Austerity, mechanisms & profits

Whenever he was faced with a blustering student - which was often - my old economics tutor, the late Andrew Glyn, would ask: "What's the mechanism?" This is the question we should ask about the TPA's The Single Income Tax report. It says: There is a long history of macroeconomic studies which have found that economies where public spending is a lower share of national income tend to see stronger economic growth.

The IMF's admission (p41 of this pdf) that "the multipliers used in generating growth forecasts have been systematically too low since the start of the Great Recession" is being interpreted as a victory for

I’m intrigued by Duncan’s idea of an austerity curve. - the idea that: cutting government spending up to a certain point leads to lower deficits but beyond a certain point, the impact of lower growth and higher unemployment means that deficits get worse as the government cuts more.

In recent months, economist Alberto Alesina has become popular among conservatives for research showing that deficit reduction can sometimes be accompanied by economic growth; that spending cuts are better than tax cuts; and for arguing that stimulus is less effective than Keynesians think and thus spending cuts can begin now. Business Week's Peter Coy is skeptical:

Advances in production technologies, as well as rising costs and regulations abroad, will “fundamentally change” the economics of manufacturing, a study by the Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) found. “This will mean more will be made at home and exporting will be replaced with owning or controlling factories in target markets abroad,” it said. For the UK, the changes is likely to result in jobs that were outsourced overseas coming home and overseas manufacturers setting up UK factories.

By James Kwak

I’m on a mini vacation this weekend, looking out at the Pacific Ocean and appreciating the here and now but also contemplating my goals for the future, both personal and professional.  Sometimes these goals overlap, and most people would find it strange that I’m moved to blog on fiscal policy even while on vacation.  But you see, I’ve made myself a personal commitment to work harder on the issue of tax expenditures, tax reform, and bipartisan solutions to the deficit problem over the next few months (to few years, I anticipate).  I want to better explain the ways in which

David Leonhardt notes that evidence of the Bush tax cuts’ beneficial impact on growth is difficult to find: