RE: The Future of U.S. Economic Growth & Reviving Economic Growth: A Cato Online Forum
Some questions for the authors of the contributions that struck me as the most interesting…
Two Questions for Scott Sumner: First Question: Why has nominal GDP targeting not already swept the economics community? It really ought to have. Second Question: I believe in nominal GDP targeting–especially if coupled with some version of “social credit” at or near the zero lower bound. But a look back at the history of ideas about a proper “neutral” monetary policy–Newton’s fixed price of gold, Hayek’s fixed nominal GDP level, Fisher’s fixed price-level commodity basket, Friedman’s stable M2 growth rate, the NAIRU targeting of the 1970s, Bernanke’s inflation-targeting—leads immediately to the conclusion that anybody who claims to have uncovered the Philosopher’s Stone here is a madman. How can you reassure me that I (and you) are not mad?
…of the long-run growth rate in the economy…. But it does offer one of the cheapest ways of boosting growth. Unlike fiscal programs such as infrastructure, there is virtually no cost to improving monetary policy…. Elsewhere (2014) I’ve argued that a policy of nominal GDP targeting would smooth out the business cycle and undercut many of the arguments for counterproductive policies…. We need to convince other economists that nominal GDP targeting is the way to go. Once we do so, the Fed will follow the consensus.
One Question for Michael Strain: Back in the first Clinton administration, the EITC for childless workers was one of the things that dropped out of the 1993 budget given the decision that we had to hit our $500 billion five-year deficit reduction score and the defection of the oil patch Democratic senators over the BTU tax. Nobody since has wanted to put it back on the table. Why not?
…is that real wages for male workers without a college degree have been stagnant or falling for decades. So my second policy suggestion is to expand the Earned Income Tax Credit (EITC) for childless workers, many of whom are low-income men. The EITC is a federal earnings subsidy: if you work, and if you earn less than a certain amount, then the government will supplement your earnings with a transfer payment. The EITC offers very little support for childless workers, with a maximum credit of only about five-hundred dollars. This amount should be significantly expanded, as both President Obama and Rep. Paul Ryan have suggested. Previous expansions of the EITC have lifted millions out of poverty, and are designed to incentivize nonparticipants to return to the workforce. When they do, everyone wins–the economy has more workers and can produce more goods and services, and the new participants can earn their own success in the labor market, leading flourishing lives that include the dignity only work can provide.
One Question for Jeff Miron: The Affordable Care Act took at $800 billion ten-year whack at Medicare cost growth, included every administrative and organizational reform David Cutler could think of that might increase incentives for efficient delivery of care, made it much easier for insurance companies to offer and for individuals to purchase high-deductible and high-copay plans, and–in the Cadillac Tax–started a process that Peter Orszag and Christina Romer dearly hope will produce a very substantial cutback in the tax preference for employer-sponsored health insurance. Yet you are not out there saying: we need to build on the cost-containment and efficiency-enhancing aspects of ObamaCare. Why not?
…implied by current health insurance subsidies. The bigger government approach is to impose more restrictive price and quantity controls in Medicare and Obamacare…. The smaller government approach is to scale back Medicare and Obamacare. The most aggressive ‘reform’ would eliminate any federal role in subsidizing health insurance, leaving such policies to the states. Since the federal tax burden would fall dramatically, states could more easily raise taxes to finance these programs…. A less aggressive ‘reform’ is higher deductibles and co-pays in Medicare and Obamacare…
One Question for Alan Viard: How much of the efficiency gains from moving to a consumption tax come from the fact that it is also a lump-sum tax on current wealthholders? It taxes not just the income from their capital, but the capital itself as it has spent. Is this low-hanging fruit because this is a credible way of taxing existing wealthholders once while promising never to do it again? And is this in fact a credible way to do this?
…does not penalize saving. Replacing income taxation with consumption taxation would therefore be beneficial…. The greatest gains could be achieved by replacing the entire income tax system (the individual and corporate income taxes, the unearned income Medicare contribution, and the estate and gift tax) with a consumption tax. For distributional reasons, though, the consumption tax would need to be progressive, rather than a regressive tax like the VAT….Households would report their income on annual tax returns, but would then claim a full deduction for all saving and add back in any dissaving.
One Question for Ramesh Ponnuru: The entertainment industry likes copyrights. But the high-tech industry does not like patent trolls. I can understand–given the Democratic Party’s dependence for its elite fund-raising on Hollywood, the trial lawyers, the traditionally-Jewish investment banks, and Silicon Valley–why causes like copyright reform and tort reform have so little traction within the set of Democratic office-holders. But what, in your view, has gone wrong with patent reform? Why hasn’t patent reform low-hanging bipartisan fruit?
…would be to allow companies to write off the full cost of an investment in the year it incurred the expense, while scaling back the tax break for corporate interest payments…. Low-quality patents on software and business methods appear to have generated a lot of rent-seeking litigation…. The Fed [should] adopt–or be instructed by Congress to adopt–a target path for nominal spending…
One Question for Heather Boushey: As things are, our small-business owners are an exploited class in America today. Overoptimistic, they work long hours for highly variable and relatively low average incomes and in the process provide a lot of opportunities for employment to those they hire. Minimizing additional regulatory burdens on this class seems a good thing. Yet I am finding it hard to see how to craft a paid leave program in a way that does this. Might it not be better to focus on how to help people reenter employment when they return from leave?
…like any social insurance program, should be available to all workers, including small business employees and the self-employed. Excluding a certain group from taking leave only exacerbates the gap between those who provide care and those who do not. Second, eligibility should be tied to lifetime work history rather than current employment or job tenure. A paid leave program should follow the model of other social insurance programs, such as Social Security Disability Insurance, which bases eligibility on employment history and payment into the system. Third, a national paid leave program should provide a reasonable amount of leave to all workers. Policymakers can follow the lead of the Family and Medical Leave Act, which provides 12 weeks of leave, or 60 workdays, per year. Fourth, paid leave salaries need to be generous enough so workers, especially low-wage workers, won’t jeopardize their economic security by taking leave. We can follow what has worked at the state level. Policymakers can set benefit levels at two-thirds of a worker’s weekly average wage as in New Jersey, and cap them up to a certain amount, as in California.
Two Questions for Stephen Teles: How much of this rent-seeking can be addressed at the federal level, and how much requires fifty–or a hundred–state-level think tanks willing to make the case for efficiency and enterprise? And why, in an era where unions get little political respect and have little ability to utilize the powerful protections provided by the NLRA, have those seeking a rent wedge via occupational licensing done so well?
…But the most important market rigidities that have been eliminated have been those that protected those from the middle class on down. In fact, the great paradox of the last third of a century is that we have actually had an explosion of regulation in this ‘supposedly deregulatory’ era… regulation that has the effect of redistributing, sometimes dramatically, upward…. Intellectual property… occupational licensing… the financial sector…. A focus on rent-seeking allows us to look at the American inequality problem with a different lens….
The image of the U.S. as a free-market paradise is hard to square with the presence in the top income strata of people like car dealers (protected by regulations against the consolidation of car sales), doctors (protected by medical licensing and extensive educational requirements), lawyers (with a limited supply of lawyers and a government that produces outsized demand for their services), government contractors (including private prison managers, defense contractors, for-profit colleges and others whose almost exclusive dependence on government revenue raises question about whether they are ‘private’ in any meaningful sense), and property developers (who in many urban areas can exploit government-constrained ability to build—which drives up prices — and political connections to generate oversized profits). Add in finance, licensed occupations, and sectors with lots of intellectual property, and you’re looking at a sizeable chunk of the 1 percent….
Putting a dent in rent seeking… requires that someone be willing to subsidize ‘third party’ political activity, and for good or ill that must start with deep-pocketed donors willing to use their money to compensate for the imbalance of organization and attention that is the lifeblood of rents…. It may be impossible to organize a broad, deeply mobilized grassroots coalition against upward-redistributing rent seeking. But in most cases, equaling the manpower and resources of the rent-seekers isn’t necessary–just making sure that there is someone on the other side can make a big difference…
One Question for Ryan Avent: What are these local-area “institutional reforms” to overcome NIMBYism? In California, I know that every local elected official curses the Jarvis-Gann Proposition 13 as preventing them from recouping enough via property tax revenue to offset the costs of providing services to a new development, thus changing local governmental officials from reliable boosters for their town to grinches suspicious of every project. Are we looking for a federal government carrot to allocate funds county-by-county based on population growth? Or what?
Ryan Avent:
How Land-Use Restrictions Block Growth:
“infrastructure alone will not solve the problem…
…Instead, metropolitan areas may need institutional reforms that better balance the economic interests of the metropolitan area (and the country as a whole) with the interests and preferences of those living in neighborhoods that are likely to be affected by new development. When land-use decisions are made at a hyper-local level–giving local councilmembers or commissions extensive influence over which projects are approved, or focusing negotiation between residents and developers at the street level rather than the metropolitan level–the result will typically be far too little development. Those living immediately around a project enjoy some of its benefits but bear nearly all of its costs, in terms of disruption and congestion; they are therefore highly motivated to block projects and can succeed when local institutions enable them.
One Question for Morris Kleiner: I find that 15% licensing premium huge when I consider that it applies to a great many occupations in which licensing requirements are minimally burdensome–little more than what is called for in order to learn how to do the job. How is it that licensing requirements that do not look burdensome prima facie appear to be substantial burdens and restrictions on entry in fact?
…has grown from around 5 percent in the early 1950s to almost 29 percent in 2009. More than 800 occupations are licensed in at least one state (Kleiner and Krueger, 2013). However, my research with Princeton economist Alan Krueger, former head of President Obama’s Council of Economic Advisers shows that licensing raises wages by about 15 percent even when controlling for human capital variables such as age, education, and other labor market characteristics. This is largely due to the ability of regulated professions working through state legislators and regulatory boards to limit the supply of practitioners and eventually drive up costs to consumers and some perception that licensing enhances the quality of the service.
One Question for Don Peck: I have always found the argument of Naomi Cahn and June Carbone’s Red Families, Blue Families convincing here. Four big changes have hit American families over the past two generations: effective fertility control, the post-baby boom reduction in desired family size, the end of economic patriarchy in the form of solid career ladders for blue-collar men, and the opening-up of workforce opportunities to women. In this context, those embedded in a cultural matrix that aggressively encourages women to take control of their fertility, postpone childbearing and marriage until their late 20s or longer, and look for an equal partner find a relatively good fit. Those embedded in an alternative cultural matrix find a much worse fit–a cultural matrix that puts forth an eighteen year-old unattached single mother as an abstinence spokesperson, writes about Sandra Fluke as “ex-crazed co-eds going broke buying birth control, student tells Pelosi hearing touting freebie mandate”, and loads economic expectations of earning power that cannot be met onto young not-well-educated men places people under immense stress. Isn’t the answer to your Gordian knot of issues going to be that we need to up value the “Blue State” culture that has emerged in our era of the pill, feminism, and globalization, and downvalue “Red State” culture?
…that is steadily climbing from the lowest socio-economic classes into the broad American middle class…. As the sociologist W. Brad Wilcox writes, ‘the family lives of today’s moderately educated Americans increasingly resemble those of high-school dropouts, too often burdened by financial stress, partner conflict, single parenting, and troubled children.’… Among moderately educated women, 44 percent of all births occurred outside marriage… families of high-school graduates coming to look like those of high-school dropouts, rather than those of college graduates… the percentage of 14-year-old girls living with both their mother and father; the percentage of adolescents wanting to attend college ‘very much’; the percentage of adolescents who say they’d be embarrassed if they got (or got someone) pregnant; the percentage of never-married young adults using birth control all the time. Wilcox is hardly alone in noticing this trend. It has been documented, exhaustively, by scholars across the ideological spectrum…
One Question for Donald Marron: As you know, cap-and-trade looks like a carbon tax coupled with a substantial redistribution of the present value of a substantial chunk of the future carbon tax revenues to current energy producers. In a world in which it is reasonable to expect the next two generations to see disruptive innovations in energy, this redistribution enriches those who hold current market share and imposes a tax on future more-nimble more-innovative entrants and competitors. From a political economy standpoint, therefore, cap-and-trade–the McCain 2008 environmental policy–ought to have been irrestible. Yet it was resisted, very strongly. Why?
…and increase domestic prosperity by taxing emissions of carbon dioxide and other greenhouse gases and using the resulting revenue to reduce corporate income taxes. Such a carbon-corporate tax swap would give us a bigger, cleaner economy and avoid any need for more costly efforts to reduce emissions…
A Question for Tyler Cowen: Haven’t we gotten foreign policy right since World War II, more or less? Haven’t we created a world in which everyone save for the oligarchs of Muscovy and the princes and princelings of China wishes that their country was more like ours, and hopes that their grandchildren will have the option to move here if they want? What could we have done better over the past fifty years–aside from a lamentable tendency to think that right-dictatorships are more likely to evolve into democracies than left-dictatorships, that our soldiers can train “third forces” that will stand up on battlefields, and that we can intervene to both make people, in Woodrow Wilson’s words, “elect good men” and to make those we imagine are democracy-minded strongmen actually hold fair and honest elections?
…iI’ll simply put it this way: the single most important thing we can do to boost long-run American growth is to get foreign policy right. Very literally our lives, and the lives of many others, depend on it. And that means the economists aren’t nearly as important as they like to think they are.
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