A Washington Post article today reports that letting the Bush tax cuts expire would nearly close the fiscal gap. This static logic misses two key dynamic aspects of the economy: (1) the political incentives that higher taxes bring about, and (2) the economic incentives of such policy. 1. Political Incentives. With higher revenues initially coming in from higher taxes, there would be a stronger political incentive to increase spending. That is, taxpayers have no guarantee that their higher tax payments would actually go to deficit reduction. If history is any …
The Global Entrepreneurship and Development Index (GEDI) report by researchers at the Small Business Administration shows that the U.S. may be slipping in its ability to sustain productive entrepreneurship relative to other countries. Entrepreneurship plays a critical role in the formation of any economy; it is the critical agent in the productive creation and destruction cycle necessary for any dynamic economy. Public policy creates an institutional environment that can encourage or discourage productive entrepreneurship. Government intervention, though, can also have an affect on societal norms and cultural attitudes. In the …
It takes investment to get sustainable economic growth. We can’t spend our way to growth. We have to save some of the stuff we make today and use it to create new, higher value, tomorrow. If we produce and consume it all, then our economy lives “hand-to-mouth” and we do not grow. Investing is risky. There is no guarantee that the investment will pay off. Investors weigh many possible scenarios when determining whether or not to make an investment. If the expected return on an investment does not meet an …
At Econbrowser, Dr. Menzie Chinn provides a succinct summary of my critique of CEA’s “Economic Impact of the Stimulus” report when he writes, “…these implied increments to growth rates do not jibe with the inferences drawn by Dr. Campbell — that the impact on GDP is much smaller than CEA asserts when using forecasts from the other agencies and firms.” (italics mine). My critique was that the CEA’s method for estimating the economic impact of the American Recovery and Reinvestment Act (ARRA) cannot be used to make a meaningful inference …
Question: How do we create jobs, increase economic growth, rebuild the nest egg of households, strengthen the competitiveness of the U.S. economy and increase tax revenues? A. Borrow trillions of dollars and hire workers and specify that these workers must be from the United States. B. Create a new industry by making carbon emissions a scarce good so that new “green” jobs can displace jobs in polluting industries. Create a complicated trading system and allowance allocation to create “administrative” jobs, jobs for lobbyists and jobs for lawyers. C. Raise taxes …
Congress is lining up the list of suspects to assign blame for the financial crisis. However, all of the obvious suspects — the Fed, Fannie and Freddie, mortgage companies, banks and borrowers — have been players in the mortgage market game for years. Why is there a crisis now? Perhaps it was because they were playing by a new set of rules. To make sense of real world events, economists commonly study the interactions between people or groups through the lens of game theory. Many may be familiar with game …
Why is the price of oil a difficult concept for some on the left? They want to come up with some grand conspiracy theory and rush to command-and-control legislation claiming that Americans have a “right to lower gas prices.” This is at best silly but at worst dangerous. This mentality hinders future economic growth by giving people a victim mentality and stifles the entrepreneurial spirit by making it seem as though government is the only one who can solve the problem. Congress is now fixated on speculators. If Congress wants …
