Ken Rogoff and Others
By Arnold Kling
As usual, Mark Thoma has interesting links for today.
1. Ken Rogoff writes,
Many countries’ tax systems hugely favor debt over equity. The housing boom in the United States might never have reached the proportions that it did if homeowners had been unable to treat interest payments on home loans as a tax deduction. Corporations are allowed to deduct interest payments on bonds, but stock dividends are effectively taxed at the both the corporate and the individual level.
He argues that “debt bias” in government policy is a bad thing. If anything, there should be “equity bias,” because equity finance is less crisis prone. I think there is also debt bias in financial innovation–a point made by John Kenneth Galbraith in his short book on crashes. My outlook on financial safety is that it is hopeless to use regulation to attempt to achieve a system that cannot break. Instead, your best bet would be a system that is easy to fix. Financial excesses that are based on equity fail more gracefully than those based on debt.
2. Ed Glaeser summarizes his thinking on the possibility that the Internet is increasing the value of face-to-face meeting.
If the new media increased the number of relationships – the connectedness of the world – more than it decreased personal meetings within any given relationship, then better electronic communications could increase the number of face-to-face meetings.
In later research and in my book “Triumph of the City” (The Penguin Press, 2011), I emphasized a slightly different idea: electronic connections and face-to-face connections are complements because new technologies increase the returns to innovation.
His book is on my list of hope-to-reads.
Next, I want to point out some weaker arguments to which Thoma links. I am not a fan of spending a lot of time bashing weak arguments. I think a better coaching philosophy is “Catch them doing something right.” But in my remaining two comments I will consciously deviate from that philosophy.3. Kash writes,
If, as the evidence suggests, public sector jobs tend to have compressed pay schedules, with relatively good compensation for entry-level jobs but only modest increases in compensation over an entire career (leaving overall lifetime compensation lower), then that means that individuals who can not afford to wait for the higher pay that they would eventually get in the private sector would tend to prefer public sector jobs.
First of all, what evidence? I seem to recall seeing claims that went the other way–that public sector pay increases more steeply in the early years. In any event, if experienced government workers were badly underpaid, then one would expect to observe a very high quit rate in the public sector. Quite the opposite.
So put me in the camp of those who are not persuaded by the “queuing” methodology of trying to determine if public sector jobs pay better or worse than their private sector counterparts.
He is entitled to his opinion. But suppose you had a private sector CEO under the following circumstances:
–The company’s costs exceed its revenues, by a lot.
–The company faces large labor costs.
–The company has no difficulty attracting or retaining workers at prevailing wage rates.
Now, suppose that the CEO were to say, “Consultants tell us that their regression equations show that our employees are not overpaid. So we are not going to try to cut salaries.”
What do you think would happen to that company and to that CEO?
A central planner may have the luxury of making decisions based on methodological opinions. A CEO does not have that luxury.
4. Jonathan Chait unleashes an ad hominem attack on John Taylor.
Taylor’s basic role is to support Republican fiscal policy in any and all circumstances
Although there is no precise measure of an economist’s prestige, there are various ranking systems that use scholarly citations and such. On the REPEC system for ranking economists based on scholarly achievement, John Taylor is number 45. Peter Diamond, who just shared the Nobel Prize, is only 61. And Chait’s number?