Friday, January 16, 2009

First NYU Tax Policy Colloquium session

Yesterday was day 1 of the spring (can I call it that when it's 10 degrees outside?) 2009 NYU Tax Policy Colloquium. In the public afternoon session (we also meet with students in the AM), we covered my forthcoming paper, The Long-Term Fiscal Gap: Is the Main Problem Generational Inequity?

I hope it's not terrible of me to say: I really do like this paper. I've written about these issues a number of times, but am not just repeating myself - I think my understanding of them, and also my capacity to explain them crisply, has benefited from the multiple rounds. And I see the issues somewhat differently than I used to. Apart from being more pessimistic about the politics and more agnostic about the generational equity issues than I was earlier on, I think I have a fuller handle now on what the normative issues really are, how various measures might relate to them, etcetera. (Analytics are ultimately more interesting to me than the bottom line.)

Discussion at the afternoon session (from Alan Auerbach and Mihir Desai plus various members of the audience) focused on international issues that I perhaps ought to have covered more, as well as on questions of what an abrupt course change would look like, when it might happen, why it hasn't happened yet, and how much worse the current financial crisis has made it. Alan estimates that the financial crisis has worsened the existing fiscal projections by as much as 25 percent, which is more of an impact than one might have expected. Mihir considers it possible that the abrupt course change could end up having characteristics of an efficient one-time capital levy.

One important point we all agreed on, but which lots of the liberal bloggers (including Paul Krugman) appear to have a lot of trouble with, is that there is no contradiction between believing that a lot of stimulus is currently needed and that we have grave long-term fiscal problems that ought to be addressed ASAP (other than being subject to business cycle concerns). By analogy, even had the U.S. fiscal situation been really awful in December 1941, it would nonetheless have been right to conclude that we should fight an enormously costly two-front world war and seek to finance it only over the long term. The value of the war spending would have exceeded the cost even in much graver fiscal circumstances. And the same holds today for well-conceived stimulus measures that have a sufficient chance of generating the hoped-for benefits. But to say that we can and should spend, say, $800 billion or $1.4 trillion if the payoff is high enough, and thus run staggering budget deficits over the next couple of years, in no way negates the long-term problem and the need to start heading away from the cliff (rather than towards it) as soon and as smoothly as we can.

While the afternoon session had lots of familiar people and the feeling of a reunion, there's always the element of getting to know the new class. They appear to be both good students and motivated, but the chemistry of a new class can take a couple of weeks. I'm hopeful that the usual good vibe (for want of a better word) will gel (to mix the metaphors as badly as possible) in reasonably short order.

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