Brad DeLong is a fine economic historian, but he is also an exceptionally partisan blogger, and today it shows with a fury. DeLong attacks Harvard economist and former Bush and Romney advisor Greg Mankiw. First, Mankiw in the New York Times.

Lost in this hubbub, however, is a bigger idea that Mr. McCain and his economic team have put forward: a cut in the corporate tax rate, to 25 percent from 35 percent. It is perhaps the best simple recipe for promoting long-run growth in American living standards.

No. An UNFUNDED tax cut is not the best simple recipe for promoting long-run growth in American living standards. It is the best simple recipe for promoting long-term decline in American living standards. You see, the government has a budget constraint: if it does not tax now to fund its activities it must tax later, one way or another. And unknown, uncertain future taxes in the long run plus the medium-run costs of carrying the debt until those taxes are levied--they are almost surely a significant net drag on the economy.

Some editor should have held this up. Some editor should have called Mankiw and said: "Greg, you have written a piece that analyzes McCain's corporate tax cut as if its revenue loss is offset by an equal contemporaraneous revenue gain elsewhere in the system--as if McCain is proposing a funded tax cut. But he isn't. He is proposing an unfunded tax cut. What gives?" And Mankiw would have been forced to work much harder to come up with the pro-McCain column he wants to write. Perhaps something that informed readers--or at least did not disinform them so grossly--would have emerged.

Of course, a corporate tax cut would affect the federal budget. And any change in tax policy has to be made against a background of a looming fiscal crisis, which threatens to unfold as baby boomers retire and start collecting Social Security and Medicare. In 2007, corporate taxes brought in $370 billion, representing 14 percent of federal revenue. Cutting the rate to 25 percent would seem to cost the Treasury about $100 billion a year.

Part of that revenue loss, however, would be recouped through other taxes. To the extent that shareholders would benefit, they would pay higher taxes on dividends, capital gains and withdrawals from their retirement accounts. To the extent that workers would benefit, they would pay higher payroll and income taxes. Increased economic growth would tend to raise tax revenue from all sources.

SOME economists think that these effects are strong enough to make a corporate rate cut self-financing. A recent study by Alex Brill and Kevin A. Hassett of the American Enterprise Institute, looking at countries in the Organization for Economic Cooperation and Development, supports exactly that conclusion. But even if that turns out to be too optimistic, both theory and evidence make it reasonable to expect a significant discount from the sticker price. In the end, the net budgetary cost of the tax cut might be, say, $50 billion a year.

Senator McCain wants to fill that hole in the budget by restraining spending. If he can stop bloated legislation like the recent $300 billion farm bill from becoming law, more power to him.

But in case that quest proves quixotic, I have a back-up plan for him: increase the gasoline tax. With Americans consuming about 140 billion gallons of gasoline a year, a gas-tax increase of about 40 cents a gallon could fund a corporate rate cut, fostering economic growth and reducing a variety of driving-related problems.

Indeed, if we increased the tax on gasoline to the level that many experts consider optimal, we could raise enough revenue to eliminate the corporate income tax. And the price at the pump would still be far lower in the United States than in much of Europe.

One of DeLong's comments attacks him for just this stunt, and DeLong inserts a response about the gas tax part, ignoring the self-financing argument.

What is going on here? DeLong is a hugely talented economic historian. He is not crazy. He is willing to concede that the argument for central planning is hopelessly wrong. He has no time for excuses for Castro or Mao. His attack on Chomsky is thorough and devastating. And I have it on good authority that his knowledge of the history of technology is pretty amazing and that he is a very funny guy too.

My only explanation is the massive sense of entitlement of the professoriate. I think he just cannot imagine that the public did things like elect George Bush after their betters (DeLong and his buddies) told them not to.

Of your "third of the column"...

From your quote, 2/9 of the column is about how maybe the tax cut won't have to be financed at all--Mankiw raising the Laffer curve without endorsing it. Mankiw doesn't believe in self-financing any more than I do.

First, raising taxes on gasoline is probably necessary, even in the absence of financing other tax cuts, given the current balance sheet of the US govt. Second, a gasoline tax hurts the bottomline for ordinary people who already face uncertain financial times. Third, a corporate tax cut benefits the better off sections of american society disproportionately. Thus such a proposal to finance a corporate tax cut through raising gas taxes is simply another way of transferring wealth upwards in the income distribution, a continuation of what happened with the previous round of tax cuts. Finally, given that things like gas taxes are going to have a direct effect
on things like food and individual household consumption, it is not at all clear that this will not offset any economic stimulus benefits from a corporate tax cut. This sort of argument does not make one any more confident that Mr. Mankiw is *not* a shill.

That's a political winner: Let us raise taxes on gasoline, a necessity for the American middle class, so that we can cut taxes for the corporations.

Sometimes good policies do not make for good politics...

Prof DeLong just conceded your point.

"One of DeLong's comments attacks him for just this stunt, and DeLong inserts a response about the gas tax part, ignoring the self-financing argument."

At least he didn't just delete the comment, which he's been known to do.

Brad's attack on Chomsky appears catalyzed by Chomsky stepping on his partisan toes by criticizing US policy in 90's Bosnia. If Chomsky had stuck to criticizing Republicans and other known criminals, then DeLong would have had objections. I say this after having "skimmed" the piece, an indulgence I'm sure Brad would grant.

This is the pattern for all partisans who are all sure that opponents are full only of lies, insanity, or evil. Some of DeLong's response to his comments today demonstrates this.

He is a perfect example of the intellectuals described in Orwell's "Notes on Nationalism". I say this as someone who has repeatedly subscribed and unsubscribed his blog, drawn to, then repulsed, by his great ideas and his petty nature.

Hey, was that an apology? Heavens no. Time to move shamelessly on to another angle of attack.

Now DeLong apparently wants a debate about how large the dead weight loss for a 35% corporate income tax is versus a 25% rate.

What I don't get about these oh-so-esteemed economists is what's wrong with a lunch that's 50% or 30% free?

The Democrat-controlled congress can pass billions of absurdly expensive and destructive farm bills and quash trade agreements with nary a peep from left-wing economics police, but one hint of a tiny, growth creating tax cut and suddenly it's a four-alarm fire and DeLong wants every dollar accounted for.

If only we saw similar fervor from DeLong and company in restraining the big-spending habits of their populist political allies.

And congratulations to DeLong for being so gracious as to concede, in 2007 that central planning doesn't work.

Stiglitz won the Nobel prize and he still thinks things were better under the Soviets. Samuelson took 30 years to recognize that the Soviet Union was something less than a dream and J.K. Galbraith was skipping through Moscow singing songs about the bright, bold future of central planning at about the same time that East Germans were walking towards the wall with sledgehammers.

So yes, DeLong might not be able to admit that his attack on Mankiw was an embarrassing result of his own style of non-reading "reading", but at least he's quicker on the uptake than the great economic minds of the left from ages past.

-Mercy

"Brad DeLong is a fine economic historian, but he is also an exceptionally partisan blogger"

Greg Mankiw is a fine economist, but he is also an exceptionally partisan blogger.

Oh, but Brad's on the other side so his partisanship is something to be diagnosed and explained away.

Your reference to the "massive sense of entitlement of the professoriate" is, to me, simply a rehashing of a trite conservative trope. When liberal academics disagree with a political outcome, they are elitist or, here, entitled. When conservatives disagree with the public they are ... manly? courageous?

Here's a trite liberal trope for you: the people did not elect George Bush in 2000. So the only members of the professoriate who have to rely on this false memory for credibility are those who served in that false administration (like Greg and his buddies).

"My only explanation is the massive sense of entitlement of the professoriate."

Oh, I don't know that it's necessarily so bad as that.

Remember how just a few weeks ago when Krugman was so shocked that a plurality of polled economists preferred McCain, while DeLong was posting the likes of ...

"... economists these days sit around their department lounge and feel pity for John McCain's guy Doug Holtz-Eakin..." and

"We were sitting around here in the lounge yesterday, all feeling sorry for Douglas Holtz-Eakin, McCain's economic guy..."

It's just that their "department lounge" is the world to some people. In this case, the Berkeley lounge.

Amusingly, the first quote is from a post with the theme that one of the many reasons why Democrats are best is that Republicans never heed economists, while...

"Democratic politicians have in the past and still today fear the bad headlines that are generated if their own economic advisers say that they are full of it."

This while Goolsbee was still wearing the tire marks from Obama's "No quarter for closet free traders" campaign bus, and Hillary had just conducted a calculated and rehearsed public attack on "economists" by name to score the populist vote. That's fear, eh?

But a few guys sitting around in the lounge at the center of their world enjoying a nice round of confirmation bias among themselves re what they want to believe isn't nearly so bad as a their actually having a "massive sense of entitlement" regarding the rest of us, I'd think.

(Which could get one to how much some of their universities feel entitled to collect from all the rest of us through tuition and subsidies and tax exemptions for $36 billion endowments ... but that's another story.)

Mr. DeLong,

Mankiw's text make it clear that he is not a supply-sider. However, he never states that the tax-cut is self-financing. He merely points out that "...theory and evidence make it reasonable to expect a significant discount from the sticker price." If you disagree with that statement, and with the theory and evidence referenced, then attack it directly.

I think DeLong's issue is extreme reluctance to admit to making a mistake.

A few years ago he badly misquoted Warren Buffett on his blog (which he said was going to be included in a report to Congress), and when I tried to point it out by a comment on his blog, he covered it up and deleted my comments (although the misquote was not corrected).

I believe that Ireland slashed its corporate income tax to 12.5% and wound up with more tax revenue as a result. For such a relatively low rate that is huge for a nonexistent curve.

The problem with the Laffer Curve on personal income is that for most people their income is relatively inelastic.

With corporations, and new entrepreneurs on the margin, they can simply choose not to invest at all, or invest outside the US. Would be entrepreneurs can instead choose to work for an existing company and live a lower stress 40 hour week instead of 80-100+ hours building a new company with countless workers.

These new investments also compound over time as profits are reinvested and the business grows.

The corporate income tax is simply a huge deadweight loss on the economy. As such, a high corporate income tax, such as in the US, may well indeed follow the logic of the Laffer Curve.

The really interesting implication (in my opinion anyway) is what if the US leaves its corporate income tax rate steady while the rest of the world is engaged in corporate tax cutting. Assuming an international equilibrium in risk adjusted corprate returns at the previous tax rates, where does new corporate investment go?

The answer for anyone who thinks about it is that new corporate investment disproportionately will be in those countries that lowered their corporate income taxes. So merely by doing nothing the US is adding fewer jobs than it would have, all the while that natural churn from productivity gains (and mistakes) in mature industries eliminates jobs.

This leads to higher unemployment (than otherwise, maybe overall) in the shorter run (at least), and lower wages (than otherwise, maybe overall) in the longer run as the unemployment is arbitraged away.

This logic also nicely fits the facts in the post-2000 world of vastly increased globalization.

Mankiw's tax cut seems to be funded firstly by faith in supply side economics, and secondly, by the possibility that a president of a divided nation manages to reverse a irreversible piece of congressional legislation, or pass a regressive consumption tax at a time when the nation is crying for economic stimulus.

Wait, which part of what DeLong left out is supposed to be particularly damaging to DeLong? I really do not understand.

The part where Mankiw writes: " Some economists believe these effects are strong enough to make a corporate tax cut self-financing." ???

This part makes poor Mankiw (& Shleifer) look like an absolute nut, and yet DeLong left it out... No real economists, save a few crazies, believe such nonsense...

Or were you talking about Mankiw's estimate of the total cost coming only to $50 Bill. He gets this by merely splitting the crazy estimate with the more probable estimate in half...

And shame on you for leaving out for Mankiw's proposals to pay for McCain's increased war spending! (Oh, he forgot that, did he...)

Brad,

He quotes a study that says self-financing might be possible, and then spends--to use your fraction--7/9 of the column talking about possible static and dynamic treasury losses due to a tax cut, and what might be done about them.

Again: How can you argue that this column is calling for an unfunded tax cut?

You're argument is based solely on what you read between the lines rather than what newsprint actually states.

You're wrong on this one, and you should have the decency to admit it.

Hey look! You can put comments on this site!

If only Mankiw had the balls to enable comments on his own blog we could be having all sorts of fruitful discussions about economic issues.

That presumably all-important 1/3 of the column was itself just nonsense. An unfunded tax cut will slow economic growth making the effect on revenues AT LEAST as bad as that implied by dynamic scoring. Delong did not refer to the passage because it did not bear on his criticism, which stands. Delong is more than a fun fellow. He is right where Mankiw is wrong on a fairly well established bit of empirical economics. Shame on all of you.

The idea that Delong intentioanlly overlooked something important is absurd. That 1/3 of the column was just the usual non-sense about favorable supply side effects from tax cuts. But if the tax cut is not financed, then the supply side effects are at best ambiguous, and possibly adverse. GDP growth is as likely to slow as quicken because the favorable incentive effects are offset by a reduction of national savings and investment. You folks need to read some empirical research and stop gut feeling it. You are just embarassing yourselves.

Brad's title for his piece is

"Greg Mankiw's Marginal Educational Product Is Negative"

Typical.

Isn't it also necessary to look at what the funds are used for? If the corporate tax is cut and the savings are used to build a plant in China or pay shareholders in Dubai, it will likely be less beneficial to the US than if the tax is collected and used to repair a logistics bottleneck, and different than if used to build bombs to drop in the desert.

I'm late on jumping in, but go to economistmom.com to see my two cents. I don't think that Brad and Greg are disagreeing as much as it seems--if one just steps back from the frenetic blogosphere.

and what do you make of Greg Mankiw's stand on the Laffer curve? One day it does not exist the next day it sort of half exists...

Any government cut in taxes is a positive thing. Government money is spent unconstitutionally and wastefully. Cutting government funding is one way to force the government to cut down on waste.

If the government continues to fund waste, rather than a very few important defense programs, a very few constitutional programs. (I look at the Constitution in vain to find authority to regulate agriculture, medicine, education. Certainly the Founders were familiar with the concepts and their judgement to not provide federal powers there should be honored)

The Federal Government budget is at least 90% waste or fraud. Why would any honest person not want to cut taxes by about 90%?

The intellectual lethargy of the Left appears to have reached the point where they are unable to read.

An outline of Greg's point would read 1) cutting the corporate rate is a good idea, 2) what might be the revenue impact of such a reduction and 3) how can we offset that revenue loss.

DeLong's initial attack focused on point one but ignored points two and three. His response to critics recognized that point two existed, but he failed to accurately understand Greg?s argument. Apparently, he has never acknowledged point three.

Gerard M's post is even more inexcusable considering he had the benefit of staying out of the fray. Similar to DeLong, he wholly ignores point three. Also like DeLong, his assessment of point two makes you wonder if he suffers a lack of reading comprehension.

The "usual nonsense" he mentions was Gregg discussing the possible feedback effects of a cut in marginal rates on corporate taxes. I am not aware of any serious economist who holds that reducing the current corporate rate would have no feedback effect ? the usual disagreement is just how much. Some argue it is small; others like Brill and Hassett argue it is large. Greg doesn?t claim either. He just points out the revenue loss of a corporate rate cut will be less than the static calculation would suggest.

The only criticism of Greg?s piece in this long string of comments worth reading was Alex?s point that cutting corporate rates and while raising gas taxes is bad politics. Amen to that. Alex may be as reading challenged as Brad and Gerard, but at least he can count votes.