Monday, April 25, 2011

Unusual Political Economic Explanations

A good question from Cowen: “What is the political economy of a world where so few people work?” That deals with labor force participation rates rather than unemployment rates per se, but I would hazard that it makes the US look much more like Europe. Cowen believes that it will be more likely to lead to a change in ethical principles (moving from “protecting all the old people against major health care catastrophes” to guaranteeing everyone a particular annual income) which will involve a change in policy instruments from Medicare to welfare checks.
The political economy of energy: If we had no nuclear power, the world would produce an additional 2 billion tons of CO2, roughly the total emissions of Germany and Japan combined, much of it from gas plants. Of course, that number doesn’t count for the demand-depressing effects of higher energy prices. Japan, however, seems less concerned with nuclear power itself than with the political economy of how it is run, with senior bureaucrats who regulated the nuclear power industry being invited to “cushy jobs” in it. “An energy portfolio, like any other, is a basket of risks: of security of supply, cost and environmental damage. Fear and uncertainty, which nuclear fission produces as unavoidably as it does iodine-131, distort people’s perceptions of those risks.”
Yglesias was debating the political economy of why our tax code is convoluted and an unnecessary headache for millions of filers. I filled in one answer just before he gave it, but his other answer I think is quite doubtful:
Under the circumstances, the sensible thing would be for the IRS to send everyone a sheet of paper that says “based on the income that’s been reported to us and your family status from last year, your taxes owed (or refund owed to you) is $X with standard deductions. If something’s changed, or if that income number is wrong, or if you want to itemize deductions, you should fill out forms blah blah blah. Otherwise, just send a check.” A lot of us would still need to wrestle with the forms and nobody likes to give up money, but this would be much more convenient for millions of people. We don’t do it because H&R Block and TurboTax don’t want to lose customers and, crucially, because the conservative movement wants taxes for ordinary people to be as annoying as possible. Rich people don’t care about this kind of simplification because they itemize their deductions and hire accountants. But they benefit from middle class people resenting the tax process because it helps them build the case for low tax rates.
I would be interested to know just how much H&R Block and Turbo Tax are giving in campaign contributions to specific members of the relevant committees to fight against tax simplification. I am doubtful that it is anywhere near as significant as, say, the contributions for the Farm Bill or any hint of regulation of meat processors.

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