The Money Illusion

Taxes on capital gains are harmful and don't make sense. It would be more efficient to tax consumption and have no capital, estate, income, or corporate taxes. Scott Sumner has written many excellent articles about taxes on capital gains: - http://econlog.econlib.org/archives/2017/07/do_you_really_w.html - http://econlog.econlib.org/archives/2014/04/theres_only_one.html - http://econlog.econlib.org/archives/2015/09/our_bizarre_sys.html - http://www.themoneyillusion.com/?p=26636 Unfortunately sensible economic policies aren't politically feasible. This is partly because of the economic illiteracy of most voters and the lack of incentive for politicians to adopt economically sensible policies, but also because economists themselves often misunderstand economic theory.

About the 'ghost cities': start at http://www.themoneyillusion.com/?p=23817 and follow the links. They are seldom ghost cities for long.

Scott Sumner has a great blog post that gets into this (and some other semi related topics): http://www.themoneyillusion.com/?p=30566

It feels like they are hankering for a period of post-WWII prosperity caused by the decimation of the remainder of the developed world & great demand for American manufacturing, by a restricted labor market for women and minorities in higher end jobs and positions, and the need for lots of bodies in relatively high paying positions due to an absence of automation. None of these things are coming back - I feel like they are yearning for a dream because they don't know why that dream existed. Scott Sumner on steel jobs: http://www.themoneyillusion.com/?p=31847

> One reason is that the term is exclusively used by the ideological opponents of this "neoliberalism", No, its not. Its used by defenders of neoliberalism quite a bit. http://www.econlib.org/library/Columns/y2010/Sumnerneoliberalism.html https://cambridgedevelopmentstudies.wordpress.com/2011/04/12/in-defens… http://www.themoneyillusion.com/?p=31603 http://www.independent.org/publications/tir/article.asp?a=945 > A lot of people describe themselves as libertarians of various types, or even as classical liberals, but I've never met a person calling herself a neoliberal. Which says a lot more about who you do (and don't) know than it says about anything else.

Capital income does not receive preferential tax treatment. The combined taxes on income + corporate tax + capital gains greatly exceed the tax rate on labor income. Scott Sumner explaining how all capital income taxes are additive w.r.t labor income tax: http://www.themoneyillusion.com/?p=28842 Also just do the arithmetic; 1-(1-corporate income tax)(1-cap gains tax) >income tax for pretty much any bracket.

It's worth noting that austerity is strongly correlated with GDP decrease only for those countries without an independent monetary policy (i.e. the eurozone). People have been worried about the zero lower bound but it doesn't seem to have had much of an effect in practice. http://www.themoneyillusion.com/?p=29692

I think your answer is a bit self-contradictory. The only way for the $100 million not to enter the money supply is for the wealthy to hold $100 million more in cash. If they invest it in bonds and stocks, then now the previous holders of those bonds and stocks hold the cash. The point of distributing the money is so that money is worth less and prices become effectively lower, causing people to buy more stuff and businesses to make more stuff (i.e., monetary stimulus of aggregate demand). Here is a blog post on the hot potato effect: http://www.themoneyillusion.com/?p=23314

Scott Sumner over at http://www.themoneyillusion.com/ has played a big part in changing peoples's views on this. He is definitely worth reading regularly if you are interested in or want to learn more about monetary policy.

I think opposition started with Scott Sumner in July. http://www.themoneyillusion.com/?p=22379 Very good news. I expect to see the markets react tomorrow, ala balmer on a much greater scale.

Scott Sumner (http://www.themoneyillusion.com) and Nick Rowe (http://worthwhile.typepad.com/) have done an incredible job at helping me understand money and its role in the economy even though I have no training in economics. It's worth going back and reading their archives.

> Huge loopholes mean that the effective US corporate is the fourth lowest rate in the OECD (though the official tax rate is the second highest in the OECD). Many corps actually do pay the official rate. Advocates of higher taxes and higher US govt spending point to western european countries and say "look at all the great services they get from govt". The problem with that argument is that the US govt currently collects about the same amount of money per capita as those countries. (It collects more than Canada.) In other words, the US govt already has the revenue to provide those services. Since it doesn't ..... http://www.themoneyillusion.com/?p=4626

> In the last 10+ years fiscal spending has been half-hearted and anemic See, this is one of those claims that is interesting to me because I never see anyone proposing what a "non-anemic" level would look like. No matter what gets proposed for fiscal spending, the response is "that won't be enough; we should spend more", without quantifying more. As a scientific claim, it's unfalsifiable, fundamentally, which makes it hard to work with usefully. > Austerity does hurt economic growth: First off, there's a lot of cherry-picking going on. The US did "austerity" things, people claimed the result would be disastrous.... and it wasn't. Europe did austerity, but _also_ very tight central bank policy at the same exact time; results were not great, but it's hard to blame this on just "austerity" given the central bank behavior. Just to be clear, I am not claiming that austerity _improves_ economic growth, which seems to be what the wikipedia link you post is about. I'm claiming that the specific predictions made about austerity by adherents of specific economics intellectual movements in the last 10-15 years did not in fact match what actually happened. > but once you hit zero rates, then what more can you do from that angle? Tons, if you want to, because you are not limited to short-term rates as your policy instrument. Those rates are correlated with monetary policy (in the short term; anti-correlated in the long term), not causative. Note that at the point when we…

Strongly, strongly, strongly disagree with this description. This is a completely unfalsifiable definition of a bubble. On December 5, 1996 Alan Greenspan first uttered the phrase "irrational exuberance". Some people amazingly credit him with "calling the bubble" for this statement. The Nasdaq 100 closed at 835.80 that day, the lowest price the Nasdaq 100 has closed once the bubble "crashed" was at 804.64 on October 7, 2002. This is the problem with "bubble watchers". Yes, it's possible for prices to get too high and for companies to trade at too high of valuations (or so it seems) and late 1990s had plenty of that. However, many people are constantly calling bubbles, people were calling the S&P 500 a bubble in this current rally back at 1200 and 1300. Could it go back down? Certainly, but that doesn't make the people calling it a bubble at 1200 correct if it drops from 2100 to 1800. One of my favorite jokes about the subject: Bubble watchers have correctly predicted 9 of the last 2 bubbles. Btw, for those interested in a sane economist talking about bubbles I highly highly recommend Scott Sumner. Here's a good old post of his on the subject: http://www.themoneyillusion.com/?p=8063

This is interesting as an art piece, but I think it is easy to intuit from the presentation that the authors are not being very careful thinkers. The truth is that the question of austerity is a fairly complex one. The reason it seems so cut and dried is that the modal promoter of austerity has no training in macroeconomics and is making arguments that are clearly not supported by theory. That said, to portray Krugman as definitely correct on the matter of austerity is very misleading. There are basically two camps of people opposing Krugman, "mainstream Austrians" and market monetarists. Mainstream Austrians isn't really a category, but this is people who make arguments based on analogies with household budgets, and worry about hyperinflation from out of control spending. Most of them have economic theories that are not well-supported empirically. These people say austerity is better and will lead to stronger growth, possibly after a painful period of economic adjustment. Often these are head economists at small banks or other pundits that get a lot of airtime for their opinions. They probably don't actually identify as Austrians 95% of the time, but in this particular instance they are following Austrian thinking. The other major camp is market monetarists, whom Krugman is very dismissive of, despite the fact that their arguments are compelling and their empirical support is probably as strong as pro-spending Keynesians. In his arguments with market monetarists Krugman…

> did you really put an "if" there? Yes, I put it there because a large fraction of minimum wage workers are teens who live with their parents or are otherwise in a living situation where they aren't the only breadwinner. Hence, they aren't so desperate that they can't not work. Since choice exists (yet again, on the margin), labor employment is a normal good that responds to supply and demand. > do you have proof of this? Quoting from http://www.themoneyillusion.com/?p=24759 : Regarding the minimum wage, here is some data for Western Europe: There are nine countries with a minimum wage (Belgium, Netherlands, Britain, Ireland, France, Spain, Portugal, Greece, Luxembourg). Their unemployment rates range from 5.9% in Luxembourg to 27.6% in Greece. The median country is France with 11.1% unemployment. There are nine countries with no minimum wage (Iceland, Norway, Sweden, Finland, Denmark, Austria, Germany, Italy, Switzerland.) Five of the nine have a lower unemployment rate than Luxembourg, the best of the other group. The median country is Iceland, with a 5.5% unemployment rate. The biggest country in Europe is Germany. No minimum wage and 5.2% unemployment. Still want to raise our minimum wage to $10? Germany used to have really high unemployment. Then they did labor reforms to allow more low wage jobs, combined with subsidies for low wage workers. Now they don’t have high unemployment. Still want to raise our minimum wage to $10?" > No reference to the…

A great response! Let me see if I can shed some more light on this topic. "This phrase is the anti-science. No science operates based on \"commonly accepted\"." Exactly! And, there is a very good reason for this. Economics is not a science. It is a social science that makes some use of the scientific method. Within this context, meta-analysis becomes extremely important for drawing pertinent conclusions. This is just a side note, because it seems that we have crossed our wires somewhere. "Consider how absurd it would be for any modern economist to claim that a form of money, which was banned in 1933, was the cause of prolonging the great depression." I should have been more clear. I was referring to the global economic instability (generally manifesting itself as a number of depressions across the Bretton Woods countries) that preceded the collapse of the Bretton Woods System. I have to apologize, but when I see "gold standard" I immediately start my Bretton Woods rebuttal. It is a reflex reaction from spending too much time arguing with Austrian economists. Of course, the grandparent post was referring to the Great Depression. Well, all is not lost. Dr. Scott Sumner (my favorite practicing economist) has a nice starter post on the Great Depression: http://www.themoneyillusion.com/?p=4161

I also think the following take is interesting, and hasn't been mentioned in any of the comments so far (to the extent that I've been able to keep up with them): https://www.themoneyillusion.com/understanding-middlebrow/ The gist of it is: > Any time a powerful middlebrow entity (which wrongly thinks it’s highbrow) evaluates an actual highbrow entity, you will end up with a mixture of resentment and incomprehension. More specifically: > The NYT has 7.5 million subscribers, mostly progressives in the 90-99% range. These people feel very smart, and they are in fact smarter than 90% of the population. So there’s no point bemoaning the fact that the NYT is not about to tell it’s readers that, “Actually, we provide middlebrow news analysis, and if you want brilliant inspired analysis you need to read blogs like SlateStarCodex.”

There is no such thing as "fundamentals," value is in the eye of society - so pricing is also in the eye of society. Bitcoin is operating under a great deal of uncertainty about its future prospects/the prospects of blockchain. https://www.themoneyillusion.com/richard-rorty-and-the-efficient-marke…

Scott Sumner, who is a leading monetary economist and very much credentialed, has a takedown on his blog: https://www.themoneyillusion.com

Relevant: https://www.themoneyillusion.com/mmt-explained/ (This is a post by Scott Sumner, who is also quoted near the beginning of this article. His earlier post is at https://www.themoneyillusion.com/wrong-in-a-very-confusing-way/ and is also worth reading for context.)

What are you talking about? I suppose there's technically wiggle room because you said "raise" taxes on the rich (implying that regardless of whatever rich people pay now it should be more). But it's an absolute fiction that rich people don't pay taxes. The top income tax rate is about 43%, and the new GOP tax bill doesn't change that. Did you know the richest 2.7% of all earners pay > 50% of all receipts collected by the government(1)? Or that -- when asked explicitly whether the rich should pay more -- most (3/4) people, like you, say "yes", but when asked what the tax rate should be for top earners, precisely 3/4 of respondents said it should be 30% or below(2). Again, the top rate is 43% right now. (1) http://www.pewresearch.org/fact-tank/2016/04/13/high-income-americans-… (2) http://www.themoneyillusion.com/?p=15005

Since this is a old thread now, I will not spend to much time. > Why do you believe that the difference between the developments in the US and Europe is explained by different central bank behavior, when there is also a huge difference in effective fiscal policy behavior that is consistent with the difference in outcome? Because the US had both expansion and contraction in fiscal policy, and growth was not infected. New Keynesian predicted the 'fiscal cliff' in 2013 and monetarist said it would not have any effect. You can also look at some of the smaller similar economies in Europe that are inside and outside of the Euro. Generally the fiscal policy is not that different, but the countries outside of the Euro generally do better if they had expansionary monetary policy. > Can you explain that? http://www.themoneyillusion.com/?p=23314

"Peter Schiff said back in January that the US would have a big recession this year. If we don’t have a recession this year, people will forget Schiff’s false prediction, as well as false predictions of major crises in the US in 2015 and 2013, and recall his correct prediction of the 2008 recession. (Insert broken clock analogy here.) Whenever I hear that someone has accurately predicted a recession, my evaluation of that person declines." http://www.themoneyillusion.com/?p=31615

Cutting rates would not necessarily stimulate investment: http://www.themoneyillusion.com/?p=31372

Japan's trend growth is zero. This is business as usual, not bad economy. If we want recession to mean bad economy, definition of recession for Japan needs to be revised. See http://www.themoneyillusion.com/?p=31307.

I am sure it will remain to be seen. I am basing what I said on Sumner's writing on the subject ( how's that for an appeal to authority? :) ) He seems to hold that Oz uses something closer to NGDP level targeting in monetary policy. http://www.themoneyillusion.com/?p=12985 I am probably missing something.

>>Perhaps in 10-15 years, there will be predictions of India as the new number one. Already happening... http://www.themoneyillusion.com/?p=7402

> If the past is irrelevant, then we are equally irrelevant to the people living in 2113. They don’t care what we think about morality, public policy, fashion, economics, or anything else. It doesn’t matter what we “decide” about designer babies or anything else. It’s their world. They will view us with contempt. Or with pity. Get used to it. http://www.themoneyillusion.com/?p=24266

Very true. The figures are incredibly bad: http://www.themoneyillusion.com/?p=18161