Negative income taxes

John Quiggin10 Comments

Reader Hans van Leeuwen wrote to ask about the Negative Income Tax which is one of those concepts that always seems to be discussed in favorable terms but never makes it on to the policy agenda. The basic idea, due to (or at least put forward by) Milton Friedman is that the tax system should consist of a flat grant and tax levied at a proportional rate on all incomes. The ‘negative’ part comes from the fact that people on low incomes would get money from the government and would therefore pay negative tax.

I’m sympathetic to the general concept, but I think it’s necessary to take the whole tax-welfare system into account. The implied objective then is to make positive transfers to low-income individuals and families while giving everyone roughly the same effective marginal rate of taxation. From this perspective, as the OECD noted the other week, the big problem is high effective marginal rates of taxation for low-income and middle-income families.

This is a difficult problem because, in general, I would like to make the grant component large for families with children (a view shared by government). It’s difficult to do this, apply a common marginal rate and hold the cost to revenue of the initial grant down to an affordable level.

The national comparisons game

John Quiggin52 Comments

Tim Blair points to this exercise asserting that the EU is twenty years behind the USA. As Tim subtly points out, it’s absurd to suggest that the EU today (home of Nokia and Airbus, and birthplace of Linux and the World Wide Web) is comparable to the US when Atari boxes were the state of the art. Unfortunately, Tim’s irony is lost on his commenters, who assume the report deserves to be taken seriously.

To ram the point home to his slower readers, Tim might do well to point to the fact that, in terms of output per hour, several European countries are ahead of the US. Of course, when hours worked are taken into account, the US regains the lead, but on that criterion, Britain during the Industrial Revolution was ahead of any modern country.

The real point is that productivity differences between modern economies are so small that, by selecting the right criterion, any developed country can be made to look better, or worse, than any other. The report is explicitly described by its promoters as a “wake-up call” designed to scare Europeans into adopting the policies favored by its promoters. Having seen this kind of thing going on since the 80s, when Australians were terrified with the prospect of becoming the “poor white trash of Asia”, I find such reports more soporific than alarming.

There’s something about royal visits …

John Quiggin29 Comments

… that reduces presumably rational people to babbling incoherence. In today’s Age, Christopher Scanlon of RMIT writes

Australians want monarchs who maintain the fantasy of monarchism, who embody the impossible ideal of monarchy …The problem with the Windsors is that they’re just too much like us. Their lives are as complex and contradictory as our own. And because of that they’ve soiled the fantasy of monarchism as some kind of divine state.

and two paras later

The Danish royals appear enough like us to be comfortable; they’re not aloof like those stuffy dysfunctional Windsors.

BTW, I found the same problem myself. I was going to write on this topic and suggest that we pass our own Act of Succession, offering the Australian throne to the highest-ranking European Royal willing to marry an Australian[1]. I thought this would go over well with both monarchists, republicans who care only about having an Australian head of state, and aspiring princesses/princes, between them enough to make up a majority. Then I realised that, unless the legislation was drawn up carefully, we might end up with Prince and Princess Michael.

fn1. I see Mark McKenna has much the same idea.

Propaganda and advertising

John Quiggin7 Comments

This NYT report shows how the Bush Administration has been producing covert propaganda, which is then shown on US TV stations as news, with actors posing as reporters. It would take much more than this to surprise me in relation to the Bush Administration, and in any case, the practice apparently began under Clinton.

What did strike me was that, while the NYT went in for plenty of handwringing about the government manipulating the news, the report showed no concern about the fact (news to me) that corporations have been doing this for years, more or less openly, to the extent that those involved in producing “video news releases” have their own association, annual awards and so on

Under the Bush administration, the federal government has aggressively used a well-established tool of public relations: the prepackaged, ready-to-serve news report that major corporations have long distributed to TV stations to pitch everything from headache remedies to auto insurance.

Of course, reprinting press releases with minimal editing has been a standby of lazy journalists for decades. But the standard press release story opens with what is presented as a paraphrase of a quote “In Washington today, Senator X criticised the neglect of problem Y …” or whatever. Even if the reader is led to imagine that the statement was actually made to an audience of reporters, there’s no serious deception, though a well-designed press release can certainly ensure that the writer’s key points get prominently reported in a way that makes them seem like fact rather than opinion.

But the video news release goes way beyond this. The closest analog in the print world is those supplements, designed to look like news, with “advertisement” in small print at the bottom of the page.

I don’t know anything about the legality of all this. Here in Australia, radio commentators got into a heap of strife over “cash for comment”, accepting money from corporations to say nice things about them. But this was advertising presented as opinion. Presenting advertising as news seems far worse to me.

The issue of paid-for or sponsored political comment has already arisen in relation to blogging. It seems unlikely that commercial PR can be far behind, if it isn’t here already.

Monday Message Board

John Quiggin37 Comments

It’s time for the regular Monday message board, where you are invited to post your thoughts on any topic. If any NT readers are battened down for Cyclone Ingrid, but still connected to the Internet, now’s your chance for a live report. Civilised discussion and no coarse language, please.

Lebanon

John Quiggin4 Comments

Last week there was a lot of triumphalism from parts of the blogosphere regarding anti-Syrian protests in Lebanon, which was cut rather embarrassingly short when the pro-Syrian PM was re-installed following a huge pro-Syrian demonstration. I thought that the likely cause of these developments was internal to Lebanon rather than the inspirational example of GW Bush, though I was too ignorant of recent Lebanese politics too say much more. As usual, many others did not feel constrained by ignorance from drawing firm conclusions.

For those who’d like to inform themselves, The Head Heeb has a lengthy series giving some of the background. One important point is that the withdrawal of Israeli occupation forces from South Lebanon back in 2000 set in motion many of the forces that are operating today and, in particular, undermined the legitimacy of the Syrian occupation and the maintenance of a militia by Hezbollah.

What I’m reading

John Quiggin3 Comments

“The Coming Generational Storm : What You Need to Know about America’s Economic Future” (Laurence J. Kotlikoff, Scott Burns). As I was reading this book, laden with predictions of doom, I was thinking, “if people call Krugman shrill, they should read these guys”. By coincidence, Jack Strocchi sent me this review of Kotlikoff and Burns, by Krugman. I broadly agree with Krugman’s assessment, so I’ll just lift out a quote that appealed to me:

In March 199, Time included Laffer in its cover story on ‘The Century’s Greates Minds’ and called the Laffer curve one of ‘a few of the advances that powered this extraordinary century’. Just think about it. When it comes to physics, you need to be Albert Einstein to be classified as one of the century’s greatest minds. But when it comes to economics, all you have to do is draw a completely obvious picture on a napkin

I was also struck by this smackdown of a study predicting a huge wealth transfer to baby boomers from their parents

A close look at the Avery-Rendall study shows it to be a hoax. The only question is whether the authors were fooling themselves as well as their readers.

Ouch!

The non-global public intellectual

John Quiggin7 Comments

The SMH has come with a list of Australia’s top 100 public intellectuals, of whom the top 10 are (with votes from a panel of 100[1])

Robert Manne – political scientist 39
Peter Singer – philosopher 33
Germaine – Greer feminist 29
Tim Flannery – scientist 25
Noel Pearson – Aboriginal advocate 24
Inga Clendinnen – historian 23
Geoffrey Blainey – historian 22
Helen Garner – writer 21
Donald Horne civil – society 19
Michael Kirby – judge 19

Andrew Norton has some discussion of the list, and the comments are also interesting. I just thought I’d repeat an observation I made in relation to Posner’s book on the subject. Of the top 10, only Singer and Greer (both expats) would have any significant recognition outside Australia.

This isn’t because our intellectuals can’t cut it on the world stage but because, in this respect, there is no world stage. As I observed at the time, Posner’s top 10 US public intellectuals are marginal figures as far as most Australians are concerned (unless they are famous for other reasons). The Prospect list for the UK (not easily available as far as I can tell, and I’ve misplaced my password) had more recognisable names (including our Germs at #2), but few who would fit naturally into a ‘public intellectual’ category. Each country, it seems wants to hear its own policy problems discussed in its own accent.

fn1. I was included in the panel, and also among the also-rans in the list of 100. I voted for three people who made it into the top 10 (Manne, Kirby and Garner) and Raymond Gaita who was ranked #11, as well as a couple of fellow-economists.

Request for help

John Quiggin16 Comments

Although I read quite a bit, one thing I always have difficulty with is suggesting good readings on topics, or knowing who originally proposed some idea. I think this has something to do with the fact that I tend to flit from one topic to another, picking up ideas but rarely doing a proper review of the literature. In any case, I’ve been asked to suggest some readings and so I thought I’d pass this request on to any readers who can help me[1]. What I’d like is either an original/early source for various concepts or a more recent summary discussion, ideally one accessible to an intelligent general reader. Anyone with useful suggestions gets an acknowledgement in my forthcoming Oxford Handbook chapter which is, literally, priceless.

Here’s my list of terms

* Crowding out
* Twin deficits hypothesis
* Shadow price
* Golden rule (for budgeting in UK and elsewhere)
* Globalisation
* Crony capitalism

Thanks in advance for any help

fn1. There is a piece of blog jargon for what I’m doing here, but I refuse to even mention it. It’s bad enough that we’re lumbered with “blog”.

The US trade deficit makes the front page

John Quiggin13 Comments

In my first-ever blog post (apart from a Hello World! announcement), I commented on the fact that, whereas trade and current account deficits were big news in Australia, US papers buried them in the back pages. At least in the online edition of the New York Times, this is no longer the case. The latest US Trade deficit ($58.3 billion in January) is front-page news.

Despite this catch-up, it’s still true that anyone wanting coverage of economic issues in the US would do far better to read blogs than to follow either the NY Times or the WSJ, and no other mainstream media even come close. It isn’t even true, as it is in other cases, that bloggers need the established media to get the facts on which they can then comment. The NY Times story linked above is basically a rewrite of the Bureau of Economic Analysis press release which you can get by automatic email if you want.

The competition is much tougher in Australia. Media coverage of economic issues is better, the number of economist-bloggers is smaller and quite a few of us play both sides of the street anyway.