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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! 

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!

(video from Mediaite.com)

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.

BURNETT: OK. Yes.

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!

(photo from Talking Points Memo)

So what is this Occupy Fill-in-the-Blank movement all about?   I’ve been hearing the words “openness,” “honesty,” “engagement,” “dialogue,” “listening,” “attention,” and “responsibility” a lot.  Funny that these are words one often hears in relationship counseling or personal therapy sessions.  And that’s no coincidence.  Like the situations when we are having troubles in our relationships–our interactions with others–often we learn that the first place we have to look is within ourselves.  What’s our own role in this mess of a relationship?  We may want to pull our hair out over the bad behavior of others and blame them for our troubles, but usually at least part of the blame lies within ourselves, in our own part of the interaction and how we did or did not react to what the “other” did or did not do.

And that’s why I started thinking that the Occupy Fill-in-the-Blank movement should start with “Occupy Ourselves.”  I wrote about it this way in my latest column in the Christian Science Monitor (the online version now available here):

What started as the “Occupy Wall Street” demonstration has turned into an “Occupy fill-in-the-blank” movement – with the blank being anything we blame for our own economic troubles.

The main target seems to be the vaguely defined “1 percent” – that tiny minority of the wealthiest individuals and biggest corporations, the only ones those with economic and political power seem to serve. So the Occupy movement targets the big banks – the culprits that got us into the financial crisis. Or the millionaires, because income inequality is at an all-time high. Or Congress, the lobbyists, and others in power who have failed to do good. All of them – it’s their fault.

It’s not that the outrage isn’t justified. Policymakers catering to the oil and gas industry, to Wall Street, and to the rich and powerful deserve part of the blame. So do banks, ratings agencies, regulators, and others who set the stage for the financial crisis that triggered the recent ballooning of America’s debt. And as the wealthy have gotten wealthier, policymakers have chosen to only reduce their tax burdens.

Meanwhile, policymakers seem to care much less about the poor. The share of Americans living in poverty has steadily increased over the past decade to more than 15 percent – the highest percentage since 1993 and approaching where it was when LBJ launched the nation’s “war on poverty.” How is that fair?

But we also have to recognize that our economic problems began long before the financial crisis and that the boundary between the wealthy 1 percent and the 99 percent that the protesters claim to represent isn’t so crisp. Those big subsidies to the oil and banking industries also benefit the rest of Americans through lower gasoline prices and cheaper credit. And the majority of American voters went along with politicians who proposed very expensive deficit-financed tax cuts and deficit-financed prescription drug coverage, even though our young people – the very core of the Occupy movement – are the ones who will be stuck with the bill.

We all had a role in this, not just that 1 percent.

If there is a “change we believe in,” we can’t just complain about the status quo. We have to spell out the better life we want and the trade-offs we’re willing to make to get there.

These are difficult trade-offs we each need to contemplate. Doing better for the other 99 percent of us requires real money, and that money has to come from somewhere. Are we willing to steer more federal funds to the most effective forms of spending in terms of both short-term stimulus and longer-term economic growth – policies that would also benefit Americans more broadly – and away from the less effective, less beneficial forms?

Would we be willing to receive less generous benefits from Social Security or Medicare or have our tax deductions reduced? Would we be willing to let go of our portion of the Bush tax cuts rather than insist that only millionaires and billionaires need to sacrifice theirs? And most important, if we want our “occupying” to catalyze real change, would we be willing to speak up loud and clear about our willingness to make these specific trade-offs to our policymakers?

In the end, it’s easy to occupy Wall Street and protest what’s wrong. Far harder is to occupy ourselves with the tough choices that could move America away from its crisis path and toward surer footing as the world’s leading economy.

That’s the protest message we need to hear.

Some of the same idea comes through in this interview I gave to Talking Points Memo’s Kyle Leighton, in a column titled “Bipolar Inequality” (a phrase I accidentally coined while sitting in the Milwaukee airport on the phone with Kyle; apparently sleep deprivation sometimes inspires my creativity):

Diane Lim Rogers, Chief Economist at the fiscally hawkish Concord Coalition, made similar points about the more reckless economic policies of the past decade: Much of the distaste with both Washington and Wall Street comes back to fact that DC is simply unwilling to change course.

“The difference is that during the Clinton years the rising tide was lifting all boats,” Lim Rogers said in an interview with TPM. “Low-income households were still doing better. Even then, the rich did really well, despite their taxes being raised.”

But what’s different now is that income inequality isn’t a political tenet of the left: it’s truly hurting people. Lim Rogers said the poverty rate is actually of more concern than the rich doing better given the circumstances.

“The outrage is not that the rich are richer,” she said. “It’s that the poor have gotten poorer — the inequality has become bipolar.”

Which could help explain why when OWS [Occupy Wall Street] provided the spark, many Americans didn’t discount the movement as disaffected liberals who have no real point: it’s a real issue borne out by the numbers…

While Gallup showed that only 22 percent of Americans considered themselves supporters of OWS, other polls have shown larger amounts of support. Because, as Lim Rogers points out, the movement has centered on a more inclusionary focus.

“As the definition of the rich keeps shrinking, the movement feels like it gets more spirited,” she said. “OWS is getting the support of most americans, because how can you disagree with the fact the top 1 percent has done well, but that poverty is increasing. I’m not surprised that OWS is doing well, and I think it’s justified. What Americans may not have a grasp of is that we are all part of the problem, because we continue to support politicians that support these policies.”

My point is that even those of us who are not in the top 1 percent of the income distribution may actually benefit from and at least implicitly support the policies that are perceived as “those policies that cater to the top 1 percent.”  And the policies that we think are letting down just the bottom 99 percent are actually letting down all 100 percent of us.  It’s not ever going to be as easy as neatly sorting out the blame vs. the burden into the 1 vs. 99 percent.  We’ll have to sort it out within each of ourselves first.

(Like those “protesters” in the photo above appear to be doing, actually.  Just Say “Om.”)

If you want a great explanation about how everything fell apart over the past decade and how we’ll still be struggling to recover over the next decade, get yourself a copy of this book:  “Lost Decades: The Making of America’s Debt Crisis and the Long Recovery” by Menzie Chinn (now a professor at U. of Wisconsin and co-author of the amazing Econbrowser blog, then one of my colleagues at the Council of Economic Advisers at the end of the Clinton Administration and first months of the Bush Administration) and Jeffry Frieden (a political scientist at Harvard).  I find this account absolutely riveting; even though I already knew a lot of the main plot, I’ve learned a lot more about the underlying subplots and the most significant (good and evil, smart and foolish) characters.  And coming from Menzie, the whole real-life story has this wonderful, reflective, melancholy “insider” perspective.  I read it as screaming  “I told you so.”

The last chapter is called “What Is to Be Done.”  If those taking part in the outrage of the “Occupy___” movement want to bring some heavy artillery in terms of policy substance into their demands, this is a good place to start.

If you’re in the DC area, both of the authors will be talking about their book at the IMF tomorrow (Friday) afternoon, and I’ll be one of the discussants.  Nobel laureate George Akerlof is moderating.  (Not bad, huh?!)  RSVP to attend the (free) event here.

I wish I had even a fraction of the talent that Jon Stewart and Stephen Colbert–the “sanity ralliers”–have in explaining tax and budget policy in engaging ways. The Jon Stewart segment above is my latest favorite, but here’s a great one by Colbert on the “Buffett Rule.” In my Tax Notes column this week on “Evolved Tax Policy,” I argue that as our economy grows and changes shape over time, so should our tax policy. Why should we use our experience in the past to guide our policymaking more than our hopes and expectations for the future? How do I wish tax policy would better “evolve?” Here are a few ways I listed in my column (see the full column–if you are a Tax Notes subscriber–for more details):

Here are some forms of tax policy evolution we could use right now:

1. recognizing that expanding the economy via tax policy isn’t as simple as cutting taxes and that tax cuts involve costs as well as benefits;

2. allowing smart tax policymaking to at least occasionally trump clever tax policy politics;

3. acknowledging that Wagner’s Law — which holds that the public sector is a luxury good — may apply, suggesting that the optimal size of government and hence the optimal level of revenue/GDP grow over time with the economy; and

4. realizing or recognizing that because part of that growing role of the public sector may be the redistributive role, especially if wealth income inequality increase with aggregate income growth, the progressivity of the tax system may need to increase over time to partially compensate.

What is an example of how we’re NOT “evolving” on tax policy?  The fact that proposals for “flat taxes” seem to be back in vogue.  Take Republican presidential candidate Herman Cain’s “999 Plan.” A reporter called me about it, which was the only reason I went to the Cain website to check it out for a few seconds, which was all it took to “get” what his proposal is basically about:  (i) switching to a consumption-based tax system that exempts income from capital–which on its own is “regressive”; (ii) switching to a single (”flat”) marginal tax rate schedule–which on its own is (also) “regressive”; and then (iii) switching to a not-just-double-but-triple tax of consumed income (instead of saved income) through the 9 percent business tax (exempting capital income) and the 9 percent sales tax (which naturally exempts savings) that are layered on top of the 9 percent income tax (which exempts capital income as well)–which means all that regressivity I already listed is tripled!  Where did the 9 percent rates come from, I was asked by the reporter–and would it be revenue neutral?  My response:  “probably because 9 is one digit long” and theoretically, yes, it’s possible that a triple tax on consumed income with no or few exemptions which has an effective rate of 9+9+9 or 27 percent could indeed be revenue neutral.  (From Cain’s description of the 999 base, it’s not clear what is exempt other than charitable deductions–oh, and all of capital income, of course.)

I don’t know if I’ll feel compelled to say anymore about the Cain tax plan unless the candidate actually seems to have a decent chance of getting the Republican nomination, but on the way to seeing if that happens I hope people recognize how insane his tax plan is (without needing any detailed analysis).  This is one plan where my biggest reaction to the plan is not that it doesn’t raise enough revenue.  Like I said, theoretically it could, but why would we ever want to do it that way?

It’s sort of an example of what I called “Neanderthal tax policy” in my Tax Notes column.  So please don’t take it seriously.  Yeah, I know–it’s hard to believe I can say you should take the guys from Comedy Central–Jon Stewart and Stephen Colbert–more seriously than some of these presidential candidates when it comes to their wisdom on tax policy.  But you should.

Just had to “tweet” that!  Mainly wanted to combine a complaint about the rain and a link to my Tax Notes column (reprinted on the Concord Coalition site, here) that argues that the first easy thing the debt limit deal’s “super committee” could do is commit to strict pay-as-you-go rules on the Bush tax cuts–and on other expiring tax cuts and on spending as well, by the way, but the biggest difference this would make in on tax policy.

Committing to pay-go rules on the Bush tax cuts wouldn’t be so hard in terms of making tax policy.  I explain in my column that there are three main ways we could get there–each with their economic and political pros and cons:

1. Do Nothing. Allow all expiring tax cuts to expire as specified under current law. That would mean reverting to Clinton-era marginal tax rates. (Hmmm, what was so bad about those tax rates for our economy?)

2. Do It Big. Extend some or all of the marginal tax rates under the Bush tax cuts, but fully offset the costs of extending the low rates by broadening the tax base and reducing some tax expenditures (for example, limiting itemized deductions or reducing the exclusion of employer-provided health benefits). This is the fundamental tax reform approach.

3. Do It to the Rich. Extend some or all of the Bush tax cuts — particularly those that affect middle-income taxpayers (lower tax rates, child tax credit, marriage penalty relief) — and fully offset the costs by imposing an extra tax on the very rich, such as a surtax on households with incomes in excess of $1 million.

I admit that’s still not as easy as rain, but it’s also far easier than the super committee having to do full-blown fundamental tax reform within the next few months.  And not being able to do all of fundamental tax reform right now isn’t a reason to avoid committing to a budget rule that would encourage smart and fiscally-responsible tax reform in the future.

(Cartoon by Marshall Ramsey of Creators Syndicate.)

…then all we’d have to do is cry! For your amusement (just try to smile!), here’s a collection of “budget and deficit cartoons” put together by U.S. News and World Report. I found it via a link on this blog post by Leslie Marshall discussing what the new CBS News poll tells us–and why we should be a bit depressed about it and need cartoons like this to cheer us up:

To read the polls is not only confusing, but it shows how confused we the people are. Some polls show Americans want to cut spending, but they don’t want to raise taxes. Other polls show a majority of Americans want the Bush tax credits to end for the wealthy. And after Rep. Paul Ryan put forth his machete to Medicare, he was booed at town hall meetings, and a Democrat won a congressional seat in a district which had been a Republican stronghold for decades…

It sickens me when I hear the GOP talk about leaving something for our children and future generations when their proposals cut more education and Medicare and Social Security, making those programs a memory for our children. And without them, our children will be financially strapped, taking care of sick and elderly parents and grandparents.

Here’s another cartoon from the collection I want to highlight (this one by Chan Lowe for Tribune Media Services), because for awhile I’ve been wondering if someone could make a visually-informative video of this taking all the big things off the table–to make this same point:

Here’s my inaugural column for Tax Notes, as reprinted on the Concord Coalition’s website today.  Note that the title of the regular column is “Taxes for a Civilized Society,” but the specific title of the inaugural column is (the very slightly different) “Being Civilized About Taxes.”  At any rate, you can find the whole text of the column (originally published on 6/6/11 in Tax Notes) here (on Concord’s site) without a Tax Notes subscription, and here (on the Tax Notes site) with one.  Next week’s column, scheduled to come out in Tax Notes on 6/20, is all about how reducing tax expenditures is like the “tastes great and less filling” approach to cutting the deficit.  (Learn more about Tax Notes here.)

Len Burman and Ruth Marcus have both dreamed up their own fantasized versions of “adult conversations” between House Budget Committee Chairman Paul Ryan and President Obama–or as they both refer to them “Paul and Barack.”  Check them out.  If only our policymakers could be so openly and honestly communicative with each other.

(I maintain this is one important way in which policymaking probably would go differently–and I believe better–if we had more women in charge.  Note that Len’s version, while more truthful than the real conversations, is still more “tit-for-tat” compared with Ruth’s “heart-to-heart” version.)