Anti-Summer Reading

I wouldn't know Daniel Altman from a hole in the ground, but evidently their understanding of economics is roughly equivalent. The difference seems to be that Altman has a book coming out.

A book-length treatment of up-is-down, less-is-more, and savings-is-theft might be mildly diverting at first, but I'm pretty sure I know how it ends.

Comments

[Shannon Love]

I find it revealing that Altman doesn't seem to regard making investment decisions as "work." He reveals his cypto-marxism here I think.

Strangely, he overlooks the most likely negative aspect of the plan for low income people. Lower capital cost would lead to greater investment in labor saving equipment which would reduce the need for low skilled labor.

[Bob]

Mr. Altman's entire complaint can be distilled in this pithy sentence from the article:

"In the coming years, the federal government will have little money to invest in economic growth directly ..."

[s.m. koppelman]

Mr. Taylor:

Am I to understand that Altman really dislikes the current downward redistribution of the tax burden, whereas you like it as long as income growss in the aggregate?

Since you're just tossing off a five-line sneer in Altman's direction, I don't know what leads you to conclude that his understanding of economics is inferior to yours. Do you object to his analysis of the effects of the taxation and spending changes the GOP is carrying out, or do you just object to his opinion that a downward redistribution of the tax burden and an upward redistribution of government spending are bad?

I don't see anything controversial about Altman's analysis. Do you? The contentious part, as far as I can tell, is his value judgement. Deeming aggregate economic growth accompanied by a falling median living standard a Bad Thing is neither correct nor incorrect. It's a value judgement. There's nothing about the analytical heart of that Altman column that couldn't be used in a paean to economic freedom and the libertarian cause.

I hope you don't limit your economics reading to writers and scholars who share your rigid ideology.

[Matt XIV]

s.m.,

The most obvious flaw with Altman's analysis (to me at least) is his conclusion that somehow increased savings (and by extension falling interest rates) and wealthy, highly skilled people leaving presumably high paying jobs to invest full time will decrease opportunities for upward mobility. But to take advantage of this, the less wealthy will have to borrow money (and thus forego future consumption) or forego present consumption to take advantage of them. The tradeoff isn't aggregate growth vs median wealth, it's present consumption vs future consumption.

Mucking with the savings rate isn't without it's drawbacks. In the short run, incentivising savings decreases consumption. Decreased consumption demand results in decreased demand for capital and labor, which results in lower interest rates, which drives the savings rate back down. The same result as a balanced cut in consumption and savings tax rates in the end, but with an unnecessary business cycle induced.

Another risk of trying to incentivise savings is that capital depreciates and not all investments are created equal. Persumably, the projects with the best returns will be funded first, so progressively lower yield projects will be funded. There is no reason to believe that the capital for these lower yield projects will depreciate any slower than the higher yield ones. Incentivising savings means that projects that people would rather consume than invest in will become funded - take this effect to a sufficient extreme and you can end up consuming less both in the present and future.

Interstingly, since increased government spending crowds out investment, this plan may actually be a step to maintain the capital accumulation rate while increasing government spending at the expense of consumption.

Of course, I'm speaking mainly from a half-remembered intermediate macro course, so I may be wrong.

[Jason Ligon]

"That income gap poses some real dangers to the economy and even to the earnings of the wealthy. With rising inequality, it's harder for poor people to obtain economic opportunities, because chances to get education and training, or to bring ideas to market, depend on money as well as talent, and because the number of these opportunities is limited."

Eh? How does the mathematical fact that a 5% return on $1,000,000 is greater than a 5% return on $1,000 mean that the guy with the smaller investment has less opportunity to go to school than he had before he was incentivized to save his money? Roth's allow for educational distributions of tax free growth. Doesn't this make it easier to save for education?

OHH. We don't want him to save, we want him to spend both his money and everyone else's. The Keynesian dream. Got it. I'm glad economics stopped after Keynes so we can call our social engineering 'demand stimulation' while we accuse proponents of lower overall taxation of being social engineers ...

[Jason Ligon]

"Roth's allow for educational distributions of tax free growth."

This is inaccurate. Sorry. Educational IRAs and 529s allow for this, but the Roth educational distribution has taxable earnings. Sorry 'bout that.

[Jean Bart]

Shannon Love,

Are you sure its not crypto-St. Simonism?

[cat in the hat]

I personally like this little nugget:

"And something worse?like a riotous manifestation of anticapitalist sentiment?would become a real possibility for the first time in decades."

In Daniel Altman's world only rich people save and invest money.

[Tax Reform]

It is easy to agree that Mr. Altman is a useless fool.

However, these issues should be discussed because they are critical to our nations survival.

Our national debt (government and private) is way out of control and our national savings (private only...) is far less than it should be.

The solution is to reduce taxes on earnings, which will encourage both work and investment -- and in turn to increase taxes on consumption, which will encourage savings.

We are 20 years behind the curve on a National Sales Tax.