How’s Your Compulsory Holiday Giving Coming Along?

by Mario Rizzo

I wish people would perform the following intellectual experiment. Find out how much in federal taxes you have paid in the past year. Don’t worry about making any distinctions between the various payroll taxes and the income tax. It all goes into the same pot in the final analysis.

Now assume that this amount is in an account and that you are not allowed to spend any of it on yourself or your immediate family. Nevertheless, you are given a choice about how to spend it. What would you spend it on? Now compare that with what the federal government spends on. How do they match up? Continue reading

Confusion Masquerading as Science? Taxes and Spending

by Mario Rizzo

I am always amazed that when many economists give policy advice the sophistication and logical rigor that the discipline so values gets completely lost.

There are many ways to interpret this. One is that the level of precision appropriate to theory and to applied economics is not appropriate to the “art” of economic policy. Of course, I would suggest that maybe this teaches us something about the ultimate value of sophistication in the theoretical product. Do the precise concepts of theory and applied economics have referents in the “real world”? Or is most of the precision lost when we try to understand the world and recommend policies? This is an important question.

However, here I am interested in the sloppiness of the policy-relevant discussions that even very good and respectable economists produce. One interesting example is a recent “Economix” piece in The New York Times by the Princeton economist Uwe Reinhardt.

I have two points: first, the confusing mix of science and value judgments; and second, the naïve analysis of the political process. Continue reading