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Robert Waldmann (2016): Dynamic Inefficiency: "Is public debt a burden?... It is possible in theory that the answer is no and that higher [initial] public debt causes permanently higher [balanced-growth path] consumption and welfare.... This is called dynamic inefficiency. The standard result from simple models is that an economy is dynamically inefficient if r is less than g where r is the real interest rate and g is the rate of GDP growth...

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Three Papers and Four Graphs and Tables: The Top Marginal Tax Rate

If Arindrajit Dube and I do start our Economic Home podcast, I think that each 30 minute segment should concentrate on two or three (or four) papers and two or three (or four) graphs and tables. Our first proposed topic is the top marginal tax rate. Are these the right papers? Are these the right graphs and tables?

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Benjamin Page and William Gale: CBO estimates imply that TCJA will boost incomes for foreign investors but not for Americans: "CBO estimates that TCJA will increase U.S. GDP by 0.5 percent in 2028.... Most of that additional capital will be financed by foreigners... net payments of profits, dividends, and interest to foreigners also will rise... boost GNP by just 0.1 percent in 2028.... To maintain that larger capital stock a larger share of output must be devoted to offsetting depreciation.... Thus, long-run incomes for Americans as measured by NNP will be more or less unchanged by the TCJA...

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Note to Self: WTF?!?! At a ten-percent pre-tax social return to investment, that would require a 1 trillion—a 5%-point of national income—permanent upward jump in the annual flow of investment into America. Given that it looks like Trump is raising the annual deficit by 400 billion, that would require a 1.4 trillion—a 75-point of national income—permanent upward jump in the sum of annual private savings plus the annual trade deficit. On what planet and on what definition of "reasonable" is it "reasonable" to argue that Trump's tax cuts are going produce such a thing? Greg Mankiw: The Bad Economics Behind Trump's Policies: "One might reasonably argue that Trump’s tax cuts will increase growth over the next decade by as much as half a percentage point per year...

Gross Private Domestic Investment Nominal Potential Gross Domestic Product FRED St Louis Fed

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Not Only No Wage But Minimal Investment Boosts from Trump-McConnell-Ryan...

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The so brilliant as to be goddess-like Chye-Ching Huang gets this one, I think, wrong: In response to: Jared Bernstein: "For the [Trump-McConnell-Ryan tax] cuts to have more than near-term growth impacts, they’d have to boost biz investment a lot more than we’ve seen so far, though these are early days. Both WSJ and Slate show “muted” investment results..." She writes: Chye-Ching Huang: "My concern is the frame that "growth' is what we should be focused on. If what we care about is how workers are doing—and GOP lawmakers claimed the 2017 tax law would help workers—we should focus on the metric that directly shows how they're doing! If the claimed point of tax cuts for corporations was to raise wages, we should first and foremost look at real wage rates to assess the results...

But those economists shilling for Trump-McConnell-Ryan committed not just to wage increases, but to a particular mechanism for wage increases: (1) U.S. a small open economy -> (2) tax cuts produce a huge jump in investment -> (3) faster growth -> (4) factor shares revert -> (5) higher wages.

To see whether this argument makes sense we can—and should—look at this causal mechanism at every one of its five steps.

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