Thursday, November 18, 2010

Budgets, Taxes, and Spending, Oh My!

The award for the most self-referenced post goes to the Times, whose "Budget Puzzle: You Fix the Budget" online tool has captured a key element of recent media interest: trying to offer concrete ideas about fiscal policy rather than simple blanket statements. Republican Representative Paul Ryan of Wisconsin was one of the first to start talking about specifics, and a bipartisan fiscal commission has recently weighed in. Glenn Hubbard discusses it.

The Budget Puzzle is certainly nifty, but it doesn't do everything economists think is important. In particular, there's no behavioral or welfare response to any changes in taxes or spending. We'd like to know the costs of cutting spending, namely the lost welfare of recipients and market participants, as well as the benefit (the dollars not spent). Same goes for taxes, labor and capital supply, and growth.