The New Classical Counter-Revolution: A False Path for Macroeconomics

This article contends that the "new" classical counter-revolution that began in the 1970s has been a false path for macroeconomics. Keynesian economics nicely explained the 1970s stagflation that followed the world oil price hike with a shift up of the supply curve in its AD/AS diagram. Lucas and Sargent ignored oil, could not explain the 1970s stagflation, and committed the fatal mistake of assuming instantaneous labor-market clearing. Barro assumed without empirical evidence that consumers entirely save any tax cut because they want to be ready to pay higher future taxes. Prescott's fatal mistake with real business cycles was the same as Lucas' and Sargent's. New classical economics has been characterized by mathematical manipulation of models fatally flawed by empirically unrealistic assumptions.Macroeconomics; New Classical; Prices; Supply

Tax-Based Incomes Policies

macroeconomics, income policy, income, taxes

Reply to: ‘The New Classical Counter-Revolution: False Path or Illuminating Complement?’

The picture of economic well-being depends crucially on how it is measured. We introduce a new measure of economic well-being that includes public consumption, income from wealth, and household production. The differences in scope and method between our measure and standard income lead to substantially different findings regarding economic well-being. The average U.S. household appears to be much better off in 2001 relative to 1989 according to our measure in comparison to money income. In contrast to official measures, our measure shows that racial disparity increased. The increase in measured inequality was higher than indicated by the official measures.

"Did the 2008 Rebate Fail? A Response to Taylor and Feldstein "

Did the 2008 rebate fail to stimulate consumer spending? In their recent influential AER articles, John Taylor and Martin Feldstein each claim that BEA aggregate time series data show that the 2008 rebate failed. Re-examining the BEA data, we find that the data instead show there is a high probability that the rebate stimulated consumption. Moreover, the hypothesis that a rebate has half the impact of ordinary disposable income cannot be rejected. Thus, we find that analysis of the BEA aggregate time series data is consistent with the conclusion from the micro-data studies that the 2008 rebate stimulated consumer spending.fiscal policy, fiscal stimulus, tax rebates

"Overcoming the zero interest-rate bound: A quantitative prescription (Revision of Working Paper No. 2006-14)"

Using a macroeconometric model we provide a quantitative estimate of the cash transfer or tax cut that would achieve recovery from a severe recession when the central bank is unable to achieve full recovery because of the zero bound. We introduce an automatic transfer and simulate its triggering in the severe recession. We find that an automatic transfer that averages 3% of quarterly GDP repeated four times (quarterly) reduces the unemployment rate an additional full percentage point and thereby completes the recovery.   We recommend that legislatures enact an automatic counter-cyclical fiscal policy that will assure adequate stimulus without generating a long-term debt problem.Zero-interest rate bound, Counter-cyclical fiscal policy

"Did the 2008 Rebate Fail? A Response to Taylor and Feldstein"

Did the 2008 rebate fail to stimulate consumer spending? In their influential AER articles, John Taylor and Martin Feldstein each claim that BEA aggregate time series data show that the 2008 rebate failed. Re-examining the BEA data, we find that the data instead show there is a high probability that the rebate stimulated consumption. Moreover, the hypothesis that a rebate has half the impact of ordinary disposable income cannot be rejected. Thus, we find that analysis of the BEA aggregate time series data is consistent with the conclusion from the micro-data studies that the 2008 rebate stimulated consumer spending.fiscal policy, fiscal stimulus, tax rebates

"Compensations and contributions under an international carbon treaty"

The simulations in this paper use actual 2004 data on carbon emissions and per capita GDP from 178 countries to provide a rough estimate of how much better off high-income countries might be by compensating low-income countries to help reduce carbon emissions rather than doing it without their help; and a rough estimate of the per capita compensation to each low-income country and the per capita contribution from each high-income country under several alternative formulas that might be adopted under an international carbon treaty. The study focuses special attention on the per capita compensations to India, China, and Russia, and the per capita contributions from the United States, Japan, Germany, United Kingdom, Italy, and France, under alternative formulas. In our initial simulation, if the 46 countries with per capita GDP above $12,000 want to reduce world emissions by 1.095 billion metric tons (15$108 billion if they do it without help. But if they get optimal help from the 132 low-income countries, the total cost of reducing world emissions 1.095 billion would be only $55 billion--$27 billion for the low-income countries and $28 billion for the high-income countries-- so the world cost saving would be$53 billion and the cost saving for the high-income countries would be $80 billion. Thus, if the high-income countries compensate the low-income countries 100$27 billion), the high-income countries would still be $53 billion better off than if they had done it alone. Under the formula used in this initial simulation, China’s per capita compensation would be$7 and the U.S.’s per capita contribution would be $40.International Carbon Treaty

"Income-related patient cost-sharing: Simulation for prescription drugs under Medicare"

This paper studies an application of income-related patient cost-sharing. Using data from the Medicare Current Beneficiary Survey, we find that varying patient costsharing rates with patient income in the Medicare prescription drug program can reduce the severity of two problems: high percent-of-income burdens, and unequal medication due to income. We estimate behavioral responses in the Medicare population and incorporate the estimates into a micro-simulation model which uses data that are representative of the actual Medicare population. We find that introducing incomerelated patient cost-sharing into a Medicare drug program can dramatically reduce the severity of the two problems.Patient Cost-Sharing, Medicare

The Earned Income Tax Credit: Antipoverty Effectiveness and Labor Market Effects

The authors begin with a detailed assessment then perform empirical analyses to predict the outcomes of changes to the structure of the program.https://research.upjohn.org/up_press/1099/thumbnail.jp