I get Pissed with Matthew Yglesias for two reasons.
He allows someone to use the label "efficiency" for money metric welfare without objecting *and* he decides to translate it as "short term economic growth." The first step is deciding that lump sum transfers (including from Bill Gates to starving children) don't effect "efficiency" (by definition of efficiency) which is a common abuse of the term among economists but ought to be explained whenever the term is so abused by economists so long as non economists take economists seriously (as Matthew Yeglesias for example clearly does). The second step (made by Yglesias in the first person by himself) is total nonsense. Together they only make sense if mazimizing economic growth is efficient. This is a totally new definition of efficient which would make sense only to Stalin (who achieved very high economic growth). It is exactly the strategy of "The Club for Growth."
You assume that the effect of tax policy on growth is the effect due to inventives and dead weight losses. This is not true. I think you are too convinced by economic theory (as usual by the way).
The argument from economic theory is that changes in money metric welfare (dead weight losses) due to lump sum taxes and transfers add up to zero. This is true, because it is a tautoloty.
Then money metric welfare is equated with efficiency. This makes no conceivable sense and must make every utilitarian turn over in his or her grave (including me alghouth I am still alive and you who calls yourself a "consequentialist". This makes no sense. It is *not* the same as saying we can only say one state is more efficent than another if it is Pareto superior. This definition of "efficiency" yields a concept of no conceivable value or interest.
You know this (it's your field) yet you presenta table which lables changes in money metric utility (under a bunch of false assumptions too) as "efficiency costs" without criticizing the totally nonsensical non logic behind the calculation (which, I'm sure you agree, is depraved idiocy).
Just one of the idiotic assumptions is that there is no cost from global warming so the best policy would be liassez faire. Few would argue this, certainly not the people who assert it in their table labled "efficiency costs." Why did they lable the figure "efficiency costs" ? The least hypothesis is that they are schizophrenic but I'm sure something else is going on (maybe all is made sane in a footnote somewhere).
Aside from presenting the table with their title and no criticism, you know that calling money metric welfare "efficiency" is nonsense so you translate "money metric welfare" into a phrase to which ordinary people can relate (because it isn't a stilly calculation totally unrelated to anything that matters and ordinary people know that it is and suspect that "money metric utility" is as pointless as it sounds). So you replace "money metric utility" with "economic growth".
Wrong. They are not the same even in economic theory at its most reality defying. In fact, lump sum transfers will typically affect economic growth. The reassoning "its a lump sum transfer so it has no effect on economic growth" is just plain wrong. It's (generically) wrong in the hardest of hard core neoclassical models.
It's wrong if the rich are, on average, more patient (have a lower subjective rate of time discount) than the poor (this seems uhm plausible as it is hard to believe that people have identical subjective discount rates and more patience makes one richer other things equal).
It's wrong if firms are liquidity constrained.
Obviously firms are liquidity constrained at the momement (duh). In curent conditions, I would guess that taxing people lump sum and giving the money to firms would cause increased growth in the short run. For a fairly high tax, it would also cause people to starve. I'm all against it. But don't write "economic growth" when you mean something else.
Also especially don't give a table whcih shows the change in money metric utility (under a pile of false assumptions too) and call it efficiency cost. I mean if Harvard trained philosophers specializing in metaethics don't stand up to such nonsense who will ? posted by Robert
permalink and comments2:08 AM
Can you give us a little more intro and some of the background of your argument?