BCA, UI and EGTRRA/JGTRRA

Four Acronyms in a Very Depressing Play

Truly we are in a strange world where legislative extension of unemployment insurance payments, which is highly effective at maintaining aggregate demand, is stalled, while giving tax cuts to households with income in excess of $250K (a.k.a. the Todd Henderson households) moves forward despite having very little impact on employment and aggregate demand. In other words, on benefit-cost grounds we would want to do exactly the reverse. Given the sheer incoherence of some of the arguments being propounded, it might be useful to recap some findings.

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The Fed’s communication problem

The start of the FOMC’s November meeting is described in the minutes released yesterday as follows:

The meeting opened with a short discussion regarding communicating with the public about monetary policy deliberations and decisions. Meeting participants supported a review of the Committee’s communication guidelines with the aim of ensuring that the public is well informed about monetary policy issues while preserving the necessary confidentiality of policy discussions until their scheduled release. Governor Yellen agreed to chair a subcommittee to conduct such a review.

Here I provide some suggestions for Governor Yellen’s subcommittee to consider.

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Answering the bunnies

A cartoon has been making the rounds (e.g., Forbes, Zero Hedge, and Real Clear Politics) in which cartoon characters (bunnies maybe? or perhaps some other life form) ask questions about quantitative easing. I would have provided slightly different answers than did the didactic character in the cartoon, so I thought it might be fun to interject myself as a third character in the bunnies’ conversation.

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Assessing Fantasy Scenarios

With the EGTRRA/JGTRRA extensions and proposals for tax reform and debt reduction flying left and right, I think it behooves us to review what the theoretical (well, actually undergraduate textbook) literature and the empirical assessments suggest will be the impact of tax rate changes. I want to devote special attention to the hypothesis that there will be large dis-incentive effects on high income households should their tax rates go up, with correspondingly large negative ramifications for overall economic activity.

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