Must-Read: Barry Eichengreen: Trade Policy and Growth

Posted on by Brad DeLong

Must-Read: Barry Eichengreen: Trade Policy and Growth: “Nothing one can say in this area is uncontroversial…

…Prior to 1913… O’Rourke (2000)… estimated unconditional convergence equations, conditional convergence equations, and factor-accumulation models for a panel of ten countries and eight periods between 1874 and 1914, and concluded from all three approaches that tariffs were positively associated with growth. The result is robust to including country fixed effects… controlling for initial income… including changes in capital/labor and land/labor ratios; it is not all about a correlation between tariffs and the presence of a frontier….

The problem is that none of the standard explanations for this positive tariff-growth correlation hold water. Generalizing from their reading of U.S. history, Collins and Williamson (2001) argue that… tariffs… lowered the relative price of capital and through this channel boosted investment and growth. This… is consistent with… Abramovitz and David (1973)… resonates with… DeLong and Summers (1991)…. Another possible explanation is the infant-industry argument, specifically the version which assumes that learning by doing is concentrated in the industrial sector…. Unfortunately, this interpretation does not withstand scrutiny. To start with, the relative price of investment goods depended on other things besides just tariffs… like resource endowments and the direction of technical change…. A detailed analysis of the U.S. tariff code by DeLong (the same DeLong of DeLong and Summers fame) does not support the idea that the tariff favored imported investment goods over consumer goods. To the contrary, DeLong verifies the existence of tariffs on imports of capital goods as high as 50 per cent, and concludes that “the tariff made a wide range of investment goods – from British machine tools and steam engines to steel rails to precision instruments – more expensive” (DeLong 1998, p.369)….

Certainly, the historical literature is consistent with the idea that temporary protection can have long-lived, even permanent, effects in shifting comparative advantage. Juhasz (2014) shows that French cities that enjoyed temporary protection from British textile exports during the Napoleonic Wars were quick to enter the cotton spinning industry and remained internationally competitive long after trade with Britain was restored.Other examples of this natural-experiment-type evidence could be cited. But none of these studies really documents the existence of localized learning–of intra-firm knowledge spillovers from production. Where scholars, for example Doug Irwin (1998) in the case of tinplate production, looked for them, they found that knowledge spillovers are as much international as domestic….

Borrowing constraints, recall, are a standard argument for protecting infant industries on second-best grounds (Dasgupta and Stiglitz 1988). But this emphasis on capital market constraints sits uneasily with the extent of international borrowing and lending in this earlier period…. Schularick and Steger (2010) analyze the relationship between the growth of real GDP per capita and financial integration in the decades before 1913, controlling for initial income, other policies and endogeneity, and measuring financial integration in a variety of different ways. Financial integration, they find, was positively, significantly and robustly associated with economic growth….

By process of elimination, we are left with the simplest hypothesis: that tariffs, which in this earlier period typically protected manufacturing more generously than agriculture, were associated with higher incomes and faster growth because the productivity of labor, and perhaps also the productivity of other factors of production, was significantly higher in manufacturing than agriculture. The 19th century was a period of unprecedented technological progress, in industry in particular. (It wasn’t called the Industrial Revolution for nothing.) As a result, disequilibrium wage and productivity gaps between workers in agriculture and industry were substantial in the period’s late-developing countries….

The obvious challenge… is that productivity gaps between agriculture and industry are even larger in developing countries today…. The explanation, I submit, is that the reasons for the productivity gap were different. In the 19th century, its source was a succession of positive shocks to manufacturing productivity, in conjunction with information and migration costs that prevented labor from being reallocated at a rate sufficient to close the gap. Nowadays, every farmer in Western China knows how much higher wages are in manufacturing enterprises on the coast, and only the internal passport (hukou) system prevents more of them from moving in response. Channels for disseminating this information, while not absent in the 19th century, were less well developed….

This, in conjunction with positive shocks to technology in manufacturing, kept labor productivity in the two sectors in a state of persistent disequilibrium. Hence tariffs protecting manufacturing, with the intent of making the sector larger, offset domestic distortions making the sector too small…. In the absence of… first-best interventions, which were resisted on grounds of ideology, self-interest and because in some cases government lacked the relevant capacity, tariffs were second best….

The problem in poor countries today is different. It is the existence of domestic distortions that depress agricultural productivity and at the same time make it hard for manufacturing to expand, tariff protection or not…. The inability of manufacturing to expand productively may reflect the absence of labor with the requisite skills, inadequate infrastructure, or an unstable and unpredictable policy environment. Again, these are distortions to which tariff protection is irrelevant. This resolution is consistent with… the tariff-growth correlation… positive then, but negative or zero today… [and] a caution to… advocates of protection for manufacturing in high-income countries…

Weekend reading: “the tax plan arriveth” edition

Posted on by Nick Bunker

This is a weekly post we usually publish on Fridays with links to articles that touch on economic inequality and growth, but in honor of Veterans’ Day tomorrow we’re publishing a day early this week. The first section is a round-up of what Equitable Growth published this week and the second is the work we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.

Equitable Growth round-up

House Republicans’ tax plan will not spur innovation and job creation as promised, argue University of California, Berkeley economists Emmanuel Saez and Gabrial Zucman, because it benefits passive business owners, not active entrepreneurs.

With all the attention garnered by Amazon.com Inc.’s recent public call for proposals from cities and states for a new second headquarters, it’s timely to consider the effectiveness of government incentive programs at attracting new investments and new businesses. In a column exploring some of the lessons from his recent working paper, University of Texas at Austin’s Nathan Jensen argues that whatever location wins the new project needs to be sure it conducts a thorough analysis to learn whether any tax abatements are really worth the cost.

The U.S. Bureau of Labor Statistics released new data on hiring, firing, and other labor market flows from the Job Openings and Labor Turnover Survey, better known as JOLTS. Check out the key graphs from the report chosen by Equitable Growth staff.

The Tax Foundation’s estimate that the House Republicans’ tax plan would increase U.S. GDP is probably substantially overstated because of at least two important flaws in its model, according to new analysis by Equitable Growth’s Greg Leiserson. The analysis suggests that policymakers should be skeptical of Tax Foundation’s results, especially when considering substituting its estimates for those from traditional legislative scorekeepers at the nonpartisan Joint Committee on Taxation.

The tax plan introduced by House Republicans’ last week would eliminate the estate tax if passed as currently drafted. Nick Bunker explains how getting rid of the estate tax would eliminate an important backstop for lost revenue because of the step-up in basis treatment of capital gains, threatening to further exacerbate growing wealth inequality.

Links from around the web

How the proposed tax cuts will affect you depends on how you earn your money. [wsj]

The release of the Paradise Papers earlier this week underscores just how severe wealth inequality is, with an estimated 80 percent of offshore wealth held by the top 0.1 percent. [business insider]

“There’s no reason unemployment can’t go under 4 percent” (with a shout-out to Equitable Growth’s own Nick Bunker). [washington post]

“Americans see jobs aplenty. Good wages? Not so much.” [cnn money]

Former Treasury Secretary Robert Rubin argues for a job guarantee program rather than a universal basic income policy to address the job dislocation and wage pressure caused by rapid technological development and globalization. [nyt]

Friday figure

Figure is from Equitable Growth’s “JOLTS Day Graphs: September 2017 Report Edition”

Must-Read: David Kamin: Fixing the Loophole in the House Limit on Deductibility of State and Local Income Taxes

Posted on by Brad DeLong

Must-Read: David Kamin: Fixing the Loophole in the House Limit on Deductibility of State and Local Income Taxes: “First, under the legislation…

…is there a loophole in the proposed limit on deductibility of state and local income taxes allowing investors and pass-through business owners (partners in law firms or private equity firms or Donald Trump himself) to take an itemized deduction for the state and local income taxes they pay on their profits, even as employees cannot? Our assessment: Based on the current legislative text and the descriptions of the legislation so far offered by Ways and Means staff and some JCT written materials, we believe the answer to this is “yes”—the best reading is that there is such a loophole.

Second, do the current revenue and distributional estimates from JCT take this “pass-through” loophole into account? Our assessment: Based on what we have seen so far and comparing the JCT revenue estimate to others, we believe the answer is likely “no” and that JCT, contrary to what the bill seems to do, has assumed that no state and local income taxes are deductible as an itemized deduction—whether paid by a business owner, investor, or employee.

Third, do the revenue and distributional estimates take into account how states and localities could restructure their income taxes to preserve deductibility for trade and business owners (but not employees), even if the itemized deduction really is barred? We explain later in this post exactly how this restructuring would work to essentially preserve deductibility of state and local income taxes for pass-through business owners. Our assessment: Again, our best guess is that the answer is “no” and that the JCT estimates are much too optimistic for this reason alone…

The blueprint for a perpetual wealth machine for the very richest U.S. families

Posted on by Emilie Openchowski
The Capitol Building is seen at dawn.

Death and taxes are supposed to be certainties in life, but if a proposed change to the U.S. tax code becomes law, then one of them will fall by the wayside for the heirs of the very wealthiest families in the United States. The recently introduced Tax Cuts and Jobs Act, now under consideration by the U.S. House of Representatives, would eventually eliminate the estate tax for these families, paving the way for these parents to pass on their wealth to their children. But this is only part of the story. By retaining the current method of valuing how much in taxes these heirs must pay when they sell inherited assets, the proposed bill would create a pathway for families at the very pinnacle of wealth to turn themselves into self-sustaining dynasties.

The definition of “basis” isn’t a particularly tantalizing topic, but it’s a critical one when it comes to the taxation of capital income under current law. The basis determines the starting point for the calculation of capital gains that get taxed. When a person buys a stock, for example, the price paid for that share is the “basis.” The difference between the basis and the price at which the person then sells the stock is the income on which he or she will pay taxes.

When a person passes along an asset to his or her heirs at death, the basis changes. The capital gain the heirs would have to pay gets calculated from the value of the asset when it’s passed on to them. Say a person buys a share of company at $10, never sells the share, and then dies when the share is at $100. The appreciation of the share from $10 to $100 results in $90 of income. But when the share is transferred over to the heirs, the basis changes to $100. This is known as the “stepped-up basis.” If the heirs ever sell that share, then they only have to pay taxes on the gains above $100. The $90 in income from the initial appreciation never gets taxed.

The estate tax currently serves as a backstop for all of this untaxed income for the very wealthiest families in the United States—estates of up to $5.5 million per person—when they die. But if the estate tax disappears, as it would under the Tax Cuts and Jobs Act, then an enormous perpetual wealth machine would be created specifically for these already exceedingly wealthy families. Their heirs could just hold onto the inherited assets, and the passing of each generation would wipe out the tax liability due from the income generated by appreciating assets. The heirs and the heirs of the heirs would only pay taxes if and when they sell the assets.

But why would any of them sell the assets? People will, of course, want to eventually consume goods and services, so they need access to cash. But these families could get cash in other ways such as taking out loans against the value of the assets. Assuming the rate of return on the assets is high enough, the income from the assets could finance quite a nice lifestyle for quite some time, supplemented (perhaps) by an occasional asset sale or earnings from a job. This looks like the blueprint for a perpetual wealth machine.

This transfer of wealth across generations could have significant consequences on wealth inequality and mobility—all to “reward” children who happen to be born into immensely rich parents. What’s the benefit for all the other Americans of creating dynastic wealth for the few?

The Tax Foundation’s score of the Tax Cuts and Jobs Act

Posted on by David Evans

Update: The Washington Center for Equitable Growth has issued a statement regarding the Tax Foundation’s response to this critique.

The Tax Foundation last week released an analysis estimating that the recently released Tax Cuts and Jobs Act would increase U.S. Gross Domestic Product by 3.9 percent.1 The Trump administration and congressional Republicans have made it clear that they will justify their new tax proposals in large part on the basis of claims about economic growth and an associated increase in incomes, and proponents of the legislation immediately seized upon the Tax Foundation’s estimates as support for their claims. This note identifies two issues in the Tax Foundation’s analysis that suggest its estimated increase in GDP is probably substantially overstated.

First, the Tax Foundation appears to incorrectly model the interaction between federal and state corporate income taxes, thus overstating the effect of statutory rate cuts. Second, the Tax Foundation appears to treat the estate tax as a nondeductible annual property tax paid by businesses, which results in inflated estimates of the effect of repealing the tax. Appropriately addressing the issues raised in this note could reduce the Tax Foundation’s estimate of the increase in GDP that would result from the legislation to 1.9 percent—a reduction of roughly half—even if there are no other issues with the Tax Foundation’s estimates.

There is substantial uncertainty in this estimate of the GDP impact that would be generated by a revised version of the Tax Foundation model since it depends on an attempt to approximate the results of a model for which only partial documentation is publicly available. The estimate that would be generated by a revised model could be larger or smaller than this value.

Nonetheless, the significance of this difference raises important questions about the reliability of the Tax Foundation’s estimates. Critical assessment of the Tax Foundation’s analysis is particularly warranted, as some legislators have suggested that they might consider dynamic scores from organizations other than the nonpartisan Joint Committee on Taxation—the traditional source of nonpartisan estimates of congressional tax proposals—in determining the budgetary effects of the legislation.

This note does not attempt a complete assessment of the Tax Foundation model, which would be impossible without greater knowledge of the equations that make up the model. The criticisms raised in this analysis are based on inspection of publicly available estimates and documentation, as well as communication with Tax Foundation staff.2

The Tax Foundation appears to incorrectly model the interaction between federal and state taxes, inflating the effects of changes in the statutory corporate rate

The Tax Foundation model assumes that there is a fixed return required by investors. The long-run capital stock is set equal to the level at which a $1 increase in investment yields a pretax return sufficient to generate exactly that fixed required return after taxes. In computing the taxes on this $1 increase in investment, the Tax Foundation uses an estimate of the effective marginal tax rate on new investment.

It is well understood that the effective marginal tax rate on new investment can differ substantially from the statutory tax rate on business income. For example, in the case of a business tax system that allows full expensing—a policy under which businesses may deduct the full cost of any investment in the year the expense is incurred—the business-level effective marginal tax rate is zero, regardless of the statutory rate.3

Given this general finding, it is surprising that estimates generated by the Tax Foundation model suggest large effects of reductions in the statutory corporate rate, even after adoption of full expensing. The Tax Foundation’s estimates of House Republicans’ “Better Way” tax plan, for example, suggest that even after adopting full expensing and repealing the estate tax, reducing the corporate income tax rate from 35 percent to 20 percent would increase the size of the economy by 1.7 percent.4

A more recent Tax Foundation analysis concluded that full expensing for C corporations would increase GDP by 3 percent, a reduction in the statutory corporate rate from 35 percent to 20 percent would increase GDP by 3.1 percent, and both policies together would increase GDP by 4.5 percent.5 This analysis thus suggests not only a large effect of statutory rate cuts on top of expensing, but also finds that a 15 percentage point reduction in the corporate rate would have a larger effect than full expensing. This result is surprising, as expensing would be expected to have an effect roughly equivalent to reducing the statutory corporate rate to zero in a model like that used by the Tax Foundation.

These results are unusual for a model that determines the capital stock based on the effective marginal tax rate on new investment. Changes in the statutory rate could have an effect on the economy independent of the effective marginal tax rate in a model that assumes shifting of real economic activity across borders in response to changes in statutory rates. The Tax Foundation model, however, does not appear to include this channel, so this cannot explain the results.6

Another potential reason for the large effects of the statutory rate reduction could be that the Tax Foundation might compute effective marginal tax rates on intellectual property using a different methodology than for other types of assets. Some analysts have suggested that traditional effective marginal tax rate computations are inappropriate for intellectual property because the nature of such investments differs. But there is no indication that the Tax Foundation has chosen this approach.7

One factor that may partially explain these unexpected results could be that the Tax Foundation’s estimates of proposals to provide full expensing do not include expensing of inventories. If this is the case then proposals to reduce the statutory corporate rate would reduce the effective marginal tax rate on inventories, yet proposals for full expensing would not. As inventories account for less than 10 percent of the corporate capital stock, this could have a modest but noticeable impact on the results.8

In response to an inquiry about the growth from cutting the statutory rate, even after enacting expensing and repealing the estate tax in the “Better Way” plan, Tax Foundation staff attributed this growth to interactions between the federal corporate income tax and property, excise, and state and local taxes. On its surface, this does little to resolve the mystery, as state and local taxes are generally deductible from federal corporate income taxes, and the deductibility of such taxes would seem likely to moderate or eliminate most interactions.9 A recent paper from the Tax Foundation, “Measuring [the] Marginal Tax Rate on Capital Assets,” offers a potential explanation for why the Tax Foundation’s model might generate this surprising interaction.10

Specifically, the formula in this paper for computing the service price of capital—the pretax return gross of depreciation required for an investment to yield the required after-tax return—appears to suggest that federal corporate taxes are deductible from state corporate taxes when determining the value of depreciation allowances, but also that federal corporate taxes are not deductible from state corporate taxes when determining the rate at which profits are taxed.11

This apparent inconsistency would inflate the estimated tax rate on investments by undervaluing the depreciation deductions to which a business is entitled. More importantly, it would create a potentially spurious interaction that would cause reductions in the statutory corporate tax rate to reduce the effective marginal tax rate in the model—even when no such effect exists in practice. It would also likely cause the model to understate the growth impact of expensing.

To get a rough sense of the quantitative significance of this interaction, assume that the Tax Foundation’s recent estimate of the growth impact of expensing for C corporations and a 20 percent corporate rate is an approximately valid estimate for the impact of a proposal to expense capital investment including inventories. (This assumption is likely not precisely correct. Expensing of inventories would tend to increase the estimate and the potentially spurious interaction with state and local taxes likely could increase or decrease it depending on other details of the model.)

In models like that used by the Tax Foundation in which the effective marginal tax rate drives economic behavior, reducing the statutory corporate rate to zero would tend to yield the same result as providing full expensing. Thus, a rough estimate of the impact of reducing the statutory rate would be the ratio of the proposed reduction in the statutory corporate rate to the current statutory rate multiplied by the economic impact of full expensing including inventories. This suggests an estimate of the GDP impact of reducing the statutory corporate tax rate from 35 percent to 20 percent of 1.9 percent, rather than 3.1 percent.

This approximation for a revised estimate of the impact of reducing the statutory rate from 35 percent to 20 percent in the Tax Foundation model is subject to several sources of uncertainty. First, it assumes that the diagnosis of a spurious interaction between federal corporate taxes and state corporate taxes in the Tax Foundation model is correct. Second, it uses the Tax Foundation’s recent estimate of the impact of full expensing for C corporations and a 20 percent corporate rate as an estimate of the impact of full expensing including inventories. This could be understated if the impact of expensing inventories on GDP is particularly large, due to the impact of the federal-state interaction on the growth impact of expensing, or due to other interactions with the corporate rate such as that discussed in the next section. Third, it uses a linear approximation for the relationship of the rate cut proposal to a full expensing proposal, which likely slightly overstates the adjustment.

Notwithstanding this uncertainty, using this estimate of the increase in GDP from a reduction in the statutory rate from 35 percent to 20 percent would reduce the growth effect from 3.9 percent to 2.7 percent, a reduction of about one third. Even if the appropriate adjustment is somewhat overstated, it would still reflect a substantial change in GDP. Notably, this potentially spurious interaction would appear to affect any estimate generated by the Tax Foundation model for proposals that change the corporate tax rate—not only its estimates of the Tax Cuts and Jobs Act.

The Tax Foundation appears to treat the estate tax as an annual property tax paid by businesses, which would overstate the effects of repeal

As noted above, the capital stock in the Tax Foundation model is set at the level at which a $1 increase in investment yields a pretax return sufficient to generate a fixed return required by investors. In computing the tax rate for this computation, the Tax Foundation appears to incorporate a cost associated with the estate tax that would be equivalent to treating the estate tax as an annual nondeductible property tax paid by businesses.12 The tax rate appears to be based on a measure of the average estate tax liability divided by the capital stock, which is then grossed up to reflect a marginal rate.13

Treating the estate tax as a property tax paid by businesses would not be an accurate description of the practical operation of the tax. The estate tax applies to the transfer of personal estates with a value of more than roughly $11 million at death for couples.14 If this is, in fact, the modeling assumption adopted in the Tax Foundation model, it would seem to suffer from several flaws.

First, the Tax Foundation model is a model of homogeneous capital. In other words, there is nothing unique about assets held by one business relative to those held by others or about the capital provided by one investor relative to another.15 If capital is homogeneous, then there is no reason the marginal supplier of capital would necessarily be subject to the estate tax at all. Indeed, the underlying assumption of the model appears to be not only that increases in investment financed by increases in saving are uniform (in percentage terms) across the population, but also that they translate into increases in assets held at death, which also need not be true.16

Second, as noted above, the Tax Foundation assumes a fixed required rate of return. The assumption that there is a fixed rate of return required by investors is often referred to as the small open economy assumption and is justified on the basis that there is a global pool of capital ready and willing to finance profitable investments in the United States. Tax Foundation staff have endorsed this label and justification in descriptions of their model.17 Yet assuming that foreign investors are the marginal source of finance can dramatically change the effects of the tax system on the economy. In the extreme case in which capital is perfectly mobile across countries—the assumption made by the Tax Foundation—investor-level taxes in the United States that do not apply to foreign investors become irrelevant to the determination of the capital stock.18

While there are cases in which foreign residents are subject to the U.S. estate tax, there are numerous ways for foreigners to avoid the tax through planning or careful selection of assets. There is no compelling reason to think that in a small open economy model, foreign residents would treat the U.S. estate tax as fully marginal in their decision-making.

Third, this modeling approach appears to treat the estate tax as a nondeductible tax for the purposes of business income taxes.19 If the tax is nondeductible, then businesses must not only pay the estate tax but also corporate income tax on the additional return they earn to cover the estate tax. This modeling assumption would appear to create spurious interactions between different taxes. Suppose, for example, the United States adopted full expensing at both the federal and state levels. Corporate income taxes would then not affect the rate of return on an investment. But because the Tax Foundation model appears to treat the estate tax as a nondeductible tax, the statutory corporate tax rate would still discourage investment because it would increase the effective estate tax rate. Thus, even if the U.S. estate tax did affect the effective marginal tax rate in a small open economy model, the modeling approach would still appear to be inappropriate.

In the context of the Tax Cuts and Jobs Act, the Tax Foundation estimates that repealing the estate tax would increase GDP by 0.9 percent.20 But if this estimate is based on a decision to model the estate tax as a property tax paid by businesses, then this result is likely inappropriate. In a small open economy model with homogeneous capital, zero would probably be a more appropriate estimate. Reducing the impact of estate tax repeal from 0.9 percent to zero would represent a roughly 25 percent reduction in the growth effects of the plan.

It is important to note that the estate tax could, at least in theory, have important effects on the level of output in models that reject other assumptions of the Tax Foundation’s model. But this would require more substantial changes to the Tax Foundation model that would have significant consequences for estimates of the effect of other policies. In a closed economy model, for example, it might be reasonable to assume that some portion of the additional savings necessary to finance an increase in investment would come from wealthy families subject to the estate tax. Or, as another possibility, recognizing the heterogeneous nature of capital and the frequency of company founders and their heirs among the wealthiest Americans, one could argue for impacts based on indirect taxation of new businesses. Yet pursuing this latter approach would require a more significant recognition of the estate tax as a burden on labor rather than capital than the Tax Foundation’s current marginal tax rate computations suggest.

Conclusion

This note is far from a complete assessment of the Tax Foundation model, and conducting such an assessment would be challenging given the limited information publicly available about the model. Nevertheless, this note concludes that the Tax Foundation’s model probably includes at least two important flaws. Addressing these two flaws could reduce the Tax Foundation’s estimates of the growth impact of the Tax Cuts and Jobs Act roughly in half. The significance of this change raises substantial questions about the reliability of the Tax Foundation’s estimates of economic growth and suggests that policymakers should be skeptical of the results, especially when considering substituting these estimates for those from traditional legislative scorekeepers at the nonpartisan Joint Committee on Taxation.

Should-Read: Eli Stokols: Trump Says Democrats Will Like Senate Tax Plan More Than House Version

Posted on by Brad DeLong

Should-Read: I understand that Gerry Baker would probably fire Eli Stokols if he said what he thinks—which is that Trump does not know enough about either the House or the Senate tax strike cut for idle rich people bill to be “wedded” to it or for it to be “fully backed” by him or for him to be able to judge whether it would or would not be “fully popular”. The lead should be: “Once again, President Trump disheartened both his aides and his audience by making it very clear that whatever briefings he was given had not sunk in at all…”

And I do not think it is good for Eli Stokols in the long run for him to trade his reputation for cash by not having that be the proper lead:

Eli Stokols: Trump Says Democrats Will Like Senate Tax Plan More Than House Version: “President Donald Trump moved to assuage centrist Democratic senators’ concerns about the House Republican tax overhaul by telling them the Senate version will be more to their liking…

…The comments risk complicating Republican efforts to present a united front on both the Senate and House versions of the tax bill to keep it on track…. His comments could fuel doubts among lawmakers about how wedded he is to that version. Many GOP lawmakers in competitive districts already have concerns about supporting the bill, and could balk at being asked to cast a politically risky vote on a plan that may never become law. “I don’t think that’s the president’s bill,” said Sen. Joe Manchin (D., W.Va.) about the House tax bill, speaking after the meeting. Asked if the Senate bill would be the plan fully backed by the administration, Mr. Manchin responded, “we haven’t seen it yet” to know….

The GOP is eager to avoid a replay of the failure of Congress to get a health-care overhaul bill to Mr. Trump’s desk…. National Economic Council Director Gary Cohn echoed Mr. Trump… “Don’t get too hung up on the House bill,” Mr. Cohn said….

Shortly after the meeting began, Mr. Cohn stepped out of the room after receiving a call on his cellphone. When he returned minutes later, he announced that he had the president, then in Seoul, South Korea, on speaker phone. Amid 10 minutes of wide-ranging comments—people in the room say he outlined the itinerary of his trip to Asia and expressed to Democrats his desire for filibuster reform because it’s “terrible” for Republicans—he addressed the tax overhaul, urging Democrats to get behind legislation that he said would be “very popular”…

Should-Read: Nick Bunker: Policy rules and central bank independence

Posted on by Brad DeLong

Should-Read: Nick Bunker: Policy rules and central bank independence: “The general public and their elected officials are not simply passengers on a ship…

…They have a right and an obligation to set the role of the Federal Reserve because the central bank has tremendous influence over the health of the U.S. economy, and it should be bound to hit targets and goals that are set in a democratic manner. But there is room for sensible delegation—not fixing the navigational points regardless of economic conditions…

Must-Read: Roger Farmer: How to Fix the Curse of the Five

Posted on by Brad DeLong

Must-Read: Roger Farmer: How to Fix the Curse of the Five: “I recently came across this video link to a session held at the 2017 ASSA meetings on the ‘Curse of the Top Five’…

…Jim Heckman… George Akerlof, Angus Deaton, Drew Fudenberg and Lars Hansen. I’m going to concentrate here on… Heckman and Akerlof. Heckman made several points…. The top five journals… influence… is increasingly important in promotion and tenure decisions… concentrates power in the hands of a small group of insiders and that makes it much harder for new ideas to emerge….

A friend of mine… related the following story…. A junior colleague…. In a departmental discussion, the point was made that hir tenure decision would be contingent on whether the paper was accepted there. As my friend remarked; why would we delegate our tenure decision to the editor of the AER?

George Akerlof has five recommendations…. Editors should take more responsibility… referees are advisors rather than… rewrit[ers]… diminish the role of top-five publications in tenure decisions… ‘shame’ deans who act as top-five bean counters…. broaden the scope of areas that we deem to be intellectually acceptable….

I have two recommendations of my ownn…. More than five journals be given equal weight… junior faculty… should be judged on their best three articles…. When I first moved to UCLA in the late 1980s, the senior faculty would read the work of our junior colleagues…