…because I’m an economist and a mom–that’s why!

Better Than Our Leaders Ask Us To Be

December 29th, 2011 . by economistmom

In my latest column in the Christian Science Monitor, I complain about how our politicians often take extreme positions and claim they’re just representing the best interests of their constituents.  Like when Republicans (egged on by anti-tax lobbyists) claim that tax increases on the rich will kill the economy, or when Democrats (threatened by organizations like AARP) claim that Social Security recipients oppose Social Security reform.  I end with a favorite quote from Concord Coalition co-founder Paul Tsongas:

[T]he budget battles in Washington seem more to do with the fictional scripts inside politicians’ minds than the actual opinions of the voters. When the late Sen. Paul Tsongas helped start The Concord Coalition in 1992, he explained its grass-roots mission this way: “We are better than what we are being asked to be by our leaders.” It’s clear we still need to keep telling our leaders to live up to their duties – and our ideals.

Why Gift Cards Are a Thoughtful Gift: My Economist Mom Perspective

December 27th, 2011 . by economistmom


Before Christmas, Matthew Yglesias had this nice “economist’s guide to giving Christmas presents” in which he urged gift givers to get the most “bang per buck” by being both redistributive (not just reciprocal) in gift giving and taking risks by actually choosing a gift (avoiding the economist’s tendency to opt for cash for efficiency sake).

A few days ago (pre-Christmas) I felt like writing my Economist Mom corollary to Matthew’s column; I wanted to put in a plug for gift cards.  But I got too busy.

So, for the record (and as my advice for your future gift giving occasions), here are a few reasons why this economist and mom does not view gift cards as a “cop out” gift:

  1. A gift card to anyone is at least slightly more thoughtful than cash as long as one gives some thought to the selection of the merchant as having some correlation with the gift recipient.  It shows you made the effort to think about what the gift recipient might need/want and took the time to purchase the gift card (at least a tiny bit harder than visiting the ATM).
  2. From a mom’s perspective, giving gift cards to the kids is a perfect compromise to satisfy one’s urges to control the kids’ consumption (steering them toward particular merchants at least) while letting the kids to do their own fine-tuning.  It’s a great “maternalistic” alternative to giving cash.
  3. The “bang per buck” of the gift card is maximized when Christmas gift cards are redeemed at post-Christmas sale prices.
  4. Buying those gift cards before Christmas, even if they aren’t redeemed until after Christmas (or ever, actually) still contributed to economic activity when the cards were purchased.  It’s good stimulus even if the cards for pre-paid goods and services are never transformed into the actual goods and services.  (The purchase of the gift card itself is effectively purchasing the “service” of postponed explicit goods and services.)  In fact, businesses don’t seem to mind if you never redeem the gift cards and just end up giving them money!  But as a good gift-giving economist, if you care about overall welfare/utility maximization and not just business profits, you really should urge your recipients to use their gift cards before they lose them.

So maybe you can figure out where the bulk of my spending on my gifts to my kids went this year.  I’m spending the next few days driving them to the particular stores and advising them on their online shopping.

Hope you all have happy holidays.  Now go use your gift cards!  ;)

Hooray for Fact Checkers!

December 22nd, 2011 . by economistmom


I’m busy with holiday preparations, and frankly, there’s not much to say of substance about the (still depressing and still unresolved) payroll tax cut issue, but I thought I’d point readers to Washington Post fact-checker Glenn Kessler’s compilation of  “the biggest Pinocchios of 2011.” Glenn has a really nice defense of fact checking as a profession which makes me feel a kinship to him; those of us who advocate for fiscal responsibility are often attacked from both sides, too.  An excerpt from his “My name is Glenn, and I’m a fact checker” introduction:

My colleague Ezra Klein even opined that “the ‘fact checker’ model is probably unsustainable,” based on the questionable belief that “half of the public leans towards one party and about half of the public leans toward the other” and thus will tune out commentary with which they disagree. That’s a pretty depressing commentary on the state of our politics. Thankfully, it bears little relationship to the reality we experience every day at The Fact Checker. 

Yes, there are always partisans who, day after day, accuse us of either being left-wing hacks or right-wing crazies. But there are also many people who, every day, write notes of thanks–for explaining a difficult subject, opening their eyes to a new idea or providing the facts to a claim that had confused them. Many Americans are asking for more information, not less, and we are happy to help fill the void.

Some people are always going to be partisan. That fine, but that’s not the role of a reporter. We value the many comments we have received from our readers, the words of encouragement and also the criticism. Every day, we seek to live up to your expectations of a true, impartial seeker of the truth.

In fact, there is this strange myth out there that fact checkers aspire to be “referees” and strain to achieve a balance between the two parties. Not so. At The Fact Checker, we take a holistic approach to every fact we check. After more than 30 years of writing about Washington institutions, we truly find there is little difference between Democrats and Republicans in terms of twisting the facts and being misleading when it suits their political purposes.

You go, Glenn!  Keep handing out those Pinocchios!

Chris Cillizza: Water Is Wet (and Other Obvious Things)

December 19th, 2011 . by economistmom


The Washington Post’s Chris Cillizza stated the obvious in Sunday’s Washington Post:  “Congress is unpopular.”  And deservedly so, because as Chris explains (in print but also in a nice video on that web page):

Saying that Congress is unpopular is kind of like saying that water is wet or that big-time college football is corrupt. It’s so obvious as to be assumed. And yet, in 2011 Congress managed to underperform even the low regard in which the American people hold it.

It wasn’t just that lawmakers didn’t do much in 2011. It was that they didn’t do much in a year in which the economy continued to struggle, the nation’s collective anxiety soared and, for the first time in modern memory, our fiscal foundations seemed genuinely shaky.

The mismatch between the bigness of the country’s problems and the smallness of Congress drove the institution’s approval ratings down to used-car-dealer (or even journalist) levels.

Chris goes on to boil down the major failures of Congress this year to three areas:  (1) the budget “deal” in the spring; (2) the debt-ceiling “debate” in the summer; and (3) the (not so) “supercommittee” in the fall.  From my perspective, in all three cases: (1) the Obama Administration led by talking about the need for a “balanced” approach to deficit reduction that would involve both revenue increases and spending cuts (their “opening bid” effectively representing the compromise position they hoped to ultimately reach); (2) Republican leaders took a hard line position (pretty much “bullying”) on their Grover-mandated “no new taxes” stance; and (3) the Democrats in Congress and the Administration then cried “no fair, you mean bullies!”–but ultimately caved in and agreed to spending cuts only.

And now it’s gotten so bad that the two sides can’t even agree on passing a deficit-financed tax cut, the only kind of policy that we’ve seen them have no trouble agreeing on over the past, um, decade or so.  House Speaker John Boehner explains that the Senate-passed two-month (only) extension of the payroll tax cut does not provide Americans with the kind of “certainty” they need.  He’s right that the temporary extension is just another installment of kicking the can down the road, but Americans are very used to that kicking of the can.  I think Americans are more freaked out about the potential that Congress won’t even manage to kick the can–that they’ll miss it all together while they bicker for bickering sake–and we’ll all end up flat on our assets (and the body part that sounds like that).

(Hence, the Charlie Brown cartoon; just substitute “football” for “can.”)

Headed for a Typical “Compromise”

December 14th, 2011 . by economistmom

Concerning congressional negotiations over the extension of the payroll tax cut, this Washington Post story seems to offer a prediction as to how this impasse will be broken (emphasis added):

To pay for extending the cut, Democrats have pushed for a surtax on those making more than $1 million a year. Although the Senate has twice blocked bills that would fund the reduction with a millionaire tax, [Senate Majority Leader Harry] Reid said again Tuesday that the wealthy should be asked to fund the tax cut for middle-class workers. He also said Democrats would be willing to extend the tax cut without outlining a way to pay for it.

And of course, House Republicans are perfectly willing to extend the payroll tax cut as long as the construction of that (”job creating”) oil pipeline can be sped up and avoid the usual environmental impact scrutiny, and as long as long-term unemployment benefits are made less long term (and the recipients subjected to drug testing).  They would only partially pay for the payroll tax cut by cutting the pay and number of government workers.

It seems to me we’re headed for the typical “bipartisan compromise” agreement where the Republicans bully the Democrats, the Democrats call the Republicans bullies, and they ultimately all agree to just deficit-finance the whole thing, feeling good that the other side gave up their proposed offsets.

It wouldn’t be so bad (this payroll tax cut is supposed to be stimulus, after all) if it weren’t a scene played over and over again, not just for deficit-financed stimulus policy, but deficit-financed anything.

The Muddled Economics of the Payroll Tax Cut

December 6th, 2011 . by economistmom

Here’s a blog post of mine just published over on Concord’s blog, The Tabulation; I’m cross-posting it here:

The current debate over extending the payroll tax cut well demonstrates that policymakers often mean different things when referring to policies that “help” or “expand” the economy. I often hear the words “stimulus” and “growth” used interchangeably, but when economists use them, we typically are making a distinction between different economic goals that apply to different circumstances.

“Stimulus” usually refers to short-term policies to increase demand for goods and services in an economy  operating at less-than-full capacity — i.e., an economy with high unemployment. In such a recessionary economy, the problem is not a lack of productive resources (capital and labor), but a lack of demand for the goods and services that those resources produce. Under such conditions, public sector deficits — whether through tax cuts or direct spending — can be an effective way to increase demand (consumption) and the level of economic activity.

“Growth” usually refers to the long-term expansion of the “supply side” of the economy — that is, the supply of capital and labor. When the economy is at “full employment,” the binding constraint on it is not the demand for goods and services, but the supply of inputs to production. Fiscal policies that are good at growing the economy over the longer term are therefore those that encourage greater educational attainment, labor force participation, and saving. Instead of the recessionary goal of increasing consumption, we want the opposite over the longer term: We want to increase saving. Reducing tax rates is often emphasized as a good “supply side” policy because raising the net-of-tax return to working or saving can improve the private sector’s incentives to supply these resources. But any deficit-financing of such policies is counterproductive in dollar-for-dollar reducing the public sector’s contribution to national saving.

In the debate over the payroll tax cut, we are hearing arguments from both sides that muddle the distinctions between short-term, demand-side stimulus and longer-term, supply-side growth. Many Republicans argue that the payroll tax cut is not an effective way to expand the economy, but they are probably measuring it against their favored supply-side yardstick. The Congressional Budget Office (CBO) shows that a payroll tax cut is one of the most effective tax cuts in stimulating demand for goods and services in a recessionary economy — not as effective as direct spending on unemployment benefits but still far more effective than high-end income tax rate reductions.

Both Democrats and Republicans seem torn about paying for the payroll tax cut, for probably different, yet both valid, reasons. Democrats don’t want to offset the cost with immediate spending cuts that could largely negate the short-term stimulative effect of the tax cut. If spending cuts are fairly immediate and significantly affect lower-income households, they would likely offset the stimulative effect of the tax cut. Republicans don’t want to offset the cost with other tax increases because they worry that supply-side incentives would worsen. These concerns are legitimate when the offsetting tax increases stretch into the longer term (after the economy gets back to full employment) and to the extent that the tax offsets adversely affect the returns to working or saving.

As the Concord Coalition has emphasized many times before, it is possible to effectively stimulate the short-term economy while being fiscally responsible about the longer term. Deficit financing should ideally be limited to short-term policies that have high “bang per buck” in increasing demand for goods and services. Longer-term policies designed to grow the supply side of the economy when it is back to full employment ought to be paid for in ways that protect the incentives  to work and to save. And any offsets to the cost of stimulus policies should be designed to have minimal damage to short-term demand — by steering the burdens toward higher-income households or stretching the offsets over the longer term.


Postscript:  To these issues of the stimulative effect of the payroll tax cut and whether and how the costs are offset, I’ll be adding the additional confusing issue of how the payroll tax cut affects the Social Security program–short answer, “not”–in my next Tax Notes column.

Elmo’s Fiscal Policy Solution: Playdates!

December 5th, 2011 . by economistmom

(video from

Back in October, CNN’s Erin Burnett interviewed Sesame Street’s Elmo, getting his advice on how Congress might actually stop bickering and get their work done. (CNN replayed this interview recently following the super committee’s disappointing failure.) From the CNN transcript of the original airing:

ERIN BURNETT, HOST, CNN’S “ERIN BURNETT’S OUTFRONT”: Elmo, you could solve the world’s problem right now.

ELMO: Really? How?

BURNETT: OK. So, in Washington –

ELMO: Yes?

BURNETT: — everybody hates each other. Nobody will do anything together.

ELMO: Really?

BURNETT: And it’s hurting America. How do you fix it, Elmo?

ELMO: Play dates.

BURNETT: Play dates?

ELMO: Yes, everybody has play dates.

BURNETT: Like put a Democrat and Republican play date?

ELMO: Play dates.

BURNETT: Harry Reid, John Boehner, play dates?

ELMO: Yes, play dates. And everybody brings their own food.


ELMO: And they have to sing songs.

BURNETT: I think that might solve it. It’s better than anything we tried so far, Elmo.

This reminds me of the Concord Coalition’s new “Two by Two” initiative, where–as Bob Bixby explained, also back in October (anticipating, like Elmo, that the super committee in the end would not play so well together):

Just as they did for the State of the Union Address, members of Congress should pair up. They should join together in “two-by-two” fiscal forums in which they present agreed-upon facts and engage with each others’ constituents about policy options. Public engagement is of little value if it just means listening to people who already agree with you…

Any number of formats could work so long as the goal is to broaden understanding of the issues and seek consensus solutions – and not to score a partisan “victory.”

A good example was set earlier this year by Senators Mark Warner (D-Va.) and Saxby Chambliss (R-Ga.), who held joint forums in Richmond and Atlanta. And this is just one model. Over the past six years, The Concord Coalition has brought together analysts and political leaders of diverse perspectives on our “Fiscal Wake-Up” and “Fiscal Solutions” tours.

Audiences across the country have been very receptive. They often express the wish that their political leaders would talk about the issues with the same appreciation of each other’s point of view. More importantly, audience members begin to accept the need for compromise.

The public is hungry for a nonpartisan dialogue on such big issues as the long-term fiscal challenges, and elected leaders need political cover to “do the right thing.” Two-by-two forums fit both needs. Indeed, if President Obama and Speaker Boehner had made their case for a “grand bargain” to the American people instead of vetting it with other party leaders, they surely would have found a more receptive audience.

In other words, playdates with “parallel playing” are not enough. You have to communicate and engage with your playmate–find out what toys and games he likes and what he does not, reconcile those preferences with yours, and find ways to play together that make both of you happy. As all parents and preschool teachers know, moving on from the parallel playing mode takes some maturity–getting beyond the “terrible twos” actually. We’ve been talking about the need for “adult conversation,” but maybe we can set the bar even lower for starters and just try to get past the temper tantrums!

What Now for “Fiscal Responsibility?”

December 1st, 2011 . by economistmom

Although the “super committee” was by all accounts a “super failure,” the U.S. is fortunate that we are not yet in full blown “crisis” mode.  Our fiscal situation–namely, the large and economically unsustainable mismatch between spending and revenues–is still just a “problem” that can be solved.  Our deficits are still being “sustained” at the moment, and U.S. Treasury bonds still look like the world’s safest investment, thank goodness.

But we’re on the path to the end of the fiscal sustainability cliff, the edge of which we won’t see until we’re likely past it, given how full-speed-ahead we seem to be running toward that unknown edge.  (Think Wile E. Coyote chasing the Road Runner.)  So it’s time to at least change the momentum, even if we can’t so easily just change direction.

The super committee’s failure was a political one.  The super committee’s task was, and still is, a rather uncomplicated economic one.  Given the political constraints and what we’ve learned about what doesn’t work (putting decisions in the hands of politicians currently in office), slowing down the race to the edge of the fiscal cliff will require getting the public more involved.

Here’s how Concord Coalition’s Bob Bixby explained what has to be done in a recent CNN-Money column:

Under current law, $1.2 trillion in spending cuts triggered by the super committee’s failure would take effect and $4.7 trillion in tax cuts would expire, raising government revenue by significant amounts and lowering future interest costs. According to the Congressional Budget Office, this would bring the budget into “primary balance” — meaning that revenues would cover all spending except for interest payments — by 2014. The national debt would come down somewhat from 67% to 61% of the economy. More would need to be done, but that’s not a bad start.

There are problems with sticking to the exact policies and timing of current law, including legitimate short-term economic concerns. Nor should the brunt of any deficit reduction plan be placed on those who can least afford it.

To accommodate those circumstances, Congress could make some changes in the mix and timing of policies but still aim to keep the 10-year deficit-reduction total from current law on track.

Government projections assume the $1.2 trillion in savings Congress intended to back up the super committee, and financial markets are counting on them. Repealing the trigger or reducing its impact would further erode congressional credibility and possibly lead to another downgrade of the nation’s credit rating.

There is still time for Washington to get things right before expensive, deficit-financed policies are extended. A commitment to a process that enforces strict pay-as-you-go rules and guides policies toward the deficit reduction in current law would help.

And how the public’s involvement is needed:

The Concord Coalition’s deficit-reduction exercises and other public engagement efforts in cities across the country have consistently shown that people of all ages and varied ideologies are willing to make hard budget choices — as long as there is shared sacrifice, with everything on the table.

Members of Congress with differing viewpoints should pair up for “two-by-two” fiscal forums in which they present agreed-upon facts and engage with each other’s constituents about budget options. Such forums would broaden understanding of the key issues and promote civic discourse about solutions.

A good example was set earlier this year by Senators Mark Warner, a Democrat from Virginia, and Saxby Chambliss, a Republican from Georgia. The two held joint forums in Richmond and Atlanta.

Back in Washington, members should also pair up in co-sponsoring bipartisan plans to address the deficit, with or without the support of congressional leaders. Efforts such as the Senate’s “Gang of Six” should be revived and expanded. The logical place to start is with the recommendations of the Bowles-Simpson and Rivlin-Domenici commissions.

Congress is now debating the extension of both unemployment benefits and payroll tax cuts.  Both policies are typically deficit financed because they are intended as policies that will stimulate the demand for goods and services–lack of demand being the binding constraint in an economy with high unemployment and other idle resources.  The current debate is less over the desire of politicians to extend those policies (most on both sides say “yes”) and more about whether these policies can be and should be paid for–if their cost can be offset with spending cuts or revenue increases that take place more slowly over the next ten years and do not “neuter” the stimulative effect of the original policies.  Yes, this is indeed possible, with some offsets making more sense than others.  Of course, the Republicans would prefer the offsets be spending cuts, while the Democrats would prefer they be tax increases on the rich.  So here we are, right back to the same old debate–and the same old (mostly political) “sticking point.”

My colleague Josh Gordon and I briefly discuss the “what now” in the video above.  Bob appeared live on C-SPAN on Thanksgiving morning with this excellent call-in interview, as well.

I plan to write a bit more about the payroll tax cut and proposed offsets within the next few days, so please stay tuned.

And if you like what you read/watch here about the Concord Coalition’s initiatives, please make me happy and “like” us (and follow our activities and join us in our efforts) on Facebook, and become a member/get on our mailing list here on our website.  :)