Relevant and even prescient commentary on news, politics and the economy.

A Brilliant Comment that Deserves a Larger Audience

In the grand tradition of “pulled from comments,” I’m pulling this oneā€”from Brad DeLong’s blog, in response to this post:

…Manzi does not seem to have a consistent view of the concavity of instantaneous indirect utility functions. He argues that it would be absurd to consume the proceeds of the IPO of a successful startup yet he argues that higher taxation of said proceeds will have a large effect on the required minimum probability of success. If he can come up with a utility function which has both of these properties, he might convince someone who cares about economic theory (not typing at the moment). If he further finds a utility function consistent with the data on risk premia and intertemporal substitution he might convince more than one such person. If he can get the sign of the effect the one he wants without ignoring the benefit for people who tried and failed to be entrepreneurs of middle class tax cuts he will convince many.

If he assumes that expected wealth calculations are OK when evaluating whether people will start companies but just idiotic when deciding how quickly they will consume the proceeds, he isn’t an economic theorist (not that I mean that as a criticism).

The source of the comment is, for those who did not follow the link, Robert Waldmann.

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The Race is on?

Will post-autistic economics review (who have, sadly imnvho, renamed themselves “real-world economic review) or The Economists’ [sic] Voice be the first to publish Robert Waldmann’s paper (a readable version of this blog post, which now also links to the paper)?

Only Brad DeLong may know for certain. But you should read it now.

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Capital Gains and Dividend Taxes

We keep hearing from the conservatives-libertarian that we need lower taxes on capital gains and dividends to encourage capital spending or investments. But when I look at the record of the impact of lower taxes on capital on investment I am hard pressed to see the benefits such lower taxes are suppose to deliver.

The peak was under Carter just before Reagan cut the capital gains and dividend taxes.
Clinton raises them and Bush cut them again. it sure looks like the cut in taxes lead to lower investments, not the higher investment the tax cuts were suppose to generate.

Yes, the data is nominal data. But tax rates work on decisions made on nominal dollars so looking at their impact on nominal dollars is the correct thing to do.

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