A few thoughts on policy

I won’t have much time to post here until the end of the year, as I am on the stretch drive of two book projects.  But I thought I should go on record on a couple of policy issues in the news:

1.  There are rumors that Trump might pick Kevin Warsh to head the Fed.  I’d prefer he keep Yellen. She’s presided over more stable NGDP growth than any other Fed chair (although admittedly the sample size is small).  And there are two arguments against Warsh.  He’s far less knowledgeable about monetary economics than Yellen, and he was completely wrong about policy during the Great Recession.  Having said that, picking Warsh wouldn’t result in much change in policy, because Fed chairs don’t actually have all that much influence.  I doubt whether fed funds futures would show much change.

2.  Presidents also don’t have much impact on the economy, especially when they are as incompetent and ineffectual as Trump.  (This is basically year nine of the Obama administration.)  The one issue to watch is taxes.  If the GOP simply cuts rates and increases the budget deficit then it will have failed in at least as big a way as in health care.  The sine qua non of a successful tax reform is some combination of closing loopholes and simplifying the tax system.  (For health care it’s cutting costs.)  There is recent chatter that the GOP may back off from plans to close loopholes like the deductibility of interest (in corporate taxes) or the deductibility of state and local taxes (in the personal income tax code.)  That would be a huge mistake.  If all they do is cut rates then the Dems will simply reverse the cuts.  The Dems seem to have zero interest in reforming the tax code, so if the GOP fails in its once in 30 year attempt, and gives us something like Bush did in 2001, then they will have failed.

I’d add that a big tax cut that balloons the budget deficit would also increase the trade deficit. This FT article points out that Trump’s policies have already boosted the trade deficit (up by 9% so far this year) but his fiscal plans would make it far “worse”.  Fortunately, trade deficits are not bad for the economy.  Unfortunately, a budget deficit is.  (Economic nationalists like Bannon should be horrified by Trump’s tax plans, but they are generally too ignorant of macro to understand the implications of what he’s proposing.)

If politics makes it too hard to close tax loopholes then an interesting backdoor approach is to sharply raise the standard deduction.  Trump proposes doubling it to $24,000 for a married couple, which would reduce the number of itemizers from 45 million to 7 million.  In other words, this would mean that tax loopholes would no longer benefit the broad middle class.  Once they are linked only to the rich it would make them easier to go after in future reforms.  A clever idea, let’s see if he carries through. (I suspect he won’t.)

PS.  Limiting a loophole AMT-style doesn’t count as a partial victory, as it makes the tax code even more complex.



44 Responses to “A few thoughts on policy”

  1. Gravatar of Steve F Steve F
    1. October 2017 at 14:54

    I disagree that the President and the Fed Chair do not have high impact on markets. I won’t speak on the President since we will certainly have a difference of opinion; however, regarding Fed Chair, I agree with the theory that one of the significant strengths of the Greenspan Fed was that markets knew and trust Greenspan and he had credibility in the peoples’ minds that he would do what it takes to keep things right.

    This is an argument to keep Yellen, since she has nothing but a steady and stable track record and the results under her exceed expectations. The only reason I am hesitant to make that argument is because Yellen would leave at some point, which could result in a similar type of situation of uncertainty. I ultimately favor a rules-based regime instead of one of discretion so we can avoid this issue altogether.

  2. Gravatar of Steve F Steve F
    1. October 2017 at 15:04

    Scott, I was hoping to do my capstone on the impact of monetary policy on inflation expectations (particularly on the Fed in 2007-08), but I have come to an impasse because I, and my professor, have had difficulty finding any research papers on the topic and I have no jumping off point to model it. You have discussed extensively the theory that the Fed’s policies negatively impacted inflation expectations preceding the financial crisis and I have read several that make similar claims (like Hetzel’s fantastic piece that I found from reading your 2009 archives), but the question of monetary policy impact on inflation expectations is essentially an empirical one, and those papers seem to be scant or non-existent. Do you know of any papers that tackle the question?

  3. Gravatar of Major.freedom Major.freedom
    1. October 2017 at 15:14

    Sumner of course will not define what “effectual” would be for Trump, because he has trump derangement syndrome and would not be able to grasp it even if he saw it.

  4. Gravatar of BC BC
    1. October 2017 at 15:36

    “If all [Republicans] do is cut rates then the Dems will simply reverse the cuts.”

    If Republicans don’t cut rates, then Dems might still try to increase them. So, if Republicans cut rates, we could still end up with lower rates if/when Dems take power then if Republicans don’t cut rates. Put another way, cutting rates now to pre-emptively offset future Dems’ rate increases could still be an accomplishment, not as good as simplifying the tax system, but an accomplishment nonetheless.

    “Once [loopholes] are linked only to the rich it would make them easier to go after in future reforms.”

    Maybe. Public choice explains tax breaks as arising due to concentrated interests defeating dispersed interests. Paradoxically, a loophole that only a few people use may not attract enough attention for most voters to care about. Then, the few people affected will lobby vigorously to keep it, and others won’t care enough to try to get rid of it. I agree, though, that loopholes for “the rich” may be an exception. When it comes to taxing the rich, many on the left say they want to tax the rich more heavily regardless of whether it will raise significant revenue. So, there may always be constituency for closing loopholes for the rich.

  5. Gravatar of ssumner ssumner
    1. October 2017 at 15:54

    Steve, They didn’t trust Greenspan, they trusted the Fed, and continued to do so in 2007 when Bernanke was there. The failures of 2008 led to a loss of trust, but no one thinks Greenspan would have done any better, indeed he favored even tighter money than Bernanke.

    I’d break your project into two parts. How does monetary policy affect inflation? (lots of studies of that). How does inflation affect inflation expectations (look at Cagan’s work.)

    BC, Maybe, but a bigger budget deficit would be a negative. So the net effect would be very minor. This is a once in 30 year chance; they’d better not blow it. If the GOP cannot do this, the party’s essentially worthless. At least the Dems gave us Obamacare. I oppose Obamacare, but it was SOMETHING. The Dems actually achieved something. They brought health insurance to millions. Reagan gave us tax reform. Clinton gave us welfare reform and NAFTA and cap gains tax cuts.


  6. Gravatar of Christian List Christian List
    1. October 2017 at 16:15

    All in all a very good, thoughtful post. A post I can agree with.

    so if the GOP fails in its once in 30 year attempt, and gives us something like Bush did in 2001, then they will have failed.

    I consider this to be the realization that Trump is not the only problem, maybe not even the main problem. It’s typical for conservatives that they won’t reform anything. That’s why they are conservatives in the first place. The exception of the rule might have been Reagan.

    At least the Dems gave us Obamacare. I oppose Obamacare, but it was SOMETHING. The Dems actually achieved something. They brought health insurance to millions. Reagan gave us tax reform. Clinton gave us welfare reform and NAFTA and cap gains tax cuts. Trump?

    You are only telling parts of the story. You (intentionally) forgot “conservatives” like W. who gave the US ruinous military campaigns. Or “conservatives” like Merkel who promised neoliberal forms but then did the exact opposite by introducing rent controls and minimum wages.

    So Trump doing nothing in 9 months is actually a good thing. I could have been a lot worse.

  7. Gravatar of Benjamin Cole Benjamin Cole
    2. October 2017 at 04:26

    “Fortunately, trade deficits are not bad for the economy. Unfortunately, a budget deficit is.”

    I wonder about this. China and Japan report budget deficits and trade surpluses, and are doing well.

    Can budget deficits be eliminated through QE? Japan is doing as much.

    The Bank of Japan is close to owning one-half of JGBs. Very little inflation, but some economic growth reported of late.

    China continues to boom.

    Moreover, some serious studies suggest trade deficits and house price explosions are related.

  8. Gravatar of J.M. Keynes J.M. Keynes
    2. October 2017 at 07:39

    – The President and the FED have only a very small impact/influence on the economy. There’re 320 US citizens and these 320 million people have combined much more influence on the (N)GDP than the President and the FED combined.

    Never read the work of Harry S. Dent on the relationship between demographics and the economy ?

    – The taxcode should and can be simplified dramatically:
    1) Get rid of the taxdeduction for Obamacare for municipal bonds.
    2) Get rid of the property tax deduction on federal taxes.
    3) Get rid of the tax deduction for interest payments on mortgage debt. Because this deduction is a subsidy for LENDERS and NOT the BORROWERS.

  9. Gravatar of Patrick Sullivan Patrick Sullivan
    2. October 2017 at 08:15

    Here’s one more reason to be glad Trump won, and not Hillary;


    In the current framework, [toll free phone] numbers are assigned on a first-come, first-served basis by entities called “Responsible Organizations,” often called “RespOrgs,” that had access to a database with the current status of toll-free numbers. This system does not acknowledge that not all toll-free numbers are created equal, and certain numbers might be substantially more valuable to potential organizations. Companies may be willing to pay more for numbers that spell out memorable words, or are related to what the company does, such as 1-800-PETMEDS. Companies that may be willing to pay more or value the numbers more highly have no recourse to obtain it.

    The new system would use a competitive auction for about 17,000 such numbers in the new 833 code. Under the auction system numbers would go to the RespOrgs that value them the most highly, and the Commission would allow prices to determine the allocation. The structure of the auction would deter gamesmanship or strategic bidding by interested parties. The auctions would be a single-round, with sealed bids, and the winner paying the second-highest bid. This format would lead to interested parties submitting bids in line with their actual valuation, instead of trying to outmaneuver rivals.

    …. In his statement, FCC Commissioner Ajit Pai referenced Nobel laureate Ronald Coase, who initially proposed that the FCC use auctions for spectrum licenses in 1959. Although Coase’s idea was initially met with skepticism, the FCC finally held its first spectrum auction in 1994. Toll-free numbers are smaller in scale, but Chairman Pai’s action is a welcome sign that the FCC is moving away from the bureaucratic way it has been distributing numbers—and perhaps carving out space for prices and economic incentives in other areas in the months ahead.

  10. Gravatar of bill bill
    2. October 2017 at 09:06

    I like the idea of raising the standard deduction and agree that it would make eliminating the various deductions in the future.

  11. Gravatar of sean sean
    2. October 2017 at 10:13

    Warsh looks a potential big mistake to me. It might not matter the next 2-3 years as it seems to me that the economy has enough momentum for gradual rate hikes.

    I would be afraid of Warsh if something bad happens. Then the policy we get will be slow. It will be 2008 all over again. I would trust someone like me or you the most to deal with a 2008 type event and act quickly to stop the event from metabolizing outside of initial sector. I would also assume Yellen would react in a reasonable time.

    Since 2008 the FED has had foresight. The sequester could have really slowed the economy but instead the FED doubled QE and it had little effect. Warsh is going back to a FED that won’t react until things get bad; instead of acting when its obvious action is needed.

    I’m pro-tax cut as much as anyone. But I see nothing appealing to me.

    Tax Reform focused on closing state tax deductions and property tax deduction would hurt certain people extremely hard. Like me. I played by the rules. Both of those things are heavily factored into my personal financial decisions. If we are to eliminate those deductions then we should do it over a long-period of time. Also All the states with high-income taxes and high property values are states that pay a lot more in taxes to the federal government than benefits they receive. We would move to a system where certain cities – LA, San Fran, Chicago, NYC are subsidizing the rest of the country even more.

    Current tax plans favor the already rich to a great extent and not the high income/high costs state types.

  12. Gravatar of bill bill
    2. October 2017 at 10:29

    PS – we can “pay” for a doubling or tripling of the standard deduction with a modest carbon tax.

  13. Gravatar of Philo Philo
    2. October 2017 at 19:12

    @ Sean:

    The federal government, i.e., Congress, can redirect benefits, sending more to big cities and less to the rest of the country, any time it wants to. That it currently over-subsidizes less populated areas is no argument against closing loopholes. And don’t whine about your personal financial decisions: everybody has known all along that government policy can change at any time. Nobody guaranteed you stability!

  14. Gravatar of Mark Mark
    3. October 2017 at 02:23

    “BC, Maybe, but a bigger budget deficit would be a negative. So the net effect would be very minor. This is a once in 30 year chance; they’d better not blow it. If the GOP cannot do this, the party’s essentially worthless. At least the Dems gave us Obamacare. I oppose Obamacare, but it was SOMETHING. The Dems actually achieved something. They brought health insurance to millions. Reagan gave us tax reform. Clinton gave us welfare reform and NAFTA and cap gains tax cuts.”

    I hope you’re being facetious here. No policy is better than destructive policy. Haven’t libertarians been making this joke since 2010, that the Republicans congress ‘not getting anything done’ is nearly the best thing we could hope for? Wanting the government to “do something, even if it’s terrible” is just a bad political instinct. At least they brought health insurance (of likely negligible impact on actual health quality) to millions (while failing to mitigate costs)? ‘At least he made the trains run on time.’

    On healthcare, moderate senate Republicans like Collins and Murkowski (who tacitly support the ACA and if they’re around for another decade, will likely fall in behind medicare for all too) doomed any market-based reforms from the start, as without them, the GOP doesn’t have a majority. In essence, when people criticize the GOP for ‘not getting anything done’ on healthcare, they are criticizing them for being too moderate, even if they don’t know it themselves. It wasn’t the likes of Ted Cruz that was holding back a move toward freer healthcare markets. It was moderates like Collins. So this makes criticism of the congressional GOP (especially from the left) on healthcare rather confused and pointless.

    Is the situation similar with tax reform? Are there some moderate Republicans who will oppose it for fear of losing revenue? I don’t really know. But if we’re (royal we) going to take a dump on them for not getting it through, we should be honest about what we’re really saying: we’re not criticizing Republican ideology; rather, the opposite: we’re effectively complaining that there aren’t enough Ted Cruzes (or Rand Pauls) and there are too many Susan Collinses. Is that what people criticizing the GOP’s ineffectiveness really want to be saying?

  15. Gravatar of Benjamin Cole Benjamin Cole
    3. October 2017 at 03:02

    From what I read, Trump is interviewing Jerome Powell for the Fed chair. Powell is a little more growth-oriented than some.

    The People’s Bank of China just cut the reserve requirement ration, signaling they are leaning to growth again.

    From what I can tell, the Chinese Communist Party-operated PBoC is growth-oriented, while the Fed is geared to holding inflation below 1.5% on the PCE, with growth a sideshow.

    Interesting question: Would communists make better central bankers than upper-class capitalists and Western academics?

  16. Gravatar of B.B. B.B.
    3. October 2017 at 07:17

    I agree with you about Warsh.

    I disagree with you about Yellen. I don’t know why our political system continues to reward failure.

    Yellen was president of the SF Fed during the housing bubble years. The bubble was concentrated in four “sand states”: California, Nevada, Arizona, and Florida. The rest of the country was mostly fairly valued in terms of housing. Three of the four sand states were the SF Fed bank district under Yellen’s supervision. The SF Fed was responsible for bank supervision. The banks in those districts (WaMu, Wachovia, Bank of America, Indy Mac, Countrywide) fueled the credit for the housing bubble. Apparently, Yellen saw no problem with it. When did the SF Fed ever tell its banks to toughen up on their lending standards?

    Yellen failed as a bank supervisor. There is no evidence that she understood that there was a bubble in credit and housing prices. Moreover, as an FOMC voter, she helped keep interest rates too low even with inflation over target, and thereby boosted housing prices.

    Maybe Yellen would be better than Warsh, who was also on FOMC during the bubble.

    But I want fresh blood. The people who failed us need to be replaced. I would have replaced Bernanke also.

    One reason we have President Trump is that a lot of Americans are fed up with an Establishment which repeatedly failed them but is never held accountable.

  17. Gravatar of ssumner ssumner
    3. October 2017 at 07:31

    Sean, Those high tax states will benefit a lot from the proposal to eliminate estates taxes and the AMT, and also to slash corporate taxes.

    Mark, I completely disagree. The problem is that the GOP is does not have a vision of what sort of public policy changes they’d like to see. Even the conservatives. (Rand Paul was one of the key no votes.)

    They were somewhat ideological during the Reagan years–now they are just tribal.

    B.B. God help us if we have to rely on the Fed to “supervise” banks. How about returning to the market?

  18. Gravatar of LK Beland LK Beland
    3. October 2017 at 08:00

    “The problem is that the GOP is does not have a vision of what sort of public policy changes they’d like to see. Even the conservatives.”

    I agree. One factor is the the Dems enacted a few policies borrowed from the GOP playbook. The Clinton welfare reform certainly fits the description. Likewise, the ACA/Obama/RomneyCare is in many ways the Republican, market-based, alternative to single-payer. The complete 2010 obstruction to it was obviously more tribal than ideological. There isn’t a whole lot of policy wiggle-room left on these issues.

  19. Gravatar of Scott Freelander Scott Freelander
    3. October 2017 at 09:05


    I don’t recall you ever being explicit about this. Would you like to end the Fed’s lender of last resort role entirely?

  20. Gravatar of Scott Freelander Scott Freelander
    3. October 2017 at 09:12

    LK Beland,

    Republicans could favor total privatization and deregulation of the healthcare sector, but they aren’t pushing for anything close to that, so why the nonsense rhetoric about free markets? Even under the most draconian repeal schemes considered, they’d leave government funding at least 50% of healthcare expenses, ultimately. As a life-long Democrat, even I’m willing to experiment with true free market healthcare, given a generous wage subsidy and GUI.

  21. Gravatar of Scott Freelander Scott Freelander
    3. October 2017 at 09:19

    Unfortunately, there is no true free market party in the US anymore. Democrats have more credibility than Republicans at the moment, but they’re moving toward more old fashioned socialism, which will often be a big winner politically.

    Medicare-for-all is a big winner politically, but would have to be coupled with politically infeasible cost reform to be workable. Republicans’ crazy stance on ACA will help make Medicare-for-all inevitable.

    Democratic politicians are extremely slow on the uptake, but are beginning to see what a winning issue this will be.

  22. Gravatar of LK Beland LK Beland
    3. October 2017 at 09:31

    Scott Freelander

    “Republicans’ crazy stance on ACA will help make Medicare-for-all inevitable.”

    I would put it the other way round. A Dem shift from ACA-style policy to Medicare-for-all–whatever that means–would give the GOP some policy wiggle-room. For example, they could enact laws that prohibit states from going single-payer.

  23. Gravatar of Negation of Ideology Negation of Ideology
    3. October 2017 at 13:52

    “PS. Limiting a loophole AMT-style doesn’t count as a partial victory, as it makes the tax code even more complex.”

    I recall some years ago, it was reported that the point was coming that repealing the regular income tax and keeping the AMT would cost the Treasury less than repealing the AMT and keeping the regular income tax. This was mainly because the AMT wasn’t indexed and there was a patch passed every year. My thought was then was “Why not?”. Wouldn’t that be the simplest tax reform we could pass?

  24. Gravatar of Benjamin Cole Benjamin Cole
    3. October 2017 at 16:28

    I am banned from Econlog so I will comment here on Scott Sumner’s good post on Milton Friedman.

    One observation: as George Selgan has pointed out, it is also possible to get inflation by a reduction in aggregate supply, for example a corn bust in an agricultural economy.

    It is interesting that much measured inflation results from housing shortages. Core CPI sans housing is dead. See Kevin Erdmann.

    As with corn, tightening the money supply will not increase the supply of housing—indeed a little bit the opposite.

  25. Gravatar of George Selgin George Selgin
    3. October 2017 at 18:35

    “She’s presided over more stable NGDP growth than any other Fed chair.” Well, yes; and she has presided over stable and low inflation, too.

    But surely the question whether the behavior of NGDP and inflation are in what they are because of Yellen’s policies, or for some other reasons. We know that the inflation numbers are in fact not the ones the Fed wants. And there’s no reason to assume that the Fed has chosen to maintain the modest NGDP growth values we’ve had. I’m not saying that Warsh would be better than her; but I think its dangerous to give central bankers credit for outcomes that are not ones they have deliberately sought.

    Suppose inflation falls to zero; some would welcome that outcome. But would they be right to congratulate Yellen for it, or improve their assessment of her merits, if there were no change in the Fed’s target?

  26. Gravatar of Matthew Waters Matthew Waters
    3. October 2017 at 20:19

    Republicans, as they actually exist outside a couple inconsequential wonks, just haven’t acted in good faith on health care and “free markets” since 2010. If your first action item is not ending the tax subsidy of employer health insurance, then you aren’t arguing in good faith for free market health care.

    True free market health care would be interesting. Generally $10k-$20k in annual cost is hidden from employees. When employees start writing checks of twice their mortgage for health insurance, then real change would happen.

  27. Gravatar of Scott Sumner Scott Sumner
    3. October 2017 at 22:11

    Scott, Yes, I’d suggest that the Fed stop having any interaction with the banking system. Let someone else regulate banks, they should focus on monetary policy. The Fed should ignore banks.

    George, Yes, but the outcome is pretty close to what the Fed wants. That was not true under previous Fed chairs.

    I think another Fed chair likely would have done about as well, but we really don’t have any way to evaluate her job performance other than by looking at outcomes.

    Matthew, Great comment.

  28. Gravatar of Benjamin Cole Benjamin Cole
    4. October 2017 at 02:23

    Sometimes Trump actually blurts out a good idea.

    “Puerto Rico’s massive debt load will have to be wiped out, President Donald Trump said Tuesday in an interview with Fox News.

    “They owe a lot of money to your friends on Wall Street and we’re going to have to wipe that out. You’re going to say goodbye to that, I don’t know if it’s Goldman Sachs but whoever it is you can wave goodbye to that,” Trump said in a pre-recorded interview with Geraldo Rivera that aired on Sean Hannity’s show Tuesday night.”

  29. Gravatar of Benjamin Cole Benjamin Cole
    4. October 2017 at 03:43

    This chart shows median household income flat since 2000….


    They used to say, “You are entitled to your own opinion, but not your own facts.”

    I guess now they can say now, “You must share our opinion, and the facts are mutable.”

  30. Gravatar of Brian Donohue Brian Donohue
    4. October 2017 at 04:13


    Jeff Gundlach is recommending Neel Kashkari for Fed Chair.


    Sounds good to me. Thoughts?

  31. Gravatar of Jon Jon
    4. October 2017 at 11:09


    The chairman does have outsized influence in that he controls the staff presentation to the board. A Lars Svensson style dissent isn’t possible at the Fed because only the chair and vice chair have the staff resources to produce alternative scenario reports.

    The chairman has the power to direct the content of the staff presentation to tame the debate. So the chair is more important than one vote.

  32. Gravatar of Christian List Christian List
    4. October 2017 at 13:16


    True free market health care would be interesting. 

    As of now I think spending would explode even more while the quality of healthcare would decrease for a lot of people.

    Your suggestion reminds me of Singapore, an example that Scott and Tyler like to praise so much, at least in the past.

    Reality looks a bit grimmer:

    In a 1995 paper in Health Affairs, William Hsiao […] found that health care spending increased after the introduction of increased cost-sharing, which is not what most proponents of such changes would expect.


    Initially, Singapore let hospitals compete more, believing that the free market would bring down costs. But when hospitals competed, they did so by buying new technology, offering expensive services, paying more for doctors, decreasing services to lower-class wards, and focusing more on A-class wards. This led to increased spending.


  33. Gravatar of Christian List Christian List
    4. October 2017 at 13:20

    @Benjamin Cole
    Debt restructuring can be discussed but the negative effect would be less pressure to reform for Puerto Rico. They will just do the same old, same old as soon as the debt is gone. Their financial policy is extremely irresponsible with debt, how will it be without debt? I think just letting them off the hook would be a very bad idea.

    Not to mention that Trump won’t do anything about this anyway (like always). I assume the only thing he’s really doing (with his stupid comments about not paying debts) is driving refinancing costs up and up an up.

    But America should pay its debts or it will end up like a certain family in a certain TV show. Now at least that would be a Trump ending a lot of people could agree upon.

  34. Gravatar of Benjamin Cole Benjamin Cole
    4. October 2017 at 16:32

    Christian List: from academics we hear about moral hazard.

    In the real world private-sector, bankruptcy proceedings are common, and debts discharged. Every business operator and property developer knows they can declare bankruptcy, if necessary. They often do.

    Puerto Rico became a subsidized weakling due to US anti-Castro efforts and spending going back decades.

    Let Puerto Rico declare independence and go commie.

  35. Gravatar of Benjamin Cole Benjamin Cole
    4. October 2017 at 19:42


    Another just-published NBER paper on declining shares of labor income in developed nations

    Is labor share of income declining? Is the NBER repeatedly mistaken?

  36. Gravatar of ssumner ssumner
    4. October 2017 at 20:42

    Brian, Fine with me.

    Jon, I agree. But he’s still not all that powerful.

    Christian. Not sure why that’s “grim”

  37. Gravatar of ssumner ssumner
    4. October 2017 at 20:46

    Ben, Labor’s share of income is the same as in 1965. I presume you agree?

  38. Gravatar of Major.Freedom Major.Freedom
    4. October 2017 at 20:47

    “The CIA owns everyone of any major significance in the major media.” – Former CIA director William Colby.

    Remember this when you’re reading about Las Vegas.

  39. Gravatar of Benjamin Cole Benjamin Cole
    4. October 2017 at 20:54

    Christian List:

    A laugh on moral hazard:

    Declaring bankruptcy and walking away from your debts (behind the corporate shield) is common practice in the U.S.


    Jeez, there were 80,000 corporate bankruptcies in 1998, about 60,000 in 2008 and 20,000 a year now.

    The Founding Fathers borrowed heavily, as land buyers and farmers. They were big time debtors (read Thomas Jefferson). They actually included bankruptcy into the Constitution, and federalized it. They sympathized with debtors.

    A corporation today can even try for a Chapter 11, that is stiff-arming creditors but retaining control of the corporation and assets.

    It is deeply embedded into the American fabric, this right to declare bankruptcy and be discharged from debts. By use of the corporate shield, a debtor is doubly protected, and the most creditors can do is go after corporate (not personal) assets.

    I would say our bankruptcy code encourages moral hazard!

    So why do macroeconomists go into hysterics about moral hazard (in selective circumstances)?

    Have you ever heard a macroeconomist say corporate bankruptcy law ought to be radically curtailed, so as to reduce “moral hazard”?

  40. Gravatar of Major.Freedom Major.Freedom
    4. October 2017 at 20:57

    If you want to know where the rabbit hole might start, closely observe the photos published by the “authorities” of Stephen Paddock.

    If you can stomach it, look at the (supposed) photo of Paddock after he was shot.

    Look at the earlobes.

    The photos of Paddock alive show him as having earlobes that “connect” to his head, meaning no earlobes.

    The published photo of Paddock shot, show earlobes that don’t connect.

    In other words, the photo the “authorities” published claiming to be Paddock, is actually not Paddock at all. It is someone else.

    Disclaimer: I am not suicidal, I am of sound mind and happy.

  41. Gravatar of Benjamin Cole Benjamin Cole
    4. October 2017 at 21:06

    Christian List:

    I almost forgot—home mortgage in the US are non-recourse. Borrow a million to buy a house and can’t pay it back?

    No matter. Just walk away baby, just walk away.

    In Australia, home loans are recourse.

    So, in the US we believe in moral hazard, but hey if you can incorporate and declare bankruptcy that is fine, and you can walk away from your home too.

    Moral hazard applies when we say so.

  42. Gravatar of Randomize Randomize
    5. October 2017 at 08:12

    This is going to sound crazy, but I’m actually okay with the vast majority of the deductions out there. If the purpose of income taxes is to tax personal consumption, it makes sense that peoples’ consumption is reduced by the amount they spend on local taxes and business expenses.

    Of course, it would be way simpler if they just replaced the whole system with a progressive consumption (sales) tax or VAT but congress has never been about making things simple.

  43. Gravatar of Benjamin Cole Benjamin Cole
    5. October 2017 at 16:14

    Scott Sumner: I do not know about 1965. The studies do not go back that far, that I see.

  44. Gravatar of bill bill
    6. October 2017 at 15:16

    I have a problem with states, towns and territories incurring debt beyond cash flow management. That includes unfunded pension obligations. Puerto Rico highlights why. At this point, everyone between ages 20 and 50 with any earning power is going to leave. If you can’t issue currency, there is no way out if debt to GDP goes over 200%. It’s stupid and inhumane and wasteful to force a 50% population exodus before we admit that a haircut is needed.

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