Fraser Forum

How can people so smart understand economics so little?

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Everybody complains about the pace of change these days, but most people seem to adapt pretty well. One way things are different now is podcasts. They’re the medium of choice for more and more people while driving, exercising or, in my case, walking the dog. (I heard CBS News veteran Bob Schieffer say the other day on somebody else’s podcast that his podcast runs about 45 minutes because research shows that’s how long it takes the average person to work out.)

Two weekly podcasts I listen to regularly are Slate magazine’s Political Gabfest and Radio Atlantic, The Atlantic magazine’s new entry into the podcast world. As both are farther to the left than I am, to a certain extent my listening qualifies as “oppo research.” But their panels are always smart and often funny. Gabfest has John Dickerson, who took over from Bob Schieffer as host of the CBS Sunday morning talk show Face the Nation; Emily Bazelon, a lawyer who teaches at Yale and writes for the New York Times Magazine; and David Plotz, CEO of the online magazine Atlas Obscura. (Sorry: This post has more links than a European deli!) Regulars on Radio Atlantic are the Atlantic’s editor-in-chief, Jeffrey Goldberg, and its executive editor, Matt Thompson (who is originally from Toronto).

Both podcasts are intelligent, lively, informed and what we might once have called “with it”—Radio Atlantic self-consciously so in an annoying way I hope it soon grows out of. They’re also, in their consistent liberalism and anti-Trumpery, very self-righteous (John Dickerson excluded—he’s just comprehensively good). “Avoid self-righteousness like the devil,” the British military strategist Liddell Hart advised, “Nothing is so self-blinding.” It’s instructive to hear other people being self-righteous. In theory, it should help purge similar tendencies in one’s own writing. For Hart might have added, concerning self-righteousness: Nothing is so tempting.

But I’ve been surprised lately—maybe even shocked—by how little such obviously smart people as Gabfest and Radio Atlantic regulars apparently know about economics. This has come up in their discussions of the tax cuts the U.S. House and Senate first passed and now have successfully reconciled in conference. “Why are Republicans so desperate to cut taxes?” has been a common refrain over the last few weeks. The consensus of the podcasts seems to be that it’s just a question of implementing “Republican ideology.” The cuts will have no real effect on the economy, they seem to believe, except to transfer truckloads of income to rich Americans, who, outside Hollywood, are mainly Republicans.

I’m the first to concede that economics has not produced a hard and fast result on who pays the corporate tax (cuts in which are the centrepiece of the new law) or on exactly what the elasticity of investment is with respect to the tax. This is the real world we’re talking about. Hard and fast results don’t really apply. But economics has produced a long and detailed literature on what variables you at least need to think about in trying to decide what the likely effects are. And it’s not just a question of ideology.

Specialists in tax policy try to calculate the “marginal effective tax rate” or METR. The rate in law—the statutory rate—isn’t necessarily the rate corporations pay. They may be subject to exceptions and exclusions of one kind or another. But if you reduce the statutory rate from 35 per cent, where the U.S. federal rate currently is, to 21 per cent, which House and Senate conferees have agreed on, that seems bound to reduce the METR. In fact, the University of Calgary’s Jack Mintz, Canada’s acknowledged METR-man, and his colleague Philip Bazel have calculated the effect of the proposals on U.S. corporate METRs and find big reductions—in several industries from way above the Canadian equivalent to substantially below it. That’s bound to make the U.S. more attractive to investment, both by Americans and by foreigners scouring the world for profit opportunities. And if companies end up investing more, that seems bound to help workers and the politically much-catered-to middle class.

People as smart as the podcast panelists should be able to grasp that ideology has less to do with all this than common sense. If you tax something less, you’ll likely get more of it. If you want more corporate investment, what has to happen to corporate tax rates isn’t rocket science.