Thursday, August 23, 2012

WSJ and Keynesian "Cliffs"

The Editorial's Money Paragraph (bold emphasis mine):

One remarkable (and highly dubious) note in the CBO report is that the budget gnomes predict a big surge in tax revenues in 2013—to 18.4% from 15.7% of GDP—despite the recession they also predict. CBO simply doesn't think taxes matter much to taxpayer behavior, so it applies the higher rates to its current predictions of income and pretends revenues will roll in like the tides. But this will be a fantasy if enough Americans find ways to hide their income or work less, or if they simply earn that much less thanks to the recession.

This is what I have always said - liberal economists seem to be unable to get their hands around static and dynamic analysis and the difference between the two.