Should-Read: Larry Summers has had it with Kevin Hassett. Me? I am not surprised that Kevin has taken this road. But, then, I read Dow 36000 20 years ago. I am surprised that people are surprised:

Larry Summers: Hassett’s flawed analysis of the Trump tax plan: “Kevin Hassett… accuses me of an ad-hominem attack…

…I am proudly guilty of asserting that it is some combination of dishonest, incompetent and absurd. TV does not provide space to spell out the reasons why, so I am happy to provide them here.

I believe strongly in civility in public policy debates, and before the Trump administration do not believe I have ever used words like dishonest in disagreeing with the policy analyses of other economists. Part of my rationale for speaking so strongly here is that Mr Hassett called into question the integrity of the Tax Policy Center, a group staffed by highly respected former civil servants, by calling their work “scientifically indefensible” and “fiction”…. Hassett throws around the terms scientific and peer reviewed, yet there is no peer-reviewed support for his central claim that cutting the corporate tax rate from 35 per cent to 20 per cent would raise wages by $4,000 per worker….

Hassett’s “conservative” claim that the cut will raise wages by $4,000 in an economy with 150m workers is a claim that workers will benefit by $600bn or 300 per cent of the tax cut. To my knowledge, such a claim is unprecedented in analyses of tax incidence. Mr Hassett, though, doubles down by holding out the further possibility that wages might rise by $9,000….

Regressions of wage growth on tax rates cannot be understood as causal without a theory of the level of tax rates…. The observation that low tax rates coincide with significant growth in eastern Europe is of dubious relevance to the US…. If a PhD student submitted the CEA analysis as a term paper in public finance, I would be hard pressed to give it a passing grade. I predict that as debates on tax policy unfold there will be many serious Republican economists who endorse parts of the Trump plan. I doubt that any will associate themselves with the CEA analysis. If Mr Hassett wishes to preserve the CEA’s reputation and his own, next time he will not attack honest analysts and will himself be much more careful.

Should-Read: What were they thinking of, signing this? Wasn’t Kevin Hassett’s behavior since 100% predictable?

Letter in Support of the Nomination of Kevin Hassett to be Chairman of the Council of Economic…: “Alan J. Auerbach… Martin N. Baily… Dean Baker…

…Robert J. Barro… Ben S. Bernanke… Jared Bernstein… Alan S. Blinder… Michael J. Boskin… Arthur C. Brooks… John H. Cochrane… Karen Dynan… Janice Eberly… Douglas W. Elmendorf… Martin S. Feldstein… Jason Furman… William G. Gale… Ted Gayer… Austan D. Goolsbee… Alan Greenspan… Robert E. Hall… Douglas J. Holtz-Eakin… R. Glenn Hubbard… Randall S. Kroszner… Alan B. Krueger… Edward P. Lazear… Lawrence Lindsey… N. Gregory Mankiw… Donald B. Marron… Peter R. Orszag… Adam S. Posen… James Michael Poterba… Christina D. Romer… Harvey S. Rosen… Cecilia Elena Rouse… Jay C. Shambaugh… Robert J. Shapiro… Betsey Stevenson… James H. Stock… Michael R. Strain… Phillip Swagel… John B. Taylor… Laura D. Tyson… Justin Wolfers… Mark M. Zandi…

Should-Read: CPPC: Victory in California! Drug Price Transparency Bill Becomes Law: “California Governor Jerry Brown signed SB 17, a drug price transparency bill, into law…

…Brown said there is:

real evil when so many people are suffering so much from rising drug prices…The essence of this bill is pretty simple. Californians have a right to know why their medical costs are out of control, especially when the pharmaceutical profits are soaring…This measure is a step at bringing transparency, truth, exposure to a very important part of our lives — that is the cost of prescription drugs.

The new law will go into effect on January 1st, 2018.

The law… make drug price… more transparent… requiring drug companies to give health insurers and government health plans at least sixty days’ warning before prescription drug hikes that would exceed 16% over a two-year period. Drug companies will also have to provide reasons behind the price increases. Big Pharma strongly opposed the bill….

Drug prices have been skyrocketing over the past decade, and policymakers want to take action to reduce them. One of the major problems has been a great lack of information on drug prices, what contributes to their increase, and who is responsible for the harm to consumers. The passage of SB 17 shows that transparency bills are not doomed to defeat…

Should-Read: Jay Shambaugh et al.: Thirteen Facts About Wage Growth: “Economic and policy changes are both important for the division of economic gains… http://www.hamiltonproject.org/assets/files/thirteen_facts_wage_growth.pdf

…We explore the roles of technological progress, globalization, and changing returns to education in driving some of these wage trends over the long run. We also examine declines in the rate of union membership and the real minimum wage, focusing on how these developments have affected the level and distribution of wages…

Must-Read: Smart meditations by the extremely sharp Danny Quah. I find myself wishing that he would engage with Habermas on the “public sphere” here, somehow…

Danny Quah: When Open Societies Fail: “Why is Wikipedia mostly OK, but so many comments at the end of newspaper articles make you weep for humanity’s future – when both are open for everyone to write?…

…Jimmy Wales of Wikipedia spoke at Khazanah Megatrends Forum in Kuala Lumpur. He reflected on, among other things, Wikipedia’s openness of knowledge production, its usefulness to many, and its sustainability. About 18 months before then, Microsoft had shut down a failed experiment on openness and Artificial Intelligence: Tay, the online Twitterbot AI-enabled to learn from its interaction with users. In the event, Internet trolls ended up keying in so much venom-driven input that Tay came to spew hate, racism, and misogyny. These three story arcs — Wikipedia, Tay, online newspaper commentary — reflect generally on the workings of open societies.

Many observers find appealing the hypothesis that open, individual-oriented, bottom-up societies achieve outcomes that, even if not point-wise optimal, are dynamically robust and resilient. Since at least Popper and Friedman, this idea has been a plank of Western economic and political analysis. This hypothesis often informs prediction of eventual failure in varieties of Asian economic performance, from Singapore’s to China’s. Open societies might suffer shocks — financial crisis, Trump, Brexit — but they learn from mistakes and get back on track quickly. In contrast, authoritarian controlled systems are unsustainable and fragile — even if they might achieve in the short to medium term Disneyland-like success and economic performance….

Openness and individual empowerment are in themselves desirable and deserving of aspiration. The question here concerns not their intrinsic appeal; it is instead about their implications for systemic outcomes. Do all open systems, in fact, show robustness and resilience?…

For Wikipedia, the user community grew empowered as an emergent, self-organised, self-recognised entity. The word “emergent”… suggest[s]… the outturn can only be described at the level of the system…. By contrast, for online newspapers and Tay, no emergence occurred: The community instead remained a ragtag group of fiercely independent separate individuals; further, the system itself continued to reflect accurately the actions and aims of the… representative agent. No positive externalities were generated…. Levels of hierarchy are not inconsistent with open systems, despite the emotional appeal of naive flat one-person, one-vote representation…. Near-invisible editors do not need to be world-leading experts on the subject in question — indeed, they cannot be — but instead are just reliable repositories of style and sense…. For Wikipedia, that background authority elicited a voluntary social responsibility in the system’s participants. The successful outcome came with a surfacing of a duties-oriented thinking….

The failed outcomes produced no such social identity: if anything, individual participants remained firmly embedded in an individual rights-centric approach to engagement. Under a rights-centric system, participants should be allowed to do or say anything they want. They can say uplifting, constructive, informative things; or they can be destructive. Here, that freedom to choose produced chaos and disorder….

Just as traditional views about individual rationality are challenged by behavioral economics, so too long-held thinking needs to be re-examined regarding the success of open societies…. Societies might need to trade off between individual freedoms and social well-being. Some observers find that uncomfortable. But then dealing sensibly with tradeoffs is what economics is all about.

Should-Read: David Anderson: State Approaches to Handling CSR Uncertainty for 2018 Premiums: “The 2018 ACA Marketplace that begins on November 1, 2017…

…Much of the pricing variance will be a result of choices that states and insurers have made in response to the uncertainty over whether the federal government will continue to reimburse insurers for the Cost Sharing Reduction (CSR) subsidies that insurers are legally obligated to provide to qualified exchange enrollees. In the ACA Marketplace, enrollees choose among plans grouped in four “metal levels” defined by… the percentage of average medical costs the plan will cover. Bronze plans… 60 percent AV, Silver plans… 70 percent… Gold… 80… and Platinum… 90….

CSR is available only to low income enrollees, and only with Silver plans. For low income enrollees, CSR boosts AV from a baseline of 70 percent to:

• 94 percent for enrollees with incomes up to 150 percent of the Federal Poverty Level (FPL)
• 87 percent for enrollees with incomes between 150 and 200 percent FPL
• 73 percent for enrollees with incomes between 200 and 250 percent FPL

At present, 57 percent of on-Marketplace enrollees access CSR, including over 80 percent of Silver plan enrollees.  Silver plans are priced, however, as if the AV is 70 percent for all enrollees. Under threat that the Trump administration will stop reimbursing CSR, or that the courts eventually will order the administration to stop payment if Congress fails to appropriate the funds, states and insurers must decide how to enable insurers to cover the cost of providing the richer CSR-boosted coverage. States and insurers have taken several approaches….

• Assume CSR is paid in a timely manner
• Assume CSR is not paid and load all costs onto plans at all metal levels.
• Assume CSR is not paid and load all costs only to all Silver Plans
• Assume CSR is not paid and load all costs only onto on-exchange Silver plans….

The distributional consequences of these different choices are significant and varied…

Should-Read: Paul Krugman: Subsidies, Spite, and Supply Chains: “I’ve been fairly complacent about NAFTA’s fate…

…Not that I imagine that Trump, or for that matter any of his senior advisers, has any understanding of what NAFTA does or the foreign-policy implications of tearing it down. But I thought sheer interest-group pressure would keep the agreement mostly intact…. Breaking it up would be hugely disruptive, and the losers would include major industrial players who tend to have the ear of even Republican administrations. So I thought we’d likely get a few cosmetic changes to the agreement, allowing Trump to declare victory and walk away.

But look what just happened on health care. Never mind the millions who may lose coverage: Trump demonstrably doesn’t care about them. But his decision will also cost insurers and health care providers, the kind of people you might expect him to listen to, billions. And he did it anyway, evidently out of sheer spite…. So is it safe to assume that he won’t screw over much of U.S. manufacturing in the same way? At this point, the answer has to be “no.”… Reasonable people are worried, I think rightly, that Trump’s rage and spite might lead him to start a war. So why not worry that he’ll start a trade war instead (or as well)?

Should-Read: Bruce Bartlett: I helped create the GOP tax myth. Trump is wrong: Tax cuts don’t equal growth: “Even if they had released a complete plan — not just the woefully incomplete nine-page outline released Wednesday…

…Republicans have failed to make a sound case that it’s time to cut taxes. Nor have they signaled that they’ll commit to a viable process…. The first version of the ’81 tax cut was introduced in 1977 and underwent thorough analysis by the CBO and other organizations, and was subject to comprehensive public hearings. The Tax Reform Act of 1986 grew out of a detailed Treasury study and took over two years to complete. Rushing through a half-baked tax plan… should be rejected out of hand. As Sen. John McCain (R-Ariz.) has repeatedly and correctly said, successful legislating requires a return to the “regular order.” That means a detailed proposal with proper revenue estimates and distribution tables from the Joint Committee on Taxation, hearings and analysis by the nation’s best tax experts, markups and amendments in the tax-writing committees, and an open process in the House of Representatives and Senate.

There are good arguments for a proper tax reform even if it won’t raise GDP growth. It may improve economic efficiency, administration and fairness. But getting from here to there requires heavy lifting that this Republican Congress has yet to demonstrate. If they again look for a quick, easy victory, they risk a replay of the Obamacare repeal fight that wasted so much time and yielded so little.