Tuesday , May 18 2021
Home / Alan Reynolds

Alan Reynolds



Articles by Alan Reynolds

Simon Johnson Claims the Warren Health Plan is a Gift to U.S. Businesses

December 2, 2019

An advisor to the Warren campaign, Simon Johnson of MIT, has written an impressively fact-free Wall Street Journal article claiming Senator Warren’s "remedy for health care costs" would be a wonderful gift to American businesses.
"Americans currently spend nearly 18% of gross domestic product on health care. . . and a great deal of this burden falls directly on companies." He claims "this dead weight gets heavier each year" and "companies cannot by themselves easily constrain health-insurance premiums." The impression is that businesses shoulder a large and rising share of total spending on health care. And unlike all other employee compensation (such as salaries and retirement benefits) this is said to be just a "deadweight cost" that "get heavier each year" yet remains "unpredictable."

Read More »

A Different Look at After-Tax Income Inequality

July 25, 2019

Every presidential candidate promises to “reduce income inequality” by raising tax rates on the rich and increasing transfer payments (including tax credits and in-kind benefits) for the middle class.  Yet the widely-used flawed data from Thomas Piketty and Emmanuel Saez exclude both taxes and transfers.  Income measures that exclude taxes and transfers cannot tell us whether taxes or transfers are high or low, and cannot be directly affected by higher taxes on some or higher transfers to others (because such policies are ignored in the data).
A simple table adapted from the 2017 Consumer Expenditure Survey, from the Bureau of Labor Statistics, may be sufficient to show how crucial it is to take account of taxes (including refundable tax credits), and also to adjust average income for

Read More »

1973: The Year John Kenneth Galbraith Made Socialism Mainstream

June 18, 2019

I started writing about economic issues in 1971, first in Reason then National Review. One of my most serious early articles –­and certainly the most unread–­ was a 2800-word critique of John Kenneth Galbraith in The Intercollegiate Review, posing as a book review with the mildly disrespectful title “Irrelevant Anachronism.”  
Ken Galbraith and I met years later, when he was invited to comment about my presentation at a 1987 debate at Harvard [recorded by C-Span] about “The Disappearing Middle Class” on a panel with Lester Thurow, Barry Bluestone and Frank Levy.  
In Paul Krugman’s ill-tempered 1994 book, Peddling Prosperity [which I reviewed as “Peddling Pomposity”], he called Galbraith “the first celebrity economist,” adding that “he has never been taken seriously by his academic

Read More »

Is it True that 40% of Americans Can’t Handle a $400 Emergency Expense?

May 6, 2019

Governor John Hickenlooper, writing in The Wall Street Journal, repeats a misleading interpretation of one answer to a Federal Reserve poll question that is frequently used to suggest many Americans are in dire financial straits: “Forty percent of Americans in 2017 didn’t have enough savings to cover a $400 medical emergency or car repair, according to the Federal Reserve.”
But that is not the question that was asked, and it certainly is not the answer.
The question was about how people would choose to pay a $400 “emergency expense” — not whether or not they could pay it out of savings (or checking) if they wanted to.  Respondents were also free to choose more than one way of paying the extra $400 (“please selects all that apply”), so the answers add up 143% rather than 100%.  Even if

Read More »

Roger McNamee’s Facebook Critique

February 18, 2019

In a recent Time magazine article, Roger McNamee offers an agitated criticism of Facebook, adapted from his book Zucked: Waking Up to the Facebook Catastrophe.  Facebook “has a huge impact on politics and social welfare,” he claims, and “has done things that are truly horrible.”  Facebook, he says, is “terrible for America.”
McNamee suggests his “history with the company made me a credible voice.” From 2005 to 2015, McNamee was one of a half dozen managing directors of Elevation Partners, an $1.9 billion private equity firm that bought and sold  shares in eight companies, including such oldies as Forbes and Palm.  U2 singer Bono was a co-founder. Other partners included two former executives from Apple and one from Yahoo.  Another is married to the sister of Facebook’s COO.  Such

Read More »

Trade War with China Slashed U.S. Exports 26.3% as U.S. Imports rose 38.5%

January 14, 2019

The Trump Administration’s trade warfare with China began in earnest last March 22nd (following steel and aluminum tariffs that primarily hit other countries). U.S. and Chinese tariffs on each other’s goods then escalated repeatedly through September 18 with threats of much more the same by May 1 of this year.
The effect so far has been quite different from what President Trump first promised and still keeps pretending.  In fact, U.S. goods exports to China (excluding services) fell by 26.3% from March through October, while U.S. imports from China rose by 36.5%.   
U.S./China trade data were supposed to be updated for November on January 8, but that potential embarrassment was mercifully postponed by President Trump’s government shutdown.  Yet Reuters, using Chinese data, estimates

Read More »

Martin Feldstein vs./ Fed Chairman Powell and Irving Fisher

December 11, 2018

In a November 27 Wall Street Journal article, “Raise Rates Today to Fight a Recession Tomorrow,” Martin Feldstein reminded us he has been repeatedly cheerleading since 2013 for the Fed to raise interest rates faster and higher “to prevent the overvaluation of assets” whose prices “will collapse when long-term interest rates rise.” I critiqued one of Feldstein’s similar articles in 2017.
November 27 was an odd time to be fretting about overvaluation. The day before Mr. Feldstein’s article appeared, a headline in the same newspaper – “Stocks, Bonds Face Year in Red” – observed that “stocks, bonds and commodities are staging a rare simultaneous retreat” 
Yet Feldstein urged the Fed to keep pushing short-term rates higher (3.4% “will not be high enough”) to somehow ease the pain of a

Read More »

The 1990 Bush “Tax Increase” Reduced Taxes

December 10, 2018

The late President G.H.W. Bush famously reneged on his “no new taxes” pledge and signed the “Bush tax increase” on November 5, 1990, to take effect the following January.   The new law was intended to raise more revenue from high-income households and unincorporated businesses.  It was supposed to raise revenue partly by raising the top tax rate from 28% to 31% but more importantly by phasing-out deductions and personal exemptions as income on a joint return climbed above $150,00  (the phase-outs were called the PEP and Pease provisions).  
Treasury estimates expected revenues after the 1990 budget deal to be higher by a half-percent of GDP.  What happened instead is that revenues fell from 17.8% of GDP in 1989 to 17.3% in 1991, and then to 17% in 1992 and 1993.  Instead of rising

Read More »

Everything You Need to Know About Net or Gross Saving Rates

October 12, 2018

Writing in Project Syndicate, Stephen Roach, former chief economist for Morgan Stanley, declares the U.S. economy’s foundations fundamentally unsound:
“America’s net national savings rate – the sum of saving by businesses, households and the government sector – stood at just 2.1% of [gross] national income in the third quarter of 2017.  That is only one third of the 6.3% of the average that prevailed in the final three decades of the twentieth century… America… is saving next to nothing.  Alas, the story doesn’t end there. To finance consumption and growth, the U.S. borrows surplus saving from abroad to compensate for the domestic shortfall.  All that borrowing implies a large balance of payments deficit with the rest of the world which spawns an equally large trade deficit.”   
This

Read More »

Phillip Cagan’s 1984 Reflections on a Gold-Convertible Currency

September 25, 2018

Milton Friedman published Studies in the Quantity Theory of Money in 1956, a seminal anthology of papers from five economists, leading with “The Monetary Dynamics of Hyperinflation” –the recent PhD dissertation of Phillip Cagan (1927-2012), which became an instant classic.  So, Cagan was thought to be a “Monetarist” a dozen years before that phrase was even coined by my UCLA teacher, Karl Brunner.
Soon after August 15, 1971 when President Nixon opted to renege on the Bretton Woods pledge to convert foreign official dollar reserves into gold on demand (rather than simply devalue the dollar/gold ratio), we entered a long and painful period of extremely high worldwide inflation.
Even as measured by the gentler “core” CPI (less food and energy), U.S. inflation averaged 9% from 1974

Read More »

A Contemporary Economist’s Account of the “Crowning Folly of Tariff of 1930”

September 20, 2018

“[T]here came another folly of government intervention in 1930 transcending all the rest in significance. In a world staggering under a load of international debt which could be carried only if countries under pressure could produce goods and export them to their creditors, we, the great creditor nation of the world, with tariffs already far too high, raised our tariffs again. The Hawley-Smoot Tariff Act of June 1930 was the crowning folly of the who period from 1920 to 1933….
Protectionism ran wild all over the world.  Markets were cut off.  Trade lines were narrowed.  Unemployment in the export industries all over the world grew with great rapidity, and the prices of export commodities, notably farm commodities in the United States, dropped with ominous rapidity….
The dangers of

Read More »

About 1,100 Puerto Rican Deaths from Maria — NOT 2,795 or 4,645

September 17, 2018

The estimated number of above-average “excess deaths” in Puerto Rico attributed to Hurricane Maria (Sept 20, 2017) is a difficult figure to estimate objectively.  Puerto Rico’s official figure of 64 deaths by December 9, 2017 (which the President remembered) counted only those deaths directly attributed to the storm and confirmed by medical examiners.  Most of the direct deaths from Katrina were from drowning – which is much easier to attribute to the storm than many other causes of death. Studies of Puerto Rican deaths from Maria aspire to account for a wide range of indirect effects that are presumed (not proven) to be consequences of the storm such as suicides and heart attacks, infectious diseases, and damage to electricity and therefore to dialysis and respirator equipment.
Among

Read More »

The Politics and Economics of the Capital Gain Tax

August 3, 2018

The Treasury Department is said to be studying the idea of providing some sort of inflation-protection (indexing) for the taxation of capital gains.  Rep. Devin Nunes (R-CA) has introduced a bill  (H.R. 6444) to do just that.   Predictably, Washington Post writer Matt O’Brien instantly dismissed the idea as “Trump’s new plan to cut taxes for the rich.” 
O’Brien relies on a two-page memo from John Ricco which yanks mysterious estimates out of a black box – the closed-economy Penn-Wharton Budget Model.   The “microsimulation model” predicts that the Top 1 Percent’s share of federal income taxes paid could fall from 28.6% to 28.4% as result of taxing only real capital gains.  “That’s real money,” exclaims Matt Obrien.
No model can estimate how much revenue might be lost by indexing (if

Read More »

The Growing U.S. Trade Surplus in Services: Part Two

July 10, 2018

President Trump and others who are mistakenly troubled by trade deficits with specific countries should at least get the facts straight.  To fret about trade deficits in goods alone (ignoring services) is hopelessly old-fashioned in a world where the most exciting business and investment opportunities are typically in the service industries.   U.S. businesses are famously outstanding in software and communications services, health and education services, food and lodging services, legal, financial, accounting and marketing services, and so on.  Hollywood, Wall Street, Madison Avenue, Las Vegas and D.C.’s K-Street lawyers have always been known for their services, not “making stuff.”
The table shows a rapidly growing U.S. trade surplus in services with many important economies and

Read More »

Trade Warriors Exclude a Third of U.S. Exports from “Trade Deficits”

July 9, 2018

Private services account for 69% of GDP, and 128.2 million jobs in June. In the Bureau of Economic Analysis industry accounts, private service industries “consist of utilities; wholesale trade; retail trade; transportation and warehousing; information; finance, insurance, real estate, rental, and leasing; professional and business services; educational services, health care, and social assistance; arts, entertainment, recreational, accommodation, and food services; and other services (except public administration).”
Goods-producing industries, by contrast, “consist of agriculture, forestry, fishing, and hunting; mining; construction; and manufacturing.” All of these goods-producing industries combined accounted for only 20.7 million jobs this June. That was fewer goods-producing jobs

Read More »

The Phillips Curve Is Dead (except in Federal Reserve and CBO models)

May 24, 2018

“Is the Phillips Curve Dead?” asked Princeton economist Alan Blinder in a May 3 Wall Street Journal article. The former Vice-Chairman of the Fed noted that “the correlation between unemployment and changes in inflation is nearly zero… Inflation has barely moved as unemployment rose and fell.”
For a veteran Ivy League Keynesian like Blinder to doubt the Phillips Curve was doctrinal heresy, comparable to a monetarist asking if money matters or a supply-sider wondering aloud if a 91% tax rate is better than a 28% rate.
Wall Street Journal columnist Greg Ip later explained the dilemma and expanded it: “Standard models of the economy are built on a simple relationship: When unemployment goes down, inflation eventually goes up. That relationship, dubbed the Phillips Curve, has looked sickly

Read More »

Did the Kennedy Tax Cuts Cause Rising Inflation?

May 1, 2018

Wall Street Journal columnist Greg Ip, among others, has repeatedly warned that “this year’s tax cut may overheat an economy already near full employment.”   
This equivocal prediction relies on a theory that inflation is caused by combining low unemployment and large structural (cyclically-adjusted) budget deficits. Inflation is assumed to be a national rather than global phenomenon, and its cause is assumed to be fiscal rather than monetary. 
To support this fiscal theory that tax cuts are inflationary, the evidence Greg Ip and others have always turned to is this brief sample from U.S. history, 1965 to 1967:
“In 1966, inflation, which had run below 2% for nearly a decade, suddenly accelerated to over 3%. Some of the circumstances echo the present: unemployment had slid to 4%, taxes

Read More »

Must Rising Oil Prices Compel the Fed to Tighten More?

April 27, 2018

As crude oil prices recently approached $68 a barrel, a Wall Street Journal writer concluded that “inflation fears got an added jolt this week as oil prices rose to a three-year high.”
Two other Wall Street Journal writers added that “If crude continues to move higher, it could begin to stifle economic growth.”  They suggest that “higher consumer prices for gasoline and other energy products act like a tax, while pushing inflation higher and increasing pressure on the Federal Reserve to raise interest rates more aggressively.” 
Such anxieties about $70 oil are obviously overwrought. Crude prices were usually above $100 from March 2011 to September 2014, yet nobody was then fretting about inflation fears forcing the Fed to raise the fed funds rate.   
But this does raise two very

Read More »

Inflation Is Largely a Global Phenomenon

March 9, 2018

When economic journalists speculate about looming inflation risks in the U.S. or any other country, they implicitly assume that each country’s inflation depends on that country’s fiscal or monetary policies, and perhaps the unemployment rate. Yet The Economist for March 3rd–9th shows approximately 1–2 percent inflation in the consumer prices index (CPI) for virtually all major economies. 
Inflation rates were surprisingly similar regardless of whether countries had budget deficits larger than ours (Japan and China) or big surpluses (Norway and Hong Kong), regardless of whether central banks experimented with “quantitative easing” or not, and regardless of whether a country’s unemployment rate was 16.9 percent (Spain) or 1.3 percent (Thailand). 
The latest year-to-year rise in the CPI

Read More »

Are Mass Shootings Becoming More Frequent?

February 15, 2018

Terrible mass shootings like the one at a Parkland, Florida high school are so shocking that it is easy to get the impression that mass shootings are increasingly common.  The number of deaths from mass shootings has been unusually high since 2007, because of five horrific incidents – Las Vegas (58), the Orlando nightclub (49), Virginia Tech (32), Sandy Hook (27), and the Texas First Baptist Church (26).  Statisticians would never try to fabricate a trend from such a small sample, even though the untrained eye may want to.
Last November, however, a Wall Street Journal essay by Ari Schulman claimed,
It isn’t your imagination: Mass shootings are getting deadlier and more frequent. A recent FBI report on “active shooters” from 2000 to 2015 found that the number of incidents more than

Read More »

Could CBO Be Underestimating GDP Growth by 1%? They’ve Done It Before

February 14, 2018

From 1983 to 1999, the CBO issued two-year forecasts that added up to a 2.7% growth rate, which would now be widely dismissed as a “rosy” forecast. Yet actual growth averaged 3.7% from 1983 to 1999 – a full percentage point higher – despite a recession in 1991. Today, the CBO forecasts that even 2.7% economic growth is impossible, and claims only 1.9% is within reach. 
The Administration thinks the economy can grow a percentage point faster. The 2019 Budget estimates the economy will grow by 2.9% a year for ten years. The Committee for a Responsible Budget (CFRB) argues that this “strains credulity, especially if interest rates and inflation also remain under control, as the budget predicts they will.” [This appears to suggest higher inflation would be good for growth.]
“Given

Read More »

Washington Post Fact Check: Tax Cuts Didn’t Raise Federal Borrowing 84%

February 5, 2018

“Trump’s tax cuts are rocketing us into the debt ceiling,” wrote Catherine Rampell in The Washington Post on February 1, because “withholding from employee paychecks will drop starting no later than mid-February. Individual income tax revenue will therefore be about $10 billion to $15 billion less per month than the CBO previously estimated.” The suggestion that the debt crisis could be blamed on a mere $10-15 billion cut in monthly withholding got a Twitter shout-out from budget hawk Stan Collender, who must know that errors in monthly budget estimates are commonly larger than that.
This was followed two days later by Heather Long’s extremely misleading Washington Post story, “The U.S. Government Is Set To Borrow Nearly $1 Trillion This Year, an 84 Percent Jump from Last Year.” The

Read More »

About Those Loopholes

November 1, 2017

When it comes to individual taxes, key Republican legislators seem to think “reform” is mainly about limiting or eliminating certain itemized deductions, rather than about raising revenue in ways that do the least damage to the economy (by minimizing tax distortions and disincentives).
This emphasis on curbing itemized deductions is often compared with the Tax Reform Act of 1986 (TRA86), which supposedly “paid for” cutting the top tax rate from 50% to 28% by slashing several itemized deductions. In reality, however, most extra revenue from repealing itemized deductions after 1986 was devoted to raising the standard deduction, leaving total deductions unchanged. This is apparent in the graph below, which shows total deductions – both itemized and standard – as a percentage of Adjusted

Read More »

Labor’s Share of GDP: Wrong Answers to a Wrong Question

October 26, 2017

A recent paper by David Autor of MIT, Lawrence Katz of Harvard and others, “The Fall of the Labor Share and the Rise of Superstar Firms,” begins by posing a mystery: “The fall of labor’s share of GDP in the United States and many other countries in recent decades is well documented but its causes remain uncertain.”  They construct a model to blame it on U.S. businesses that are too successful with consumers.  
Five broad industries, they found, became more dominated by fewer firms between 1982 and 2012: retailing, finance, wholesaling, manufacturing and services. But those aren’t industries at all, much less relevant markets: they’re gigantic, diverse sectors. Is all manufacturing becoming monopolized? Really? Census data ignores imports, but why ruin this bad story with good facts.

Read More »

Antitrust for Fun and Profit: The Democrats’ Better Deal (Part 3)

October 20, 2017

This continues Part 1 and Part 2 of my critique of the arguments for aggressive antitrust activism offered in Steven Pearlstein’s Washington Post article, “Is Amazon Getting Too Big,” which is largely based on a loquacious law review article by Lina Kahn of the Google-funded “New America” think tank. 
My previous blogs found no factual evidence to support claims of Pearlstein and Kahn that many markets (which must include imported goods and services) are becoming dominated by near-monopolies who profit from overcharging and under-serving consumers.  
Yet the wordiest Kahn-Pearlstein arguments for more antitrust suits against large tech companies are not about facts at all, but about theories and predictions.
Kahn makes a plea for preemptive punishment based on omniscient futurism.

Read More »

Competing Analyses of the Republican Tax Reform Framework

October 19, 2017

The media’s favorite analysis of the Big Six tax reform framework comes from the Urban-Brookings Tax Policy Center (TPC), which purports to estimate that the plan would increase individual income taxes by $471 billion over a decade (by slashing exemptions and deductions), while cutting business taxes by $2.6 trillion.  Predictably, this generated a tidal wave of outraged editorials and TV ads claiming the plan would do nothing for economic growth and benefit only “big corporations and the top 1%” (which is redundant, because individual taxes aren’t cut and the TPC wrongly attributes nearly all corporate tax cuts to the top 1%).
The Wall Street Journal has offered a powerful corrective to the TPC’s concealed analysis in “Where Critics of Tax Reform Go Wrong”, by Larry Kotlikoff of

Read More »

Hurricanes Harvey and Irma Can’t Be Blamed on Global Warming

September 7, 2017

“Harvey Is What Climate Change Looks Like: It’s time to open our eyes and prepare for the world that’s coming.” That August 28 Politico article by Slate weatherman Eric Holthaus was one of many trying too hard to blame the hurricane and/or flood on climate change.
Such stories are typically infused with smug arrogance. Their authors claim to be wise and well-informed, and anyone who dares to question their “settled science” must need to have their eyes pried open and their mouths shut.
There will doubtless be similar “retroactive forecasting” tales about Irma, so recent story-telling about Harvey may provide a precautionary warning for the unwary.
I am an economist, not a climatologist.* But blaming Harvey on climate change apparently demands much lower standards of logic and evidence

Read More »

David McCullough, “The Spirit of Jefferson,” Charlottesville VA Jul 4, 1994

August 25, 2017

From The American Spirit, Simon & Shuster, 2017:
Why do some men reach for the stars and so many others never even look up? Thomas Jefferson reached for the stars.
“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness, –That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed…”
Never, never anywhere, had there been a government instituted on the consent of the governed.
Was Jefferson including women with the words “men” and “mankind”?  Possibly he was.  Nobody knows.  Was he thinking of black Americans when he declared all men are created equal?  Ideally, yes, I

Read More »

Antitrust for Fun and Profit: The Democrats’ Better Deal (Part 2)

August 11, 2017

The first installment of this blog was a preliminary look at a Washington Post article “Is Amazon Getting Too Big?” by Steven Pearlstein.  That article promoted strong opinions of Yale law school student Lina Khan based largely on (1) faulty market concentration estimates from President Obama’s Council of Economic Advisers and (2) a selective 40-year survey of mergers as evidence of some current problem linking concentrated markets to rising prices.    
There was another bit of indirect evidence in the Obama CEA memo which merits discussion.  A graph from former CEA Chair Jason Furman showed large recent gains in “returns on invested capital” among public nonfinancial firms, as measured by McKinsey & Co.  The CEA insinuated that this shows a recent surge in “rents” (receipts larger

Read More »

Antitrust for Fun and Profit: The Democrats’ Better Deal (Part 1)

August 7, 2017

“Is Amazon getting too big?” asks Washington Post columnist Steven Pearlstein, in a 4000-word column seeking justification for the Democrat Party’s quixotic pledge to “break up big companies” in its recent “Better Deal.” “Just this week,” notes Pearlstein, “Democrats cited stepped-up antitrust enforcement as a centerpiece of their plan to deliver ‘a better deal’ for Americans should they regain control of Congress and the White House.” He concludes by saying “it sometimes takes a little public power to keep private power in check.” But maybe it takes a lot of public power to write antitrust lawyers some big checks.
Politics aside, the question “Is Amazon getting too Big?” should have nothing to do with antitrust, which is supposedly about preventing monopolies from charging high

Read More »