analysts to keep the price tag of the plan low, but small biz to think the promise was kept. This line of argument eventually was used by Clinton campaign officials like @genebsperling:A

Sperling alleges that they’re touting the 15% rate for passthroughs on the campaign trail, and then scaling it back “in quiet rooms.”

I had to delay my analysis throughout the weekend while I tried to figure out what was going on:

I do not have any new information about the Trump tax plan today. Thank you for your questions!

But what was going on was that nothing was going on. They were not even coherent enough to try to keep two sets of books–an NFIB-pleasing set and a deficit-hawk set. It was just incoherent…

Finally, we released our analysis with two scores of the Trump plan that we set as a sort of upper and lower bound on the policy. We never got clear answers on this: other Trump mysteries were much the same way. What happened to that money for vets? Who knows?

There were no clear answers because there was no policy…

It was easy to get wrapped up in annoyance over the passthrough issue, but I tried to give Trump praise for his bold corporate proposal:

Why, in God’s name? There is no proposal–nothing coherent. Why praise him?

In the final days of the election, the main voices on the Trump tax plan shifted from Kudlow to Peter Navarro and Wilbur Ross. Kudlow and Navarro have differences on trade, and sadly, I think Navarro won the struggle over that part of the agenda. Eventually Navarro’s views on trade became the dominant topic of discussion even at tax policy events.

But that does not mean that Navarro “won” anything. Trump could still say anything on any day without being bound by any prior statements or position papers.

Nick Riccardi @NickRiccardi: That the Trump tax discussion at Tax Policy Center is largely about trade is basically all you need to know.

This was a turning point for some prominent tax cutters. They’re about free movement of goods/services. Navarro’s views just don’t fit. Grover Norquist now spends his days tweeting about vaping. Art Laffer watches documentaries about whales(!) https://t.co/40yjysWKOZ. The feeling of detachment and discouragement among the traditional free-market coalition is pretty palpable. I’d expect a brawler-style tax cutting candidate to be Norquist/Laffer’s best friend, but he’s not. There’s a story worth telling there.

There’s still a constituency in the U.S. for free market policy for as long as supply curves slope upwards. (Spoiler alert: they do.) But Trump is not a good avatar for the free market coalition, and it’s pretty obvious if you see how free marketers are reacting to him. This is a realigning election, without doubt. It has left powerful constituencies adrift. But most of them will be back in some form.

So I expect the presidential economic policy debates in the future to be just as “interesting” as the one we’ve just lived through.

So that’s what I’ve learned in the last 407 days covering Donald Trump’s tax plans. I can’t say it was dull. Happy election day!

Still, I look at things like: “The Taxes and Growth model says that the rate reductions alone would lead to a 4.1% increase in real GDP”. And I cannot help but think: Alan Cole is being unprofessional here. He implies that there is a coherent Trump plan, and that when all its moving parts are nailed down and estimates are made the model will say it leads to a greater than 4.1% increase in real GDP. But there is no coherent Trump plan. There are no moving parts that need to fit together. There are no estimates. And there never will be any estimates.

Thus, in my view, Alan Cole served his audience badly: he was not a trustworthy information intermediary. What he should have done was gone to Kudlow and said: This is an incoherent clusterf—. I’m going to report that this is an incoherent clusterf— unless you pull it, and bring back something coherent we can estimate and score.

Alan Cole did not do that. His failure shadows all of my understanding and evaluation of his work.

Branko Milanovic: The Long Shadow of 1989: “The [Eastern European] generation born around the early 1990s, which has now reached its maturity…

…has on average a height of about 1 cm less than the previous generation…. Plummeting incomes… parental stress, alcoholism and drug abuse…. The good news is that the happiness gap between Eastern and Western Europe has closed. East Europeans are no longer systematically unhappier (in terms of self-reported happiness) than their Western counterparts…. Both the height loss and the happiness stories illustrate well the importance to people’s lives of traumatic events like the economic collapse during the transition or the Great Recession….

I read Simon Kuper’s today’s piece in the Financial Times on the diverse fortunes of Merkel, Putin, Kaczynski and Orban who were all, in different places and positions in 1989, and whose 1989 experience very much influences their today’s beliefs and policies…. What I found interesting… are two points which were very seldom found in Western press…. The first is recognition that the 1989 revolutions were essentially… revolutions of national self-determination…. Even Yeltsin’s revolution was a peculiar nationalist revolution where the core nation decided it wanted to get out of a federation…. For the other leaders, from the Baltics to the Balkans, nationalism as the main ideology was self-evident….

The second interesting point… is the… diversity of experiences…. Sizeable minorities, who either were of mixed backgrounds or had identities associated with the country that was now divvied up, were left totally unmoored…. I know of many people, myself included, who for several decades had one national identity, and then within months had to start believing they had another one…. [We] cannot… forget not only how traumatic and bloody the process was, but also how many of the newly-created countries, from Ukraine to Bosnia, remain utterly fragile and, it seems, permanently suspended over the precipice of yet another war…