Thursday, August 28, 2014


... are the body's version of McCarthyism.  The immune system can't find enough real enemies, so it invents fake ones and makes everything worse.

Explaining August's nearly unbroken radio silence

Another month almost gone - the last in my favorite three-month stretch of the year (aka the true, as opposed to purely astronomical or even meteorological, summer) - and I have scarcely posted lately.  Thus, for example, I have yet to mention here the Burger King inversion story, although over the last couple of days I have been discussing it with members of the press.

I've been traveling for much of the month, first on vacation and then, as a parent, to help deliver a rising freshman to his college in southern California.  Two side benefits that I got from the latter trip were as follows.

First, I was able to fit in a trip to the Nixon Museum in Yorba Linda.  As a long-time Nixon aficionado, this was a treat indeed.  (I realize that no one under 50 can truly appreciate Nixon's astounding comic, dramatic, and literary greatness as a better-than-fictional character.)

Nixon's memoirs begin with the line "I was born in the house my father built."  Speak of great openings, although I never tried to read the rest as I gather it falls short of his most personally revealing work, "Six Crises."  But the house his father built is actually there at the library, at its original site, and I got to step inside.  Also at the Nixon Library is the famous helicopter from which he did his characteristic V-for-Victory pose before boarding to fly away from the White House after he resigned.  Other features include his and Pat's graves, a reconstruction of the White House East Room, and a fairly balanced review of his career.  (The National Archives now runs the place, helping to account for the balance.)

Rather a melancholic site, however, especially in light of Nixon's grandiose ambitions, along with the certainty that he must have felt, even as late as March 1973, that he had fully achieved them.  His ultimate disgrace not only is recounted there, but affects everything about the site.  Not for him the giant Pharaonic monument that I am sure he wanted.  For one thing, the money evidently wasn't there post-disgrace.  Instead, it is quite modest.  Presumably to help make ends meet, they have to rent out the place for weddings, real estate seminars, and the like.  You don't see that sort of thing in Napoleon's Invalides.

Biggest surprise: We got there just after it opened, and the parking lot was completely full, requiring us to park in the Quaker church lot (I think it was) across the street.  I had been joking all the way there about the giant lines we would face, and then was startled to see this evidently confirmed.  But not so fast.  It turned out that the reason for the full parking lot was a seminar offering pointers to real estate salesman.

Best comment: Standing just outside the main building during a tour, my wife and I saw a little field mouse race down a corner of the sidewalk and disappear into a small hole on the lawn.  She noted that seeing a rat on the grounds would have been more appropriate still.

On to the second side benefit of the trip.  It gave me a chance to read Balzac's Pere Goriot, discussed extensively by Thomas Piketty in Capital in the Twenty-First Century and to feature as well in the review that I am co-authoring with Joe Bankman for the NYU-UCLA Tax Policy Symposium on (and with) Piketty that will take place at NYU on October 3.  (Side-comment: We realized that this was Yom Kippur Eve when we scheduled the event, but it was the only mutually convenient date available).

I had previously read Pere Goriot and several other works by Balzac, back in the 1970s, when it in particular had made a strong impression although I didn't entirely like it, but hadn't been through it since.  Lots of boiling melodrama, long declamatory speeches, etc.  "What will Paris say?"  I must admit that I continue to strongly prefer two roughly contemporary French novels that I regard as similar in genre (i.e., bildungsroman featuring an upwardly mobile adventurer): Stendhal's The Red and the Black, which was published five years earlier, and Flaubert's Sentimental Education, which came out more than 30 years later.  But Balzac certainly has a rude and highly theatrical gusto, and if unfashionably unjaded he is certainly plenty cynical.

In our NYU-UCLA commentary, we will be quibbling a bit with how Piketty interprets Pere Goriot as a social document. But I'll save that for later - with luck we may reach the stage of posting the full piece on SSRN within a couple of weeks or even less.

Tuesday, August 19, 2014

The Obama Administration's move towards greater unilateral executive action

Today's New York Times notes "Mr. Obama's increasingly expansive appetite for the use of unilateral action on issues including immigration, tax policy, and gay rights," which it says has "emboldened activists and businesses to flock to the administration with their policy wish lists."

Esteemed colleagues at other law schools have been playing a prominent role in urging unilateral executive action to address significant tax policy issues that typically, in the past, would have been handled through legislation.  For example,  Steve Shay has written about what the Administration can do unilaterally through its regulatory levers about corporate inversions. Victor Fleischer argues that the Treasury's regulatory authority would permit it to address unilaterally, not just inversions (as to which he says "[t]here is no question that Professor Shay gets the law right" concerning the Treasury's regulatory powers), but also the carried interest loophole for hedge fund managers.

As I was quoted as saying in Fleischer's carried interest write-up, it should be no surprise that the Treasury is thinking in these terms, even though traditionally it would not have acted to change policies that customary practice assigns to the legislative process.  "[W]hen the legislative process is as broken as it has become today ... it's simply inevitable that administrations will care less about such comity, and be more willing to advance their policy views in controversial areas through the unilateral exercise of regulatory authority."

Would it be better if the Obama Administration were more circumspect, even assuming (in keeping with my own views) that Shay and Fleischer are right in tax policy terms?  Definitely yes in a better, but counter-factual, state of the world.  But when the legislative process has so completely broken down, the question changes to that of whether one is sufficiently incrementally worsening things at the institutional level to outweigh the policy benefits.

In other words, suppose the Obama Administration changes policies in these two areas but then the next Republican Administration reverses both sets of regulatory changes, and also pushes through lots of stuff that either comity or blind acceptance of then-prevailing practice discouraged the Bush Administration from doing.  Then the next Democratic Administration flips things back the other way, and so on.  Meanwhile, as the Times article notes, special deals and favors start being meted out through regulatory changes, without even the admittedly limited scrutiny that such things get when done legislatively.

This does not sound like a great state of the world.  But I think it is where we are headed in any event, and under administrations from both parties.  So again, I see the principled question for the Obama Administration as whether it is significantly aggravating / speeding up this process if it takes an aggressive stand during its last 2-plus years in office.

I tend to think not, on the ground that we are headed there with all due speed anyway, and that the next Republican Administration will not be greatly discouraged from doing such things, where it wants to, by Obama Administration forbearance.  Think of filibusters, which minorities always had the power to do, but generally accepted as subject to limitations of convention that have by now almost wholly eroded.  In that type of environment, honoring conventional limitations on the exercise of one's legal rights or powers makes a lot less sense than otherwise.  It's a prisoner's dilemma scenario in which everyone else is defecting anyway.

UPDATE: Jonathan Chait provides a well-chosen hypothetical for critiquing the view that I take above.  In response to discretionary non-enforcement of legal rules - as distinct from issuing new regulations - he argues that, if President Obama can, say, decide not to enforce particular immigration laws, then what is to prevent, say, a President Romney from announcing that he would stop all enforcement actions against the non-payment of estate taxes?

The example is not legally on point for my discussion above, since discretionary non-enforcement of a law on the books is distinct from revising administrative regulations that permissibly define applicable law.  But the same concern about escalating breakdown of accepted norms that we rely on in practice is surely germane.  And the conclusion might either be that one should tread a bit lightly after all, or that we are in big trouble whether one side unilaterally does so or not, given the accelerating breakdown of norms that, as Chait notes, are no less crucial than our express constitutional and legal structure to "secur[ing] our republic."

Monday, August 18, 2014

Forthcoming conference at NYU Law School on Piketty's Capital in the Twenty-First Century

Here is the text of an announcement that has just been sent out.  The event has been in the works for some months now, but I didn't think I should mention it here until it officially went public.

I will mention further details in due course.

Fourth Annual NYU/UCLA Tax Policy Symposium:
Thomas Piketty’s Capital in the Twenty-First Century
NYU School of Law
Greenberg Lounge (40 Washington Square South)
Friday, October 3, 2014, 9:00 AM to 4:00 PM

On Friday, October 3rd, at NYU School of Law, the Fourth Annual NYU/UCLA Tax Policy Symposium will address Thomas Piketty’s groundbreaking and best-selling book, Capital in the Twenty-First Century.  The day-long event will consist of five panels featuring leading scholars who will analyze the book from economic, legal, historical, political science and philosophical perspectives.  Thomas Piketty will participate in the discussion and deliver responses to each of the papers presented.

Confirmed panels and paper presentations are:

·         Wojciech Kopczuk, Columbia University; moderated by David Kamin, NYU School of Law
·         Joseph Bankman, Stanford Law School, and Daniel Shaviro, NYU School of Law; moderated by Eric Zolt, UCLA School of Law
·         Gregory Clark, UC-Davis; moderated by Joshua Blank, NYU School of Law
·         Suzanne Mettler, Cornell; moderated by Jason Oh, UCLA School of Law
·         Liam Murphy, NYU School of Law; moderated by Kirk Stark, UCLA School of Law

All papers will be published in the Tax Law Review in 2015.

Due to the anticipated high interest in this event, participation will be limited to NYU Law and UCLA School of Law faculty, students and invited guests.  An invitation and registration information will be e-mailed shortly.

The NYU/UCLA Tax Policy Symposium hosted by NYU School of Law and UCLA School of Law is a joint annual conference focusing on tax policy issues from both a legal and economic perspective.  It provides a forum in which leading scholars, policymakers, and practitioners can analyze complex tax policy questions and options for reform, and brings together members of both NYU Law’s tax law faculty and UCLA Law’s business law and policy program.  It builds on tax policy symposia that have historically been hosted by the Tax Law Review, the premier law school journal for tax policy scholarship, and the UCLA Colloquium on Tax Policy and Public Finance, started in 2004.  Financial support for this conference is provided by NYU School of Law and the Lowell Milken Institute of Business Law and Policy, UCLA School of Law.

Saturday, August 02, 2014

Kotlikoff versus Baker and Krugman

This past Thursday, Laurence Kotlikoff had a NY Times op-ed with two main points.  First, the infinite horizon U.S. fiscal gap is huge, and ought to be reported.  It stands at $210 trillion, and eliminating it would require an immediate, permanent 59% increase in federal revenues, or else an immediate, permanent 38% reduction in federal spending.  Second, we must immediately start raising taxes and/or cutting benefits in order to address it.  Indeed, "this is not just an economics problem.  It's a moral issue" - which he frames in terms of policy transparency, but surely with an underlying premise that it would be immoral to leave the full burden of policy adjustment to be borne by the members of future generations.

As unsurprising as Kotlikoff's column (if you know his views) are Dean Baker's and Paul Krugman's responses (if you know theirs).

First, Baker: all we learn from this is "why we should not use infinite horizon budget accounting.  Kotlikoff showed how this accounting could be used to scare people to promote a political agenda, while providing no information whatsoever."  E.g., if we just go out 75 years the fiscal gap is far more manageable.   And we could tame it by bringing healthcare costs per capita into line with those in other economically advanced countries, so why cut benefits? And Kotlikoff could / should have pointed out that the unfunded infinite horizon Social Security liability of $25 trillion, which he gives significant emphasis in the Times op-ed, equals just 1.4% of future income  (i.e., the present value of GDP in the infinite horizon forecast).

It seems to me that Baker is showing a different point than he thinks - that we can actually have reasoned debate about the numbers Kotlikoff wants to emphasize, rather than that we shouldn't use them because they will be misunderstood.  But moving on to Krugman, he agrees that the fiscal gap suggests that current policy is unsustainable and will have to change at some point.  "But why, exactly, is that something that must be done immediately?  If you state the supposed logic, it seems to be that to avoid future benefit cuts, we must cut future benefits.  I've asked for further clarification many times, and never gotten it."

But Krugman then answers his own question: "You can argue that it's better to avoid abrupt changes - to put things on a glide path to sustainability.  But that's a much weaker point than you might expect given all the cries of bankruptcy and crisis."

Fair enough.  But there's more to this point than Krugman says here.  In a 2006 book that has the admittedly Kotlikoffian-sounding title "Taxes, Spending, and the U.S. Government's March Towards Bankruptcy," I make a "smoothing" argument that goes beyond just avoiding abrupt changes.  Subject to other considerations such as macroeconomic policy and the aim of benefiting poorer relative to richer age cohorts, and leaving aside political economy issues, I argue that one should generally want to both announce and start implementing indefinitely sustainable policies ASAP.  Credible early announcement can provide greater certainty, and sharing the pain of course correction between all years can have "smoothing" benefits.  For example, suppose that your future healthcare benefits were going to be cut.  If all years are expected to be similar, and if "fat" tends to get eliminated before "bone," you'd probably prefer a 5% cut for all future years to no cut in some years and a 10% cut in others.

Let me add a word about that title, by the way, given that, even by 2006, I had moved further from the Kotlikoff camp and closer to the Baker-Krugman camp than I had been, say, in the late 1990s (although I remain fully in neither camp).  My preferred title was "The Use and Abuse of Fiscal Language."  My publisher, no doubt correctly, felt that this would not serve the book's prospects very well.  And while I discerned a "march towards bankruptcy," this was not nearly so much based on the types of numbers that Kotlikoff likes to cite (and which I agree should be included in public debate) as on pessimism about the capacity of the U.S. political system to handle tough policy choices of almost any serious or difficult kind.  Surely that pessimism remains as plausible as ever, whether or not government bankruptcy is the particular disaster that it's most likely to cause.