The Barr Letter and Useful Idiots of the Jaded Left

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Maybe No Conspiracy Or Coordination, But Lots And Lots Of Collusion

Trump and his supporters have been loudly claiming that the Barr letter about the Mueller report has shown “no collusion!” which has been shouted loudly from the rooftops, with many supposedly respectable sources such as the New York Times agreeing with this assessment, thus supporting the long running Trump/Hannity repeated claim.

But I note that the big headline on this morning’s Washington Post was “Mueller Finds No Conspiracy,” not “No Collusion.” Indeed, a careful reading of the clearly carefully written Barr letter finds it not using the word “collusion” at all. Its crucial getting Trump off a major hook says that the available evidence suggests that there was “no conspiracy and no coordination.” Nothing about collusion.

Clearly few have even notieced this, very few besides myself so far, but I did occasionally see commentators noting that while Trump/Hannity were constantly denying “collusion” with the Russians, Mueller was not investigsting that, ssomething that is not iillegal in any case, but instead “conspiracy” was what was being investigated, something that is a crime. While I am about to accuse Trump of stupidity, I think he or somebody figured it out that pushing this “no collusion” line would end up as it has as indeed Mueller was not investigating the not-illegal “collusion.” So far, they are getting away with this scam.

So how do these things differ? Conspiracy and cooedination both imply some amount of planning and direction, with for conspiracy some sort of communication and agreement on the plan with the other conspiring party, namely the Russians. What apparently the Mueller report finds is none of that: no central plan or direction or the making of such a plan with the Russians. This indeed looks like it is true, although some of what went on around the Trump Tower meeting gets pretty borderline, even as that seems to have been sort of a mutually botched meeting.

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Dylan Matthews has a typically excellent explainer about taxing the rich. Just click the link.
I have one thought. Matthews is soft on capital income.

Matthews wrote

Saez and Diamond also argued that capital income — income from things like capital gains, corporate profits, dividends, etc. — should be taxed, which broke with previous models of optimal tax theory. (Our current capital gains top rate is 23.8 percent.) Those models had suggested the proper tax rate on capital income was zero, on the grounds that it discouraged savings: If you spend money on an investment, your profits are taxed, but if you spend money on food or a house or what have you, you don’t get hit with a capital tax — so a capital tax’s presence pushes you to spend more and save less.

This is a roughly correct description of the previous models, but it isn’t exact. In fact, the mathematical result is that as time goes to infinity the tax rate on capital income should go to zero. There is no justification for arguing that this means the rate should be zero in 2019 or 3019. The infinite jump from t goes to infinity to now is simply a dishonest rhetorical trick.

Another problem is that the academic literature on capital income taxation is not sound. The classic paper by Judd is simply mathematically incorrect. Yet it is still regularly cited. The key assumption which Judd made which makes his conclusion a mistake (a mistake like 2+2=5 not a mistake like taking a crazy assumption seriously) is that the state runs a balanced budget. Given Judd’s assumptions, the correct math shows a positive tax rate on capital income for all time.

It is interesting that a math boo boo could be so influential. One might almost guess that ideology and self interest are involved.

If the state is allowed to run deficits or surpluses, then the optimal policy involves building up a huge sovereign wealth fund so high that all desired spending is financed by the socialist profits on state owned means of production (this is just what the math says). At that point, the optimal tax on capital income is zero, because there is no reason not to tax. In particular if one wishes to tax capital income because one cares about inequality, the math suggests no compromise at all. In the simplest model it is optimal to tax capitalists until the richest capitalist has the national average income. With more reasonable assumptions, an egalitarian who also cares about efficiency would end up taxing the rich until they become poorer than average.

An egalitarian would accept that the tax on capital income eventually go to zero when the recipients of capital income are as poor as the average person or poorer. A class warrior who wanted the rich to starve but didn’t want to deprive workers of capital to work will would tax the rich till they starved.

A critique of the standard anti capital income taxation program should conclude “it is not until capital income ceases to go to the rich and goes to the relatively poor can we inscribe on our banner from each capitalist zero taxes and to each capitalist the full market income”

In contrast, if some have high labor income, it is best to let them end up with above average income. As is often argued, the equality efficiency tradeoff is different for capital income taxation, but it is different because less is optimally conceeded to the rich in the name of efficiency. Nothing or less than nothing should be conceded.

This is a simple mathematical result based on standard assumptions.

Also the standard model assumes dynamic effiency. Matthews is very smart, but he accepts the assumption that we should encourage saving. This is an implication of the Ramsey Cass Koopmans model, which might or might not have anything to do with reality. It is possible to decide if a higher steady state ratio of capital to effective labor implies higher or lower welfare.

It has been argued that the standard case for more capital is valid if r>g where r is the expected return on capital (including the expected value of risky returns) and g is the trend rate of gdp growth. In fact, it is valid only if rf > g where rf is the safe rate of interest which has almost always been less than g. This isn’t a fringe claim. It is Public Debt and Low Interest Rates Olivier Blanchard — another Frenchman, January 2019.

He would have cited AngryBear if he had known about this post.

In fact, the math says we can benefit from lower saving. This means a higher debt to gdp ratio would be better if it crowds out saving. I have co-authors now, so I shouldn’t type more.

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The government shutdown may have caused a mini-recession

Aside from being a monumentally poor policy outcome, and aside from the hardship it caused nearly a million workers, the government shutdown may also have caused a general contraction in production, sales, and income, and a slowdown in employment, that if it were longer would qualify as a recession.

Because the affected three months straddle Q4 2018 and Q1 2019, both quarters will likely show positive real GDP growth, it won’t be a recession. Let’s call it a mini-recession.

Although shorthand for a recession is two quarters of GDP contraction, that wasn’t the case for 2001, and the NBER has indicated that a general downturn in production, employment, sales, and income are the crucial criteria. So let’s look at each.

 

The same is also true of real retail sales:

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Now that Andrew Yang has made it into the first debate by meeting the fundraising threshold, and being on Morning Joe this morning,  it is time to post this interview of him via Freakonomics.

I was impressed by his thought approach.  He is the first person who is talking about the economy as a ecosystem of society.  That is, it’s not just about making money.  He does not come out and say it as I would but I think he is thinking about a question I have asked here in the past: What do we have an economy for?  Is it to just produce the biggest most powerful engine in the world and watch it run?

My concern is that the MSN is not prepared to do a proper interview with a person who actually wants to discuss a comprehensive idea regarding social structure and present a plan for it as observed on Morning Joe today.  You could just tell they wanted to throw out the memes of name calling:  “socialist”, “taxing the rich”, “taxing business”, “far left”.  But, I think Mr Yang handled it well considering the short time he had vs his scope of policy.  Plus Mr. Yang had facts noting his “freedom dividend” is what Alaska has.

I don’t expect him to win, but I do hope he and his ideas get more coverage and thus pushes the Overton window back toward society.  The problem is,  his idea is very comprehensive.  It’s talking about society.  Unfortunately, our mindset wants discussion boiled down to the “1 item” reductionist meme.  You know: How are you going to bring the nation together?  My answer: Oh, I don’t know.  How do you handle a 2 year old that always says No? (Mitch McConnell  et al)

Here is the link: http://freakonomics.com/podcast/andrew-yang/

Tags: 2020 presidential election, Andrew Yang, income inequality Comments (0) | Digg Facebook Twitter |

I just had an unusual experience. I was convinced by an op-ed. One third of the way through “Elizabeth Warren Actually Wants to Fix Capitalism” by David Leonhardt, I was planning to contest one of Leonhard’s assertions. Now I am convinced.

The column praises Elizabeth Warren. Leonhardt (like his colleague Paul Krugman) is careful to refrain from declaring his intention to vote for her in the primary. I am planning to vote for her. I mostly agreed with the column to begin with, but was not convinced by Leonard’s praise of Warren’s emphasis on aiming for more equal pre-fiscal distribution of income rather than just relying on taxes and transfers to redistribute.

In particular, I was not convinced by

This history suggests that the Democratic Party’s economic agenda needs to become more ambitious. Modest changes in the top marginal tax rate or in middle-class tax credits aren’t enough. The country needs an economic policy that measures up to the scale of our challenges.

Here two issues are combined. One is modest vs major changes. The other is that predistribution is needed in addition to redistribution, as discussed even more clearly here

“Clinton and Obama focused on boosting growth and redistribution,” Gabriel Zucman, a University of California, Berkeley, economist who has advised Warren, says. “Warren is focusing on how pretax income can be made more equal.”

The option of a large change in the top marginal tax rate and a large middle class tax credit isn’t considered in the op-ed. I think this would be excellent policy which has overwhelming popular support as measured by polls (including the support of a large fraction of self declared Republicans). I note from time to time that, since 1976 both the Democrats who have been elected president campaigned on higher taxes on high incomes and lower taxes on the middle class (and IIRC none of the candidates who lost did).

This is also one of my rare disagreements with Paul Krugman, and, finally one of my rare disagreements with Dean Baker (link to a book which I haven’t read).

After the jump, I will make my usual case. But first, I note Leonardt’s excellent argument for why “soak the rich and spread it out thin” isn’t a sufficient complete market oriented egalitarian program. It is phrased as a question.

“How can the next president make changes that will endure, rather than be undone by a future president, as both Obama’s and Clinton’s top-end tax increases were?”

Ahh yes. High taxes on high income and high wealth would solve a lot of problems. But they will be reversed. New programs such as Obamacare or Warren’s proposed universal pre-K and subsidized day care will not. Nor will regulatory reforms such as mandatory paid sick leave and mandatory paid family leave. I am convinced that relatively complicated proposals are more politically feasible, not because it is easier to implement them, but because it is very hard to eliminate programs used by large numbers of middle class voters.

I’d note that I had already conceded the advantage of a regulatory approach which relies on the illusion that the costs must be born by the regulated firms. Here I note that fleet fuel economy standards are much more popular than increased gasoline taxes. One is a market oriented approach. The other is one that hides behind the market as consumers don’t know that part of the price of a gas guzzler pays the shadow price of reducing fleet average milage.

OK my usual argument after the jump

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Preventing Presidential autocracy: thoughts on reining in Executive power

Matt Yglesias posted a jarring tweet this past week when he wrote:

He elaborated by linking to a long-form article he wrote four years ago, explaining his position, where in relevant part, he wrote:

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The Lordstown Effect

Brad DeLong got a huge amount of attention by saying it was time for neoliberals such as Brad DeLong to pass the baton to those to their left. Alarmingly, he seems to have written this first on twitter.

Zach Beuchamp rescued it from tawdry twitter to now very respectable blogosphere with an interview.

One interesting aspect is that Brad has very little criticism of 90s era Brad’s policy proposals. Basically, the argument is that Democrats must stick together, because Republicans are purely partisan and no compromise with them is possible. I absolutely agree with Brad on this.

But I also want to look at criticisms of Clinton/Obama center left policy as policy.

Brad tries to come up with 2 examples

I could be confident in 2005 that [recession] stabilization should be the responsibility of the Federal Reserve. That you look at something like laser-eye surgery or rapid technological progress in hearing aids, you can kind of think that keeping a market in the most innovative parts of health care would be a good thing. So something like an insurance-plus-exchange system would be a good thing to have in America as a whole.

It’s much harder to believe in those things now. That’s one part of it. The world appears to be more like what lefties thought it was than what I thought it was for the last 10 or 15 years.

Now monetary vs fiscal policy is only considered right vs left because of the prominence and fanaticism of Milton Friedman. Is see no connection between laser eye surgery, hearing aids, and private health insurance. Medicare for all is not a National Health Service (note I am not conceding that a national health service would be bad for medical innovation). Brad did not advocate insurance/plus/exchange system in 1993. He (and Bentson, Summers and Rubin) advocated a payroll tax financed system not the Clinton-Clinton and Magaziner mess. I think he is stretching to get a second example.

I think the first isn’t really left vs right and the second is and always was a bad political calculation. IIRC Obama certainly said that he thought single payer was better policy but politically impossible. That was the general line on the center left wonkosphere. I think the case for insurance-plus-exchange was at most a bad political argument disguised as a bad policy argument.

In another twitter thread (no not the one where he says twitter is a horrible medium for serious discussion) Paul Krugman comments

I want to focus on two of his tweets

Last point: wages. Here’s where research has convinced me and others that wages are much less determined by supply and demand, much more determined by market power, than we used to believe. This implies a much bigger role for “predistribution” policies like minimum wage hikes 10/

Pro-union policies, and more than we used to think. “Let the market do its thing, but spend more on education/training and a bigger EITC” no longer sounds like wisdom 11/

I listed this as the one economist’s mea culpa based on empirical evidence which came to my mind. A lot of center left economists used to oppose minimum wage increases and were convinced by empirical evidence (mostly by Card and Krueger) that this is actually good policy. But I don’t see any problem with the EITC. Rather, economics 101 based arguments against the minimum wage and unions have been undermined by evidence*.

I think Krugman’s problem with “a bigger EITC” is political. It appears on the Federal budget so deficit hawks won’t allow a really huge increase. In contrast, people can think firms pay the minimum wage, so increasing it sounds like a cheap way to help the working poor.

More generally, I don’t see any reason to abandone redistribution (like the EITC). In fact, I think that is both excellent policy and political dynamite. I note that Bill Clinton and Barack Obama campaigned promising to raise taxes on the rich and cut taxes on everyone else. Also they won. Other Democrats didn’t promise that and they lost. A more progressive income tax is a relatively market respecting policy long supported by left of center economists. Oh and also Alexandria Ocasio Cortez. I don’t think there is any evidence against the Clinton 1993 tax increase combined with EITC increase.

The fact that it is totally obvious that it is good politics (rejected absolutely by the Republican party and supported by most self identified Republicans) doesn’t mean that it is too obvious to stress. It means debating redistribution vs predistribution is a distraction (which one here is not like the others)?

I personally have criticisms of Bill Clinton type neoliberalism after the jump

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A modest proposal to use FICA-style tax withholding as a transition to “Medicare for All”

Probably the foremost reform advanced by the Democratic Party at present is “Medicare for All.” Personally I don’t particularly care whether it is ultimately necessary to have single payer (like Canada) or universal coverage (like France or Germany) or a hybrid of each (like Australia). I am fond of the Japanese saying that translates as “There are many paths to the top of Mount Fuji,” but let’s set that aside for now.

What is generally acknowledged is the problem of how to create a “bridge” between the hodge-lodge of government and employer-based coverages we have now to whatever is ultimately passed as “Medicare for All.” That’s because there will understandably be a lot of blowback if people “lose” an employer healthcare plan, or else get hit with a new tax.

I propose that a system of payroll tax withholding that includes Obamacare and “Medicare for All” plans in addition to employer-provided medical benefits will work. Specifically, I propose three tweaks to Obamacare as it existed in 2016:

1. Two new spaces for mandatory FICA-style tax withholding spaces are added to each paycheck. One is for “Medicare for All” employment coverage, and the second is for “Medicare for All” unemployment coverage.

2.  The individual mandate penalty that the GOP killed in 2018 remains dead. But it is replaced, in all cases where an individual is not covered by employer-provided coverage, with an automatic payroll deduction for individual enrollment that defaults to the least expensive monthly bronze plan for individuals under 40, and the least expensive monthly silver plan for individuals age 40 through 64. This would kick in only for new employees in the first two years, after which it would apply to all employees.

3. Employers could voluntarily purchase, on behalf of their employees, coverages that are at least at the mandated levels set forth in #2 above.

Here’s how it would work.

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