Four Takes
2025 25 2025
Four Takes
I’m on holiday and not able to dedicate much time to correcting errors on the Internet. 😊 Therefore, I’ll limit this to four takes.
Matt Yglesias on Oil and Gas
Matt Yglesias reaches correct conclusions but the arguments poorly framed. Democrats should drop, should never had touched, hostility to oil and gas production and transportation projects, not because they are unpopular politically, but because they are not low-cost ways of reducing CO2 emissions. Blocking a US oil or gas project simply means that the same fuel will be produced elsewhere, virtually no less CO2 will be emitted, but the economic value of the US production is foregone.
Until we have a tax on net CO2 emissions, the lowest cost policy for reducing net emissions is to subsidize zero emissions technology that substitute for CO2 emitting technologies. This can be sufficiently low cost provided the subsidy is not too large. If “environmentalist” insist on high-cost policies, they will doom efforts to reduce emissions suffinetly to achieve net zero by 20xx.
Affordability Demands
Economists are at least a little bit at fault for the way that inflation is perceived by the public. To say that inflation was temporary in 2020-21 was correct; the proper Fed response to a supply shock like COVID/Putin IS above-target inflation for a temporary period. After relative prices have adjusted to the shock, inflation can gradually be returned to target levels. It was a mistake, however, to have given the impression that inflation should ever be below-target, much less that the price level should ever actually fall. The public did not appreciate that the policies actually favored by candidate Trump – tax cuts to create deficits, tariffs, and immigration restrictions/deportation would force the Fed to keep inflation above target, if not increase it. [Inflation touched target just before the Liberation Day tariff increases.]
Of course there are many policies that can reduce certain relative prices: land use and building code reforms to increase supply of residential and commercial construction, tariff reduction, ceasing deportations and accelerating immigration of high-income potential immigrants. Most important of all however will be tax increases or expenditure reduction that reduce deficits to the amount of public investment. All these will allow the Fed to return inflation to target levels or return it sooner than without these policies.
Reforming Development Assistance
Although reducing taxation of business income is desirable as a way of increasing growth, it will not itself promote more transfer of capital to developing countries without increasing other taxes to at least off set the increased in deficits that even an efficiency-enhancing tax reform will generate. Lower fiscal deficits means smaller capital inflows
As U&U point out, however, the most important obstacles to development are not low flows of capital but poor economic policies (policies which unfortunately have become more prevalent in developing countries, too – regulations that increase the cost of doing business, domestic borrowing to pay for consumption, and restriction on international trade and investment.
In this regard, it is ironic (or is it only logical?) that the US has gutted its best single instrument for encouraging institutional and policy reform in developing countries: USAID
Sumner on Neoliberalism
https://substack.com/home/post/p-181602625?source=queue
This in not so much a “correction” as support for Sumner’s points of view. The Clinton-Blair “Washington Consensus” consensus on economic policy was pretty close to optimal. Trade restrictions were low and going down, finance had been liberalized, and regulatory reform was at least on the table even if not much was actually done. Monetary policy was guided by targeting low levels of inflation. Probably not enough attention, however, was paid to the need for a robust social insurance system to preserve support for growth-friendly economic reforms.
The one lacuna of neoliberalism that Sumner does not address, however was tax policy. Deficits were small (the US even ran a few surpluses) but taxation remained too much (in the US, almost exclusively) on income.
Social insurance transfers financed by taxes on wage income (capped income in the case of Social Security) So long as social insurance transfers were not yet contributing to the deficit, is was understandable to have left the wage tax in place instead of going over to a VAT, but the revenue formula was known to be demographically unsustainable.
Business income taxes should have been completely eliminated (at best they are just inefficient taxation of personal incomes without taking into account the mischief of treating income different objects of investment differently).
Personal taxation should have been shifted from an arcane definition of “income” (including non-indexed capital gains) to a progressive consumption base at levels that ensured that deficits did not surpass levels of public investment.
Negative externalities, especially net emissions of CO@ were untaxed.
Image: Four people pointing accusingly at each other.
[Standard bleg: Although my style is know-it-all-ism, I do not really think that, knowing that I can be mistaken and prone to overstate my points. I’m also aware of the amazing range of views and experiences among readers. Bring those to bear by commenting on these posts. Both other readers and I will benefit]
One of your best. I'm of course biased when it comes to development assistance. Maybe you should spend more time away from the internet.