« Freakonomics Radio

331. Why the Trump Tax Cuts are Awesome/Terrible (Part 1)

2018-04-12 | 🔗
Kevin Hassett, chairman of the Council of Economic Advisers, explains the thinking behind the controversial new Republican tax package — and why its critics are wrong. (Next week, we'll hear from the critics.)
This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This podcast dynamically inserts audio advertisements of varying lengths for each download. As a result, the transcription time indexes may be inaccurate.
If you'd like to listen to free economic radio without ads the place to do that is sticker premium five dollars a month and you can get free month trial by going to stick your premium dot com and use a promo code freak. You also get access to all our bonus. Episodes and you'll be supporting our show to that sticker premium. Dot, com, promo code, freak thanks, before we get on with today's episode. Here's a chance for you to participate in something you ve heard about in earlier upset. We ve been following a project called behavior change for good, in which an all start team of social scientists is running experiments to find the best ways to improve outcomes in health, education and personal finance. Their first big experiment is called step up its meant to help people kick start an exercise. Haven't it lasts. One month, participants will be nudged with text messages and sent devised with Amazon cash. The researchers are hoping sign up a few hundred thousand participants. Their partner in this is twenty four hour. Fitness, which has
four hundred gems in thirteen states? If you are a twenty four hour, fitness member and you want to sign up, we ve got a special link for you. It's twenty four go dot c, o slash freak again, it's twenty four go dot c, o slash freak. If you participating experiment Viet that link the researchers will be able to separate their data into freaks and non freaks, and then we can report there index. If you want to check out the behavior change for good project to make sure there legit you can listen to our earlier episodes. They're called how to launch a behave. Change revolution and could solving this one problem solved all the others. Ok, thanks now to today's upset back in early January on a bridge
They called weekend in Philadelphia. I attended the annual conference of the American Economic Association, which brings together more than ten thousand economists from around the world. It's always held in early January, often in a cold weather city. Why one theory is that their economists and that's when hotels and convention centres are cheap. The purpose of the aid conference is for economists to present new research, to soak up the wisdom of their elders and encourage the ambitions of the juniors also to drink, flirt, gossip and hunt for better jobs, economists as you like, we know from listening to the show, are a particular need for one thing many of them our devoutly apolitical. But every now and again, especially when the political climate is heated as it is these days, there are political tone, is rupture
That's what happened during one panel discussion. It was titled quite benignly tax reform, but it fell barely two weeks after that in Trump signed into law when the most sweeping and controversial tax laws in modern history in the lead speaker on the panel was one of the chief architects of the new tax plan. The economist Kevin has it whose chairman of the President's council of economic advisers also on the panel were three former ceo chairs, one Republican Glenn Hubbard, who served under George W Bush and two Democrats. Austin ghouls be andreasen firm and both of whom she the CD under Barack Obama, so things got pretty political pretty fast. there were a lot of I roles lot of exasperated groans, the new tax law. many changes, but the most prominent is a huge reduction in the corporate tax rate from thirty five percent to twenty one percent. President Obama
had also wanted to cut the corporate tax rate, but he never pulled it off. So you might think the democratic economists would have been pleased with at least that part of the new Trump tax law, but you'd be wrong. They had specific arguments as to why, but also, let's face it. Everything with trumps name on it is inherently contentious. I'm guessing the tax policy is not your most favorite topic in the world, but in honour of our upcoming tat They we thought we give the new law the friggin, I'm afraid you treat tracked down all four of the sea, a chairman from that panel for a robust debate. This will require two episodes. Today, we focus on sitting, see a chair. Kevin has. It will hear why he thought such a drastic tax law was needed in the first place, so we had really kind of way.
raging problem- that required antibiotics of attacks reform, will hear some hard core economic ones speak. There's this thing called the capital deepening contribution to productivity, growth and ass. It tells us what it's like to work for. Peace drop the challenge you in ways that economists often are not ready for the next week we will dissect the tax law with the former ceo German Glenn, a word to say. It's a disaster seems over the top Jason firm in the poor argue. The administration made over and over again were completely false and obstacles. Me the entire stimulus that some People said all this is unbelievably large, and how can we do something that would increase the deficit by seven hundred and eighty billion dollars?
This is four times bigger than to put on your tax. Have that is all coming up right after this. I have heard from W and Y see studios. This is for economics, radio broadcasts that explores the hidden side of everything. Here's your house, Stephen Dogma. The February day I visited Kevin, has it in Washington DC, to be a sunny and warm as Philadelphia had been gray in cold. Has it works in the Eisenhower Executive Office building next door to the White House,
was escorted down along hallway, beautiful and into has its quick grand office? He was wearing a card again that might best be described as of pillar. So if you would just for say your name and what you do sure and Kevin Hazard, I'm twenty. Ninth chairman of the President's Council of Economic advisers and good, you still enjoy to say that the guy other expressly the number of beautiful about the number twenty nine has. It was a bit bleary I'd, as this was the day before the publication of an important book, there's two things really coming out in one book. It's the economic report of the President, which The letter written by President Tramper President, who in the past lays out his vision for having he's doing and how it could do better if we were to pursue his policies and then
The annual report to the Council of Economic advisers, which is for us, I guess eight chapters, litter substantive and go into. What we know about his say: infrastructure, investment or tax reform, the Trump White House, the most vile. but all and unusual white house in many generations, was relatively stable. When I visited this was a few weeks before the depart, sure of Gary Cone had of the National Economic Council. Reportedly over his objection to new tariffs on steel and aluminium and those terrorists, it turned out we're just the beginning. This is also before Secretary Sate Rex till her son was let go Kevin. Has it for his part, says he never had any designs and actually working in government. I became interested in doing campaigns, but not governing, because I didn't feel like I had the patience to four for government work. So how did they get here?
Let's go back to the twenty sixteen election when candidate Trump was promising big changes in Washington, it begins with ball new taxes. now, where are they going down? Not up to go down the idea was at lowering taxes, especially the corporate rate would help job and wage growth. One of our greatest job creation measures is going to be our fifteen percent business tax rate down from the current thirty five percent rate reduction of more than forty percent Campaigns are interesting. I think campaigns are when policy happens more than anything else, because in a campaign a candidate goes to America, and says here's what I'm gonna do elect B and I'll do this,
viable that point. Well, then I mean data here she gets elected, then they pursue they. Try to do that. You write it and so most of the time, if you look at governing, does really get anywhere? But if you study the history of major policy changes very often they happen. Around a presidential election when somebody wins promising to do something that they deliver because they have coattails, but has it hadn't worked on the Trump campaign or any campaign during the twenty sixteen election. He was, however, fixture in republican economic circles. He got this Phd in nineteen. Ninety at the University of Pennsylvania, you went on to teach at Columbia work at the FED, do some consulting for Treasury and take up residence at the american enterprise instituted.
turbid of think tank sort of like a university without having to teach which was serve optimal for utility function at that time has set for the most part held standard, free market views in support of free trade, fiscal responsibility and immigration, some of which sensibly puts him in conflict with its current boss. He didn't have much of a public profile, except for having co authored book in ninety. Ninety nine called DOW thirty six thousand. It suggested that the stock market, which was on a tear during the dot com boom, would more than triple over the coming years. It didn't a longshot. Even today, after long and remarkable bull run, the DOW Jones Index is only around twenty five thousand the books, bold prediction followed: has it all the way to his Senate confirmation hearing for the CIA job
You read a book and ninety. Ninety nine about now thirty, six thousand. What happen, sir! I think that one critic of mine what's looked at that book, called it a youthful indiscretion and, I think, is useful indiscretions go it wasn't such a bad one. I think that, The motivation of the book then, was to make sure that people understood how important it was if you can be a long run investor to invest in equities, because there are good investment, but has it has also had throughout his career, a deep interest in tax policy, their relationship between tax policy and investment, how taxes effect low income workers, the distributional impact of policies like carbon taxes and cap and trade, and a host of other questions. It go directly to Washington Policy debates. All this made him a value The resource for Republicans running for high office, what happened was that Glenn Hubbard and Larry Lindsey.
Organizing campaign team for President Bush was Governor Bush the time in their going down to astern in helping him but together a platform and since all my friends bring it. I decided to help them out, and so will you friends with any democratic aligned, economists lots european infected, most economists are probably democratic aligned and so so that the majority of make economists friends are Democrats for sure. But my most recent Arthur Alan. Our back is around Mon Democratic, asked Ngos B. I helped with his dissertation when he was still grad school at MIT thereof. It's so they're all, but you must have known each other for for a very long time, but I helped them but then John Mccain, asked to meet with me and basically no one would work for Mccain or anybody else does. Everyone was so sure that President Bush was going to wind than guess everybody wants to
for winter, so they get the job they want. But while the point is that my utility functioning is quite a bit different from that of people, and so the fact that, if I work for Mccain, any loss is the fact that that meant. I wouldn't get a government job had no value to me, because I didn't want to government job. I didn't want to add to it. So I was honoured to be policy director fur Mccain, and I didn't think that I know that whatever work for the Bush stress you know if they were dead, so I did say seem that there are. Eddie personal cost for the blackballing. Everybody talked about back that if you work for somebody else, but that I work with Mccain, it was lots of fun, and so I did five presidential campaigns, but I didn't work on the last one, because I,
was focused our whole wholly on this project. We had its American Enterprise Institute, called the open source policies and I decided to stay out of politics and just be a resource for gotcha. Every campaign left or right, the open source policy centre. You can look it up at o s, pc dot, Org, offers analytical tools to assess the impact of public policy proposals. Including tax proposals, anybody who wanted to figure out you know how to score their tax player, I could send us an email and then we would help them use the interface two score. It had and that's why I why exit in politics, but then the The Trump team used are opensource stuff, quite a lot and then, after present I was elected. Then they approached me to do this. Now. This job was unfilled, as I understand it for about eight
you didn't come on at the beginning of the administration right, so I spoke with most, Nobody, including president about taking the pretty early in the process then, once once she do that if you're not in the first group of people, They rushed through rated inauguration, then you get put, into the normal Senate process and a normal Senate process, has been historic the obstructionist beak as the UN, the Democrats of closer to everybody and made it down to one or two people are we get confirmed, and I have all these friends have been appointed to really senior positions that still haven't had a confirmation. or anything it's so were you doing some see aid? worker he S. So so, in fact, I think chase firm and asked Ngos B and- and some of my other friends had been on the spot. Before told me there, at once. Someone's voted out of committee that its practice standard practice for
yea Chair to work as a consultant at the White House, but not to dare to do any of the like, not sit in this fancy officer Go give speeches as each year as its nomination was supported by among many others, both Austin ghouls be andreasen firm in the former Obama singing chairs. The choice did rankles some populist elements of trumps coalition, but the appointment finally went forward. The jury will come to order will begin to raise your on June. Sixth, two thousand. Seventy pass it set before the? U S: Senate Committee on banking, housing and urban affairs for his confirmation hearing Mr Hassle has had a distinguished career in economics that includes positions in academia, government and policy by both of eighty one to sixteen Kevin ass. It was confirmed as the twenty ninth chair of the council, the economic and buyers which had been established by the employment act of nineteen forty, six, the required the White House to submit to Congress every year a full economic report.
The CIA was set up to assist and advise president in that process. And what made you decide that the two was right to finally try governance. I dunno, but that was I did not seek the position when asked. I was honoured and decided- maybe it at this point where it says something to do now. Some people were wondering if there would indeed so first, while the chairman, this yea, your position was demoted is right, word but lowered out of the cabinet. So it's no longer cabinet statement into historically it hasn t always been was fairly recent ed ran in. I don't think I don't think it should be in the cabinet and here's. Why was so I think there were forty six employment act that created the counter economic advisers, weather tended was that there was a place in the White House where their professional economists who understand economics work who want to see the ever.
Before they have an opinion about whether this or that works. Now it is a political appointment, but if you're up medical member of the cabinet, part of your job is probably desist, whatever the team to size than you think. An advocate of their position, and I think that if you go back and look historic, the ads oases chairs have acted than they have tended to be able to talk about the object. economics of this or that. To do so without hindrance of politics. The often not always but I've had it. So anyway, so if I were to redesign the sea a I wouldn't anxiously but the way it was originally designed and forty six to end. I would try to keep this each year out of the cabinet. That said the CE chairperson
views on the economy really digress from the president's views, which makes sense since it's the president, who picks a ch air, but that said, Hassett argues that the annual economic report provides a rare opportunity for economics to take centre stage. If only briefly in the political arena, I think so If you go back and look at the economic reports that there have been a number of them theatre, very serious historic documents, I would think that the first one for President Kennedy comes to mind: jawed the american economy, hearing treble the most resource for industry country on earth. among the last in the rate of economic growth, President Kennedy we're coming off of the sort of hang over from the post world. or to boom and then wondering where we gonna go next and then for
President Reagan, we had been held as really present trumpeted. We had been through a number of years where we were in crisis anymore, but it seems like we weren't grown so hot. I fellow organs. In recent days, all of us have been swamped by a sea of economic statistics, some good some bad and some just plain confusing at times when I think of the paper traffic that causes my desk and a week. Could fill a big they phone book and then some the first one for President Obama comes to mind. We start two thousand and nine in the midst a crisis, unlike any way I have seen in our lifetime mistake about the terrible financial crises prison Obama's team came in during, and I think that each those economic reports, the president, had a lot of vision did ended up. I think, being very useful for thinking about the trajectory of the Ghana me, but also, if I were a historian, I would want to go back and read what the President said: about what he's gonna do as has
now we're speaking in his office. The first copies of this year's economic report, the report to be released the very next day, were being delivered to his assistant. Later on. I took it President tromp in his opening letter was characteristically boosters fish, the primary component driving my administrations, pro growth policy agenda, he wrote tax cuts, tax reform and smart deregulation. Have inspired enormous confidence in the economy and optimism that it will continue thriving, but the best is yet to come How often do you see your meat with President tramp now neural? I'm not supposed to talk about that, but I am so tomorrow, further economic compared the president's round. I'll just say it this way that I surveyed previous c h here about the job and it's a very complicated job. There's not an instruction lists they did
This we ended up with a list of things That I should demand to be confident that the CIA is in its normal place of the White House. Lister thinks like being apart the senior staff meeting with General Kelly and everybody in the mornings. So I had that listed there and then So when I came in my first day of work, I sat down with carry cone neurons any see to talk about data data, and before I even said anything he said well, I've been thinking about. You know, your job and here's like the eighth things I expect of you, and it was everything on my list, so he had probably talked to somewhere people but there is never any dispute or fighting or anything. A redefinition is, I think, said. The demotion from the cabinet thing is this.
people who got it ended has an influence start day to day life. We should infer that you have a lot of access to and that your voice is heard in economic policy regularly, which weakens what one would expect of healthy Yang. Let me ask you this, this president, obviously unusual and a lot of ways and one way in which he was deemed unusual among academic economists or at least Perception that I I gathered was an academic economists Phil he was not an empiricist in the way that term some some presidents are prisoner bomb was faint, for enjoying economic analysis and dissecting it with the economists on his staff. This present, the perception is at least that is more of an intuition honest that he's. He comes
a business background and therefore is probably more likely to engage with a kind of idea of what successes as opposed to base something on purely empirical research. I'd love for you to talk about that gap. Maybe the gap is much smaller. then I have just described it, but I'm really curious to know the president's appetite for interest an ability to act on the specially change his mind in response to academic and empirical research that you presented him with either the loves to see data charts he likes to participate in debates. He will challenge you. in ways that economists often are not ready, for one one example-
We were making. Chart at one. how high prices are doing around the country, and the president was sure there Our data must be wrong because we had a different number of reach. Aids. India was color for your hot and cold markets or something like that, and he said that they know the Florida is way hotter than our data and play our data must be wrong, and so then he went into the nuances of how the data are constructed. So I he was right or wrong on that counted a wee whether the Abbe. You are right. We, We read an end ITALY by by denying except you brightness, ultimately yeah yeah, yeah baby, but its eggs couple of that year, you know you're using, is accepted, source and wait a minute. That's so different from what I think be wrong and often that kind of challenge it's too an insight. That's really useful if you find it can really all that the way they construct. This is
imputed, rent, an owner, occupied housing or have they get that that imputed rent is something they haven't changed in twenty years, the formula for, and so it anyway You said we interact with pvc slides. He responds to them. He likes to be he changed his mind and he likes lots of opinions, I think something. Sometimes when when I watch em operate, I think he might be one of them. most people are really understood. The genius of the wisdom of crowds idea that he can't ask as a bunch of people they think about something and then and then why gizzard veto, if you and I were making a decision about just about anything, Then you know we might very much like to know what the other people in the office think about it cuz. They might think of something that we didn't think about her. So I read it, but yes, he likes lively debate. He likes to talk dirty is really a voracious consumer of charts
Oh, I am very curious about the tax act because it's a big deal. It's so far the signature legislation, the Trump administration. So I love you too really just begin with your involvement when you came in how how early was this a priority of the Trump Administration and how did the work begin to figure out what it was going to then we'll get into what it is and what's in it must not the, umpteen was Oliver taxes during the campaign. Attacks plan will greatly simplify the coat and reduce the number of brackets from seven to three and it's really how I got to know them. In addition, because we have strongly cap deductions for the wealthy and plus special interests loopholes that tax relief will be concentrated on the working and middle class taxpayer. and so a really the bones of this plan.
Were laid out during the campaign. They will receive the biggest benefit and it won't even be close this is a working. Thank you this is a working and middle class tax relief proposal. The tax bill that ultimately passed with zero democratic votes by the way was not exactly what trumpet pitched on the campaign trail so coming up after the break. What is in it What's not, and why and that's exactly the kind of thing that we do in the kind of girl detail, that I know that you and your fancy like so much
when Kevin has it discussed the Trump Administrations New Tax ACT back at the American Economic Association Conference in Philadelphia. He admitted that the final result wasn't eggs
actually what he or the White House had wanted. This is mostly due to the horse trading necessary to get through Congress and especially narrow alley, since not a single Democrat in the House or Senate voted for it. There was before and after the vote, a great deal of debate and vitriol. The democratic line was at the new tax law, rewarded the wealthy at the expense of everyone else and couldn't come close to paying for all the cuts. The Republicans argued that their tax bill would benefit nearly every one. It increased the standard deduction which made tax filing simpler for many in lower for most. Although it raise taxes,
complicate the process for some, it did not reduce the number of brackets as trumpet promised during the election, nor did it lower the corporate rate from thirty five percent, all the way to fifteen percent, as he promised, but it was lowered drastically to twenty one percent. The corporate tax cuts was the centrepiece of the plan, both economically and psychically, and at least according to Kevin. Has it it's fact is already being felt, because exactly the things that we said would happen if this will pass that are happening rhetoric that people are moving the plants back. The way you're going up, we get more than four million people that have already seen a big day. Raise critics argue its way too early to say whether the corporate rate cuts will truly accomplish its desired goals, and they say that a lot of the recent headlines about
Our confirms repatriating foreign cash or giving workers raises, or bonuses are mostly window dressing. Your pr stunts. So ok, let's drill down into. Why has it thinks his plan will work? Let's start with his headline. Ye ethics hit the headlines We think said that path to low productivity and low economic growth that we over the last few years, is not something signals, radical departure from the trajectory that we ve grown to know and love, and I think that the headline really is that we're not in heading. for a new normal we're just heading for normal. In other words, the new normal of low growth isn't a foregone conclusion or is it. This is a major debate in economics at the moment,
one side or those who think we are in a new normal or a new mediocre or in economy? Speak a state of secular stagnation, its a range of factors from low productivity growth to an aging population have conspired to depress growth, There's a lot of evidence. That view is incorrect. and then it's like a convenient political view, but not an economically sound one. Why does has it believe, he's right, and the doomsayers IRAN, because he argues. The old corporate tax rates and complicated tax rules generally gave american firms a strong incentive to move their capital abroad. So they did lowering the rate and persuading companies to bring the resources home. He argues will result in a greater capital deepening, as economists call it's just the idea that if you got more machines, then you're more productive CASA machines, increase your productivity and that he argues will
it to higher wages, if you think about it that the second Obama term was a time when were you would think they were kind of risk. Brings normal were recovering from this terrible financial crisis. Things would be getting back to the way they were. Instead, we had this pretty radical anomaly capital, deepening, contributing negatively to productivity growth for the first time since the Second World WAR, and so what that means is that This sort of depreciation of machines and society was bigger than the harassment into machines People were made so by your reckoning. In your view, how much of that anomalous and bad scenario was driven by this, this version of global manufacturing that the? U S, embraced thirty four I think that it's it's the best explanation we ever what we're seeing and If you want to think about the economic debate,
the academic debate or the political debate, because they both kind of we're interlaced, while the tax bill was hearts and there's one school of thought that thinks that capitals highly mobile. If you try to tax the highly mobile thing, it moves and you don't get much revenue from that and when you do that, the immobile factor ends up bearing the costs. And so in that view we ve had this unprecedented slow wage then slow economic growth, because we tried to attack The mobile thing, the mobile thing ran away and and the immobile thing which in this case would be workers ended up in a hole in the bag and so the workers their wages, not go up because the firms, locating the jobs over there and moving the capital that could a driven their productivity up over there, and so they restock stuck basically holding and then the other school of thought is well marginal incentives. Don't really matter that much investments, not that responsibilities, thing
see how people are gonna, locate where they're gonna locate but taxes or a small part of that puzzle, and the reason that were growing slowly is not because the obama- team enacted unwise policies, but just because the whole world is slowing down editors, democratic position, essentially the lead Our position is right. There are all very near the Martians gave us slow growth in its new, normal and and and there's nothing we can do about it now. I think that if you, back and look at, say my papers on their since graduate and I have watched the merger of of that? I have a very strong idea how this corporate, ex bill will work and will be good for the economy and that belief, what the literature says was not a partisan thing. It wasn't veto. They did if President Clinton and had.
it was a present gliddon? She had asked me to go on tv and talk about the tax bill than that. I would have said the same thanks. President Obama said had already wanted one to twenty eight percent rate end Luigi Senegal is actually it was set it off. The record luncheons I've never spoken about a bit Luigi dollars, sir. I guess blog about that I moved there. He saw me have lunch with President Obama, and I had Obama convinced to be pretty aggressive about corporate tax policy based on the science based on the fact that it's the right thing and He was contrasting President Obama response to my analysis to that of some some of the economists that served him who were vocal critics of the tax bill, but I think there working the way we Ex magazine critics now or vocal critics during the debate. today. I think that the vocal critic circular probably be harder defined assuming that thing works according to plan, how strong
protection. Are you willing to make whether its GDP, you know, GDP dimension, whether its unemployment and wage. I guess employment. We were not so concerned about. that's pretty good, but wage dimension, and so on there's an easy short answer. Which is that we're not in the new normal rights. My belief we're just back to normal, and the growth rates are growth rate forecasts for the next ten years is below the median economic report. The president forecast, but significantly above the low growth, pessimistic outlook of the Obama administration then their last four years. Their economists are arguing that you know we're on pretty weak ground. They must believe that, because that was the ground that the sort of establishing I think they genuinely believe it. But you know we're here. to prove them wrong, and I think that the data so far are doing that. Even though the new tax bill lowers taxes for most Americans, it hasn't resonated very broadly, why one reason to be sure,
Is it? The president himself is very popular, but also many of the bills intended benefits, are necessarily long term along the near to changes that were up for discussion, changes that trumpet promised on the campaign trail didn't come through a plan to deduct childcare expenses and expansion of the earned income tax credit a plant in Greece taxes on carried interests, the money earned by private equity firms and hedge funds. The Republicans la wound up, including none of these. Moreover, the corporate weak has been widely seen as better for firms and shareholders than actual workers. Kevin has it disagrees, and he comes from the very kind of place with wage stagnation and job loss that powered trumps election were grown up in a town Greenfield Massachusetts, wonderful town, peoples. You go visit it
was experiencing at the time. You know what kind of depression, because the Greenfield Tap and I which had previously employed of people was down almost snub. Nobody. There were paper I was along the Connecticut River on either side of town that were shut down and most of the kids that I grew up with her pretty pessimistic about well. What am I gonna do with myself, where an end and most people end up leaving town, and so I can remember going back a few years after a graduate from college wandering around town and you'll have to stores, were closed and there's this a video game called fall out dean. This video game friends, your future- may not be as secure as you think Where would you be when the atomic bombs for its basically post to pack lipstick game where you wander around and explore,
our world and an end to the play, and it won't know it and what was there, but it's posts apocalyptic, but they, but even at some point I remember reading a new story that the producers of fall out, like maybe the third version of it. Using the paper mill there right across Europe, from my dad's house as set. So went there and they take it all these photos so that, like when people explored Turnus walls paper mill in that video game. If they do that, I'm sure your list, of all the people, very probably in a fire, but it may so that they would be, at that place in and I still go home, my dad still there and we walk around and third the towns on a better trajectory now. But I think that, as I went to college that one of the things that sort of I was focused on
in my own studies, was it. Why is it said? Place is filled with talented folks. You know smart, talented folks, like Greenfield Massachusetts, can suddenly just saw this year in equilibrium, where every but most everybody's leaving. No businesses want to be there your. Why did greenfield fall off the bat is the short answer to that. You know whether its textiles, whether its plastic, is it just about ought offshoring and and manufacturing elsewhere. Is that not really the big component greenfield? I think that basically fur places the there too possible NASH, equal Libya, a NASH, equally
named after mathematician John NASH of a beautiful mind. Fame is a concept from game theory. It describes a situation whereby multiple participants have reached a stable equilibrium and conclude, given the choices of the other participants. But there's no rational reasons do anything different too. Has it it's a helpful framework for thinking about economic vitality of different communities like Silicon Valley at the moment, one, as equal liberalism is that everybody goes there because everybody else's going war like Greenville Massachusetts. And the other is nobody goes there, because nobody else is ongoing and that you can flip from one to the other. And so the question is what makes those flips happen and that sometimes need I've done a lot of work on over the years, which is why one of has its favourite parts of the tax bill. Something hasn't got much attention is financial support, for what are called operate.
These zones, I think it's it's one of the things that in the end, will look back on as the biggest deals and that in the tax bill because when it's done is its its set up a vehicle. That people can use to make a difference and distress communities is made us that there is a new and innovative organizational form which will which could be set up by mutual funds. company private equity? Furthermore, ear you and I could could set one up and it becomes a pool of resources that can in Still distress, communities and not pay taxes until you take the money out in distress, community and the sort of key insight is there you can take your unrealized capital game. Road and assume their distress community fund and then when you take the money out, you'll pay full capital game, but you can to try to make a difference right now,
without having a big tax consequence and about how I think that distress communities are a bad NASH equilibrium where nobody goes because nobody thinks anyone else's gotta go, and I think Everybody really wants to make a difference, since I think that the opportunities zone could become a kindness social norm where people like some share of their wealth, needs to give a sack, and if that helps and then you get the new National everywhere everyone's racing to get there before everybody else does its very optimistic about this aid. Granted it it's something of an experiment that I think that there is a lot of smart linking behinds. Economists are always preaching and other social scientists is, let's use tax code and indifferent law to start small experiments and try to scale not so in the tax act is that cabin has special. does that there, because of you, owe you should never claimed crests experts, a flood and so but But I ask you, I think,
anyone asked me about how that would work than I would have said here is how it works. Arson and here's why? I think that it might have a positive effect on those communities The opportunities own experiment is projected to cost the federal government
one point six billion dollars over ten years, which may sound like a lot but keep in mind the overall tax bill with that huge cut in corporate rates is estimated costs a federal government, at least a trillion dollars over ten years, and the Trump Administration has already spent and plans to spend many more billions in areas like defence and infrastructure. Increasing the deficit, like this critics argue during a time of high corporate profits and nearly full employment is irresponsible and hypocritical. Republicans, after all spent eight years blasting the Obama administration for its deficit spending, much of which went into recovery from the great recession. Trump himself routinely criticise President Obama on those grounds, and he promised his own economic plans would be deficit neutral between the tax act and the new budget. There's a lot of spending
I'm curious what happened to the old GEO p fiscal conservative reputation, but I think that President rightly prioritized couple of major problems in its first year and I think it Look at what happened to the defence department that you could argue that it's in a similar, difficult state and requires a lot of spending. If you look at the percentage of aeroplanes that can't fly because they had the parts and so on it. So I think that in the first year, makes sense to prioritize, given that there is only so much time on the legislative calendar to get things done and so on. But you know I've written extensively for my career on the positive economic effects of fiscal consolidation, and that means that, in the end, the medium and long term, that deficits do matter a lot and it
the extent the growth disappoints. Then you having pursuing Some kind of fur long run like cancer, relations, something that I will be inevitable in Libya will just be a question of which it ministration will have to do it. Ok today we got to hear cabin. Has its defence of the new republican Tax Bill next time on economics, radio, as promised the view from other side of the island, overwhelming evidence is that the trickled down magic. Bienstock bees argument is nonsense. I was in the White House for all eight years of the Obama administration for most of the second half as chair. Council of Economic advisers, gotcha
Ok, so when Donald Trump talks about the small, but you are the swamp Jason. If this is a once in a generation opportunity to change the tax code or we do is just go pile on to apply that we already knew existed and what a fellow public and would have done differently with the new tax on the worst thing? Is something isn't in it? The battle of the CIA chairs. That's next time on for economics, radio programmes, radio is produced by W and my c studios and W productions. This episode was produced by Gregory Zawoiski, our staff also, Alison Hockenberry marriage, Jacob Stephanie Tam MAX Miller, Harry in any mildenheim. The music you here throughout the episode was composed by Luis Gara. You can subscribe to for economics, radio and apple podcast every get your progress. You should also check out our archive at for economics
We can stream or download every episode we ve ever made. You can also be the transcripts and fine links to the underlying academic research, we can also be found on twitter. Facebook in fact, in or via email at radio at for economics dot com. Thank you so much for listening.
Transcript generated on 2021-01-21.