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Feb 23 • 7 tweets • 4 min read
Yesterday @paulkrugman said he was "astonished" to see economists arguing 100% of the benefits of a gas tax holiday went to profits. I wrote that no economists had argued that but I was wrong. I found one who did: @paulkrugman in 2008. krugman.blogs.nytimes.com/2008/04/29/gas…
In 2008 @paulkrugman did a characteristically great job explaining the basic incidence theory of how a tax cut does not necessarily get passed along to consumers, concluding:

"The McCain gas tax plan is a giveaway to oil companies, disguised as a gift to consumers."
In fact he argued that because SR supply was inelastic (i.e., suppliers were supplying as much as they could & the gas tax holiday was temporary) that it would ALL go to producers in the form of higher profits:

"So it’s Econ 101: the tax cut really goes to the oil companies."
In Krugman's 2008 column he said the supply curve was obviously vertical (i.e., unresponsive to price). In his latest he says the supply curve is obviously horizontal (i.e., price is fixed on world markets and nothing in the US can change that global price). Here is Krugman 2022.
The analysis I shared in my thread yesterday was closer to Krugman 2008 than Krugman 2022 because of the economics of gasoline: limited refinery capacity, pipeline congestion, different blends for different regions, the timing of inventories etc.
I don't like gotcha's because I wrote all sorts of things in the past that I would disagree with today because my thinking was wrong then, the evidence has evolved or today's situation is different. In fact changing your mind is a strength not a weakness.
But I try not to accuse people of being obviously wrong, dishonest, or just aiming to crowd please for saying something that I myself was saying up until recently. I also try to explain why I changed my mind.

P.S. Would love to hear why @paulkrugman changed his mind on this one.

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More from @jasonfurman

Jason Furman Profile picture
Feb 22
I had a broader thread on @paulkrugman's column on Dem economists. Here is a short technical one on an error he made linking theory & empirics. Am belaboring the point but if he is going to accuse economists of being wrong then best not be wrong himself.
This plot shows an almost perfect correlation of gas prices and gas taxes. We show a similar one in Ec10.

It says nothing about whether the incidence of the gas tax is on consumers or on producers. In fact, even if the tax was 100% on producers the graph would look the same.
Imagine global oil prices are $80/barrel. There are two countries: one levies a tax of $1/barrel and the other $2/barrel.

If the tax is fully paid by consumers then the prices would rise to $81 and $82 respectively and you would observe a perfect correlation.
Read 7 tweets
Jason Furman Profile picture
Feb 22
Strange @paulkrugman piece that starts by demolishing an argument on the gas tax that no one has actually made (that 0% of the benefit goes to consumers) and goes on to make an assertion that is likely wrong (that 100% of the benefit goes to consumers). nytimes.com/2022/02/22/opi…
First his strawman: "I’ve been astonished to encounter Democratic-leaning economists and economics writers asserting that a gas-tax cut wouldn’t help consumers and that it would simply increase oil company profits."

Can @paulkrugman provide examples of anyone saying this?
Here is what one economist had to say on the topic. My hypothetical (which I think is reasonable) was that consumers would get 12 cents of the 18.4 cent tax cut in the form of lower prices.
Read 27 tweets
Jason Furman Profile picture
Feb 18
Nominal wage growth definitely leads to price growth. And price growth definitely leads to nominal wage growth.

The open questions are:
1. How rapid is the transmission in each direction

2. Is the transmission more or less than one-for-one

3. Which goes up more

A 🧵.
On the *definitely* point if nominal wages and prices each followed their own totally unrelated dynamics you would see some very strange changes over time.

We don't and countries with 5% inflation have faster nominal wage growth than countries with 1% inflation. Etc.
In the short run the same forces are at work for both. Higher demand gives businesses more purchasing power so higher prices. And it gives workers more bargaining power so higher nominal wages.
Read 17 tweets
Jason Furman Profile picture
Feb 18
Arguments about how how people *should* feel about the economy can sometimes be based on inconsistencies in the standards for assessing different factors like job growth and wage growth.

In some respects people may be more consistent/coherent than the experts.
Caricaturing the argument you hear: "jobs are growing rapidly & real wages are up relative to prepandemic, so everyone should be happy."

But note the job claim is about what is happening in recent months (the change) while the wages claim is over the entire period (the level).
Real wages have been falling lately. If you point that out many (reasonably) argue that real wages rose a lot in 2020 & you should include that too.

I mostly agree and most of my wage analysis/discussion focuses on the full period. piie.com/blogs/realtime…
Read 8 tweets
Jason Furman Profile picture
Feb 18
The Dallas Fed has an analysis that argues that real wages are up over the pandemic period. Not sure they're right (will look more closely). Regardless, they confirm the more relevant issues: real wages falling & below trend--so not a pretty picture.
dallasfed.org/research/econo…
1. The Dallas Fed researchers show that real wages have been falling over the last six months. That is relevant for how households evaluate the economy, even if they got (as indeed they did) real wage gains earlier in the expansion.
2. The Dallas Fed appears to be consistent with the strong evidence that any pandemic-era real wage growth is below previous trends: "real AHE growth that controls for composition effects has remained slightly positive over the past two years."
Read 11 tweets
Jason Furman Profile picture
Feb 16
Wowsers, nominal retail and food services sales up 3.8% in January even as prices were rising. Some charts that tell the story--presented mostly without commentary.

These are retail sales, mostly goods, people don't seem to be tiring of buying goods.
The largest category of durable goods: motor vehicles and parts.
The most fun category of retail sales (especially the bookstores part).
Read 5 tweets

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