Home > Fiscal Policy, Matthew Yglesias, Monetary Policy, Scott Sumner, Tax Policy > Scott Sumner Vs. The World of Progressives

Scott Sumner Vs. The World of Progressives

In a recent post Scott Sumner challenges a number of progressive assumptions and calls them out for the “”faith-based” reasoning that they tend to deride in conservatives.” Sumner is a monetary economist that progressives should be required to read to see that rational critiques actually exist of their fiscal policies. Sadly, the mainstream conservative movement gave up on dispassionate evaluation of public policy.

Sumner’s “progressive wishful thinking” criticism defends Greg Mankiw’s posts that upset the standard liberal story on the progressiveness of the US tax regime and on fiscal stimulus. The defense credibly knocks down some of the more fragile volleys from the Left flank.

Lindert showed that Europeans were able to raise more tax revenue only by having more regressive tax systems than the US, i.e. tax systems that relied more heavily on consumption taxes. This is now pretty much common knowledge in the public finance area.

That is an important point to disrupt some common progressive assumptions, but I don’t think it directly counters Ygelsias’s and others’ point that the wealthiest “pay a huge share of the total taxes in the United States because they have a huge share of the money.” But it seems to me that Sumner is largely right that the US tax code has a progressive rate structure even compared to Europeans.

Sumner also weighs in on where the US sits on the Laffer curve:

I’d argue that this data is strongly supportive of the view that both the US and Europe are near to tops of the Laffer Curve for total taxation.  I did not say then, nor do I claim now, that we are precisely at the top.  But I also don’t see any reason to believe that if we raised taxes from 28% to 40% of GDP, that revenue would rise anywhere near proportionately, with no change in GDP per capita.

I do think the Laffer curve is “far-fetched” but I don’t deny that revenues always rise “proportionately, with no change in GDP per capita.” It is illustrative that Sumner doesn’t quote anyone making that claim he’s rebutting. Most popular proponents of the Laffer curve like to claim that tax cuts actually raise revenue not just that tax increases dampen receipts a bit. But the Left should think harder about challenging their assumptions with reference to European models if they’re going to argue for a much more progressive tax code. I’m with him on a progressive consumption tax.

Most interesting, and surprising, to me was Sumner’s claim that “for decades our best macroeconomists have been saying that that fiscal stimulus is a bad idea.” I really wish he cited something here because if true I’m embarrassed that I wasn’t aware of this. I always assumed economists like Christina Romer were true authorities on this, but I willing to confront a counter consensus of experts if it exists. Not that a consensus of experts is always correct but we should be giving more deference to it, as Bertrand Russell makes clear in Let People Think:

(1) that when the experts are agreed, the opposite opinion cannot be held to be certain; (2) thet when they are not agreed, no opinion can be regarded as certain by a non-expert; and (3) that when they all hold that no sufficient grounds for a positive opinion exist, the ordinary man would do well to suspend his judgment.

Sumner correctly emphasizes the need for more monetary action, which could be even more important than fiscal stimulus to help our economy. I haven’t neglected monetary policy but have focused mainly on the fiscal side because (1) it’s easier to convey (2) it’s more direct (3) it’s something that politicians (and, therefore, the public) have more influence over. Matt Yglesias is certainly right that progressives need to grapple more with Fed policy (must read) and that Obama’s biggest mistake might be his lack of focus staffing the Fed.

I’m extremely disappointed Sumner is taking a break from blogging. I hope he returns soon and continues to offer insightful and challenging commentary. I’ll be sure to rummage through his archives – others should too.

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  1. Charlie Deist
    April 2, 2011 at 8:19 pm

    It is surprising, but Christina Romer has long been a proponent of monetary stimulus over fiscal stimulus. I’m taking her macro course on the Great Depression/Great Recession and she assigned several articles showing the clear superiority of monetary stimulus. They included:

    Leonall C. Andersen and Jerry L. Jordan, “Monetary and Fiscal Actions: A Test of Their Relative Importance in Economic Stabilization,” Federal Reserve Bank of St. Louis, Review 50 (November 1968): 11-24

    &

    Christina D. Romer, “What Ended the Great Depression?” Journal of Economic History 52 (December 1992): 757-784
    —-
    She also assigned several articles about how monetary policy can be effective at the zero nominal bound, including Svensson 2003 and Bernanke 2000.

    I get the feeling that Romer, et. al could have pushed harder for monetary stimulus in 2008-2009, but weren’t all that disappointed when the liquidity trap created a potential role for fiscal stimulus. I’m also a big fan of Sumner’s blog, and hope he comes back after a much-deserved break.

    • April 3, 2011 at 12:47 pm

      Thanks for the illumination. It’s clear that Romer and others (especially anyone that has studied the Great Depression) understand the importance of avoiding overly tight money. It seems most economists agree that monetary policy should be the primary macroeconomic policy tool, but do they believe that fiscal policy is “bad” as Sumner alleges?

      Fiscal policy is pretty impotent without monetary coordination, but in concert it can be useful – Romer to my knowledge hasn’t changed her mind on that. I’ll make sure to read that Andersen and Jordan paper when I get an opportunity. Thanks again.

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