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December 2011

"Sen. Harry Reid's Unicorns: Fact Checking a Whopper"

Economist Paul Gregory makes short work of one of Harry Reid's mendacious pronouncements

Tax policy should be serious business carried out by serious politicians using real facts and figures. This is why we have the Library of Congress and the Congressional Budget Office, among other expert institutions.

How can we take Congress seriously when the Senate Majority Leader, Harry Reid, makes patently inaccurate, outrageous and bizarre claims on an important tax-policy issue without any heads being turned? I guess this is what we have come to expect of Congress. No wonder citizens with favorable opinions of Congress are as rare as unicorns, to borrow a phrase.

"John Cochrane's Talk at Hoover: His Version"

Cochrane, as usual, doesn't mince words.

Taxing the rich is the new hot idea. But do we have 9% unemployment-of anything but tax lawyers and lobbyists--because the capital gains rate is too low? Besides, in this room we know that total marginal rates matter, not just average Federal income taxes of Warren Buffet. Greg Mankiw figured his marginal tax rate at 93% including Federal, state, local, and estate taxes. And even he forgot about sales, excise, and corporate taxes. Is 93% too low, and the cause of unemployment?

The Fed is debating QE3. Or is it 5? And promising zero interest rates all the way to the third year of the Malia Obama administration. All to lower long rates 10 basis points through some segmented-market magic. But do we really have 9% unemployment because 3% mortgages with 3% inflation are strangling the economy from lack of credit? Or because the market is screaming for 3 year bonds, but Treasury issued at 10 years instead? Or because $1.5 trillion of excess reserves aren't enough to mediate transactons?

I posed this question to a somewhat dovish Federal Reserve bank president recently. He answered succinctly, "Aggregate demand is inadequate. We fill it. " Really? That's at least coherent. I read the same model as an undergraduate. But as a diagnosis, it seems an awfully simplistic uni-causal, uni-dimensional view of prosperity. Medieval doctors had three humors, not just one.