http://kwonbook.com/2006/06/26/mutual-forgiveness-vs-the-merciful-padding-of-blather/ A Story of Economic Discovery Fri, 21 Nov 2008 08:15:08 +0000 http://wordpress.org/?v=2.3.2 http://kwonbook.com/2006/06/26/mutual-forgiveness-vs-the-merciful-padding-of-blather/#comment-493 Karl Eschelbach Thu, 09 Nov 2006 22:40:55 +0000 http://kwonbook.com/2006/06/26/mutual-forgiveness-vs-the-merciful-padding-of-blather/#comment-493 Having just finished Knowledge, I wonder whether all those "invisible hand" economists (Arrow, Solow, Tobin, Lucas, Becker), whose models perforce support Cato institute economics (limited government intervention, low taxes, unfettered property rights), neglected "increasing returns" for purely politcal reasons. Did the right-wing philosophy come first only to be follwed by the equations or was it the other way around? Note that no major economist has published a detailed study of the impact of the Bush tax cuts on the cost of capital. The reason is purely political. The invisible hand economists supported the tax cuts (pace Greenspan) not because of some duty to economic theory but becasue the tax cuts benefited a few wealthy Republicans. Any study would show that the owners of stocks are overwhelmingly tax indifferent (pension funds, hedge funds, private equity funds, mutual funds and 401ks) and therefore the reduction of the marginal tax on dividends and capital gains had little macro effect. Add the impact of the alternative minimum tax and you simply have a government subsidy for a few wealthy Republican donors. No wonder no one really wants to sudy tax policy using real data! It might lead to the "wrong" answer and Alan Meltzer would not want that to happen. Having just finished Knowledge, I wonder whether all those “invisible hand” economists (Arrow, Solow, Tobin, Lucas, Becker), whose models perforce support Cato institute economics (limited government intervention, low taxes, unfettered property rights), neglected “increasing returns” for purely politcal reasons. Did the right-wing philosophy come first only to be follwed by the equations or was it the other way around? Note that no major economist has published a detailed study of the impact of the Bush tax cuts on the cost of capital. The reason is purely political. The invisible hand economists supported the tax cuts (pace Greenspan) not because of some duty to economic theory but becasue the tax cuts benefited a few wealthy Republicans. Any study would show that the owners of stocks are overwhelmingly tax indifferent (pension funds, hedge funds, private equity funds, mutual funds and 401ks) and therefore the reduction of the marginal tax on dividends and capital gains had little macro effect. Add the impact of the alternative minimum tax and you simply have a government subsidy for a few wealthy Republican donors. No wonder no one really wants to sudy tax policy using real data! It might lead to the “wrong” answer and Alan Meltzer would not want that to happen.

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