The Purple Tax Plan

Larry Kotlikoff and Andy Weiss propose a progressive consumption tax.

Goodnight Moon

Keynes vs. Hayek Round Two

Height over Time

From a fascinating article about economic historian Robert Fogel.

The World's Poor and Hungry

A great article by MIT's Abhijit Banerjee and Esther Duflo.

Thanks to Tyler Cowen for the pointer.

Shiller vs Siegel on Stock Market Valuation

Lunch?

I will take five ec 10 students to lunch at my favorite Chinese restaurant in the square, right after today's lecture.  My treat.  Send me an email asap, and I will let you know if you are among the first five to respond.

Alternative Fiscal Futures

Source: John Taylor.

People Talking Past Each Other

I am regularly struck by how bloggers so often want to pick fights with other bloggers.  Rather than giving others the benefit of the doubt, they often seem to interpret the writing of others in the worst possible light so they can then point out how foolish it is.  As an example, see

1. This Steve Landsburg post
2. Followed by this Brad DeLong critique
3. And this Paul Krugman critique
4. And Steve's two replies.

As far as I can tell, all Steve is saying is that the true incidence of a tax is not necessarily on the person who writes the check to pay the tax bill.  He just made the point in a particularly dramatic way.  At its heart, however, his point is pretty standard and hard to argue with.

FYI, more interesting to me is this Landsburg post, where Steve argues that a rich person who wants to raise taxes on the rich should be voluntarily paying more right now.  One example is the rich person who lives in very nice publicly-provided housing on Pennsylvania Avenue in Washington DC.

Price Controls for Limo Rides

A great video for chapter 6 of my favorite textbook:

My Greatest Honor Ever

From my inbox (with personal identifiers removed):

Dear Prof. Mankiw,

I am XXXXX, a PhD student majored in Economics at XXXXX University from this fall.

In fact, my son was born yesterday. I have been thinking of which name to give him for a long time, and decided to name him “Gregory” like your first name. The reason why is that I love your Macroeconomics textbook so much! Reading your book helped me see how interesting Economics is. And, you can see the consequence of your book by looking at my major at the moment. :D

I sincerely hope my son would become a great economist like you in the future.

Yours faithfully,

XXXXX

Winner in 2012

According to the betting over at Intrade, here are the probabilities for the leading presidential hopefuls:

Obama 59 percent
Romney 12 percent
Trump 6 percent
Pawlenty 6 percent
Daniels 4 percent
Huckabee 3 percent

A Free Book Well Worth Your Time

For those interested in the topic, click here to obtain a free download of Policy and Choice: Public Finance through the Lens of Behavioral Economics by William J. Congdon, Jeffrey R. Kling, and Sendhil Mullainathan.

To be clear, this download is not a pirated copy but a free electronic version authorized by the authors. I don't expect this kind of thing to be the beginning of a trend.  A free-download strategy makes sense when an author's sole goal is maximizing readership and intellectual influence.  Most authors, however, from novelists to (of course) textbook writers, have some pecuniary motives as well.

My Talk from Yesterday

If you want to see the talk I gave at the University of Cincinnati, click here and then click on "Watch this archived event."  It takes about an hour.

Academic Bloggers

The NY Times profiles a few.

Capping Tax Expenditures

A proposal from Martin Feldstein, Daniel Feenberg, and Maya MacGuineas:

This paper analyzes a new way of reducing the major individual tax expenditures: capping the total amount that tax expenditures as a whole can reduce each individual's tax burden. More specifically, we examine the effect of limiting the total value of the tax reduction resulting from tax expenditures to two percent of the individual's adjusted gross income. Each individual can benefit from the full range of tax expenditures but can receive tax reduction only up to 2 percent of his AGI.

Simulations using the NBER TAXSIM model project that a 2 percent cap would raise $278 billion in 2011. The paper analyzes the revenue increases by AGI class. The 2 percent cap would also cause substantial simplification by inducing more than 35 million taxpayers to shift from itemizing their deductions to using the standard deduction. For any taxpayer for whom the 2 percent cap is binding, a cap would reduce the volume of wasteful spending and the associated deadweight loss. Even for those taxpayers for whom the cap is not binding but who are induced by the cap to shift from itemizing to using the standard deduction, the deadweight loss associated with deductible expenditures would be completely eliminated.

No Grand Bargain on the Horizon

Keith Hennessey is the most astute observer of the inside baseball of Washington economic policy that I know.  Here is his bottom line on President Obama's speech from yesterday:

The President’s proposal could be the opening bid in a negotiation with Congressional Republicans. When you combine this substance with the President’s aggressive partisan attacks and framing of the Ryan budget, however, it’s hard to see how this leads to a big fiscal deal this year or next....the chances of a long-term grand bargain in the next two years just plummeted from an already low starting point.

I am afraid that Keith might be right.

President Obama certainly has the ability to disagree without being disagreeable.  But yesterday he decided, I presume quite consciously, that demonizing the opposition was the right strategy for him.  Perhaps this decision suggests that the speech was written to be the beginning of a heated reelection campaign rather than an invitation for negotiation and compromise.  I hope this interpretation is wrong.  If it is right, then my hypothetical 2026 speech may have be given a few years earlier than planned.

Two Visions for Medicare

I must applaud the President for today's speech in which he finally and at long last takes the long-term budget imbalance seriously.  There was a surprising amount of finger pointing for a person who claims to be transcending partisanship.  That is especially true in light of the fact that President Obama's proposed policies, as put forth in his own annual budgets, have never shown how he would put the economy on a path with a declining debt-GDP ratio, even after the economy fully recovers from the recession.

But let's put that inconvenient truth aside for the moment.  I am delighted that these fiscal issues are now squarely on the national agenda.  If only someone could lock President Obama and Congressman Ryan in a seedy hotel room, turn off their access to cable, give them an endless supply of coffee and cold sandwiches, and not let them leave until they come to agreement, the nation could take a large step forward.

What I found most interesting is the contrast between the President's vision for Medicare and Congressman Ryan's.  There are two major issues:

• How quickly should Medicare spending rise?
• What happens if health care costs rise faster than the limit on spending?

As to the first question, the President proposes to set "a new target of Medicare growth per beneficiary growing with GDP per capita plus 0.5 percent."*  By contrast, Ryan proposes growth at the rate of inflation. The difference is probably about 2 percent per year.

As to the second question, the President gives authority to the "Independent Payment Advisory Board (IPAB)."  By contrast, Ryan proposes that seniors use their "premium support" to shop among competing private insurers.

Here we see the fundamental differences between the parties: One believes in spending more and allocating that spending via central planning.  The other believes in spending less and harnessing individual choice and competition to ensure that the money is spent wisely.

To be sure, there is room for compromise, especially on the first question, but the issues are not just numerical.  The parties start with fundamentally different visions of markets and government.

----
*The quotation is from an administration fact sheet I was emailed.

The Ryan Plan

As I have pointed out before, a bipartisan group of ten former CEA chairs (including your humble blog host) has endorsed the Bowles-Simpson commission report as a starting point for dealing with the long-run fiscal imbalance.  So readers might like to know that Bowles and Simpson themselves have called the Ryan plan a positive step.

If you want to learn more about the Ryan plan, you can look at this side-by-side comparison of two plans or read this CBO report. 

CBO makes clear that it believes there are substantial budgetary savings in the Ryan plan, but to a large extent these are because "the government’s contribution [to Medicare] would grow more slowly than health care costs, leaving more for beneficiaries to pay."  Many on the left view such a change in entitlements as too draconian, but they have not offered a real alternative.  If they did, it would have to include substantial, broad-based tax increases, which those on the right would view as draconian.

That is, the choice we face is between historically high taxes (the left's unspoken preference) and a fundamental rethinking of the social safety net (such as the plan proposed by Congressman Ryan).

Increases in Top Incomes: Baseball Edition

Mark Perry reports:

For the 2011 season in Major League Baseball, the average salary for the top 25 highest-paid baseball players is $19,751,000, with Alex Rodriguez of the New York Yankees leading MLB at a salary of $32 million, according to the USA Today Salaries Database. In comparison, during the 1988 season the average salary for the top 25 highest-paid players was $1.955 million, or $3.657 million in today's dollars. The highest paid player that year was New York Mets catcher Gary Carter, who made $2.36 million that year, or $4.41 million in 2011 dollars.

An Upcoming Webcast

I will be speaking at the University of Cincinnati this Friday at 12:30 pm. If you would like to hear me via an online webcast, click here and then click on the webcast button at the top of the page to sign up.

Jeff Miron on Healthcare

Does GDP buy happiness?

The University of Chicago's Allen Sanderson looks at the topic.

By the way, Allen mentions the famous Easterlin paradox.  The facts behind this paradox have been called into question by Betsey Stevenson and Justin Wolfers.

Things I did not say

I have long been what might be called a moderate supply sider (as well as a new Keynesian on various issues of macro theory).  I believe that tax rates have important influences on behavior and, as a result, tax hikes do not generate as much revenue as static estimates suggest.  However, I have long been skeptical that the United States is on the wrong side of the Laffer curve, except perhaps in a few special cases.

So imagine my surprise when I read this headline over at Bloomberg:

Mankiw Says Higher Taxes Won’t Increase Revenue

The brief article alleges to summarize what I said in an interview. My first reaction was, I didn't say that. My second reaction was, did I misspeak?  Fortunately, the audio of the interview is right there.  So I listened to myself (always a painful experience), and I think I said what I really believe--that tax hikes do not generate as much revenue as you might think.  The Bloomberg headline is an unfortunate misrepresentation.

A Conference for Economics Instructors

If you, like me, teach introductory economics, or expect to do so soon, you might be interested in attending this conference. It is a one-day meeting I am running at Harvard on Friday, April 29, with the generous support of my publisher (Southwestern, a part of Cengage Learning).

The conference includes the following presentations from five Harvard faculty:

• Greg Mankiw, The Challenges Facing U.S. Monetary and Fiscal Policy
• Alberto Alesina, Social Policies in the U.S. and Europe: Why So Different?
• Eric Mazur, Confessions of a Converted Lecturer
• Ben Friedman, Religious Influences on Economic Thinking: Where Did the Economics We Teach Come From?
• Jeremy Stein, Lessons from the Financial Crisis

In addition, after lunch, participants will have the opportunity to tour Harvard, and the day will end with a party at my home.

Interested? Click through the above link to learn more. (Please note that space is limited. We may not be able to accommodate everyone who expresses interest, and for that, I apologize in advance.) If you have any questions, feel free to contact John Carey at john.carey@cengage.com.

A Comic for Chapter 4

click on graphic to enlarge

A Profile of Al Roth

Today's Boston Globe has an article about my market-designing Harvard colleague.

A V, 2 Us, and an L

click on graphic to enlarge