Tuesday, June 03, 2008

Gang up on Mankiw

Greg Mankiw got his spot in the Gray Lady's son by making an impish call to reduce the corporate income tax. He suggested paying for this tax cut by increasing the gasoline tax, thus striking a blow for environmental crusaders at the same time.

Steve Waldman takes issue with Greg saying that a gas tax is insufficiently progressive, and questions whether the US has the wisdom to deploy cheaper capital wisely.

I think that Steve should extend his compassion to polar bears, but am intrigued by his argument that when firms have more money but no new projects, they spend the money on stupid stuff instead of returning it to shareholders.
In theory, when firms do not have productivity-enhancing new projects at the ready, they return funds to investors. But, in the aftermath of first the dot-com bubble, and then a massive credit & housing bubble, it's worth asking what actually happens when the economy experiences positive shocks to the supply of capital.
Given that America invented the internet 10 years ago, it's shocking how much value it has also destroyed to find itself, 10 years older, with Google but no richer. It's even more shocking to consider that after this lost decade, the next 10 years look even worse.

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