Chapter 12: The Design of the Tax System
Archived Posts
August 26
How large is the fiscal hole?
The Concord Coalition projects that the federal debt will grow by $14 trillion over the next decade.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”
August 22
Preview of the Midsession Review
Federal debt is expected to increase by $9 trillion over the next decade.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”
August 21
We are all supply-siders now
David Leonhardt and Geraldine Fabrikant argue that in the three decades after WWII, high marginal tax rates reduced the pre-tax income of the rich.
Textbook References:
Pages 7-8 “Principle 4: People Respond To Incentives”
Pages 169-171 “The Laffer Curve and Supply-Side Economics”
Chapter 12 “The Design of the Tax System”
August 19
Blanchard on the Outlook
Olivier Blanchard notes that in previous banking crises, output does not return to its previous growth path. It remains below it, though the average growth rate returns to what it was.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 550-554 “Economic Growth Around the World”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 740-742 “Three Key Facts About Economic Fluctuations”
August 13
Ken’s Dystopia
Kenneth Rogoff argues that Western governments will have to raise taxes, inflate their economies, default on their debt, or do some of each.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
July 20
Is “Deficit Neutrality” too Easy a Test?
Making health-care reform deficit neutral does nothing to reduce the long-term fiscal gap.
Textbook Reference:
Pages 246-248 “The Fiscal Challenge Ahead”
July 11
More Fiscal Stimulus?
Paul Krugman makes the case for another stimulus package. Phil Levy makes the case against another package.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
July 9
Lazear on Fiscal Stimulus
Edward Lazear notes that very little of the stimulus package has actually been spent. He claims that it is primarily an excuse to expand the size of government.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
July 02
Old Speeches, New Policies
Blogger Mark Thoma uses a speech Mankiw gave six years ago to defend Obama’s deficit spending. But Mankiw’s speech emphasizes that a deficit caused by spending may have a different long-term effect than a deficit caused by tax cuts.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 838-841 “Should the Government Balance Its Budget?”
Pages 842-843 “Dealing with Deficits”
June 23
Financial Crisis Timeline
The New York Fed presents domestic and international timelines for the financial crisis.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 649-653 “Banks and the Money Supply”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 589-593 “Policy 3: Government Budget Deficits”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 838-841 “Should the Government Balance Its Budget?”
June 08
Randy and Phill
There is a video of former Fed governor Randy Kroszner and former assistant Secretary of the Treasury Phill Swagel as they discuss the policy actions taken during the financial crisis.
Textbook Reference:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 649-653 “Banks and the Money Supply”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 838-841 “Should the Government Balance Its Budget?”
May 30
Ferguson Takes on Krugman
Historian Niall Ferguson argues that the recent rise in interest rate on long-term Treasury bonds is evidence that Krugman is wrong that expansionary fiscal policy will not drive up interest rates.
Textbook Reference:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 838-841 “Should the Government Balance Its Budget?”
May 27
The Yield Curve is Steep
The yield curve that shows the difference between the yields on two year and ten year Treasury bonds has a large positive slope. In the past, this has signaled an end to recessions.
Textbook Reference:
Pages 576-577 “The Bond Market”
John Taylor is Worried
John Taylor is concerned that the U.S. federal debt is growing too large. Among other things, it jeopardizes the country’s credit rating.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
May 20
The Fiscal Future, Again
A graph from the CBO shows how demographics and rising health-care costs will cause Social Security, Medicare and Medicaid to absorb a much larger share of GDP in the future.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 842-843 “Dealing with Deficits”
May 18
The Fiscal Future
Robert Samuelson worries about the extraordinary amount of deficit spending.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
Pages 842-843 “Dealing with Deficits”
May 17
Accountability?
The actual unemployment rate in the past two months has been higher than the administration said it would be with the stimulus bill.
Textbook References:
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
May 13
Paul Krugman concedes
In a previous blog, Mankiw doubted that the economy would grow as fast as the administration predicted. Krugman agreed with the administration and called Mankiw evil. Mankiw asked Krugman if he would like to bet some of his Nobel Prize money on it. Krugman hasn’t responded. But Krugman has recently written that we cannot expect the economy to grow very fast at all. Pride goeth before the fall.
Textbook References:
Pages 32-33 “Why Economists’ Advice Is Not Always Followed”
Pages 246-247 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
May 1
From the CEA Chair
Christina Romer discusses the causes of the current crisis, the policy actions taken to end the crisis, and the prospects for the future.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 649-653 “Banks and the Money Supply”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 838-841 “Should the Government Balance Its Budget?”
Apr. 29
Miron on the Financial Crisis
Jeff Miron argues the case for the government to do nothing in response to the financial crisis.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 740-742 “Three Key Facts About Economic Fluctuations”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
Apr. 21
President Obama’s Fiscal Policy
A graph shows projected federal government revenues and spending.
Textbook References:
Pages 242-249 “A Financial Overview of the U.S. Government“
Pages 589-593 “Policy 3: Government Budget Deficits“
Pages 838-841 “Should the Government Balance Its Budget?“
Solow on Posner
Robert Solow reviews Richard Posner’s book, A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression. Along the way he provides insightful observations, as one would expect from a Nobel laureate.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 484-489 “Asymmetric Information”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 838-841 “Should the Government Balance Its Budget?”
Apr. 19
A Quick Quiz
Take a quiz made up of questions from past AP tests.
Textbook References:
Pages 4-5 “Principle 1: People Face Trade-offs”
Chapter 12 “The Design of the Tax System”
Pages 589-593 “Policy 3: Government Budget Deficits”
Page 614-619 “How is Unemployment Measured?”
Pages 649-653 “Banks and the Money Supply”
Pages 653-656 “The Fed’s Tools of Monetary Control”
Chapter 30 “Money Growth and Inflation”
Pages 742-744 “The Assumptions of Classical Economics”
Pages 749-751 “Why the Aggregate–Demand Curve Might Shift”
Pages 753-755 “Why the Long–Run Aggregate–Supply Curve Might Shift”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Apr. 16
Meet the Cassandras
Salon lists the 14 biggest critics of Obama’s economic policy, along with a short synopsis of their criticisms.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 649-653 “Banks and the Money Supply”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 838-841 “Should the Government Balance Its Budget?”
Apr. 3
Boskin on the Obama Budget
Michael Boskin argues that the Federal budget deficit will be much larger than the administration claims.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
Mar. 20
Budget Deficits as a Fraction of GDP
The CBO projects the future of the budget deficit. There’s lots of red ink in our future.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
The Direction of Policy
Alan Blinder argues that Obama is not a socialist. Gary Becker and Kevin Murphy think that Obama’s plan may kill capitalism.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 740-742 “Three Key Facts About Economic Fluctuations”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
Mar. 14
Reading the Tea Leaves on the Budget
Mankiw comments on Obama’s budget proposal, He finds that Obama is serious about climate change but not concerned about budget deficits.
Textbook References:
Chapter 10 “Externalities”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
Mar. 8
Soaking the Rich?
A Washington Post article presents the views of a variety of people on the redistributive effects of Obama’s plan.
Textbook References:
Pages 4-5 “Principle 1: People Face Trade-Offs”
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Government Can Sometimes Improve Market Outcomes”
Chapter 8 “Application: The Costs of Taxation”
Chapter 12: “The Design of the Tax System”
Chapter 20 “Income Inequality and Poverty”
Mar. 4
Federal Outlays as a Percent of GDP
Obama’s budget suggests that there will be a permanent increase in the federal government’s share of GDP.
Textbook Reference:
Pages 242-249 “A Financial Overview of the U.S. Government”
Mar. 3
CBO on the Stimulus
The Congressional Budget Office estimates that the stimulus plan will have a positive short-run effect but not much long-run effect.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
Feb. 28
What is a Deficit Hawk to do?
Obama’s budget document is titled “A New Era of Responsibility.” Mankiw argues that the budget does not seem to live up to its name.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
Feb. 27
A Speech From the CEA Chair
CEA Chair Christina Romer Defends the Stimulus Bill.
Textbook References:
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
Rosy Scenario or Audacity of Hope?
Obama’s budget forecast depends on some extremely optimistic assumptions.
Textbook References:
Pages 32-33 “Why Economists’ Advice Is Not Always Followed”
Pages 246-247 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Moving the Goal Posts
The Committee for a Responsible Budget believes that Obama’s budget contains absurd assumptions.
Textbook References:
Pages 32-33 “Why Economists’ Advice Is Not Always Followed”
Pages 246-247 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Feb. 26
Which Budget Deficit?
The CBO and the U.S.Treasury have different measures of the cost of TARP, and therefore different measures of the budget deficit.
Textbook References:
Pages 243-248 “The Federal Government”
Pages 654-655 “The Financial Crisis of 2008”
Pages 838-841 “Should the Government Balance Its Budget?”
Feb. 25
Gleaser on the Mortgage Interest Deduction
Ed Gleaser argues that the tax deduction on mortgage interest payments should be limited to loans up to $300,000.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Chapter 12 “The Design of the Tax System”
Pages 609-610 “Market Irrationality”
Pages 654-655 “The Financial Crisis of 2008”
Page 821 “Bernanke’s Challenges”
Leonhardt vs Obama
Obama says that families making less than $250,000 will not see a tax increase. David Leonhardt says that families making less than $250,000 will have to pay higher taxes.
Textbook References:
Pages 4-5 “Principle 1: People Face Trade-Offs”
Chapter 12 “The Design of the Tax System”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”
Feb. 24
The Spending Stimulus Debate
Brad DeLong and Michele Boldrin are on opposite sides of the debate over the stimulus.
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
Feb. 23
Is Macro Policy Overreacting?
Jeffrey Sachs argues that the current macroeconomic policy is courting disaster in the long run.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
Feb. 22
The Fiscal Gap
Alan Auerbach and Bill Gale argue that the long-term fiscal picture for the U.S. is very bleak.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”
The Stimulus versus the Pigou Club
Politicians prefer stimulus money to raising the gasoline tax.
Textbook References:
Pages 32-33 “Why Economists’ Advice Is Not Always Followed”
Chapter 10 “Externalities”
Chapter 12 “The Design of the Tax System”
Feb. 17
An Increase in Marginal Tax Rates
David Henderson argues that the rebate included in the stimulus plan effectively raises marginal tax rates for the most productive people.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 252-253 “Marginal Tax Rates versus Average Tax Rates”
Feb. 11
Ray Fair on Stimulus
Ray Fair reports that his macroeconomic model predicts that the stimulus bill will create short-run gains and long-run pain.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-591 “Policy 3: Government Budget Deficits and Surpluses”
Pages 591-593 “The History of U.S. Government Debt”
Pages 724-728 “Government Budget Deficits”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Feb. 6
The Mature Keynesian Perspective II
Keynes would’ve approved a cut in the payroll tax now.
Textbook References:
Page 127 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 243-245 “The Federal Government: Receipts”
Page 770 “The Origins of Aggregate Demand and Aggregate Supply”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Feb. 5
My preferred fiscal stimulus
Mankiw gives his own view of what should be done.
Textbook References:
Pages 210-212 “Market-Based Policy 1: Corrective Taxes and Subsidies”
Pages 216-217 “The Case for Taxing Carbon”
Chapter 12 “The Design of the Tax System”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Feb. 2
The Problem of Hasty Public Investment
A newspaper illustrates how wasteful government spending can be.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Page 11 “Adam Smith and the Invisible Hand”
Pages 230-232 “The Difficult Job of Cost-Benefit Analysis”
Jan. 21
Questions for Tim Geithner
There is a link to a New York Times story where seven prominent people ask questions for the nominee for Treasury Secretary.
Textbook References:
Chapter 12 “The Design of the Tax System”
Pages 648-649 “The Federal Reserve System”
Pages 654-655 “The Financial Crisis of 2008”
Jan. 13
There is a link to an editorial by Ed Glaeser that argues that the stimulus should be focused on ordinary people. That implies that a cut in the payroll tax would be better than large construction projects that disproportionately help owners of big construction firms.
Textbook References:
Pages 254-255 “Vertical Equity”
Chapter 20 “Income Inequality and Poverty”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 838-841 “Should the Government Balance its Budget?”
Jan. 7
Varian on Stimulus
There is a link to an editorial by Hal Varian that suggests the fiscal stimulus should be transfers to state governments and subsidies for private investment.
Textbook References:
Pages 248-249 “State and Local Government”
Pages 512-515 “The Components of GDP”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Jan. 5
Glaeser on Stimulus
There is a link to an editorial by Ed Glaeser that suggests the best use of the stimulus money is to cut the payroll tax and give money to local governments.
Textbook References:
Page 127 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 243-245 “The Federal Government: Receipts”
Pages 248-249 “State and Local Government”
Pages 253-256 “Taxes and Equity”
Pages 792-793 “Changes in Taxes”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Dec. 24
Feldstein on Defense Spending
There is a link to an editorial by Martin Feldstein that argues that a significant share of new government spending should be for defense.
Textbook References:
Pages 227-232 “Public Goods”
Pages 242-248 “A Financial Overview of the U.S. Government”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Dec. 17
Crises and Government
Mankiw discusses how crises generally lead to permanently larger government.
Textbook References:
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 242-248 “A Financial Overview of the U.S. Government”
Dec. 13
The Case for a Payroll Tax Cut
There are links to more complex analysis of the Bils-Klenow stimulus plan presented on December 2.
Textbook References:
Page 127 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 243-245 “The Federal Government: Receipts”
Pages 253-256 “Taxes and Equity”
Pages 792-793 “Changes in Taxes”
Pages 793-796 “Using Policy to Stabilize the Economy”
Dec. 2
The Bils-Klenow Stimulus Plan
Bils and Klenow argue that a cut in the payroll tax would be the best way to stimulate the economy.
Textbook References:
Page 127 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 243-245 “The Federal Government: Receipts”
Pages 253-256 “Taxes and Equity”
Pages 792-793 “Changes in Taxes”
Pages 793-796 “Using Policy to Stabilize the Economy”
