Post published for http://gregmankiw.blogspot.com/, January 20, 2012
Several readers have asked me my opinion of SOPA, the Stop Online Piracy Act. I fear that in this case, the devil is in the details, so I find it hard to reach a strong view. But I have been disturbed by the relatively knee-jerk reaction of the anti-SOPA crowd. This is a hard issue, and when someone makes it sound easy, I feel like they haven’t thought it through very thoroughly.
The anti-SOPA crowd argues that this is a matter of basic liberty. But it’s not. In a free society, you don’t have the freedom to steal your neighbor’s property. And that should include intellectual property. Moreover, it is the function of the state to enforce those rights. We don’t leave it up to civil litigation to protect property rights (although that is part of the solution). We give the state substantial powers to stop theft. Just as owners of tangible personal property have good cause to call for a police force and a system of criminal courts, owners of intellectual property have good cause to ask the state to stop those who would infringe on their rights.
This is an important economic issue for the United States. We are large producers of intellectual property: movies, novels, software, video games, TV shows, and even economics textbooks. If offshore websites find a way to distribute this intellectual property without paying for it, it is as if organized crime were stealing merchandise from a manufacturing firm at the loading dock. It is neither efficient nor equitable.
Maybe SOPA goes too far. As I said, I am not knowledgeable enough about the details to judge. But we need something along these lines. Believers in free enterprise, property rights, and economic liberty should be among the most vocal advocates of laws to stop intellectual piracy.
Post published for http://gregmankiw.blogspot.com/, January 19, 2012
There has been a lot of discussion recently about tax progressivity. A few observations on the topic:
1. The U.S. personal income tax is generally progressive, and substantially so. Click here to see the numbers. The average tax rate for tax returns with over $1 million in income is 25 percent. The average tax rate for returns with income between $50,000 and $75,000 is 7 percent.
2. It is arguably better to use an average tax rate that is all-inclusive. That is, we should include not only personal income taxes but also payroll and corporate income taxes. CBO analysts regularly do that. They find a substantially progressive tax system, as I have pointed out before.
3. If we added transfer payments (which are essentially negative taxes), we would find an even more progressive fiscal system. Those data are harder to come by, as data on transfers are rarely integrated with data on taxes.
4. It make little sense to aggregate payroll taxes with personal income taxes and ignore corporate income taxes. A corollary: Paul Krugman should be more careful when reproducing graphs from partisan think tanks.
5. All of these calculations are static. They ignore the general-equilibrium effects that arise as the true burden of taxation is shifted by behavioral responses. In essence, these calculations are made under the implicit assumption that factors of production are supplied inelastically, so the tax stays where legislators put it. Of course, that assumption is implausible, especially in the long run. True general-equilibrium tax incidence is very hard, and as far as I know, reliable estimates on it are not readily available.
Published for www.gregmankiw.blogspot.com, January 10, 2012
About a decade ago, I wrote a paper on monetary policy in the 1990s (published in this book). I estimated the following simple formula for setting the federal funds rate:
Here “core inflation” is the CPI inflation rate over the previous 12 months excluding food and energy, and “unemployment” is the seasonally-adjusted unemployment rate. The parameters in this formula were chosen to offer the best fit for data from the 1990s. You can think of this equation as a version of a Taylor rule.
Eddy Elfenbein has recently replotted this equation. Here it is:
The interest rate recommended by the equation is the blue line, and the actual rate from the Fed is the red line.
Not surprisingly, the rule recommended a deeply negative federal funds rate during the recent severe recession. Of course, that is impossible, which is why the Fed took various extraordinary steps to get the economy going. But note that the rule is now moving back toward zero. As Eddy points out, “At the current inflation rate, the unemployment rate needs to drop to 8.3% from the current 8.5% for the model to signal positive rates. We’re getting close.”
Published for www.gregmankiw.blogspot.com, January 4, 2012
Bryan Caplan quotes a passage from Daniel Kahneman’s Thinking, Fast and Slow (which I have not read, but plan to):
A large-scale study of the impact of higher education… revealed striking evidence of the lifelong effects of the goals that young people set for themselves. The relevant data were drawn from questionnaires collected in 1995-1997 from approximately 12,000 people who had started their higher education in elite schools in 1976. When they were 17 or 18, the participants had filled out a questionnaire in which they rated the goal of “being very well-off financially” on a 4-point scale ranging from “not important” to “essential.”…
Goals make a large difference. Nineteen years after they stated their financial aspirations, many of the people who wanted a high income had achieved it. Among the 597 physicians and other medical professionals in the sample, for example, each additional point on the money-importance scale was associated with an increment of over $14,000 of job income in 1995 dollars!
In other words, one reason that people differ in their incomes is that some people care more about having a high income than others. To put it in geekspeak, preferences over pecuniary goods (say, consumption) and nonpecuniary goods (say, leisure) are heterogeneous. Bryan goes on to suggest that to the extent this is true, it weakens the case for income redistribution.
Published for www.gregmankiw.blogspot.com, January 3, 2012
One of the odd things about the blogosphere is that I often find myself being surprised by positions that are attributed to me. For example, Matthew Yglesias says:
Many proponents of low taxes on high-income individuals are “supply-siders” who claim that such a tax policy will maximize overall welfare. But other proponents of low taxes on high-income individuals such as Greg Mankiw deny that this is the relevant consideration, and simply say that progressive taxation is immoral.
If you follow the link that Mr Yglesias gives here, you will find it is to my paper “Spreading the Wealth Around: Reflections Inspired by Joe the Plumber.” Does this paper say that progressive taxation is immoral? No. In fact, while advocating what I call a “Just Deserts” approach to taxation, it says the following:
Public goods and Pigovian subsidies lead naturally to a tax system in which higher income individuals pay more in taxes. Surely, those with higher income and greater property benefit more from a governmental system that protects property rights. Moreover, the monetary value attached to other public goods (such as parks and playgrounds) and to positive-externality activities (such as basic research) very likely rises with income as well. Indeed, if the income elasticity of demand for these services exceeds one, as is plausible, a progressive tax system is perfectly consistent with the Just Deserts Theory.
Published for www.gregmankiw.blogspot.com, December 10, 2011
This is a talk from a few days ago, as part of the “Occupy Harvard” movement. Steve says a lot of interesting things here, and I agree with more than many in the audience might suppose. A main disagreement I have with Steve is pedagogical. I believe his critiques of mainstream economics should be presented after students have had a standard course like ec 10. That is, I would suggest Steve aim his course at sophomores rather than freshmen. If he did, he could attract a lot of economics majors who had just finished ec 10, rather than nonmajors who are avoiding it.
Chapter 19 of my favorite textbook has a case study on the economics of beauty, highlighting research by economist Dan Hamermesh. So I thought some blog readers might enjoy this Daily Show clip featuring Hamermesh and his work on this topic.
Published for www.gregmankiw.blogspot.com, October 26, 2011
Here is a fact that you might not have heard from the Occupy Wallstreet crowd: The incomes at the top of the income distribution have fallen substantially over the past few years.
According to the most recent IRS data, between 2007 and 2009, the 99th percentile income (AGI, not inflation-adjusted) fell from $410,096 to $343,927. The 99.9th percentile income fell from $2,155,365 to $1,432,890. During the same period, median income fell from $32,879 to $32,396.
These recent numbers illustrate a broader phenomenon, discussed in this paper, that high-income households have riskier-than-average income.
As the economy languishes, politicians and pundits are debating what to do next. When we look around the world, it’s hard to find positive role models. But as we search for answers, it is useful to keep in mind those fates that we would like to avoid.
The recent economic histories of four nations are noteworthy: France,Greece, Japan and Zimbabwe. Each illustrates a kind of policy mistake that could, if we are not careful, presage the future of the United States economy. Think of them as the four horsemen of the economic apocalypse.
Let’s start with Zimbabwe. If there were an award for the world’s worst economic policy, it might well have won it several times over the past decade. In particular, in 2008 and 2009, it experienced truly spectacular hyperinflation. Prices rose so fast that the central bank eventually printed 100 trillion-dollar notes for people to carry. The nation has since abandoned using its own currency, but you can still buy one of those notes as a novelty item for about $5 (American, that is).
Some may find it hard to imagine that the United States would ever go down this route. But reckless money creation is apparently a concern of Gov. Rick Perry of Texas, who is seeking the Republican nomination for president. He suggested in August that it would be “almost treasonous” ifBen S. Bernanke, chairman of the Federal Reserve, were to print too much money before the election. Mr. Perry is not alone in his concerns. Many on the right fear that the Fed’s recent policies aimed at fighting high unemployment will mainly serve to ignite excessive inflation.
