The uncertain end of mainstream economics

Posted: 11 September 2011 in Uncategorized
Tags: , , , , , ,

It’s over. Mainstream economics is dead.

Its practitioners no longer even attempt the pretense of objectivity or science. They’re expounding what the hoary German philosopher-in-exile once referred to as vulgar economics. Now, they’re just shills for capital and Republican economics.

Or maybe it’s just what passes for mainstream economics at Harvard.

In any case, Gregory Mankiw and Robert Barro are demonstrating for all to see that mainstream economics has come to an end. And, even more, they’re both reading from the same playbook. First, both of them invoke Keynes to argue that business investment is the key to capitalist growth and that capitalists need to be able to overcome government-created uncertainty in order to spend and create new jobs. (The fact that Keynes’s argument about uncertainty had nothing to do with short-term conditions but, instead, referred to the “extreme precariousness of the basis of knowledge on which our estimates of prospective yield have to be made” under all conditions merely demonstrates the opportunism exhibited by both Mankiw and Barro.) Second, once they get down to their policy proposals, all they can come up with is a decrease in corporate taxes. (Never mind that corporate taxes in the United States are lower than they were in the mid-1930s, and corporations are now sitting on a mountain of retained earnings, which they refuse to spend.)

Here’s Barro:

Any tax on capital income distorts decisions on saving and investment. Moreover, the inefficiency is magnified here because of double taxation: the income is taxed when corporations make profits and again when owners receive dividends or capital gains. If we want to tax capital income, a preferred method treats corporate profits as accruing to owners when profits arise and then taxes this income only once — whether it is paid out as dividends or retained by companies. . .

. . .our best hope is for a Republican president far more committed to the principles of free markets and limited government than Mr. Bush ever was.

And Mankiw:

WHAT can policy makers do to stoke animal spirits and encourage businesses to invest?

One obvious step would be a cut in the taxation of income from corporate capital. According to a 2008 study by the Organization for Economic Cooperation and Development, “Corporate taxes are found to be most harmful for growth.” Tax reform that reduced the burden on capital income and shifted it toward consumption would improve prospects for long-run growth and, in so doing, encourage greater investment today.

Tax cuts, which is now the only plank in the Republican economic program. And a decrease in corporate profit taxes, which is what capital always clamors for. That’s all Mankiw and Barro can come up with, under the guise of worrying about Keynesian uncertainty.

This surely is the end of mainstream economics—for which we can all be thankful.

Update

Apparently, Gary Becker has been reading from the same it’s-all-uncertainty-let’s-shill-for-capital-and-Republican-economics playbook, and is appropriately taken down by Jay Livingston.

Comments
  1. […] is radically different from the current mainstream-economists-for-Team-Republican focus on policy uncertainty, which is just another way of arguing for continuing the Bush-era tax […]

  2. […] is radically different from the current mainstream-economists-for-Team-Republican focus on policy uncertainty, which is just another way of arguing for continuing the Bush-era tax […]

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