Buchanan and Wagner were right, fiscal policy is fairly pro-cyclical

Our study reveals a mixed fiscal scenery, where more than half of the countries are recently characterized by limited fiscal space, and fiscal policy is either acyclical or procyclical (though not as high the level of 1980s), notably post-GFC becoming even more procyclical in government spending when accounting for net acquisition of nonfinancial assets and capital expenditure (spending components do matter).

That is from a new paper by Joshua Aizenman, Yothin Jinjarak, Hien Thi Kim Nguyen, and Donghyun Park.


Monetary policy is also pro-cyclical: the central bank follows the market, supplies them with money, more when times are good, less when times are bad. The rare time, like in 1994, when the Fed tightened money when the market demanded more (and it caused a jolt to the financial market, lots of hedge funds doing 'carry trade' and the like got burned) is the exception to the rule (and later the Fed eased, further showing the Fed follows the markets in the long run).

A result that will make all the cucks on here jizz

Well, the current government in the U.S. most definitely is not pro-cyclical, cutting taxes and increasing spending, adding trillions to government debt, during a period of economic growth and low unemployment. As for Buchanan, his observation was that people (including voters and politicians) make decisions based on their own self-interest. The current crop of Republicans has thrown caution to the wind, enacting policies (tax cuts for the wealthy, deregulation of carbon energy producers, defense buildup, etc.) with little public support, even among Republican voters, policies that will leave the economy and us far more vulnerable in the future and less able to adopt pro-cyclical fiscal policies during the next recession or, worse, financial crisis, and more vulnerable to climate change. Won't Republican politicians be punished by voters for their profligacy and irresponsible policies? No. Republicans have learned that many voters are easily manipulated and can be convinced to vote contrary to their own self-interest, but in the self-interest of Republican politicians and the wealthy donors who support them. Somehow I don't believe this is what Buchanan had in mind. Not unless Ms. MacLean has it right in her recent book.

Pro-cyclical is the exact opposite of what you think it means.

Yes, I meant the opposite, that the current government is pro-cyclical, making it more difficult to adopt counter-cyclical polices in the event of a recession. My excuse (and I'm sticking with it) is that my comment was actually about Buchanan and public choice. Buchanan and the whole exercise in public choice had as its premise that the majority of voters (meaning the working class) would elect left-leaning populists who would enact an increasing number of government benefits for the working class that would eventually break the government. What's happened, instead, is the rise of right-leaning populists who elect conservatives and right-leaning populists who adopt budgets and tax cuts that will eventually break the government. Buchanan identified the wrong culprit, and those who promote the public choice theory have failed to adjust to the reality.

That's not what public choice economics says. At all.

Public choice economics says that established dominant players in the market will use their resources to create opportunities for regulatory arbitrage to put up artificial barriers to entry. In the long run it is better for Wal-Mart to have dumb regulatory hurdles to jump. They can afford it whereas a potential market entrant cannot.

Over time we would expect market consolidation, increased corporate profits, 'intangible capital' becoming a larger share of corporate assets, and labor's share of income to either stagnate or decline.

Which is what we see.

Apparently they don't teach public choice economics at law school.

Pro-cyclical? If the stock market crashed tomorrow I suspect the Trump administration isn't going to embrace austerity. Be careful what you wish for, you might be seeing what passes for counter-cyclical policy at the moment.

Democratic voters don’t vote contrary to their self interest?

Democrats seduce voters into thinking that regulation is a hedge against private accumulation of power-it mostly just cartelizes industry furtherand increases capital costs for up starts further weakening any chance of upsetting firms with dominant positions within an industry.

Democrats seduce voters into supporting living wage proposals at $15 an hour instead of bumping the EITC.

Living wages at that level will literally lock out a nice chunk of people from entering the labor market-not to mention further increase capital-labor costs for small up start up firms. Min wage increases can also increase cartelizatin within industries.

So let’s not just start with the whole republicans get people to vote against their self interest thing.

The EITC was expanded under Bill Clinton and the stimulus under Obama cut payroll taxes. In both cases the Republicans recast that as giving free money to poor people and made it clear even if it was tax cuts they wouldn't tolerate $1 for the 90% unless it was paired with $10 or more for the 10%.

Democrats pay the earned income tax credit little mind.

It’s almost never ever brought up in any of their public rhetoric.

They love the min wage though maybe because it’s flashier and extracts more blood.

However it is functionally inferior policy to the eitc, which is proven to improve welfare without destroying business or locking poor people out of the labor market.

The new-socialist wave of the Democratic Party behaves as though the EITC isn’t even an option.

Again the Democrats are out for blood, not functional-efficacious policy.

Again you get the EITC if you elect Democrats, if you elect Republicans you get rhetoric about no one paying income taxes except the top 10%.

Two problems, one is the EITC is easy to target by Republicans. The GOP has essentially ditched the idea of appealing to lower and middle class people by anything other than scare mongering and white identity politics. Since you have a hostile GOP, the min. wage is a safer policy because it's a lot more flashier for the GOP to gut that than the EITC. Recall in the recent tax bill the GOP even toyed with the idea of rolling back 401K's.

Second, the min wage is easier to explain and do in a general election. Like building a wall or trade war with China. Once elected, however, the voice of business becomes louder and the arguments in favor of EITC over min. wage get more noticeable.

Personally I'm sympathetic to living wage laws when you're talking about specific local concessions. For example, if the taxpayers are giving a sweet heart deal to a massive development or new stadium, I could go along with a requirement that living wages be paid as part of the price. Nationally I think it's a bit unfair. Why should Walmart, which hires a lot of low skilled people, get hit with the cost of a living wage requirement while Google, who only hires the highly skilled and rarely will pay to develop a low skilled person, be immune because almost all their hires are far above any living wage proposal?

Keep in mind on the left another idea brewing around is UBI, which like the EITC, is a market friendly solution to inequality. If you think any of this stuff is worthwhile but you vote Red, you're the problem.

That plus ETIC is easy to do on the Federal level, harder to do on the state and almost impossible on the city/local level. In an alternate reality where Hillary won with a Congress about as Democratic as Obama's initial term I would be shocked if something like an expanded EITC wasn't already law (with the Bernie Sanders wing trading off their demands for living wage laws in exchange for bigger EITC increases). What happens with the EITC if you have Republicans dominating? Well look around.

Yes the EITC is a federal program and almost fiscally impossible to pull off at any other level of government.

However with a proper calibrated EITC you shouldn’t have the need for local or stare eitc’s or any of the living wage madness.

Both parties would do well to look in to this before something much more horrific becomes electorally and politically feasible.

The phase, "Wagner and Buchanan were right," is not frequently heard outside of, shall we say, edgy political circles.

Hello Cleveland!!!! We are "...Joshua Aizenman, Yothin Jinjarak, Hien Thi Kim Nguyen, and Donghyun Park"

Please please start a band and have a naming contest...

For years I have heard conservatives, etc.., make great claims about the superiority of the EITC. But I've never seen them do much to implement one.

Now that the Republicans control all three branches of government it is the perfect time to implement an RITC to prevent state and local governments from raising the minimum wage.

But I suspect that the EITC is just a conservative talking point that has no chance of becoming actual policy. Until I see conservatives actually raising an EITC, I know not to take their claims about it seriously.

At the end of the day, the EITC and min wage are just means to an ends.

If you’re gonna reject or accept means solely based on what political tribe supports what policy than I think you may need to re-think your approach....

The left is tired of the GOP bait and switch. It was done on Obamacare, cap-n-trade, and the EITC.

I do not even know how I finished up right here, but I assumed this submit was great. I do not understand who you’re however definitely you’re going to a well-known blogger should you aren’t already. Cheers!

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