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Thursday, July 26, 2012

Mulligan and Laffer

Casey Mulligan says that trying to help the poor "had the unintended consequence of deepening-if not causing-the recession." There was a financial crisis, but that wasn't the problem according to his story, and it wasn't the decline in housing wealth. Nope, everything would have been just fine (or at least "two to three times" better) if we had just let the poor struggle like they deserved:

Redistribution, or subsidies and regulations intended to help the poor, unemployed, and financially distressed, have changed in many ways since the onset of the recent financial crisis. The unemployed, for instance, can collect benefits longer and can receive bonuses, health subsidies, and tax deductions, and millions more people have became eligible for food stamps.

Economist Casey B. Mulligan argues that while many of these changes were intended to help people endure economic events and boost the economy, they had the unintended consequence of deepening-if not causing-the recession. ... The book ... reveals the startling amount of work incentives eroded by the labyrinth of new and existing social safety net program rules, and, using prior results from labor economics and public finance, estimates that the labor market contracted two to three times more than it would have if redistribution policies had remained constant. ...

We are also told that "...Casey B. Mulligan offers ... groundbreaking interpretations..." Groundbreaking? Perhaps, but there's a reason nobody else is suggesting these things. It may be groundbreaking, but it's also a dry hole.

Moving on to another ideologue, Arthur Laffer is attempting humor as well, though he gives the appearance of being quite serious:

Jeff Horwich: ...What's so wrong about raising taxes on this small segment of wealthy Americans, and lowering them or keeping them the same for other folks?
Laffer: The problem with raising taxes on rich people -- what they call rich people -- is rich people have many options open to them that other people don't have, and you won't get the money. You know, if you could get the money from them without costs, I'd love it. But you can't.

So the problem is that the rich are just too clever for the rest of us. If we try to tax them, they'll find a way to avoid it, so why even try? But wait, aren't Republicans constantly whining that the rich are paying more taxes than they used to (while ignoring how much their incomes have risen)? How did that happen if they are so clever at avoiding such things?

Later, he also asserts that tax increases pay for themselves despite a mountain of evidence pointing in the other direction:

Laffer: Yeah, a lot of common sense. Even if you did get more money from the top 1 percent, it would be more than offset by the losses other people would not pay in taxes because these people aren't employing as many people, aren't investing as much, aren't buying as much. I mean, it's much more than just one little group.

That's nonsense, there's no evidence that raising taxes from their current rates would decrease revenues even when such secondary effects -- which are small -- are accounted for.

How do you come to such conclusions? By ignoring the data when it disagrees with you:

Horwich: Many economists will say the data is extremely inconclusive in practice as to how marginal tax changes actually affect personal and business activity. What makes you so sure?
Laffer: Because basically, these economists you talk about never worked in the real world. They're just looking at the econometrics and the data there. ...
Horwich: But am I right that I just heard you criticize economists for actually looking at the data and making their decisions based on that?
Laffer: ...I think it's really silly to look at this aggregate data and not make any judgments beyond those aggregate data.

Finally, he is asked about inequality, but he never actually answers the question of how his center could have put out such a laughable report:

Horwich: Many other economists left, right and center will point to various kinds of data that show income and wealth inequality in the U.S. are increasing, maybe the worst in many, many years. And yet, your center just put out a report claiming to debunk this narrative on income inequality. Are you saying that's not true?
Laffer: You know, this is a debate that's going to go on for years and years and years. I don't mind inequality if people are rising in incomes in all groups. I do mind equality when everyone's brought down to the lowest common denominator. You don't want to make the rich poor; you want to make the poor richer. These inequality specialists all around the place aren't proposing that. In all the quest to achieve less inequality, they are creating equality by lowering everyone. And that's silly.

He makes it sound like this is a "debate," but the debate is over for those who can be swayed be evidence. Income inequality has been rising, and tax cuts for the wealthy -- which somehow didn't produce the wonderful economy the Laffers of the world promised us -- played a big role in redirecting income to the top.

    Posted by on Thursday, July 26, 2012 at 10:11 AM in Economics | Permalink  Comments (25)


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