Tuesday, September 19, 2017

Stranded profits

The tax reform discussion includes the idea that by moving to a territorial system, US companies will bring lots of money stranded offshore back to the US, unleashing a wave of investment here. While I think a territorial system makes sense, as does reducing or eliminating the corporate tax, as a pure matter of economics, I don't think this repatriation argument makes sense.

Here's why. (The following is a story, not a fact about Apple accounting.) Apple sells an Iphone in Spain. Apple Spain pays a huge licensing fee on software, owned by Apple Ireland, so it's not a profit in Spain. Apple Ireland thus collects huge amounts of cash from all over the world, taxed at the low Irish corporate tax rate. Apple Ireland deposits this cash in an Irish bank. (I presume they do fancier things with the money, but I'm telling a story here). The cash is "stranded" overseas, right?

No. The Irish bank can lend the money anywhere. It can buy US mortgage backed securities, it can lend the money wholesale to US banks who lend it out to US businesses. It can even lend the money to Apple US. If Apple or any other US company wants to invest, they can borrow from the Irish bank. Conversely, if profits are repatriated to US banks, those banks can lend the money overseas.

Yes, there are some second order effects. If money comes back to US banks, US banks get to earn the fees. Internal capital can be cheaper then external; it's inefficient to send your own money to yourself through a bank. But these are second order, and that's not the argument being made.

It's still a good idea, but for other reasons. Reduction or elimination of corporate taxes will make US investment more profitable, and that will attract money from abroad. But don't count on a wave of repatriated profits to mean much more than a big financial change.  Even if it happens. There are many other reasons to keep pots of money overseas these days. Bad arguments for good policies are not, in the end, a good idea.

Wednesday, September 13, 2017

Duet

Sometimes the blog posts write themselves from contrasting newspaper headlines.

New York Times

New Gene-Therapy Treatments Will Carry Whopping Price Tags
By GINA KOLATA September 11, 2017

Emily Whitehead, the first pediatric patient to receive the gene-therapy treatment Kymriah, which put her leukemia into remission. The treatment has a $475,000 price tag, raising questions about how patients and insurers will pay. ...
One drug, to prevent blindness in those with a rare genetic disease, for example, is expected to cost between $700,000 and $900,000 per patient on average,..

Washington Post

The dam is breaking on Democrats’ embrace of single-payer
By Aaron Blake September 12 at 9:39 AM

Sen. Cory Booker (D-N.J.) became the fourth co-sponsor of Sen. Bernie Sanders's (I-Vt.) “Medicare for all” health-care bill Monday. In doing so, he joined Sens. Elizabeth Warren (D-Mass.) and Kamala D. Harris (D-Calif.). 
What do those four senators have in common? Well, they just happen to constitute four of the eight most likely 2020 Democratic presidential nominees, according to the handy list I put out Friday. 
Update: Gillibrand just signed on to Sanders's "Medicare for all" bill. So now 5 of my top 8 potential 2020 Democratic nominees have now come out for the bill -- before it is even introduced. "Health care should be a right, not a privilege, so I will be joining Senator Bernie Sanders as a cosponsor on his Medicare-for-All legislation," Gillibrand said.
Hint. Budget constraints? Hint 2: get ready to start making lots of noise if you want treatment.

By the way, let us watch for the crucial buzzword question. Does "single payer" mean there is a single payer that anyone can use -- but you're free to buy and sell your own insurance on top of that, hopefully deregulated since there is no need to regulate anymore, everyone has access to medicare for all? Or does "single payer" mean there is a single payer that everyone must use -- private insurance, private practice, just paying cash illegal, to cross-subsidize the system? I fear the latter. We'll see.

The previous champion was stories on the same page in WSJ, roughly ``self driving trucks coming soon'' and ``shortage of truck drivers.'' I lost the link.

Friday, September 8, 2017

Online Asset Pricing is back!

The online Asset Pricing Ph.D. class is back! It died in a Coursera "upgrade," but it is now migrated over to Canvas.

Click here to go to the online class. My Asset Pricing webpage has links to the class, book, and many other useful materials.

It should be open and free to anyone, including all the quizzes, problem sets and exams.

Since it's on the Canvas system, if you are teaching at a University that uses Canvas, you should be able to integrate it with your class, assign all or part of it, and receive grades from quizzes and problem sets. Thus, you can use it as a flipped classroom, assign selected videos and quizzes in advance of a lecture.

It is also ideal for a Ph. D.  program summer school for year 0 or year 1. Again, through Canvas you should be able to assign the class, in whole or in part, and get grades.

It's also well suited to self-study. If you just want to watch the videos and read the notes, they are all here via youtube links on the Asset Pricing webpage.

Huge thanks to Emily Bembeneck and Allison Kallo at the University of Chicago, Mikhail Proshletsov, and above all to Nina Karnaukh now at Ohio State. Nina masterminded all the hard work of moving the class pages and quizzes from the Coursera system to the Canvas system, and fixing innumerable glitches along the way. Thanks also to the Booth School for paying for the transition.

Thursday, September 7, 2017

In the name of Science

Source: climatefeedback.org
"Climate Feedback" has produced a "scientific review" of my WSJ oped with David Henderson on (Oped ungated full text here, see also associated blog post.)

In the blog post, I wrote,
"If it is not clear enough, nothing in this piece takes a stand on climate science, either affirming or denying current climate forecasts. I will be interested to see how quickly we are painted as unscientific climate-deniers."
Now we know the answer. 

To recap, the oped said nothing about climate science, nothing about climate computer model forecasts, and did not even question the integrated model forecasts of economic damage. We did not deny either climate change nor did we argue against CO2 mitigation policies in principle. For argument's sake we granted a rather extreme forecast (level of GDP reduced by 10% forever) of economic costs. We did not even question the highly questionable cost-benefit analyses of policies subject to cost benefit analysis. We mostly complained about the lack of any cost benefit analysis, and the quantitative nonsense of many claims.

So, it's curious that there could be any "scientific" review of a purely economic article in the first place. How do they do it? 

Monday, September 4, 2017

Tax Reform Again

A Wall Street Journal oped on tax reform. This complements an earlier oped and see the tax link at right for many others.

The bottom line: I argue for a national VAT instead of (and that is crucial) individual and corporate income taxes, estate taxes, and anything else.

Why? I want to break out of our stale argument. "Lower taxes to boost the economy"  vs. "you just want tax cuts for the rich." It's not going to go anywhere.

I also want to break out of the process. Proposing cuts within the current structure of the tax code, even if proposing them with offsetting cuts in deductions, leads naturally right back to the mess we're in.

Once you tax income much of the rest of the mess follows inexorably.  If we go back to the beginning, and tax spending not income, so much mess vanishes.