Absolutely breathtaking

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.
Here is DeLong’s attack.
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.

But left out of DeLong’s quoting of Mankiw is this.
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.

That is a third of the column. DeLong’s buddy Andrei Shleifer has commented that DeLong’s fast reading comes from skipping pages, although DeLong calls it skimming. Either way, a third of a column is a lot to miss.
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.