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View Diary: Killing Sacred Liberal Cows, or What Economists Think About the Economy (105 comments)

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  •  Dean Baker is (2+ / 0-)
    Recommended by:
    condorcet, JFactor

    I'm not sure what the deal is with the corporate income tax, but in general, economists ave a bias towards solutions that don't "distort" behavior.  Baker may well believe that corporations do things to avoid taxes that are not productive behaviors.

    Also, remember that macro economics and micro are separate sets of ideas;  Baker may like Neo-Keyenesian macro, but economists tend to agree much more on basic micro economics.

    [I]t is totally not true that Mitt Romney strapped Paul Ryan to the top of a car and drove him to Canada. Stop spreading rumors! -- Gail Collins

    by mbayrob on Thu Nov 15, 2012 at 11:42:41 AM PST

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    •  I don't get the sense that there is (5+ / 0-)

      anyone on that panel who values the role of government - the collective investment the way a more traditional Keynsian would.

      The problem we face in this era is that people are not convinced that the common good is relevant beyond the walls of the Pentagon - and even there the concept is pretty shaky as that building has just become a place where billions of dollars are routed to what really is only a handful of private contractors who are getting top dollar for varying degrees of quality services and goods.

      When the Iraq War was in full strength and we were bombing schools and bridges and then rebuilding them, I kept wondering if having the military come back here and take out some of our schools and buildings might inspire the politicians to start rebuilding stuff HERE in the US for once - to spend money on our country.  If the military takes it out, then congress considers rebuilding - that's because the military contractors still have a piece of the action.  UGH

      •  That really isn't what Keynes wrote (1+ / 0-)
        Recommended by:
        gzodik

        You're making a legitimate argument there -- that there are efficiency benefits of government and that we can make collective investments that pay off -- but isn't a Keynesian argument per se.

        Keynes' main idea is that a complete economy is constrained in certain ways.  "Classical" (i.e., pre-Keynesian) econ looks at individual actors, like consumers or firms, and assumes that what one unit does won't effect other units.  But Keynes pointed out that if you spend money, you pay it off to somebody else, and if you borrow money to build something, somebody else gave you that money, so that if over the economy as a whole, the aggregate affects of these decisions can cause economic activity to expand or contract, and make the economy behave in non-intuitive ways, like change price levels, or create depressions.

        21st century conservatives like to ignore these effects, since they have an ideological allergy to government taking decision making power away from firms, and particularly, away from the rich.  So they either claim that the government can't competently take advantage of these effects (Hayak, some Friedman) or that somehow, these effects don't really exist.

        21st century Neo-Keynesians like Baker or Krugman point out that ideology be damned, Keynesian style models actually describe what the real world is doing, and if you care whether your models have predictive value, you have to use the approach that actually predicts accurately.  Which Neo-Keynesian models have done beautifully over the last decade.

        But folks like Krugman and Baker still think that people typically act like people who try to "maximize" the benefits to themselves given the constraints they see locally.  Which is the core of what classical economics analyzes.

        [I]t is totally not true that Mitt Romney strapped Paul Ryan to the top of a car and drove him to Canada. Stop spreading rumors! -- Gail Collins

        by mbayrob on Thu Nov 15, 2012 at 04:12:33 PM PST

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    •  About 13% of Fed revenues come from corporations (2+ / 0-)
      Recommended by:
      inclusiveheart, FishOutofWater

      So I guess the VAT will make up for it.

      What a doozey.....

      FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

      by Roger Fox on Thu Nov 15, 2012 at 12:43:27 PM PST

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    •  Dean Baker wrote an explanation for these (3+ / 0-)
      Recommended by:
      mbayrob, MGross, ricklewsive

      proposals.,entitled The Disagreement Behind Our Economic Platform. http://www.npr.org/... What was actually agreed to by these economists is obviously far less than some might presume. As ever,the devil is in the details. And NPR,just isn't that into details these days.

      The real world also interferes with the idea of getting rid of the corporate income tax. As Robert Frank and I both suggested in the segment, the idea should be to tax the wealthy people who are getting large incomes from the corporation (either as shareholders or top executives), not to tax the corporation itself.

      However as a practical matter, I don't see much likelihood of the sort of increase in individual income taxes on the wealthy that would come close to offsetting the impact of lost corporate income taxes. For example, if we could raise the marginal tax rate on those earning above $250,000 to 45 percent, and for those earning above $1,000,000 to 60 percent (with no special treatment for dividends or capital gains), then we might be in the ballpark of offsetting the elimination of the corporate income tax.

      Unfortunately, I don't see anyone about to include tax rates of this size in their presidential platform. In the absence of a large increase in individual taxes on high-income households, I would not want to see the corporate income tax eliminated, since again it would imply a large upward redistribution of income.

      Worth the read if only to be clear on just how far apart these 5 economists actually are.

      "George RR Martin is not your bitch" ~~ Neil Gaiman

      by tardis10 on Thu Nov 15, 2012 at 01:52:23 PM PST

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      •  That's consistent with what I thought (1+ / 0-)
        Recommended by:
        tardis10

        Short version of his write up:  "the income tax is a better tax than the corporate tax in theory, but in practice, you can't get a better tax than the corporate tax".

        He thinks it's a bad tax (i.e., the bad behavior it engenders via tax evasion behavior have serious economic costs), but since we can't get the rich to pony up via the better income tax, he prefers to keep it.

        There's lots of literature going back on decades on the income tax.  It turns out to be one of the less distortionary taxes.   Lauffer and other quacks aside, it turns out to be about the most efficient (in the economic sense -- you get the maximum revenue with the minimum distortion of behavior) way to finance government.

        [I]t is totally not true that Mitt Romney strapped Paul Ryan to the top of a car and drove him to Canada. Stop spreading rumors! -- Gail Collins

        by mbayrob on Thu Nov 15, 2012 at 03:56:59 PM PST

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