Recommended economics writing

Schleifer, who wrote "Seven things I learned about transition from communism (Vox)" has an article on his home page on the "Effect of Corporate Taxes on Investment and Entrepreneurship" that is also very good.

He surveys the research and then does his own analysis. He agrees with the consensus in the field that corporate taxes seriously damage investment. That's something we should consider as we think about helping the economy rebound.

Romer's article on a government manufacturing policy is pretty good, except for this:

"Today, we face a profound shortfall of demand. That truly is a terrible market failure, and it warrants government intervention."

Why is a "shortfall in demand" a market failure? One could easily see it as the market weeding out inefficiencies. Romer can see a shortfall in demand as a market failure only if she thinks the market should never allow anyone to fail or make bad judgments.

"But we need actions that raise overall demand — like a tax cut for households so they have more take-home pay to spend, more aid to troubled state and local governments, and public investments in infrastructure."

Assuming that Romer is correct and the market has failed, that does not justify state intervention. The state could fail and make things worse.

Romer doesn't have a theory of business cycles beyond "crap happens!" So how does she know the market has failed? Most "market failure" arguments assume that markets should prevent people from making mistakes and that the market should make up for the damage that state intervention causes. That's a bizarre way of looking at markets.

Romer and all mainstream economists need to spend a little more time thinking about what markets are supposed to do.

Seven things I learned about transition from communism (Vox)is very interesting, especially this: "Transition to markets is accomplished by new people, not by old people with better incentives."