This is a sincere question. Do the Very Serious People think the US economy is deeply depressed, or nearing full employment? I see conflicting evidence:
1. As far as I can see the policy of tapering has overwhelming support among the VSP, suggesting they think it’s time for the economy to stand on its own two feet, without a crutch from the Fed. Is that correct?
2. As far as I can see most of the press and pundits, and moderate politicians, seem to support an extension of the emergency unemployment benefits? Recall that the proposal would
y currently extend them to 73 weeks, which is far more generous than the emergency benefits under Bill Clinton in early 1993, when unemployment was even higher. The call for an emergency extended unemployment benefits program would imply emergency level unemployment rates, where monetary tightening (when inflation is also below target) would be utter madness.
I’m not interested in arguing these two perspectives. Both are defensible. Rather I’m trying to get a sense of where the VSP opinion is on this issue. I honestly cannot tell. Do they think the economy is deeply depressed? Or not?
PS. I’m a bit less sure on point two, but a number of GOP lawmakers recently indicated that they would support extended unemployment benefits, which suggests that the center of gravity political was for extension–that’s certainly the overwhelmingly popular view among press and pundits.
PPS. Totally off topic, but this comment by Greg Mankiw intrigued me:
In this case, the issue is the reduction in capital taxes during the George W. Bush administration. Paul [Krugman] says that the goal here was “defending the oligarchy’s interests.”
Really? As Paul well knows, there is a large literature in economics suggesting that an optimal tax system imposes much lower taxes on capital income than on wage income (or consumption).
Why should we assume that Paul Krugman is aware of that literature? You would think he would be aware of the literature—other progressive bloggers like Matt Yglesias and Brad DeLong obviously are. But I don’t recall reading a single Krugman column that showed any awareness of the need for replacing our current tax system with a progressive consumption tax. I don’t recall a single post pointing out that taxes on capital should be much lower than taxes on labor income, if not zero. I don’t recall a single post pointing out that nominal tax rates on capital income are meaningless, and that real tax rates on (for instance) Treasury bonds are now well over 100%. Or that corporate income is triple taxed, making nominal corporate tax rates utterly meaningless as indicators of progressivity. Or that Warren Buffet was spouting utter nonsense when he claimed his tax rate was lower than that of his secretary. If such Krugman posts exist then please show them to me, I’d love to read them.
Either he is unaware of the literature, or he is aware of it and is knowingly spouting misinformation. I’d prefer to be charitable and assume that he’s not aware of the literature.