Must-Read: The Nine Unprofessional Republican Economists have become even more unprofessional. I would also note that such transparent self-contradiction is incompetent. Do they even read what they wrote four days before?: Robert J. Barro, Michael J. Boskin, John Cogan, Douglas Holtz-Eakin, Glenn Hubbard, Lawrence B. Lindsey, Harvey S. Rosen, George P. Shultz and John. B. Taylor (Wednesday, November 29, 2017): Economists respond to Summers, Furman over Mnuchin letter: “First Point You Raised: Our letter addresses the impact of corporate tax reform on GDP; we did not offer claims about the speed of adjustment to a long-run result (though official revenue estimators will obviously need to do so for short-run analysis)…”

Robert J. Barro, Michael J. Boskin, John Cogan, Douglas Holtz-Eakin, Glenn Hubbard, Lawrence B. Lindsey, Harvey S. Rosen, George P. Shultz and John. B. Taylor (Saturday, November 25, 2017): How Tax Reform Will Lift the Economy: “A conventional approach to economic modeling suggests that such an increase in the capital stock would **raise the level of GDP in the long run by just over 4%. If achieved over a decade, the associated increase in the annual rate of GDP growth would be about 0.4% per year…”

The “If” at the start of the second sentence in the second quote is an assertion that the long run could well be as short as a decade. That is a claim about the lower bound of the speed of adjustment to a long-run result if I have ever seen one.

They have reputations: blowing them up for the whole world—or even for Wales—would be one thing. This is another:

Should-Read: This is nuts! When’s the crash?

Charlie Stross: Unforeseen Consequences and that 1929: “The mining process in combination with the hard upper limit…

…Per this article, Bitcoin mining is now consuming 30.23 TWh of electricity per year, or rather more electricity than Ireland; it’s outrageously… energy-intensive…. BTC is a libertarian shibboleth…. I tweeted… that we need to ban Bitcoin because it’s fucking our carbon emissions. It’s up to 0.12% of global energy consumption and rising rapidly: the implication is that it has the potential to outstrip more useful and productive computational uses of energy (like, oh, kitten jpegs) and to rival other major power-hogging industries without providing anything we actually need. And boy did I get some interesting random replies!… What I wasn’t expecting was the alt-right/neo-Nazi connection. Bitcoin isn’t just popular among libertarians, it’s popular among folks with green frog/Kek user icons and anti-semitic views. (“Are you a Jew?” asked one egg.)

One possible explanation, which looks quite reasonable as a first approximation, is that the US libertarian fringe has been assimilated by the neo-Nazis…. Weaponized media (both social media and mass media owned by the oligarchs) is used to channel the sense of grievance felt by the immiserated population into acceptable directions, via slogans like “taking back control” or “make America Great again”. Directions such as resentment towards immigrants, get-rich-quick schemes such as cryptocurrency bubbles or goldbuggery, and ritualized abusive denunciation of anyone who questions these attempts to divert attention away from the real problem—the way we’re being conditioned for exploitation by our self-proclaimed masters. So I now have two follow-on questions about BTC….

If BTC delivers what its supporters promise, then how will the oligarchs react? A working distributed cryptocurrency model is inimical to the interests of billionaire monopolists who want to get rich by imposing rent-seeking practices on the immobilized peasantry (ahem: I mean us ordinary folks). They won’t go quietly, there will be a crack-down, and we may be seeing the first signs of the shape it will take in China (which is banning bitcoin exchanges). Distributed systems, contra received wisdom, can be banned: you just have to be sufficiently ruthless….

If, as I think, BTC doesn’t deliver, then the bubble will eventually burst…. We’re going to run out of new BTC to mine…. The incentive for mining (a process essential for reconciling the public ledgers) will disappear and the currency will… what? The people most heavily invested in it will do their best to patch it up and keep it going, because what BTC most resembles (to my eye, and that of Jamie Dimon, CEO of JP Morgan Chase) is a distributed Ponzi scheme. But when a Ponzi scheme blows out, it’s the people at the bottom who lose.

The longer BTC persists, the worse the eventual blowout—and the more angry people there are going to be. Angry people who are currently being recruited and radicalized by neo-Nazis.

Should-Read: Alan Simpson and Erskine Bowles: Unfortunately, the tax plan currently under discussion… ignores nearly all the hard choices… incorporating only the ‘goodies’…

…It reads as if it were developed for a country whose debt problems have been solved, when in reality debt is the highest it has ever been other than around World War II. When this tax reform discussion started, House Speaker Paul D. Ryan (R-Wis.) and Senate Majority Leader Mitch McConnell (R-Ky.) called for revenue-neutral tax reform. While ultimately more revenue is needed, deficit neutrality is likely the best that can be expected in the current political environment. Yet Congress abandoned even this minimum standard of fiscal responsibility…

Should-Read: Well, we have 100 more unprofessional Republican economists today…

We saw 4.5% real GDP growth in the second half of the 1990s and 5% in the half-decades before and after the 1979-1982 Volcker Disinflation Recession. “Levels of growth not seen in generations” is a high bar indeed. Appealing to Kevin “Dow 36000″ Hassett rather than doing any modeling is perhaps the most unprofessional thing I have ever seen, save for insisting that sophisticated economic models show… macroeconomic feedback… more than enough to compensate for the static revenue loss” without, somehow, naming the models, plural—let alone grappling with the fact that of us who have tried hard to look for an elastic supply response of domestic savings to the after-tax rate of return have failed to find anything:

I am, I have to admit it, greatly embarrassed by these clowns.

Most of them know they are lying. And it is not as though many of them think that a devil’s bargain is worth making they will thereby gain high federal office and be able to rein in crazy nut jobs. A little affinity fraud. A lot of partisanship. Zero commitment to telling it like it is:

One Hundred Unprofessional Republican Economists: Trump tax reform opinion: Why Congress should pass: “The enactment of a comprehensive overhaul—complete with a lower corporate tax rate—will ignite our economy with levels of growth not seen in generations…

…A twenty percent statutory rate on a permanent basis would, per the Council of Economic Advisers, help produce a GDP boost ‘by between 3 and 5 percent’. As the debate delves into deficit implications, it is critical to consider that $1 trillion in new revenue for the federal government can be generated by four-tenths of a percentage in GDP growth. Sophisticated economic models show the macroeconomic feedback generated by the TCJA will exceed that amount—more than enough to compensate for the static revenue loss…. Your vote throughout the weeks ahead will therefore put more money in the pockets of more workers. Supporting the Tax Cuts and Jobs Act will ensure that those workers—those beneficiaries—are American…

Sincerely, James C. Miller III, Douglas Holtz-Eakin… Barry W. Poulson… Charles W. Calomiris… Donald Luskin… [and 95 others]

Should-Read: Since Sam Brownback planted his behind behind the Kansas governor’s desk at the end of 2012, Kansas has lost 6%-points of employment relative to the U.S. average. And there is nothing special about Kansas that would make such a huge swing happen in such a short period—nothing but the presence of a tax-cuts-for-the-rich nut in the governor’s chair and a complaisant legislature implementing his policies. I would not in a hundred years have dared speculate that Brownbackism in Brownbackistan could be so destructive. And yet I cannot think of any alternative explanation for what has gone on:

Kansas City Star: Jerry Moran: Don’t take failed Kansas tax plan nationwide: “Moran… could be the deciding vote…. He has already seen, first-hand, during a very painful five years, what will happen…

…At a forum Moran held at the Tasty Pastry in Clay Center last weekend, one of his constituents, Robynn Andracsek, of Olathe, neatly summed up the apparent thinking behind the bill: “Let’s cut taxes for millionaires and billionaires, and then let’s figure out how to pay for it.” Instead, she pleaded with him, “Let’s do a sensible tax cut. This is Kansas. We know the trickle-down experiment doesn’t work. All of our members of Congress from Kansas should know that.” Should but do not. Or if they do, betray no sign of it.

Every Kansan knows what happened after Gov. Sam Brownback’s 2012 cuts did away with the state income tax for some 330,000 business owners. The governor kept insisting—and in fact, still does—that robust growth and woohoo, jobs galore would result. When that didn’t happen, elected officials kept having to dip into funds set aside for highways and schools just to balance the budget. Finally, this year, lawmakers overrode a Brownback veto and at last repealed the LLC tax break and raised income tax rates.

That had to happen, as Andracsek reminded Moran, “because we decided we want schools and we want roads.” Knowing all that history, she asked him, “Why would you take this failed experiment nationwide? Our members of Congress should be the ones leading the way for tax reform that actually affects normal people, not just millionaires and billionaires.”… Moran assured voters in Clay Center that “I’m also cognizant of what people saw happen in Kansas.” And even if that weren’t the case, he said, “there is plenty of conversation about Kansas in Washington, D.C.”

Senator, we understand that you want to get something accomplished. But you don’t have the luxury of the ignorance that the president could plausibly claim when just days after his election he went around promising applauding, whistling patrons in one of New York’s best restaurants, “We’ll get your taxes down, don’t worry about it.” We want to believe you, Senator, when you say, “My goal is to find out which taxes you cut can actually help create more jobs, better jobs, higher-paying jobs … and which ones don’t do that. Not all of them do that.” “There are still a lot of conversations to be had,” you say. But please have the toughest one of all with that small-town banker who insists that his top priority is to stay connected to Kansans….

You know what’s wrong with this bill…. So all you have to do now is vote accordingly.

Should-Read: Economist: Jean Tirole: Standing up for economists: “Review of Economics for the Common Good. By Jean Tirole. Translated by Steven Rendall. Princeton University Press; 576 pages; $29.95 and £24.95…

…Economics is perfectly capable of incorporating questions of morality, says Mr Tirole. It simply imposes structure on debate where otherwise indignation would rule. It might make sense to ban some markets, like dwarf-tossing, he says: its existence diminishes the dignity of an entire group. But a market in organs or blood, for example, should not be rejected on the basis of instinctive moral repugnance alone. Policymakers should consider whether payment would raise the supply of donated blood or kidneys, improving or even saving lives. (It might not, if the motivation of money makes generous people afraid of looking greedy.) Whatever the answer, policymakers should make decisions from “behind the veil of ignorance”: without knowing whether any one person, including the policymakers themselves, would be a winner or loser from a particular policy, which society would they choose?

Mr Tirole applies this type of reasoning to topics ranging from carbon taxes to industrial policy, from competition to the digital economy. He presents economists as detectives, sniffing out abuse of market power and identifying trade-offs where populists make empty promises. His analysis is laden with French examples of ill-advised attempts to defy the constraints that those in his discipline delight in pointing out. When in 1996 the French government blocked new large stores in an effort to restrain the power of supermarket chains, share prices of existing ones rose. The new laws inadvertently worsened the problem by restricting competition.

He also depicts economists as ill-equipped to deal with the dirty reality of politics. To those who might be catapulted into sudden stardom as he was, he warns that academic economists will be quickly put into political pigeonholes, and their arguments celebrated or dismissed according to whether the recipient favours that pigeonhole. Though populists revel in simplicity, his aim is to make economics context-specific and point out its complexities. This is his strength, but his discipline’s limitation. He is economists’ defender, but not their saviour.

Must-Read: Jason and Larry bring plenty of refreshments to the debate over tax “reform”. They are really unhappy with the Nine Unprofessional Republican Economists. Shrill, even. And so they provide great detail on how these nine economists are being unprofessional. This is good to see:

Jason Furman and Larry Summers: A modest proposal: time to rethink the impact of US tax reform: “You recently wrote an open letter to Treasury Secretary Mnuchin quantifying the economic impact of tax reform…

…We are interested in and surprised by your analysis. We share your commitment to the idea that well-designed tax reform can make the economy stronger and that careful economic analysis is essential. And we know that you all share our belief that such careful analysis is well served by discussion and debate of these issues that is at least as frank and vigorous as what we are all accustomed to in the average economics seminar. To that end, we think it would be useful to lay out some of the questions we have about your analysis:

1. Many members of Congress are citing growth estimates consistent with your letter to claim that the tax cuts would pay for themselves and that the legislation currently being considered by Congress would not add to the deficit or debt over the next decade. Your letter, however, does not say that tax cuts would pay for themselves. Would it be fair to say that you agree with Martin Feldstein (who did not sign the letter) that these tax cuts will not pay for themselves and, in fact, would add more than $1tn to the debt over the next decade?
2. Can you explain how the studies you cite justify the conclusions you reach? You cite three studies to justify your conclusion that the annual growth rate would rise by 0.3-0.4 percentage points over the next decade. But two of these studies actually appear to have estimated substantially lower growth rates — potentially as low as a 0.01 percentage point increase in the annual growth rate.

   You cite a Treasury study of the Bush tax reform commission’s growth and investment tax plan that you asserted found a 4.8 per cent increase in long-run GDP. But the study you refer to provides estimates from three different models ranging from 1.4 per cent to 4.8 per cent increases in national income and does not express any views on which model is preferred.

   What was your reason for citing only the upper end of the range of Treasury’s estimates, from one model and ignoring its other calculations? Also, why did you not mention that the middle of the range of Treasury’s 10-year estimates was 1 per cent, a figure that would corroborate the views of critics of the tax bills since there would be only a 0.1 percentage point increase in the growth rate? (Moreover, the Bush Commission’s growth and investment tax plan differed in important ways from the one before Congress: it included permanent expensing, applied expensing to structures, raised taxes on investments that are already in place and was fully paid for. Do these differences affect the validity of your use of this plan as a model for the current Congressional bills?)

   You also cite an OECD study that you say justifies the conclusion that long-run GDP would go up by 2 per cent. But since you are explicitly talking about 10-year growth rates in your letter, would it not be better to use estimates from this same study that show that the effect in the 10th year is less than one-third of the long-run effect, translating into an annual growth rate of less than 0.1 percentage point? Moreover, how did you come up with the 2 per cent long-run GDP number since the OECD study says that a 1 per cent of GDP reduction in corporate taxes adds 1.25 per cent to long-run GDP? Applying that estimate to corporate rate reductions in the Congressional bills would yield only a 0.8 per cent increase in long-run GDP, translating into a growth rate increase of 0.02 percentage point per year (and if you factored in the base broadeners, the magnitude would be half as large). Either way, the OECD study you cite also corroborates the critics of the tax bill.

3. Did you give thought to the impact of the corporate rate cut, assuming that expensing as proposed in the bill was enacted? We suspect that much of the projected growth benefit from corporate tax reform comes from enacting expensing of equipment, which reduces the entity-level effective tax rate to zero on equity-financed investment and makes it negative if financed in part with debt. In the presence of debt finance, textbook analysis would suggest that a cut in the corporate tax rate would raise the cost of capital because interest deductions would no longer be as valuable and thus discourage investment.

   Have you considered this important possibility, since most of the budget cost of the reform comes from the corporate rate reduction? Moreover, even with the lower statutory tax rates in the bills if expensing ended after five years, as it does in the bill, effective marginal tax rates on equipment investment would actually be higher than they are today with bonus depreciation in effect. It would be ironic if lower corporate rates and an expiration of bonus depreciation actually discouraged investment at the margin relative to continuing current policy but we believe this is likely.

4. The pass-through provisions in the House and Senate bills would appear to create new sources of complexity in the tax code and violate the basic principle of tax policy that similar sources of income should be taxed at similar rates. A number of you have expressed concerns about the pass-through provisions in the past. Did you model the impact that these provisions would have on macroeconomic impact of the tax cuts?
5. President Donald Trump has expressed concern about the magnitude of the trade deficit. As his chairman of the Council of Economic Advisers said, “A corporate tax cut to 20 per cent would dramatically reduce the trade deficit.” In your analysis, you reject concerns about the macroeconomic impact of budget deficits because, you argue, the United States will be able to attract capital from the global capital market. As a matter of logic, won’t increased capital inflows require an increase in the trade deficit, totaling hundreds of billions of dollars annually if they are to finance your projected 15 per cent increase in the capital stock?
6. Apart from the question of global financing of the budget deficit, do you worry about the impact of enlarged deficits given projections of rising spending on entitlements and national security? Do you think that it is realistic that Congress will actually sunset provisions like the expanded child credit or corporate expensing, or do you think that the true cost of this bill is likely to significantly exceed $1.5tn? One of the authors of your letter wrote that the Bowles-Simpson fiscal commission “was very good”, and several other signatories wrote that it should be the “starting point” for fiscal negotiations. Do you think that cutting revenue to less than 18 per cent of GDP, as would happen under the Congressional legislation, is consistent with the 21 per cent of GDP in revenue that the Bowles-Simpson commission recommended for long-run fiscal sustainability?

   Moreover, we understand that you support entitlement reform, but do you believe that it is politically realistic for the Republicans to actually achieve your goal when it would entail asking seniors to sacrifice by cutting social security and Medicare shortly after Republicans argued that we could afford to add more than $1tn to the deficit for tax cuts that largely benefit corporations and high-income households?

   Finally, one of you [Douglas Holtz-Eakin] signed a previous letter stating that because outside estimates are often “not objective and not as well informed as the Congressional Budget Office’s analysts” that relying on CBO’s estimates in the legislative process has served the Congress — and the American people — very well during the past four decades.

As the House and Senate consider potential policy changes this year and in the years ahead, we urge you to maintain and respect the Congress’s decades-long reliance on CBO’s estimates in developing and scoring bills.

Your recent letter ignores many specific features of the legislation — to give just three of many examples that you did not incorporate into your analysis: the legislation would increase the after-tax cost of research and development, would increase asymmetric penalties on corporate risk-taking and would raise effective marginal tax rates for many individuals through the repeal of the state and local tax deduction. Do you think your analysis of a highly simplified hypothetical plan that is different from the actual legislation before Congress should serve as a substitute for the Joint Committee on Taxation (JCT) and the CBO producing analysis? Do you think it is responsible for Congress to vote on technically complex legislation in the absence of hearings or complete analysis?

Thank you for your attention to these questions. We may disagree on the merits of particular proposals but as professional economists we can all agree on the importance of critical discussion and debate to advance the improved understanding that is the basis of better public policies.

Should-Read: William Best (1824): Sir Edward Coke,: “The fact is, Lord Coke had no authority for what he states…

…but I am afraid we should get rid of a great deal of what is considered law in Westminster hall, if what Lord Coke says without authority is not law…