Contributing Editors

Jerome Lyle Rappaport

Jerome Lyle Rappaport
Founder and Board Member
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Edward Glaeser

Edward Glaeser
Professor of Economics at Harvard University
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Stephen P. Johnson

Stephen P. Johnson
Executive Director of Phyllis and Jerome Lyle Rappaport Foundation
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Greg Massing

Greg Massing
Executive Director for the Rappaport Center for Law and Public Service
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Alasdair Roberts

Alasdair Roberts
Professor of Law and Public Policy at Suffolk University Law School
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Joseph Curtatone

Joseph Curtatone
Mayor, City of Somerville
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Tim H. Davis

Tim H. Davis
Independent Research Consultant
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Scott Harshbarger

Scott Harshbarger
Senior Counsel, Proskauer Rose LLP
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Vivien Li

Vivien Li
Executive Director of The Boston Harbor Association
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Guest contributors

Monika Bandyopadhyay
Suffolk University Law Student

David Barron
Harvard Law School and former Deputy Counsel for the Office of Legal Counsel in the US Department of Justice

Linda Bilmes
Senior lecturer in public policy at the Harvard Kennedy School. Assistant Secretary of Commerce during the Clinton Administration.

Brandy H.M. Brooks
Director, Rudy Bruner Award for Urban Excellence, Bruner Foundation

Felicia Cote
Rappaport Fellow, Harvard Law School/Harvard Kennedy School.

Amanda Eden
Suffolk University Law School student

Sara Farnum
Student, Suffolk Univ. Law School

Kristin Faucette
Student at Suffolk University Law School

Benjamin Forman
Research Director, MassINC

Arthur Hardy-Doubleday
JD/MBA student at Suffolk University Law School and the Sawyer School of Business

Theodore Kalivas
Boston Green Blog, Dukakis Center for Urban & Regional Policy

David Linhart
Student, Boston University School of Law

Antoniya Owens
Research Analyst, Mathematica Policy Research, Inc.

Susan Prosnitz
Senior Advisor, TSA, Washington, DC

Ben Thomas
Boston Green Blog, Dukakis Center for Urban & Regional Policy

Matthew Todaro
Student at Boston College Law School

Alexander von Hoffman
Senior Researcher, Joint Center for Housing Studies

Brett Walker
Student, Boston College Law School

Margarita Warren
Student at Suffolk University Law School

Economics Offers Tactics, Not Strategy

Tuesday, November 16th, 2010
By Edward Glaeser

Last week, the two chairmen of President Obama's bipartisan deficit reduction panel produced an eminently sensible preliminary report that was greeted with derision from both left and right. On Sunday, The New York Times invited everyone to weigh in, posting a deficit puzzle that lets you play budget czar, making spending cuts and tax increases in an attempt to wipe out the deficit by 2040.

Solving the puzzle is a great exercise in fiscal realism, forcing us to recognize that there is no way to balance the budget with significant tax increases or cuts to either entitlements or military spending.

The puzzle’s author, David Leonhardt, asked the five outside economists who contribute each week to Economix if they would like to explain how they would solve the puzzle, noting that some readers had written to The Times to say there were interested in knowing what we thought. I declined the offer, because the solutions to the budget problem won’t come from the technical expertise of economists but from moral and strategic decisions made by voters and their elected representatives.

A budget reflects two things: broad national priorities and the mechanics that deliver on those priorities. Broad national priorities include the decision to spend on armies or health care or education, and the decision about whether to more heavily tax the rich or the middle class. These choices reflect politics and philosophy more than the economics. Only when those choices are made does economics weigh in.

Once we have decided to provide public support for health care, we need to choose whether to use vouchers or tax subsidies or direct public provision. The tools of economics are meant to answer questions like that, or whether to tax the wealthy through an income tax or an estate tax. Economists are experts on tactics, not strategy — and the great budget challenge generally requires strategic choices, not tactical ones.

Economics is meant to teach how to think through the wide-ranging consequences of any public policy. If you raise the estate tax, what will happen? Will this deter people from saving money while they are alive? Or will, instead, people save more to keep their heirs whole? If heirs expect to receive less, will this cause them to work harder or marry later? This type of thinking is a crucial part of the budgetary process, but it doesn’t tell us where to cut.

Economics is also meant to help us find ways to reduce inefficiency and make everyone better off. For example, economists have long opposed rent control, not because we want to take money from tenants and give it to landlords, but because rent control leads to so much waste that its elimination can make everyone better off. Economists oppose monopolies not because we want to take money from monopolists, but because monopoly leads to underproduction and inefficiency.

There are elements of the deficit puzzle that I support solely because they enhance efficiency. The home mortgage interest deduction is a bad policy that encourages Americans to borrow too much to buy overly large homes and bet too much on the vicissitudes of the housing market. Agricultural subsidies make little sense, because they distort both location and production decisions, as well as encouraging too much food production in a nation with a weight problem.

I would be comfortable taxing carbon and risk-taking banks even if there were no deficit problem. Unless people and companies pay for the social costs of their actions, they will make poor decisions, like using too much energy and gambling to the point where a bailout becomes necessary.

But the deficit puzzle shows that you can’t get to a balanced budget by eliminating agricultural subsidies and the home mortgage interest deduction. You have either to raise taxes dramatically or cut military spending or cut entitlements, and the expertise of the economist has little to say about the large-scale strategic trade-offs among these options.

How would an economist know whether it is wiser to cut military spending or raise taxes? Our armed forces play an important role in the world, but are they worth the cost? Like many economists, I’m frustrated that foreign affairs experts haven’t convincingly monetized the benefits of wars or military spending. But I can’t do it for them.

Is it better to increase the Medicare eligibility age to 70 or raise taxes? This trade-off is fundamentally a social, moral and political question. Economics can’t tell us if it is better to make life harder for 69-year-olds or harder for the rest of us. Society as a whole needs to make tough choices about whether to raise taxes or to say no to the health-care desires of the elderly.

I first responded to Mr. Leonhardt’s challenge by putting in my own answers to the budget-deficit puzzle, but when I did I realized that my choices revealed my personal political predilections, not any insight of economics. My personal politics are not the point of Economix. Economists do have skills that help us think through more tactical parts of the budget, like the home mortgage interest deduction, and I’m going to stick to that. 


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