Taylor: Permanent, Pervasive, Predictable
Stanford economist John Taylor penned a formidable op-ed for the WSJ back in November, arguing that the "temporary, targeted, and timely" kinds of tax measures favored by the recent Congress are weak medicine compared to tax breaks that are permanent, pervasive, and predictable. It echoes the tax arguments we made back in September, in a piece entitled "It's the Policy Mix, Stupid!":
What are the implications for a second stimulus early next year? The mantra often heard during debates about the first stimulus was that it should be temporary, targeted and timely. Clearly, that mantra must be replaced. In testimony before the Senate Budget Committee on Nov. 19, I recommended alternative principles: permanent, pervasive and predictable.
- Permanent. The most obvious lesson learned from the first stimulus is that temporary is not a principle to follow if you want to get the economy moving again. Rather than one- or two-year packages, we should be looking for permanent fiscal changes that turn the economy around in a lasting way.
- Pervasive. One argument in favor of "targeting" the first stimulus package was that, by focusing on people who might consume more, the impact would be larger. But the stimulus was ineffective with such targeting. Moreover, targeting implied that increased tax rates, as currently scheduled, will not be a drag on the economy as long as increased payments to the targeted groups are larger than the higher taxes paid by others. But increasing tax rates on businesses or on investments in the current weak economy would increase unemployment and further weaken the economy. Better to seek an across-the-board approach where both employers and employees benefit.
- Predictable. While timeliness is an admirable attribute, it is only one property of good fiscal policy. More important is that policy should be clear and understandable -- that is, predictable -- so that individuals and firms know what to expect.
Good stuff, critically important, and in our view, unlikely to be heard until the other stuff is shown wanting -- which will require that we experience it, unfortunately.