Spending, work, and taxes

February 27th, 2018 at 8:32 am

Ed Lazear’s oped in the WSJ this AM made both resonant and discordant points, at least to my ears/eyes.

The part that didn’t make sense to me was the idea that other countries are demonstrably worse off because they tax more and work less. Based on the data in the figure below, Lazear asserts that we in the US are better off because our relatively low taxes encourage “hard work” and “robust growth.”

He’s conflating growth with welfare/well-being. All the other economies in the figure collect 30-40% of their GDP in order to support more robust (there’s that word again) public health care, education, safety net, child care, and other public goods expenditures. These are sovereign choices made by their citizens, based on their legit preferences. Before you assert that our model is better than theirs, ask the Canadians and Europeans if they’d like to trade some tax points of GDP for our health care system.

From a welfare point of view, btw, Lazear’s argument is non-economic. In basic micro, work is a ‘bad’ and ‘leisure’ is a good. I don’t agree, for the record–life’s just more complicated than that–but elevating growth above welfare/happiness/cultural preferences/etc. can lead you astray.

The resonant part is this: “…programs that we agree are useful must be financed.” That was the point of my earlier piece on how we either raise the revenue we need to meet our spending wants/needs our just consign ourselves to seas of red ink as far as the eye can see.

Obviously, Lazear’s arguing for “aggressive cuts” in spending to meet our newly reduced revenue take. In this regard, his argument is, unsurprisingly, consistent with the R’s and Trump’s budget: we’ve cut the taxes; now we must cut the spending. But based on our aging demographics alone, simply maintaining the current services requires more, not less, revenues.

Outside the pages of the WSJ oped page, the public will not support the tradeoff Lazear touts. He’s definitely right that spending requires taxes. It’s just his solution that’s off.

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2 comments in reply to "Spending, work, and taxes"

  1. william hannigan says:

    It doesn’t look to me that the hours worked measure is significantly different among some of these countries. Maybe the question to ask is whether you did work less if you also had robust public goods/safety net. Much of the safety net could be financed with the difference in military spending.

  2. Stanwood says:

    This is basic micro: Productivity = Days on the Beach* / Days at Work. Economists who extol the virtues of hard work should cite broad-based improvements to standards of living; not point to the work itself as a good.

    *If you are on the President’s Council of Economic Advisers it is permissible to substitute “Golf Course” for “Beach”.

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