I had urged him to write up an “explainer” type piece, summarizing key lessons on taxes. He came through. So far, his is the single best piece I’ve seen on the issue of border tax adjustment. I am working on some blog posts / podcast episodes to walk through these things as well.
I’m not going to bother excerpting from Scott’s piece, because for its full punch you need to just read it. He starts out with the tax incidence stuff–does it matter whether the government levies a 25-cent tax on the gas station or on the consumer? Then he ends up showing how a tax on imports coupled with a subsidy to exports won’t significantly change the volume of trade, so long as the currency adjusts. *That* is the key claim that guys like Krugman and others are citing, but nobody has slowly spelled out why it works.
To reiterate, Scott’s piece is the single best one I’ve seen so far, if you want someone to explain that initially counterintuitive result.
P.S. Scott is still wrong about the Fed.
==> I haven’t had time to look at this, but two mathematicians claim Godel’s results prove God.
==> Federal spending grew more under Reagan and George W. Bush than under Obama.
==> This Elon Musk guy is starting to give me the creeps. When he starts work on SkyNet, we’ll know what’s up.
==> BTW I assumed the GOP “blueprint” for tax reform was really long, but it’s only 35 pages, if you want to skim it.
[UPDATE below with more (apparent) mistakes.]
I’ve been studying this chapter by Feldstein and Krugman on VATs/income taxes (from a 1990 NBER book). It’s excellent, as far as a mathematical model goes. I highly encourage academic economists to check it out.
I think I found a typo, if that motivates some of you to look at it. On the bottom of page 266 they write:
So in that equation (7), in the first two terms after the equals sign, should the superscripts be “1” instead of “2”?
I found two more equations that I think contain mistakes. They both come from page 274:
For equation (16), it seems they are missing the third term altogether? (On the previous page, it was established that L1 was the rebate from the government in period 1, so clearly the L2 in (16) is the rebate from the government in period 2. And what Feldstein/Krugman call “capital consumption allowances” seems to line up with the second term in (16), since this term represents the after-tax real return on the saved output carried forward from period 1.)
Now, looking at equation (18), I have three problems:
First, should the superscripts on the left-hand side be “2” not “1”?
Second, on the right-hand side, if we’re looking at period-1 Wealth and period-2 income separately, wouldn’t it be more natural to include the growth in W in the period-2 income? In particular, equation (16) included the real return to capital brought forward from period 1, so it seems the (1+r*) that is multiplying W in equation (18) is redundant. (I think that equation (16) represents income for the firm, whereas (18) is for the household, but it still seems like an inconsistent treatment of the timing of income.)
Third, even if we assume (inconsistently) that that I2 in equation (18) doesn’t include the real return on wealth created in period 1, then why is W being multiplied by (1+r*)? Shouldn’t we also account for the income tax?
In summary, it seems that there are several typos (if not outright errors) in this paper, but I still think it is a good example of using a mathematical model to address a question in economics. It shows the strengths and weaknesses of the approach. (It’s ironic that I set out to give Krugman his due, and ended up complaining about a bunch of typos.)
This was an interesting section from Guzik’s commentary on Exodus 30:
- ([verses] 13-16) How to take a census with ransom money.
“This is what everyone among those who are numbered shall give: half a shekel according to the shekel of the sanctuary (a shekel is twenty gerahs). The half-shekel shall be an offering to the LORD. Everyone included among those who are numbered, from twenty years old and above, shall give an offering to the LORD. The rich shall not give more and the poor shall not give less than half a shekel, when you give an offering to the LORD, to make atonement for yourselves. And you shall take the atonement money of the children of Israel, and shall appoint it for the service of the tabernacle of meeting, that it may be a memorial for the children of Israel before the LORD, to make atonement for yourselves.”
- Everyone included among those who are numbered, from twenty years old and above, shall give an offering to the LORD: The census was to include everyone aged twenty and over. This seems to be the Israelite age of full adulthood in this sense. Everyone also had to give an equal amount – one-half shekel.
2. This ransom money spoke clearly: everyone owes God; everyone is obligated to Him. “The Lord commanded that every male over twenty years of age should pay half a shekel as redemption money, confessing that he deserved to die, owning that he was in debt to God, and bringing the sum demanded as a type of a great redemption which would by-and-by be paid for the souls of the sons of men.” (Spurgeon)
3. “Later, the ‘half-shekel’ became an annual temple tax (Matthew 17:24).” (Cole)
4. The rich shall not give more and the poor shall not give less…to make atonement for yourselves: This was not a request for a free-will offering, nor was it a proportional tithe. This was more like a flat tax, where everyone paid the same amount, rich or poor – because this was to make atonement. It wasn’t that the money was the atonement, but it marked the ones who were atoned.
5. In this sense, it is not a pattern for our giving under the New Covenant. New Covenant giving should be proportional, under the principle that we should give in proportion to our blessing (1 Corinthians 16:2).
6. Instead of a pattern of our own giving, this money was a picture of the cost of our own redemption. “The rich were not to give more, the poor not to give less; to signify that all souls were equally precious in the sight of God, and that no difference of outward circumstances could affect the state of the soul; all had sinned, and all must be redeemed by the same price.” (Clarke)
Note that Guzik uses the wrong term (in the context of modern policy discussions)–the atonement payment was a poll or a head tax, not a flat tax, which is what the tithe would be. (You tithe ten percent of your income.)
I am sharing because I thought it was interesting that the atonement payment was not tied to wealth; it was a flat fee (which of course is why Guzik described it as a “flat tax”). Far from being unfair to the poor, I think this actually gave them dignity, for the reason described in the quotation above. Their souls were just as valuable.
Part of the broader spiritual message here, of course, is that Jesus will eventually pay the ultimate redemption price for all of us.
I don’t have it in this excerpt, but elsewhere Guzik explained that in general God didn’t want human rulers conducting a census, because this signified that the human ruler “owned” the subjects.
==> We’re #25! We’re #25!
==> Remember how I asked you guys your thoughts about dealing with progressive hypocrisy while Trump is doing bad things? Tom Woods and I have a discussion on the topic.
Because I was on the road when Episode 71 posted, I fell behind. So I’ll give the highlights of both Episode 71 and 72 in this post.
Episode 71: On Trump Manufacturing His Own Reality When Things Get Worse
8:30 I explain that Krugman has to do a dance. Originally there was a depression under Obama, then America had to be A-OK at the end of Obama’s term to render Trump’s analysis wrong, and at some point it will have to be awful again, lest Trump not be so bad.
9:50 I explain that Trump’s use of the term “carnage” for inner cities would be par for the course if coming from someone on the left.
14:45 Tom starts listing false things that progressive believe.
23:00 I explain the connection between federal budget deficits and U.S. trade deficits.
30:45 We agree with Krugman that Trump has painted himself into a corner regarding ObamaCare.
39:25 I tackle Krugman’s slippery statistics when he tries to show job creation since 2000 has been adequate.
Episode 72: Will Trump Make Manufacturing Decline Faster?
10:55 I agree with Krugman that Trump has the wrong view of trade; he thinks it’s a zero sum game where one party has to dominate. But then I have a surprise…
17:40 I agree with Krugman that tariffs/free trade don’t destroy/create jobs but rather just rearrange employment.
22:40 I concede a sense in which talking about “job creation” from pro-growth policies is defensible.
24:10 Once again I run through the argument that Trump will unwittingly make the trade deficit “worse” by running a big budget deficit.
25:20 We agree with Krugman that Reagan was very protectionist.
26:45 I point out that Krugman actually has an Austrian-ish theory of what caused the bad recessions of the early 1980s.
==> We at the Free Market Institute at Texas Tech are hosting an IHS seminar on American democracy. You can register even up till the last minute, so come on down. I’ll be talking about secession on Saturday, but all the talks look good.
==> Glenn Greenwald on the depressing consistency of Obama-Trump when it comes to military strikes killing kids.
==> Speaking of using deaths as a way to critique policy, Steve Landsburg does it for Trump’s tariff (or whatever it ends up being) against Mexico. I push back in the comments, because I don’t think Steve would endorse an analogous critique (and I make it, plausibly) of a free trade policy.
==> Is it weird that the AP is running a story with a headline about what Trump said to the Mexican leader on the phone, which both the White House and Mexican government vigorously deny? Is it a completely nutjob theory to consider that the media is saying to Trump, “You think you can insult us and box us out? Now you’ll see much power we really have, tough guy.” ?