Podcast Summary
Behavior Change for Good project's experiment 'Step Up' to help form exercise habit: Social scientists' project Step Up uses text message nudges and Amazon Cash incentives to help people form an exercise habit.
The Behavior Change for Good project, an initiative by social scientists to improve outcomes in health, education, and personal finance, is currently conducting an experiment called Step Up to help people form an exercise habit. The month-long program involves text message nudges and Amazon Cash incentives. If you're a 24-hour fitness member, you can participate via the link 24go.co/freak. During the American Economic Association conference in January, economists, known for their apolitical nature, had a heated discussion about tax reform, specifically the new tax law signed by President Trump, which reduced the corporate tax rate from 35% to 21%. Despite the Democratic economists' past support for corporate tax rate reductions under President Obama, they were critical of the new law due to specific arguments and the contentious nature of anything associated with the Trump administration.
Kevin Hassett's Role in Trump's Tax Reform: During the Trump administration, Hassett advocated for tax reform, believing in drastic cuts to boost productivity. Critics argued justifications were false, leading to larger deficits than anticipated.
During the Trump administration, Kevin Hassett, the 29th chairman of the President's Council of Economic Advisors, played a significant role in advocating for tax reform. He believed that drastic tax cuts were necessary to address economic issues, specifically the lack of productivity growth. However, critics, including economists Jason Furman and Austan Goolsbee, argued that the administration's justifications for the tax law were false, and the stimulus was much larger than anticipated, leading to a substantial increase in the deficit. Despite initial reservations about working in government, Hassett found himself in the thick of it, helping to shape economic policy in a volatile White House.
Impact of Presidential Elections on Policy Changes: Presidential elections can bring about significant policy changes as winning candidates have the political capital to implement their promises. Expert advisors like Gary C. Passet, with knowledge in tax policy and investment, can greatly influence the direction of political debates.
Presidential elections can be pivotal moments for major policy changes. Candidates campaign on promises to implement certain policies if elected, and a win can provide the political capital needed to make those changes a reality. Gary C. Passet, a economist with a background in free market views and tax policy, served as an advisor to Republican campaigns, including those of George W. Bush and John McCain, due to his expertise in these areas. Passet gained attention for co-authoring a book predicting the stock market would reach 36,000, which didn't come to fruition. Despite this, his knowledge of tax policy and investment made him a valuable asset to Republican campaigns. The 2000 presidential election saw Bush win, and Passet helped develop his platform. Later, McCain sought Passet's advice, but most advisors declined to work for him due to Bush's perceived strong chance of victory. Overall, campaigns can be crucial for policy implementation, and the expertise of individuals like Passet can significantly influence the direction of political debates.
Some individuals may not align with conventional political career paths: Despite being approached, some experts may prefer to stay outside of politics and focus on their projects. Appointments can be complex and involve lengthy confirmation processes.
For some individuals, personal motivations and career goals may not align with the conventional desire for a government job or being part of a winning political campaign. Kevin Hassett, for instance, was the Policy Director for John McCain's campaign and later chose to focus on his project at the American Enterprise Institute instead of working in the Bush administration. Despite being approached by the Trump team, he remained outside of politics until they utilized his open-source policy tools. Hassett's eventual appointment as the Chair of the Council of Economic Advisers came after a lengthy confirmation process, demonstrating the challenges and complexities behind the political appointment process.
Historically, the CEA chair's role in the White House should not be a cabinet position: Keeping the CEA chair out of the cabinet allows for a more objective and economically focused role, enhancing the value of annual economic reports in political discussions during economic uncertainty or crisis.
The Council of Economic Advisors (CEA) chairperson's role in the White House, while historically a cabinet position, should not be, according to former CEA chair Alan Krueger. Krueger argues that keeping the CEA chair out of the cabinet would allow for a more objective and economically focused role, free from political influence. He believes that the annual economic reports produced by the CEA provide a valuable opportunity for economic expertise to be at the forefront of political discussions, particularly during times of economic uncertainty or crisis. Throughout history, these reports have provided insight into the economic challenges faced by presidents and their respective administrations, and have shaped the economic vision and trajectory of the country.
CEA Chair's Role in Trump Administration's Economic Policy: Despite Trump's unconventional leadership style, he values data and adjusts policies based on empirical research, as reported by the CEA Chair.
The CEA Chair, under the Trump administration, plays a significant role in economic policy with regular access to the President and a collaborative relationship. Contrary to the perception that President Trump may not be an empiricist or data-driven leader, the CEA Chair shares that the President values data and engages in debates with economic advisors. He may challenge their findings, but ultimately, the Chair reported that the President accepts the data-backed analysis and adjusts policies accordingly. The Chair's experience shows that the President's unique leadership style, which includes intuition and business experience, does not hinder his ability to make informed decisions based on empirical research.
Trump Administration's Tax Act: Promise vs. Reality: The Trump Administration's Tax Act simplified the code but didn't meet all campaign promises, raising taxes for some and leading to intense debate.
The Trump administration's Tax Act was a significant legislative priority since the campaign, with a focus on simplifying the code and providing relief to the working and middle class. However, the final bill that passed lacked some of the promises made during the campaign, such as the number of tax brackets and the corporate tax rate reduction. The act increased the standard deduction, but also raised taxes for some and did not meet the expectations of both parties, leading to intense debate and criticism. Despite the differences from the initial proposal, the Tax Act remains a significant piece of legislation from the Trump administration.
The Effect of Corporate Tax Cuts on Productivity and Economic Growth: Economist Kevin Hassett argues that recent corporate tax cuts will lead to higher productivity and economic growth by persuading American firms to bring capital back home, resulting in greater capital deepening and higher wages.
Economist Kevin Hassett believes the recent corporate tax cuts will lead to higher productivity and economic growth, contrary to some critics who argue we're in a "new normal" of low growth. Hassett argues that the old corporate tax rate incentivized American firms to move capital abroad, but lowering the rate and persuading companies to bring their resources home will result in greater capital deepening and higher wages. He sees this as the best explanation for the anomalous capital deepening and slow wage growth seen since the Second World War. Critics argue that taxing mobile factors like capital can lead to it moving elsewhere, leaving immobile factors like workers to bear the cost. Hassett believes the tax cuts will reverse this trend and lead to improved economic conditions.
Impact of Corporate Taxes on Economic Growth: Debated Among Economists: Some economists believe taxes are a small factor, while others argue for growth from reduced corporate taxes. The Obama administration held a pessimistic view, but recent data challenges this, and the new tax bill's long-term benefits and unfulfilled promises spark controversy.
The impact of corporate tax policies on economic growth is a subject of ongoing debate among economists. While some argue that marginal incentives don't matter much and taxes are only a small part of the puzzle, others believe that reducing corporate taxes can lead to significant economic growth. The Obama administration's economists held a pessimistic view on growth during their last years in office, but recent data suggests that this may not be the new normal. The lack of resonance of the new tax bill among the public can be attributed to its long-term benefits and the fact that many proposed changes, such as deductions for childcare expenses and increases in taxes on carried interest, did not come to fruition. Despite these criticisms, proponents of the tax bill believe that it will prove the Obama administration's economists wrong and lead to growth above the low-growth pessimistic outlook.
Cycle of decline in communities: Through financial support and incentives, communities can reverse the cycle of decline and attract businesses and talent back.
The economic vitality of a community can shift dramatically, leading to a situation where talented people and businesses leave, as seen in the example of Greenfield, Massachusetts. This phenomenon, referred to as a Nash equilibrium in game theory, can result in a self-perpetuating cycle of decline. However, there are ways to reverse this trend, such as through financial support for distressed communities through opportunity zones, as outlined in the tax bill. By providing resources and incentives, it's possible to attract businesses and talent back to these areas and break the cycle of decline. This is an important lesson for communities facing similar challenges and for policymakers looking to make a difference.
Investing in Opportunity Zones: Balancing Tax Incentives and Fiscal Responsibility: The Opportunity Zones program offers tax incentives for investing in distressed communities, potentially stimulating economic growth, but comes with a $1.6B price tag over 10 years, sparking debate on fiscal responsibility.
The Opportunity Zones provision in the recent tax law offers investors a way to reduce their capital gains taxes while investing in distressed communities. This could potentially lead to a "social norm" of giving back and stimulating economic growth in these areas. However, the cost of this program to the federal government is projected to be $1.6 billion over 10 years, which is a small fraction of the overall cost of the tax bill and other spending initiatives. Critics argue that such deficit spending during a time of corporate profits and near full employment is irresponsible, especially given the GOP's past stance on fiscal conservatism. Kevin Hassett, the chair of the Council of Economic Advisers, defends the spending as necessary to address pressing issues, but acknowledges the importance of fiscal consolidation in the long term.
Jason Furman's Critique of the Trump Tax Reform Bill: Jason Furman, former Chair of the Council of Economic Advisors under Obama, criticizes the Trump tax reform bill for missing an opportunity to make significant changes and instead adding to existing issues. He believes the law did not address root causes of economic problems and lacked crucial elements a fellow Republican might have included.
During his time in the Obama administration as the Chair of the Council of Economic Advisors, Jason Furman feels that the tax reform bill passed under the Trump administration missed an opportunity to make significant changes and instead added to existing issues. Furman, being labeled as the "swamp" by Trump, believes that the new tax law did not address the root causes of economic problems and failed to include crucial elements that a fellow Republican might have included. The discussion also touched upon the upcoming "Battle of the CEA chairs" on Freakonomics Radio. The episode was produced by WNYC Studios and Dubner Productions, with music by Luis Guerra. Listeners can subscribe to Freakonomics Radio on Apple Podcasts or other platforms, access transcripts and research on Freakonomics.com, and follow the show on social media or via email.
