Wednesday, June 12, 2013

Keynesians, Remember: Tax Policy Is Fiscal Policy

According to an AER article by Correia, Farhi, Nicolini and Teles:
When the zero lower bound on nominal interest rates binds, monetary policy cannot provide appropriate stimulus. We show that, in the standard New Keynesian model, tax policy can deliver such stimulus at no cost and in a time-consistent manner. There is no need to use inefficient policies such as wasteful public spending or future commitments to low interest rates.
My own interpretation:
(a) Wasteful government spending? Always better to do nothing (CHECK).
(b) Forward guidance, quantitative easing? Always better to do nothing (CHECK).
(c) Reduce the tax load? Maybe (CHECK). But be prepared to pay the price later (CHECK).

Jeffrey Tucker on the Character of Edward Snowden

Jeffrey Tucker writes an interesting article in The Freeman about the important role played by people like Edward Snowden in the defense of freedom. This Orwellian statement by Snowden is particularly significant:
You can't come forward against the world's most powerful intelligence agencies and be completely free from risk because they're such powerful adversaries. No one can meaningfully oppose them. If they want to get you, they'll get you in time. But at the same time you have to make a determination about what it is that's important to you. 
And if living unfreely but comfortably is something you're willing to accept—and I think many of us are, it's the human nature—you can get up every day, you can go to work, you can collect your large paycheck for relatively little work, against the public interest, and go to sleep at night after watching your shows.

Tuesday, June 4, 2013

The Bastiat in a 7-Year-Old Boy

Conversation with my son Arnaud, age 7, last Sunday during lunch:

Me: "You know son, there's this great French economist Bastiat, he writes some cool stories, I think you'd enjoy reading his books."

Arnaud: "Oh yeah?"

Me: "Yes, kind of like Aesop fables [which he loves]. But his stories are real ones, about the economy, written 150 years ago."

Arnaud: "What did he write about?"

Me: "One story is about a child that breaks one of his home's window glass panes. His father is mad at him, but passersby say that this is good for the economy, so he shouldn't be mad."

Arnaud [startled]: "WHAT?"

Me: "What 'WHAT'?"

Arnaud: "Who are those silly people that would say something so stupid?"

Me: "Why do you think it is so stupid?"

Arnaud: "Because it's so obviously bad for the economy."

Me: "Is it? The passersby believe that if the broken window needs to be fixed then it will create work for the window repairman."

Arnaud [chuckling]: "This is so stupid... If his father spends the money fixing the window, then they won't have money for buying a new Lego set (did they have Lego sets at that time?), so it's obviously bad for the Lego factory. And the family now has the same window but no new Lego set, so the economy is worse off."

Me to my wife: "Isn't it telling that a 7-year-old boy knows more economics than most central bankers and finance ministers in this world of ours?"