John Vandivier Comments for 11/12 Readings

Quote 1: “The fact that the marginal deadweight loss rises with the tax rate means that preexisting distortions in a market, such as externalities, imperfect competition, or existing taxes, are key determinants of the efficiency of a new tax.” Gruber, Jonathan (2012-12-01). Public Finance and Public Policy (Page 596). Worth Publishers. Kindle Edition.

  • I think the author misuses the term ‘distortion.’ A distortion is a manipulation of a natural market, usually as a result of government intervention. The author previously argues that natural markets contain externalities, so it becomes deceptive to say that externalities are also distortions, or that natural markets are distorted markets.
  • I also think that the proper creation and implementation of a policy or tax scheme has much larger implications for the size of the deadweight loss in a market.
  • Finally, I think there is a compounding effect on the deadweight loss over time. It would be unobserved, since it is an opportunity cost, but it seems to me like this holds grave implications for the idea of potential output.

Quote 2: “Yet careful studies find little evidence of such effects. Perhaps it’s time to reform tax policy based on facts, not worn-out assumptions.” Romer. That Wishful Thinking About Tax Rates. NYT. 3/17/12.

  • Such claims are disregarded in the absence of evidence.
  • She references thousands of pages of journal articles without pointing to a single one.
  • She contradicts herself by admitting that marginal rates do matter, then deceptively and subjectively reframes the question to ask whether such effects are large without giving any standard of largeness.
  • Is an apple large? Compared to an ant, yes. Compared to an elephant, no. Without something to compare it to it hardly makes sense except in one very deceptive way. An apple compared to an apple is not large because it is of equal size. Yet it could easily be argued that neither is it small.

Quote 3: “It turns out that the answer is not related to cultural differences…” Prescott. The Wall Street Journal. 10/21/04. Why Do Americans Work More than Europeans?

  • Reading the headline, I expected the answer would be cultural reasons and Prescott’s point surprised me.
  • Unlike Romer, Prescott has data and sources backing up his claim.
  • Unlike Romer, Prescott exercises strong economic reasoning. He notes that marginal effects do matter for labor preference behavior.
  • Like Romer, I disagree on certain points. Importantly, I think that labor preference is an aspect of culture. How do we define culture? Even leading sociologists have trouble with this question.
    • My answer is that culture is the measure of normality of the aggregate of the information individuals possess and their applications.
    • An activity is more like a cultural activity when it is normal to a group and less like a cultural activity when it is not normal to a group.
    • With this definition of culture, economics and culture are not very much dileneated. They overlap greatly.
    • I think this makes sense given how large an economic effect arbitrary preference shift cause. This is essentially a cultural change.
    • This implies that even if marginal effects explain most of the labor actions, and I agree that they do, this does not preclude it from also being explained by culture, because economic action and cultural action overlap.
    • It stands to reason that economics may do a better job of explaining the observations than cultural modelling, but my point is that cultural modelling alone should significantly and importantly explain observed data as well if conducted in a manner consistent with my definition.

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