Posted on 02/06/2009 7:34:29 PM PST by SeekAndFind
Regular readers of this blog have a pretty good sense of my policy preferences. But for those occasional readers who might be stopping by, let me reiterate what I would do right now if I were the fiscal king.
I would institute an immediate and permanent reduction in the payroll tax, financed by a gradual, permanent, and substantial increase in the gasoline tax. I would make the two tax changes equal in present value, so while the package results in a short-run budget deficit, there is no long-term budget impact. Call it the create-jobs, save-the-environment, reduce-traffic-congestion, budget-neutral tax shift.
I recognize that some state governments are now struggling in light of the macroeconomic crisis. For the next two years, I would let each state governor have the authority to divert a portion of the payroll tax cut in his or her state and take the funds instead as state aid. This provision would essentially be giving governors the temporary authority to impose a payroll tax on his or her citizens, collected via the federal tax system. Those governors who think they have valuable infrastructure projects ready to go would take the money. When designing a fiscal stimulus, there is no compelling reason for one size fits all. Let each governor make a choice and answer to his or her state voters. It is called federalism.
Any further federal spending projects should be evaluated on the basis of cost-benefit analysis. That analysis would take time, but it would ensure that the projects are not a waste of taxpayer dollars.
Some traditional Keynesians would object on the grounds that government spending has a larger multiplier than tax cuts. Even though that is the prediction of standard Keynesian models, the evidence is not completely consistent with that conclusion, as I have discussed here in previous posts. In addition, given the lags inherent in large spending projects, and the risks inherent in hasty spending at the federal level, the case for taxes over spending as the fiscal instrument of choice is compelling. To me, at least.
None of this should be viewed as a substitute for fixing the banking system and trying to come up with a better process for homeowners and banks to work out mortgage loans in default. Housing and finance are the real sources of the macro problem. Any fiscal stimulus, such as the one I propose above, is only an attempt to mitigate the symptoms. Those symptoms are severe, so mitigation is fully appropriate. But fiscal policy is not a panacea for what now ails the economy.
For those who don’t know who Greg Mankiw is ...
He is an American macroeconomist. From 2003 to 2005, Mankiw was the chairman of President Bush’s Council of Economic Advisors. His publications are ranked as the 22nd most influential of the over 18,000 economists registered with RePEc according to that organization.
Mankiw was born in Trenton, New Jersey. In his youth, he attended the Pingry School, and then graduated from Princeton University summa cum laude in 1980 with an AB in Economics.
He spent a year working on his PhD at the Massachusetts Institute of Technology and a subsequent year studying at Harvard Law School.
He worked as a staff economist for the Council of Economic Advisers from 1982-83, foreshadowing his later position as chairman of that organization. After leaving the Council, he earned his Ph.D. in Economics from the Massachusetts Institute of Technology in 1984.
He taught at MIT for a year and then became an assistant professor of Economics at Harvard University in 1985 and full professor in 1987.
He returned to politics when he was appointed by President George W. Bush as Chairman of the Council of Economic Advisors in May 2003. He has since resumed teaching at Harvard, taking over the introductory economics course Social Analysis 10 (affectionately referred to as “Ec. 10”). This is the same course that had been taught for many years by Martin Feldstein. Mankiw is currently a visiting fellow at the American Enterprise Institute.
He has written two popular college-level textbooks: one in intermediate macroeconomics and the more famous Principles of Economics, which is popular among high-school Advanced Placement Economics teachers. More than one million copies of the books have been sold in seventeen languages.
Well, of course, after all that schooling, he would want to raise the gasoline tax to ‘make up for’ another tax cut. Heaven forbid the government would have to cut back while the rest of us tighten our belts. Perish the thought.
Sorry to say, I’m not impressed with Mr. Mankiw’s ideas or his background.
He’s defending TARP and wants to raise the gas tax? And he ‘knows what he’s talking about’ because he wrote a books and is supposedly brilliant? They say the same about Paul Krugman.
If you don’t agree with his solutions, how does he know what he’s talking about? His ‘solutions’ defy common sense, which I realize isn’t common anymore, but for God’s sake...
Our necks are already through the loop at the end of the Keynesian rope (in the long run, we’re all dead). He wants to kick the chair we’re standing on?
The ‘long run’ seems to have come around.
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