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It might be worth noting that Krugman won his prize "for his analysis of trade patterns and location of economic activity" while Becker got it for studying "a w

by aaronsw 17y ago

It might be worth noting that Krugman won his prize "for his analysis of trade patterns and location of economic activity" while Becker got it for studying "a wide range of human behaviour and interaction, including nonmarket behaviour". In other words, Krugman is the one who actually studies the economy.

shrughes 17y ago
Nope, it's not worth noting.
- jacobolus 17y ago
  I agree with you somewhat: Krugman’s nobel work wasn’t directly about government stimulus or tax policy, and in any case I’m sure both Krugman and Becker are plenty familiar with broad trends in economic research. Realize though that Becker’s argument is that we should increase employment by cutting corporate income taxes, which cuts he suggests will pay for themselves because they’ll spur enough GDP growth to reduce the debt-to-GDP ratio. It’s a pretty laughable argument, and its only real claim to credibility is Becker’s stature. And to be fair to Aaron, Mankiw’s links explicitly call both Becker and Krugman “Nobelists,” and thus imply that we should trust Becker’s unsupported predictions.
  - cwan 17y ago
    Not exactly sure what makes it a laughable argument. Corporate taxes are a relatively small percentage of US government receipts: http://en.wikipedia.org/wiki/File:U.S._Federal_Receipts_-_FY_2007.png http://en.wikipedia.org/wiki/File:U.S._Federal_Receipts_-_FY.... It's not that inconceivable that reduced taxes in one area could produce outsized economic benefits - at least no more than thinking that there is a spending multiplier that Krugman has been assuming. Not exactly unsupported either. Mankiw linked to some additional research November 21st though it related to economic growth versus job growth: http://gregmankiw.blogspot.com/2009/11/new-research-on-fiscal-policy.html http://gregmankiw.blogspot.com/2009/11/new-research-on-fisca... "We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments, those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions." It is also useful to note that "the absolute Retained Profit provides the strongest correlation with employment change" at least according to one study (and obviously reduced taxes would result in higher earnings) - http://books.google.ca/books?id=As8OAAAAQAAJ&pg=PA143&lpg=PA143&dq=jobs+correlation+profits&source=bl&ots=AMP9M89R_m&sig=1GU0T8UjF3gxdBoJ-LrCmVkSg44&hl=en&ei=DOgTS5HcD8LOlAfqj-GRBA&sa=X&oi=book_result&ct=result&resnum=3&ved=0CBQQ6AEwAg#v=onepage&q=&f=false http://books.google.ca/books?id=As8OAAAAQAAJ&pg=PA143&#3... One more recent study to add to the debate: http://www.kauffman.org/newsroom/kauffman-foundation-analysis-emphasizes-importance-of-young-businesses-to-job-creation-in-the-united-states.aspx http://www.kauffman.org/newsroom/kauffman-foundation-analysi... - finds that young startups create the most jobs.
    - jacobolus 17y ago
      What makes it laughable is that we are currently facing enormous unemployment, and our economy is in gigantic trouble. State and local governments are going bankrupt right and left, our federal debt is proportionally bigger than it has been in half a century, the only thing keeping our banking system afloat is massive government bailouts and the implied promise to do more of them if things get worse, we're running gigantic trade and current accounts deficits, consumers are saddled with unprecedented amounts of debt, and commercial real estate could collapse at the drop of a hat. &c. &c. Cutting business taxes might be a reasonable idea, especially if we can target it specifically at increasing employment – we should be doing everything we can to save/create jobs – but it’s not going to get us out of this mess by itself, by a long shot. Also, we should accept that we’re going to have to pay for such measures down the road, and if they pay for themselves it is only going to be over a longer time period. Stimulus is an investment in the future benefit of full production.
      - cwan 17y ago
        "Stimulus is an investment in the future benefit of full production." It's sort of pointless to try to create jobs for the sake of creating jobs - especially if they all go away once stimulus stops - in which case it's just another entitlement program. It would seem to be a massive leap to assume that implementing half measures to sustain marginal businesses will "pay for themselves". Governments at both the state level and federal level overspent relative to the size of the economy during the good years. What would be laughable is to tax further or create greater burdens on business to pay for the mistakes of governance. The massive increases in debt also do not come without risk. From Arnold Kling on "the anti-stimulus" - http://econlog.econlib.org/archives/2009/05/the_anti-stimul.html http://econlog.econlib.org/archives/2009/05/the_anti-stimul.... Stimulus and cash for clunkers may well increase interest costs for everyone (interest charges to businesses are additive to that charged to the US government). If true, this will almost certainly mean less profitability and less jobs in the future. If anything, the history of central planning shows that governments cannot sustainably create jobs, they can only provide the environment for businesses and individuals who flourish to create jobs.
  - dpatru 17y ago
    To test whether reducing corporate income taxes will spur economic growth and reduce government debt, just apply a thought experiment at the extremes: compare what would happen if the income tax were 100% with 0%. At 100% income tax, corporations would have no reason to employ anyone, so the unemployment rate would go up. The unemployed people would be a cost to the government, increasing government debt. At 0% income tax, corporations would hire more because each worker's net contribution would directly increase profit. More employment reduces government costs, increases government revenue, and reduces government debt. So it seems that the argument that decreasing income tax rates would not decrease government debt is the laughable argument. It at least doesn't work at the extremes.
    - aardvark 17y ago
      I'm not convinced corporations would necessarily hire more people due to lower tax rates. If sales forecasts don't look promising, the additional workers' net contribution may be negative even with a 0% tax rate.
      - jacobolus 17y ago
        The argument is that even in that case they'll at least fire fewer people than they would with the original tax rate. But yeah, the big problem facing companies right now is not excessive corporate tax.
muffinlips 17y ago
It might be worth noting that Becker is hugely respected among economists, while Krugman is considered to be a bit of an asshat, sort of like the Malcom Gladwell of the field. In other words, Becker is the one who is actually considered a real economist.

by aaronsw 17y ago

shrughes 17y ago

Nope, it's not worth noting.

jacobolus 17y ago
I agree with you somewhat: Krugman’s nobel work wasn’t directly about government stimulus or tax policy, and in any case I’m sure both Krugman and Becker are plenty familiar with broad trends in economic research. Realize though that Becker’s argument is that we should increase employment by cutting corporate income taxes, which cuts he suggests will pay for themselves because they’ll spur enough GDP growth to reduce the debt-to-GDP ratio. It’s a pretty laughable argument, and its only real claim to credibility is Becker’s stature. And to be fair to Aaron, Mankiw’s links explicitly call both Becker and Krugman “Nobelists,” and thus imply that we should trust Becker’s unsupported predictions.
- cwan 17y ago
  Not exactly sure what makes it a laughable argument. Corporate taxes are a relatively small percentage of US government receipts: http://en.wikipedia.org/wiki/File:U.S._Federal_Receipts_-_FY_2007.png http://en.wikipedia.org/wiki/File:U.S._Federal_Receipts_-_FY.... It's not that inconceivable that reduced taxes in one area could produce outsized economic benefits - at least no more than thinking that there is a spending multiplier that Krugman has been assuming. Not exactly unsupported either. Mankiw linked to some additional research November 21st though it related to economic growth versus job growth: http://gregmankiw.blogspot.com/2009/11/new-research-on-fiscal-policy.html http://gregmankiw.blogspot.com/2009/11/new-research-on-fisca... "We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments, those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions." It is also useful to note that "the absolute Retained Profit provides the strongest correlation with employment change" at least according to one study (and obviously reduced taxes would result in higher earnings) - http://books.google.ca/books?id=As8OAAAAQAAJ&pg=PA143&lpg=PA143&dq=jobs+correlation+profits&source=bl&ots=AMP9M89R_m&sig=1GU0T8UjF3gxdBoJ-LrCmVkSg44&hl=en&ei=DOgTS5HcD8LOlAfqj-GRBA&sa=X&oi=book_result&ct=result&resnum=3&ved=0CBQQ6AEwAg#v=onepage&q=&f=false http://books.google.ca/books?id=As8OAAAAQAAJ&pg=PA143&#3... One more recent study to add to the debate: http://www.kauffman.org/newsroom/kauffman-foundation-analysis-emphasizes-importance-of-young-businesses-to-job-creation-in-the-united-states.aspx http://www.kauffman.org/newsroom/kauffman-foundation-analysi... - finds that young startups create the most jobs.
  - jacobolus 17y ago
    What makes it laughable is that we are currently facing enormous unemployment, and our economy is in gigantic trouble. State and local governments are going bankrupt right and left, our federal debt is proportionally bigger than it has been in half a century, the only thing keeping our banking system afloat is massive government bailouts and the implied promise to do more of them if things get worse, we're running gigantic trade and current accounts deficits, consumers are saddled with unprecedented amounts of debt, and commercial real estate could collapse at the drop of a hat. &c. &c. Cutting business taxes might be a reasonable idea, especially if we can target it specifically at increasing employment – we should be doing everything we can to save/create jobs – but it’s not going to get us out of this mess by itself, by a long shot. Also, we should accept that we’re going to have to pay for such measures down the road, and if they pay for themselves it is only going to be over a longer time period. Stimulus is an investment in the future benefit of full production.
    - cwan 17y ago
      "Stimulus is an investment in the future benefit of full production." It's sort of pointless to try to create jobs for the sake of creating jobs - especially if they all go away once stimulus stops - in which case it's just another entitlement program. It would seem to be a massive leap to assume that implementing half measures to sustain marginal businesses will "pay for themselves". Governments at both the state level and federal level overspent relative to the size of the economy during the good years. What would be laughable is to tax further or create greater burdens on business to pay for the mistakes of governance. The massive increases in debt also do not come without risk. From Arnold Kling on "the anti-stimulus" - http://econlog.econlib.org/archives/2009/05/the_anti-stimul.html http://econlog.econlib.org/archives/2009/05/the_anti-stimul.... Stimulus and cash for clunkers may well increase interest costs for everyone (interest charges to businesses are additive to that charged to the US government). If true, this will almost certainly mean less profitability and less jobs in the future. If anything, the history of central planning shows that governments cannot sustainably create jobs, they can only provide the environment for businesses and individuals who flourish to create jobs.
- dpatru 17y ago
  To test whether reducing corporate income taxes will spur economic growth and reduce government debt, just apply a thought experiment at the extremes: compare what would happen if the income tax were 100% with 0%. At 100% income tax, corporations would have no reason to employ anyone, so the unemployment rate would go up. The unemployed people would be a cost to the government, increasing government debt. At 0% income tax, corporations would hire more because each worker's net contribution would directly increase profit. More employment reduces government costs, increases government revenue, and reduces government debt. So it seems that the argument that decreasing income tax rates would not decrease government debt is the laughable argument. It at least doesn't work at the extremes.
  - aardvark 17y ago
    I'm not convinced corporations would necessarily hire more people due to lower tax rates. If sales forecasts don't look promising, the additional workers' net contribution may be negative even with a 0% tax rate.
    - jacobolus 17y ago
      The argument is that even in that case they'll at least fire fewer people than they would with the original tax rate. But yeah, the big problem facing companies right now is not excessive corporate tax.

muffinlips 17y ago

It might be worth noting that Becker is hugely respected among economists, while Krugman is considered to be a bit of an asshat, sort of like the Malcom Gladwell of the field. In other words, Becker is the one who is actually considered a real economist.