Austan Goolsbee to CEA Chair.

. That the arguments the right use about how the richest 3% of Americans will all go live in a gulch somewhere if their slice of the Bush tax cuts expire doesn’t hold much econometric merit.

For example, see: Evidence on the High-Income Laffer Curve From Six Decades of Tax Reform (“The evidence from both aggregate cross-sectional data on tax returns and panel data on executive compensation indicates that the responsiveness of high-income people seems to be relatively modest in almost all time periods except the 1980s.”) and What Happens When You Tax The Rich? Evidence From Executive Compensation (“Breaking out the tax responsiveness of different types of compensation shows that the large short-run responses come almost entirely from a large increase in the exercise of stock options by the highest income executives in anticipation of the rate increases. Executives without stock options, executives with relatively lower incomes, and more conventional forms of taxable compensation such as salary and bonus show little responsiveness to tax changes.”)

We are currently at a point where Republicans and some Democrats are deciding that the most important thing our country needs right now is to help enrich the top 3% of Americans by extending the Bush tax cuts. (As far as stimulus goes, extending those tax cuts on the rich would be somewhere way below a “dig holes, fill holes” project in effectiveness because of the low propensity to consume of the rich.)

So it’s very good to have a CEA Chair who has detailed statistical work saying that the Laffer-style arguments those on the right will be breaking out simply don’t carry much weight. This is far more important than whether or not he wins or loses on R&D tax credits. Godspeed Goolsbee! Stand firm.

The Internet: Not a Tool for Strengthening Oligarchs

Fun fact: The first paper I read by Goolsbee was one he wrote with Jeffrey Brown titled: Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry. It was written in the late 1990s, the draft I read was from 2000 (though I read it later). At that point there was a debate about whether or not the internet was going to make things cheaper by increasing competition. Specifically would it make things cheaper offline? Would it instead just allow for far more sophisticated price discrimination? Would it make collusion easier and more effective since it would be easier for firms to monitor the price that other firms are charging? They dig into the life insurance policy market and find that the internet doesn’t lead to nasty price discrimination in the medium term but actually does a great job reducing prices and also price dispersion across the board. Though maybe that’s common sense right now, it wasn’t at the time. It’s a neat paper.