Monday, October 27, 2008

Greg Mankiw will work less because of the Obama tax plan?

Apparently, Greg Mankiw thinks the Obama tax plan will lower his incentive to work. Professor Erik Brynjolfsson made an interesting point in his Economics of Information class today - Mankiw's blog doesn't have any ads or paths to monetization - so he's clearly driven by something other than putting money in his bank account, as most Professors are. Somehow, I doubt he'll work any less hard. Mankiw's analysis is actually sharp and interesting though.

Assuming I actually have a job when I graduate from MIT Sloan, I know that I will not work any less hard because of the Obama tax plan. I think the real question is whether it will take money out of the economy, which I think is a real danger. Rich people tend to re-invest the money and create value in the economy - will the fact the lower classes will likely spend this money put more money in the economy? At the end of the day, it will all end up in the pockets of corporations anyhow. It's not like people making less than $50,000 in America are suddenly start going to saving this money (and slowing the velocity of money and growth). They're going to spend on things they need. Historically, the government has a terribly slow cash conversion cycle. They collect money slowly, administer it bureaucratically and slow the velocity that money creates value in the economy. That's my main concern.

(Note: Greg's blog is great. He's more conservative than my centrist position, but I highly recommend the blog for his clever perspective. Wonder if he eats at The Wok since he lives in Wellesley.).

Later addendum: Mankiw has recently blogged about spending and multipliers.  Not clear if the Obama administration has a deep understanding of this yet, but with the economist they have in the room, I trust they will get it right.

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