Solow on Bernanke

In The New Republic, with thoughtful and thought-provoking commentary on the financial system.

The President's Latest Bad Idea

Apparently, President Obama's budget is going to include some kind of penalty for people who have accumulated more than $3 million in retirement accounts.  The details are not yet known, but I think we know enough to say that this is a terrible idea.

A sizable body of work in public finance suggests that consumption taxes are preferable to income taxes.  Completely replacing our tax system with a better one is, however, hard.  Retirement accounts, such as IRAs and 401k plans, are one way our tax code has gradually evolved from an income tax toward a consumption tax.  The use of these accounts should be encouraged, not discouraged.

By the way, exceeding $3 million in such accounts is not very difficult for an individual who is financially successful and frugal.  Under current law, a self-employed person can put about $50,000 a year in a SEP-IRA.  If he does that every year for 40 years, and his savings earn a return of 5 percent per year, he will retire with about $6 million.

So, yes, President Obama's $3 million constraint would be a significant disincentive for saving.  It would move the tax code in the wrong direction.

A Hyperinflation Vacation

From The Atlantic.

A Nice Example of Technological Progress

Dating Advice from Ed Glaeser

Believe it or not.

Five Lessons from the Financial Crisis

From Olivier Blanchard.

Help Me Revise

My duties as chairman of the Harvard economics department have left me too little time to work on textbook revisions. As a result, I have decided to crowdsource the next edition. Anyone who wants to make a change in the book is free to do so. Like Wikipedia. If you want to learn more about how you can participate in the revision, click here.

Yes, this was an April 1 joke.