Austan Goolsbee is taking over for Christina Romer as CEA Chair. Ezra Klein has seven things to know about Austan Goolsbee. As Klein notes, there “are now no women with central roles in the White House’s economic process, and no obvious openings.” (Obama could help with that by nominating Elizabeth Warren to the CFPB. And the administration pushing harder on getting Janet Yellen through the Senate and onto the Federal Reserve’s FOMC would be an important achievement.)
I’m a fan of Goolsbee and I’m glad to see him take the CEA Chair. A few notes:
Goolsbee is the person who brought Volcker to the adminstration. Reuters:
The former Fed chairman and the presidential hopeful met at a dinner on Capitol Hill in June 2007…Word got back to Obama’s campaign headquarters and to economic adviser Austan Goolsbee that Volcker was impressed with the candidate. Goolsbee jumped at the chance to get the economic legend on board.
“We don’t need the guy’s money. We want to pick his brain and see if we can get his endorsement,” Goolsbee recalls telling a campaign operative at the time.
And New York Times on Goolsbee talking about Volcker: “The guy’s a giant, he’s a genius, he is a great human being,” said Austan D. Goolsbee, counselor to Mr. Obama since their Chicago days. “Whenever he has advice, the administration is very interested.”
The rumors I’ve heard is that Goolsbee was very important in getting the Volcker Rule in front of the President once it became clear that Volcker was being ignored in the financial reform debates in late 2009. Without Goolsbee, I’m not certain we would have had the Volcker Rule. Rumors of course, so take it with a grain of salt.
But Goolsbee has been very energetic on getting serious financial reform: Here he is discussing the Volcker Rule the day financial reform passed. I wonder what the financial reform effort would have looked like if Goolsbee and Volcker were closer to the crafting and implementation of it.
On Not Extending The Bush Tax Cuts For the Richest Americans
His strong background is in tax policy. As Arpit Gupta pointed out to me, some of his most interesting research has been quantifying and using statistics to argue that there isn’t much deadweight loss from taxing the rich. That the arguments the right use about how the richest 3% of Americans will all go live in a gulch somewhere if their slice of the Bush tax cuts expire doesn’t hold much econometric merit.
For example, see: Evidence on the High-Income Laffer Curve From Six Decades of Tax Reform (“The evidence from both aggregate cross-sectional data on tax returns and panel data on executive compensation indicates that the responsiveness of high-income people seems to be relatively modest in almost all time periods except the 1980s.”) and What Happens When You Tax The Rich? Evidence From Executive Compensation (“Breaking out the tax responsiveness of different types of compensation shows that the large short-run responses come almost entirely from a large increase in the exercise of stock options by the highest income executives in anticipation of the rate increases. Executives without stock options, executives with relatively lower incomes, and more conventional forms of taxable compensation such as salary and bonus show little responsiveness to tax changes.”)
We are currently at a point where Republicans and some Democrats are deciding that the most important thing our country needs right now is to help enrich the top 3% of Americans by extending the Bush tax cuts. (As far as stimulus goes, extending those tax cuts on the rich would be somewhere way below a “dig holes, fill holes” project in effectiveness because of the low propensity to consume of the rich.)
So it’s very good to have a CEA Chair who has detailed statistical work saying that the Laffer-style arguments those on the right will be breaking out simply don’t carry much weight. This is far more important than whether or not he wins or loses on R&D tax credits. Godspeed Goolsbee! Stand firm.
The Internet: Not a Tool for Strengthening Oligarchs
Fun fact: The first paper I read by Goolsbee was one he wrote with Jeffrey Brown titled: Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry. It was written in the late 1990s, the draft I read was from 2000 (though I read it later). At that point there was a debate about whether or not the internet was going to make things cheaper by increasing competition. Specifically would it make things cheaper offline? Would it instead just allow for far more sophisticated price discrimination? Would it make collusion easier and more effective since it would be easier for firms to monitor the price that other firms are charging? They dig into the life insurance policy market and find that the internet doesn’t lead to nasty price discrimination in the medium term but actually does a great job reducing prices and also the subsequent price dispersion that happens and in general increasing competition. Though maybe that’s common sense right now, it wasn’t at the time. It’s a neat paper.
Re extending tax cuts for top 3% – in terms we can all understand, proponents want to borrow enough money, also know as increasing the deficit, and transfer the borrowed billions to the top 3%.
When the country had so-called confiscatory tax rates, no one took tens of millions of dollars in income for obvious reasons. The foregone income went somewhere, for instance more pay and benefits to other employees, dividends to shareholders, reinvestment in the businesses for growth, etc. Few advocate a return to those days, but the Great Divergence has not been pretty and cannot be sustained.
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