Josh Barro on market monetarism

Here’s Josh Barro in Business Insider:

In Europe, governments are implementing austerity and watching their economies slip back into recession, but here, the results have been … not horrible. Economic growth and job growth are still too slow, but they’re not any slower this year than last year. Monetary policy has made all the difference.

So it makes perfect sense that Scott Sumner responded to the round of liberal self-back-patting with a list of recent problems for the liberal perspective on economic policy, particularly this: “The left predicts fiscal austerity will slow the recovery, and yet both GDP and jobs are actually a bit ahead of the 2012 pace so far this year.” In other words, it’s looking more and more like Sumner and other market monetarists are right, and loose monetary policy is a viable substitute for loose fiscal policy.

Liberals don’t like this observation. They want to keep the business cycle discussion focused on the terribleness of fiscal austerity because they oppose austerity for reasons unrelated to the business cycle “” they see it as threatening progressive programs they favor and preventing the creation of new ones. Relatedly, liberals don’t actually oppose all fiscal austerity. They cheered for the expiration of the Bush tax cuts on the wealthy and mostly shrugged at the end of the payroll tax holiday. It’s only domestic spending cuts that are really getting the left riled, because they don’t want to cut spending.

All this is not to say that sequestration is a good idea or that fiscal stimulus is useless. Both the fiscal and the monetary channels work to stimulate the economy, and because they are both subject to practical and political limits, we shouldn’t close either one off. I also recognize that there are excellent arguments for not cutting food stamps that don’t relate to the business cycle. My point is simply that liberals, like conservatives, want to push their long-term policy agenda under the guise of addressing short-term economic problems “” and the reformist conservatives, by being right about monetary policy, have interfered with their ability to do so.

But while market monetarism is the shining success of the conservative reform movement, it also points to trouble for the reformists. We have had zero success in convincing Republican elected officials that easy money is ever a good idea. The Republican party has gotten, if anything, more rabidly afraid of inflation and more flirtatious with the idea of returning to a gold standard. The 2012 Republican National Convention adopted a platform calling for a “commission to investigate possible ways to set a fixed value for the dollar.

I generally call myself a “pragmatic libertarian” or “right wing liberal” rather than conservative.  But if all conservatives were as sensible as Barro and his fellow reformers, I’d be glad to consider myself a conservative.  A few comments:

1.  I believe fiscal policy can play a role, but primarily on the supply-side (employer-side payroll tax cuts, etc.)

2.  I don’t believe the GOP has suddenly become inflation hawks.  In 2012 Gov. Perry indicated that he was concerned that QE could help Obama be re-elected.  They were silent when inflation was even higher under the Bush administration.  If the GOP were in power, the WSJ would be taking the same position that they took when Reagan was running for re-election in 1984, when they criticized the Fed for excessively tight money, despite an inflation rate more than double the level we’ve seen under Obama.  I’m quite optimistic that market monetarism can eventually become the standard conservative position on monetary policy.

3.  Barro also discusses other issues such as taxes, and cites a post by James Pethokoukis.  Both argue for more realism on taxes, and point out (correctly in my view) that the flat tax idea will not sell in America.  I’d encourage the reformers to think big.  Long term the GOP is in a strong negotiating position, as the Dems will be reluctant to enact a VAT without GOP support.  Go for a grand bargain where the GOP gives in on revenues and progressivity, in exchange for replacing the income tax with a progressive consumption tax.  The GOP should reject any proposal that doesn’t result in a system where 90% of Americans do not have to fill out any tax forms.  Abolish the income tax.  Collect revenue with a 20% VAT that exempts the poor (i.e. rebates 0.20X$15,000) and has a progressive payroll tax that starts negative (EITC) and tops out at around 50% to 60%.

Evan Soltas has a good defense of consumption taxes.

David Levey (and several commenters) sent me this piece from Simon Wren-Lewis:

With perverse fiscal policy and uncertain unconventional monetary policy, we need to raise inflation expectations as a means of overcoming the ZLB and raising demand. Here I agree with Christina Romer: we need to indicate something rather more fundamental than the kind of marginal change implied by the forward guidance we currently have in the US and are likely to have soon in the UK. My proposal is therefore the adoption of a target path for the level of NGDP that monetary policy can use as a guide to efficiently achieving either the dual mandate, or the inflation target if we are stuck with that. NGDP would not replace the ultimate objectives of monetary policy, and policymakers would not be obliged to try and hit that reference path come what may, but this path for NGDP would become their starting point for judging policy, and if policy did not move in the way indicated by that path they would have to explain why.
To some supporters of NGDP targets this advocacy may seem a little wimpish. Why limit NGDP to an intermediate target that can be overridden? Given the problems with NGDP targets that I mention above, it would I believe be foolish to force monetary policymakers to follow them regardless. In general I think intermediate targets should never supplant ultimate objectives, and NGDP is an intermediate target.
Doesn’t seem wimpish to me; I think it’s a great idea.  But I disagree slightly on the “ultimate objectives.”  NGDP is a better proxy for the “welfare costs of inflation” than inflation itself.  So I’m more comfortable than Wren-Lewis with NGDP being the ultimate target.

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46 Responses to “Josh Barro on market monetarism”

  1. Gravatar of Ashok Rao Ashok Rao
    4. June 2013 at 13:29

    “Barro also discusses other issues such as taxes, and cites a post by James Pethokoukis. Both argue for more realism on taxes, and point out (correctly in my view) that the flat tax idea will not sell in America. I’d encourage the reformers to think big. Long term the GOP is in a strong negotiating position, as the Dems will be reluctant to enact a VAT without GOP support. Go for a grand bargain where the GOP gives in on revenues and progressivity, in exchange for replacing the income tax with a progressive consumption tax. The GOP should reject any proposal that doesn’t result in a system where 90% of Americans do not have to fill out any tax forms. Abolish the income tax. Collect revenue with a 20% VAT that exempts the poor (i.e. rebates 0.20X$15,000) and has a progressive payroll tax that starts negative (EITC) and tops out at around 50% to 60%.”

    Scott, that few individuals should have to fill out any taxes, ever, is the algorithm I use to advocate this tax policy (http://ashokarao.com/2013/05/08/radical-centrism-and-the-return-of-ricardo/). I’d like your thoughts. Yglesias advocates it and supports similar land and mineral proposals here: http://www.slate.com/blogs/moneybox/2013/05/10/back_to_the_classics.html

    Mine includes a 10% progressive consumption tax to make up for the last bit of revenue, but more as a stop gap. 8% of the revenue comes from nationalizing oil/gas companies (I argue that any inefficiency here is good as P < MSC) and this is a lowball estimate. 7% from carbon taxes and this again takes the low $20 per ton, I'd prefer a lot more. 75% from site value taxes makes the whole code.

    It eliminates corporate, capital, income taxes, and sales taxes. If we first tax everything that's "bad" (pollution, oil, etc.), then tax everything that's inelastic (land), and only tax wages as a last resort I think we have a very good tax code.

    It also makes fiscal stimulus very transparent. When we enter a recession the government should just finance the last 10% via deficits and enter a payroll tax holiday completely. This has SRAS and AD benefits.

  2. Gravatar of Ashok Rao Ashok Rao
    4. June 2013 at 13:33

    FWIW, this would also be far more immigration friendly with a low progressive consumption tax. Skilled wages are nearing parity in India/China and I personally know quite a few people hesitant to move to the US because of high taxes.

    These are the same people that would likely, in the future after they’ve built a nest egg, succumb to high land, carbon, and mineral taxes. But hyperbolic discounting ensures they’re more worried about what % is chopped from their first paycheck rather than wealth effects later on.

  3. Gravatar of F. Lynx Pardinus F. Lynx Pardinus
    4. June 2013 at 13:51

    “But if all conservatives were as sensible as Barro and his fellow reformers, I’d be glad to consider myself a conservative.”

    Considering that Josh Barro is currently in the process of being purged from “true conservatism” (I assume it involves epaulette stripping and sword breaking), I wouldn’t get too excited just yet.

  4. Gravatar of Bill Ellis Bill Ellis
    4. June 2013 at 14:42

    “”The left predicts fiscal austerity will slow the recovery, and yet both GDP and jobs are actually a bit ahead of the 2012 pace so far this year.” ”

    Well … a bit head ! Case closed. I guess.

  5. Gravatar of Bill Ellis Bill Ellis
    4. June 2013 at 14:50

    “It’s only domestic spending cuts that are really getting the left riled, because they don’t want to cut spending.”

    There is some truth to this. Nobody is imune from their biases distorting their views. But it is not the whole truth, or even the bulk of it…

    Even though M&Ms don’t believe in Keynesian multipliers it would be fair to remember that we do. And their is a lot of work that shows that putting money into the hands of people that MUST spend it, are some of the most efficacious approaches.

  6. Gravatar of Paul Paul
    4. June 2013 at 14:58

    “1. I believe fiscal policy can play a role, but primarily on the supply-side (employer-side payroll tax cuts, etc.)”

    “Replacing the income tax with a progressive consumption tax.”

    That makes you a conservative because you more on the right (and revolutionary) that the neoconservatives and the liberal-conservatives: https://en.wikipedia.org/wiki/Liberal_conservatism https://en.wikipedia.org/wiki/Neoconservatism

    Welcome to the club! http://archives-2001-2012.cmaq.net/files/10655.jpg

  7. Gravatar of jknarr jknarr
    4. June 2013 at 15:01

    Scott, would it be fair to say that: tight money (less base provided to the economy than demanded) creates high leverage, by lowering NGDP income on the cash flow side, and encouraging debt via lower yields?

    In other words, insufficient base money availability forces the production of leverage. Empirically, the Fed has been tight since 1980 or so, and has never let up – low yields and high leverage is the result.

    Isnt this just as much a policy choice just as the fiscal / anti inflation red herring? Neither liberals or conservatives choose to debate this core macro policy (an overly tight Fed).

    Tight money is very likely both injuring the labor market and boosting the present value of yield bearing financial assets. Tight money – resulting in higher stocks, lower yields, greater unemployment, and higher debt appears to be the policy choice for both parties, regardless of who is in power.

    This is an enirely false debate between liberal or conservative policies – nobody is addressing tight money, and ignorance isn’t much of an excuse.

  8. Gravatar of Bill Ellis Bill Ellis
    4. June 2013 at 15:08

    Ashok Rao,

    I am a huge fan of your proposal @… http://ashokarao.com/2013/05/08/radical-centrism-and-the-return-of-ricardo/

    I have always liked this kind of approach…(A very conservative approach) but the numbers never added up…unless one will willing to slash the welfare state. But if we Nationalize Oil & Gas Companies as you suggest… PRESTO !

    (HEY conservatives…There is A LOT more to Ashok’s post, don’t write it off because of this bit. READ IT. )

    Brillant post. Too bad you Idea is politically impossible… for now.

  9. Gravatar of Bill Ellis Bill Ellis
    4. June 2013 at 15:15

    OH…Erick Erickson is a huge idiot.

    http://www.redstate.com/2013/06/04/on-conservative-reformers/

    And Barro’s response…
    http://www.businessinsider.com/erick-erickson-shows-the-worst-in-gop-2013-6

  10. Gravatar of Ashok Rao Ashok Rao
    4. June 2013 at 15:56

    Bill, thanks 🙂 I see it as a compromise that’s hopefully possible in the future. 24% GDP tax rate will easily allow up to 26% spending which will broadly save our welfare state and provide safety net liberals want without being so generous as to loose the efficiency right-wingers desire.

    People like Reihan Salam have supported 23% government spending in the future, and this is pretty close to that. The big obstacle is working with local governments to overhaul the property tax which funds education as we have it.

    Though I do see locally-funded education as a big driver of intergenerational inequality.

  11. Gravatar of Michael Michael
    4. June 2013 at 17:07

    For me, the “money quote” in that Wren-Lewis post was this:

    “What I first do is compare targeting the level of NGDP to an ideal discretionary monetary policy. That is a demanding standard of comparison, but I argue that NGDP targets have the potential advantage over discretion that they may allow central banks to pursue a time inconsistent policy after inflation shocks that would otherwise be politically difficult (see this post). [b]More speculatively, the uncertainty for borrowers of NGDP variation may be more costly than uncertainty over inflation[/b], as Sheedy argues (see this post).”

    That’s getting at Scott’s comment (“NGDP is a better proxy for the “welfare costs of inflation” than inflation itself.”), though he doesn’t say it as strongly.

    If we didn’t have the stupidity of the payroll tax (Barro has written on this, too) , we could eaily have a flatter *and* more progressive tax code (and eliminates some of the phaseouts that can be costly for low income workers).

  12. Gravatar of Ed Ed
    4. June 2013 at 17:42

    Not related to this post, but I thought you might find it interesting:

    “Abe would target annual gains of 3 percent or more in gross national income per capital, increasing incomes by more than 1.5 million yen”

    http://www.reuters.com/article/2013/06/05/us-japan-economy-arrow-idUSBRE95400R20130605

  13. Gravatar of Ricardo Ricardo
    4. June 2013 at 19:08

    Off thread topic

    Three very recent examples of heavy-hitters all saying the same thing, which basically is:

    Monetary policy can’t completely offset inept fiscal policy,
    nor cure some structural bottlenecks. And, to keep MP going all-out may risk CB credibility, etc.

    – 2013-06-04: Dallas Fed’s Dick Fisher speech:
    http://www.dallasfed.org/news/speeches/fisher/2013/fs130604.cfm

    “… our fiscal authorities and regulation makers the legislative and the executive will reorganize the tax code, spending habits and the regulatory regime so that the cheap and abundant money we at the Fed have made available to invest in job-creating capital expansion in the United States is put to use. Until then, I argue that the Fed is, at best, pushing on a string and, at worst, building up kindling for speculation and, eventually, a massive shipboard fire of inflation.”

    – 2013-06-04: PIMCO’s Mo El-Erian in Project Syndicate
    http://ht.ly/lGPFB

    “By extending well beyond their comfort zone, todays central banks face unusual brand-management risks. Their prior ability to deliver on promises and expectations has made today financial markets take the forward pricing of the economy to levels that exceed what central bankers alone can reasonably deliver.

    The implication is not that central banks should immediately halt their hyper-activism and unconventional measures. It is that they should be much more open about the inherent limitations of their policy effectiveness in current circumstances.”

    – 2013-05-29: Volcker speech at Econ Club of NY:
    http://econclubny.com/events/Transcript_VolckerMay2013.pdf

    Managing the supply of money and liquidity “to accommodate misguided fiscal policies, to deal with structural imbalances, [or] to square continuously the hypothetical circles of stability, growth and full employment” was a risky proposition for the Federal Reserve and warned that in attempting to do so, the Fed “will inevitably fall short”. He even referenced “pushing on a string.”

  14. Gravatar of ssumner ssumner
    4. June 2013 at 19:14

    Ashok, Why nationalize oil companies? Mexico did that and it’s been a disaster. The US has amazingly skilled energy producers, far and away the best in the world. I do support a carbon tax, however.

    Lynx, I assure you that Barro is quite popular among conservative intellectuals.

    jknarr, I agree about the false debate, but I’m not sure that tight money leads to leverage. Yes, low real rates encourage leverage, but more pessimism about NGDP growth discourages it. So I’m not sure.

    Bill, Barro’s response to Erickson was excellent. I’d never even heard of Erickson, but he sounds pretty lame.

    Ashok, Do you know of a single study that suggests spending money on education more equitably would reduce inequality? Isn’t it true that when they’ve raised spending dramatically in low income areas the results have been almost nonexistent?

  15. Gravatar of ssumner ssumner
    4. June 2013 at 19:20

    Ricardo, So they all think monetary policy is currently expansionary? On what basis?

  16. Gravatar of Ricardo Ricardo
    4. June 2013 at 19:36

    Here’s my pure speculation:

    Q: Why are they saying this ?

    A: Because their general feeling is most asset markets (not just equities) are “a bit out over their skis.” (I won’t go on about why)

    Q: Why do they feel they need warn the markets that CBs can’t deliver perfection in this environment ?

    A: They’re thinking there’s a better than even chance we’ll see “less than good” economic data during some part of June, July and Aug 2013. If so, any slowdown will then be blamed on fiscal policy. To which, the CB says “we told you so”,

    Bottom line: CB is pre-positioning to deflect blame from a potential summer slowdown so as to guard their most valuable asset: credibility.

    PS: I never used the word bubble, OK?

  17. Gravatar of ssumner ssumner
    4. June 2013 at 19:53

    Ed, They never say whether he meant real or nominal. In practice, I’d guess the two will be highly correlated for the next few years.

    Ricardo, But why would a slowdown be a bad thing–in Fisher’s eyes? He says he wants QE to fail, so we can assume he doesn’t see a shortfall of AD.

  18. Gravatar of Ricardo Ricardo
    4. June 2013 at 20:18

    ssumner: Well sir, unlike you, I am a mere mortal who requires sleep…maybe later I could provide an answer.

    One last thing, I certainly admire your super-human ability
    to engage in endless debate with a wide-range of ignorant, clueless, sometimes abrasive commenters. KUDOS for that alone.

  19. Gravatar of Daniel J Daniel J
    4. June 2013 at 21:21

    Krugman just responded. Basically disagrees with MM theory completely. I wonder if he’s going to post a follow up on that point and what data from FRED he’ll use to attack MM. At this point going on about interest rates won’t prove anything.

  20. Gravatar of jknarr jknarr
    4. June 2013 at 21:49

    Scott, consider microeconomys that are intermittently cash-poor. Here, they bridge activity with debt when cash is not available. Then a periodic cash infusion clears balances. The parallels with base money and the economy applies on a macro scale as well, I feel. Base money-scarce economies clear through debt formation. This debt ultimately extinguishes via default (liquidate the farms) or base money acquisition/provision (elastic provision of base).

  21. Gravatar of Benjamin Cole Benjamin Cole
    4. June 2013 at 21:55

    As usual, excellent blogging.

    I am a big fan of KISS (keep it simple stupid).

    Ergo, I like not VAT taxes but a simple national retail sales tax, maybe at 10 percent, and Pigou taxes (and yes, what is a sin, but pollution, drugs, guns, gasoline, cigarettes, and expensive hair parlors could certainly be double-taxed). Drop all income taxes, and cut federal spending radically (especially the military and Medicare).

    But, really, it all comes back to monetary policy. We can do all that and if the Fed keeps a noose around the next of the economy…..

  22. Gravatar of Egor Duda Egor Duda
    5. June 2013 at 00:06

    Long-time reader and fan, first-time commenter.

    I believe that a situation when 90% of taxpayers don’t have to fill any tax forms have some drawbacks.
    I live in Russia, where most people never filled any tax forms, as their taxes are payed either by their employers (income and pension taxes), or automatically included in their receipts (VAT). Some argue that this leads to most people never considering themselves as taxpayers, and so having much lower level of civic engagement.
    I understand that if one thinks at the margin, tax systems in US and Russia are hardly comparable, but as your proposal seems quite radical, I wonder what do you think about its possible consequences from the point of view of political economy?

  23. Gravatar of Michael Michael
    5. June 2013 at 02:35

    Ben,

    Why wouldn’t a “simple” national sales tax simply force many transactions into a black market?

  24. Gravatar of Saturos Saturos
    5. June 2013 at 03:22

    Welcome to Market Monetarism Dr. Wren-Lewis!

  25. Gravatar of Ashok Rao Ashok Rao
    5. June 2013 at 03:49

    Scott you said: “Ashok, Why nationalize oil companies? Mexico did that and it’s been a disaster. The US has amazingly skilled energy producers, far and away the best in the world. I do support a carbon tax, however.”

    I don’t think Mexcio is the right comparison because America has an unbeatable technological and bureaucratic might. It would be sad that “but Mexico failed” ever stopped us.

    As for the *why*, I don’t think any private individuals have a right to profit from land and mineral resources. Do you think Qatar is a rich and creative economy? There’s *nothing* innovative about turning a capital stock (land) into cash flow and calling it GDP. So to the extent we do it, the gains might as well be socialized and used to finance a tax cut on productive ends (like capital accumulation).

    The only two arguments against this are philosophical idea of private property, which I reject for minerals (as do many other advanced countries, like Sweden) and efficiency. Inefficiency in oil production is just an implicit carbon tax. So that’s fine with me.

    “Ashok, Do you know of a single study that suggests spending money on education more equitably would reduce inequality? Isn’t it true that when they’ve raised spending dramatically in low income areas the results have been almost nonexistent?”

    Education reform strikes me as a lot more complicated than just spending. (For example, even PPP-adjusted terms top Indian schools cost $6000 a year. That’s unimaginable for most Indians, but cheaper per capita than many American schools).

    But there are two possibilities – rich public schools do better because they spend more, or they do better because of some institutional and cultural “other” factor. (Or both). If it is the former, locally-funded education increases inequality. If it is the latter, there are a lot of wasted resources (what’s the point of paying more, otherwise).

    More likely, it’s both, and that requires an overhaul of unions, testing, etc.

    By the way, I don’t agree “American education sucks”, but that’s another argument. Education is tangential to my point that if a national LVT is implemented, local educational financing will have to be altered.

    I would prefer that at least there was more central command at the state, even if not federal, level.

    Any taxation algorithm should move from:
    Primary: Tax bad things to the greatest extent possible (carbon, pollution, etc.)
    Secondary: Tax useless things to the greatest extent possible (land value minus improvements and capital depreciation, oil, etc.)
    And only in last resort: Tax useful things progressively (income, capital, inheritance)

    We’ve screwed it all up – we’re doing precisely the opposite. The biggest argument for a carbon tax is *not* “save the climate”, necessarily. It’s if we’re going to gain a tax dollar, it’s better it come from emitting less carbon than engaging in less productive/creative labor.

    It’s better it come from land encouraging only density/improvement than capital investment.

    That’s precisely the metric I use to design my argument.

  26. Gravatar of Browsing Catharsis – 06.05.13 | Increasing Marginal Utility Browsing Catharsis – 06.05.13 | Increasing Marginal Utility
    5. June 2013 at 04:00

    […] “Josh Barro on Market Monetarism.” […]

  27. Gravatar of ssumner ssumner
    5. June 2013 at 04:27

    jknarr, I’m afraid I didn’t follow that argument.

    Ben, I also favor Pigou taxes.

    Egor. I think the solution there is to make the tax system both simple and transparent. Thus the full burden of taxes should be put on to employees; there should be no employer-side payroll taxes, which consumers don’t see.

    Saturos, Yes, but there’s much more to MM than NGDP targeting. I’d guess he’s still Keynesian.

    Ashok, You said;

    “As for the *why*, I don’t think any private individuals have a right to profit from land and mineral resources. Do you think Qatar is a rich and creative economy? There’s *nothing* innovative about turning a capital stock (land) into cash flow and calling it GDP.”

    In Qatar the government does own the mineral rights. But the US system is far better than other countries precisely because the land is privately owned. Why hasn’t Europe had a fracking boom? US energy companies have been incredibly innovative, just the opposite of what you claim.

    As far as our “bureaucratic might,” that’s exactly what worries me.

    And why not support an land tax? Why nationalization?

  28. Gravatar of Ashok Rao Ashok Rao
    5. June 2013 at 05:56

    “And why not support an land tax? Why nationalization?”

    Well ideally I’d want to tax 100% of profits from oil/gas which would fall on the extreme of Laffer. Might as well nationalize!

    And shale boom isn’t happening in Europe for many other reasons, this is a case where US can just use eminent domain and get its way, imho. My point about Qatar is we don’t consider them productive just because they have a GNI of 100k or whatever. Therefore I don’t consider it as taxing a “productive” activity like becoming an engineer and then paying 40% in taxes.

    Bureaucratic might is worrisome, but it’s here, may as well use it (at least the comparison with Mexico seems untenable, and for the better?)

    US energy companies have been innovative, but just in reaching even more minerals efficiently. Fracking is highly innovative and brilliant, but in the sense that we can become even more extractive (rather than intensive).

    I also view nationalization as a way of curbing tail risk disasters like oil spills and pipe leaks.

  29. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    5. June 2013 at 07:07

    ‘Abolish the income tax. Collect revenue with a 20% VAT….’

    It would take a constitutional amendment to abolish the one that established the income tax. With a 20% VAT you’d have massive tax evasion. It happens now with state sales taxes on big ticket items like used cars, and services like landscaping.

  30. Gravatar of Felipe Felipe
    5. June 2013 at 07:32

    Scott, how do you reconcile a progressive consumption tax with a no-tax-forms policy most people? My imagination seems to be lacking, but I can’t devise a way for the government to know your consumption without you declaring savings + income (and specifying how to get the rebate).

    Or do you mean that the government could pre-fill the form for most people? This is currently done in many places, but the US seems to have been negatively affected by lobbying in this particular case:

    http://arstechnica.com/business/2013/03/how-the-maker-of-turbotax-fought-free-simple-tax-filing/

  31. Gravatar of Felipe Felipe
    5. June 2013 at 07:34

    On the topic of the nationalization of oil (and other natural resources), there is a good argument to be made that moving stuff from under the ground to above the ground is not much value added. Mineral extractors are effectively extracting rents from their monopolistic rights to access the underground minerals and transforming them into above-the-ground minerals. I see a strong case to be made that resource extractors should at least be treated like public utilities.

  32. Gravatar of Bill Ellis Bill Ellis
    5. June 2013 at 08:56

    Patrick R. Sullivan,

    Just because the Constitution provides for the ability to levy an income tax does not obligate the government to collet one.

  33. Gravatar of Chuck E Chuck E
    5. June 2013 at 09:57

    Bill,

    Correct, but without taking it out of the Constitution, we would always need to worry about the government using consumption taxes AND income taxes.

  34. Gravatar of Bill Ellis Bill Ellis
    5. June 2013 at 13:52

    The reason a person is a liberal or a conservative has little to do with what we know… but everything to do with what we fear.

  35. Gravatar of Bill Ellis Bill Ellis
    5. June 2013 at 13:59

    There is always an abundance of irrational fear everywhere .

  36. Gravatar of ThomasH ThomasH
    5. June 2013 at 14:57

    I thought that a progressive consumption tax (that is still progressive when combined with Pigouvian taxation of negative externalities) was the holy grail for liberal fiscal policy. If conservatives also favor it, that means that the only remaining disagreement is what size income transfers are desirable.

  37. Gravatar of ThomasH ThomasH
    5. June 2013 at 15:07

    The correct liberal position on “stimulus” during recession would be to increase expenditures as dictated by a) previously agreed means tested formulas, b) additional investment projects that become profitable as the real interest rate falls and c) transfers to states and local governments to prevent their reducing expenditures as tax revenues fall.

  38. Gravatar of ssumner ssumner
    5. June 2013 at 15:52

    Ashok, I have no idea what your Laffer comment refers to. Are you saying you favor zero output?

    You said:

    “And shale boom isn’t happening in Europe for many other reasons, this is a case where US can just use eminent domain and get its way, imho.”

    No it’s not, why do you say that?

    Patrick, I agree, but there is equally massive evasion from the income tax.

    And it doesn’t take a constitutional amendment to abolish the income tax, although I’d certainly favor such an amendment.

    Felipe, You said;

    “On the topic of the nationalization of oil (and other natural resources), there is a good argument to be made that moving stuff from under the ground to above the ground is not much value added.”

    Not even close. The energy industry is incredibly sophisticated and competitive, at least in the US. In Saudi Arabia you would have an argument.

    A payroll tax is identical to a VAT, and can be made progressive. Just take the currently regressive FICA tax and turn it into a progressive system.

    Chuck, You said;

    “Correct, but without taking it out of the Constitution, we would always need to worry about the government using consumption taxes AND income taxes.”

    We already have that fear.

    Thomas, Unfortunately lots of liberals are now moving away from support for a progressive consumption tax. I’m not sure how many conservatives support it. It certainly is the most popular tax idea among both liberal and conservative tax experts.

  39. Gravatar of Ashok Rao Ashok Rao
    5. June 2013 at 16:17

    Scott I think you’re right. Mineral right auctions (or leases on certain tracts of land, at very high prices) might work better, would you support that? So any competitive innovation on top is fine, but the raw resource is all socialized.

    Two things, I don’t necessarily think the extra inefficiency is bad (it’s basically a carbon tax), and nationalization gives government a lot more transparent oversight. I do worry about spills and leaks, which are difficult to “price”.

  40. Gravatar of TallDave TallDave
    5. June 2013 at 18:37

    In 2012 Gov. Perry indicated that he was concerned that QE could help Obama be re-elected.

    You misunderstand Perry, when he said he felt monetary expansion would be interfering in the election it was with the understanding that there would be growth+employment now, inflation later. He did not by any stretch think it was a good policy for the country.

    He was wrong, of course. Just keep in mind Republicans are usually (slightly) more honest about their policies than Democrats, if only because they have more incentive.

  41. Gravatar of ssumner ssumner
    6. June 2013 at 06:58

    Ashok, I see no gain from socializing resources. The Constitution requires you to pay market compensation–so it’s a wash.

    And even if the constitution did not require compensation, it would be the right thing to do.

    TallDave, He was only objecting because Obama was the incumbent. If Bush had been in office he would not have been complaining. Indeed he did not do so in 2008, despite much higher inflation.

  42. Gravatar of Ashok Rao Ashok Rao
    6. June 2013 at 08:56

    “And even if the constitution did not require compensation, it would be the right thing to do.” Alright, then we axiomatically disagree. Mineral auctions to something completely inelastic is something that will not cause any welfare loss outside of any frictions, unlike any other form of tax (except land) including VAT.

    Also, I don’t see how any one person has a right to basic fossil minerals more than someone else.

  43. Gravatar of ssumner ssumner
    7. June 2013 at 06:34

    Ashok, You said:

    Also, I don’t see how any one person has a right to basic fossil minerals more than someone else.”

    Really, what if they bought the minerals with their hard-earned money?

    Or what if they devoted hage amounts of resources to discovering the minerals?

  44. Gravatar of F. Lynx Pardinus F. Lynx Pardinus
    7. June 2013 at 10:55

    As an aside, Josh Barro wrote “I’m Not A Conservative And You Shouldn’t Be One Either” yesterday:
    http://www.businessinsider.com/conservatism-is-the-problem-2013-6

  45. Gravatar of Ashok Rao Ashok Rao
    8. June 2013 at 10:26

    “Really, what if they bought the minerals with their hard-earned money?

    Or what if they devoted hage amounts of resources to discovering the minerals?”

    I don’t see why they have a right to buy the minerals from anywhere but the government. I take a Benthamite view to property (and imagine most modern people except the most classical of liberals do as well).

    If you create an idea, I can fully understand the moral argument against taxation. If you turn something physical into something more valuable (sand into computer chips) I can fully understand the moral argument against taxing the value-added.

    I simply cannot understand the Lockean idea that property comes from cultivation thereof. At least not in our context.

  46. Gravatar of It's Not Apple's Fault For Not Paying it's Taxes, it's Our Fault For Asking Them To | Last Men and OverMen It's Not Apple's Fault For Not Paying it's Taxes, it's Our Fault For Asking Them To | Last Men and OverMen
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