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« Interpreting the Employment Data | Main | Misleading Commentary on Job Creation »

July 09, 2007

Comments

oldprof

Will and Venn -

I very much appreciate the comments and ideas. Will's article is well worth reading.

It is nice to see an idea stimulating discussion. It is helpful to all of us, and guides the future writing agenda.

Thanks,

Jeff

oldprof

REW --

Thanks for your comment!

I actually considered adding a Wanniski quote, but decided to focus on a few current issues. You have corrected my omission:)

Jeff

REW

The late, great Jude Wanniski often said "all change takes place on the margin". The first lesson in his classis The Way the World Works is to think on the margin. It is a great lesson for investors, but it applies to all types of decisions.
Good job prof.

Morris Young

If a man comes to your front door and says he is conducting a survey And asks you to show him your bum, do not show him your bum. This is a scam. He only wants to see your bum. I wish I had got this yesterday. I feel so stupid and cheap. -The Bum http://www.widgetmate.com

VennData

But as the article points out you really have to look at more than the marginal propensity to 'make money' when taxes are lowered.

One key regression you don't see discussed at all is how tax cuts cause a currency to fall, thereby reducing your wealth and the value of those 'new' cash flows, as we’ve had in the States (ex. the Bush tax cuts accompanying a huge drop against higher tax Europe.)

Do tax cuts “cause” a drop in currency, nobody knows, however the r-squared is there. This may be because gov'ts rarely cut spending (Bush again) causing dollar wealth to get creamed and oil to treble, food and metals to double so on and so forth.

China is an exception (again you can't be absolutist.) Their ten percent growth rates and forty percent tax rates cause much consternation to the “tax cuts at all costs” types (though you won’t hear that from their pundits in the media.) And who’s to say how much the yuan would go up if they stopped intervening and had to contend with a currency on the rise against all of the other currencies in Asia ex-China

Japan has only 3% sales taxes, and low corporate and income taxes, their currency is in a multi-year decline etc, etc…

It would be interesting to see what happened when a gov’ cut spending after a tax cut, maybe the currency would, and your wealth would hold (but don’t hold your breath!)

So no, tax cuts effects on the marginal increase in income do not necessarily increase wealth.

will rahal

Great article.
Another good example is when taxes are lowered. The easy calculation of (lower)taxes * wages = (lower) tax collection.
But lower taxes augment economic activity,
hence tax collection.
I was having a tough time figuring what kind of payroll increases are necessary to keep the current 4.5% unemployment, since, as you mention, the Labor Force is dynamic.
Nevertheless, I came up with my magic number
for payroll: 143k. When the (3-month avg) unemployment rate increases year-over-year, an accelerated drop in wages takes place, leading to an economic slow down. See

http://wrahal.blogspot.com/2007/07/employment-wages-and-economy.html

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