Weight Loss Advice From Big Name Economists

In my dream, Greg Mankiw and Larry Summers are advising a friend about weight loss.

Mankiw says: If you eat fewer calories, you’ll lose weight.

Summers replies: Not so fast! Sometimes if you eat less ice cream, you crave more cake. Then your calorie intake won’t change and you won’t lose weight. Greg’s advice is fine as an academic theory, but I doubt it will work in practice.

(Note here that Greg never mentioned ice cream in the first place.)

Of course Greg is 100% right, both in theory and in practice. If you eat fewer calories, you will lose weight. Summers responds that if you don’t eat fewer calories, you might not lose weight. True, but entirely off the mark.

I mention this because Mankiw had a recent blog post where he argued that if you cut taxes on capital income you’ll see a big rise in wages. (I happen to have blogged about this twice already in the past 24 hours, but those posts are irrelevant here.) Summers has replied that Mankiw is right in theory but likely to be wrong in practice, and lists three reasons. The first of those reasons comes down to saying that if you cut the corporate income tax, corporations are likely to end up paying more in other taxes, so you haven’t really cut the capital tax after all.

(Note here that Greg never mentioned corporate taxes in the first place.)

Okay, fine. So if you haven’t cut the capital tax, then Greg’s observation doesn’t apply. Likewise, if you haven’t really cut calories, you shouldn’t expect any weight loss. That’s not remotely a refutation.

If Summers’s point is that in order to gain the benefits of a cutting taxes on capital income, we should focus on reforms that actually do cut taxes on capital income, count me enthusiastically on board. If his point is that cutting the corporate income tax is an ineffective way to cut taxes on capital income, count me an eager listener. But if his point is that the benefits of actually cutting capital income taxes are less than we think they are, then I’m pretty sure he’s just not making any sense.


5 Responses to “Weight Loss Advice From Big Name Economists”

  1. 1 1 mariorossi

    One element I don’t quite understand about the capital income taxes effect is that as far as I know the models that show large effects are deterministic: capital investemnt cannot fail and all that matters is the expected value (since risk is zero).

    But this seems a very poor assumption to me. Capital investment is risky.

    In a stochastic world, wouldn’t investment sharpe ratio be a likely better determinant for investment? If that’s the case, I would argue the effect of corporate taxes on investment sharpe ratio is questionable. Capital losses are expensable, so while the expectation is certainly reduced, the risk itself is reduced as well…

    Of course not all capital losses are expensable, so it’s not a perfect relationship, plus at high level of capital taxation, we risk mitigation would be worthless since you wouldn’t have income to offset.

    I guess that if we assume risk neutral agents, the risk effect falls away. In a world of risk averse agents (which doesn’t sound so far fetched), the net effect would be even more complicated as the insurance value would potential be worth something.

    Am i committing some logical fallacy? I am not really able to see it. I tried looking for papers on this question, and I couldn’t find any, but it intuitevly seem reasonable to me.

  2. 2 2 alex

    Summers also replies: here’s a guy who ate fewer calories and gained weight. (“The corporate tax cuts of the late 1980s did not result in increased real wages. Actually, real wages fell.”)

    I don’t think Summers is saying ‘Greg is right in theory’ so much as ‘Greg is right according to a theory that is wrong.’

  3. 3 3 Richard D.

    Alex: “Summers also replies: here’s a guy who ate fewer calories
    and gained weight. (“The corporate tax cuts of the late 1980s did
    not result in increased real wages. Actually, real wages fell.”)”

    um, I followed Prof. Summers’ reference:

    So. real GDP rose by 60%, while wages stagnated. oh boy, here we Go -

    Let’s get back to basics. The riason d’etre of an economy is to
    produce goods and services, for consumption. A man produces
    something of value, then trades it, for other things of value, which he consumes.

    If he’s an employee, he receives a wage, and exchanges that, for items
    of value. Thus “real wages” translates to “how much cake does he eat”.

    GDP measures how much cake gets baked. So if the cake enlarged, as
    shown above, are we to believe, according to Mr. Summers, that it
    didn’t go down someone’s gullet? i.e. there’s vast quantities of
    Sara Lee rotting in grocers’ freezers?

    Presumably, the cake did get eaten; 60% more, give or take.
    GDP growth –> consumption growth –> REAL WAGE GROWTH

    It’s another case of the imbecilic “the middle class is falling behind!” carp –

    Evidently, Mr. Summers has spewnt so much time in Washington Lala Land,
    that he’s lost all oontact with his former science -

  4. 4 4 Harold

    ” If you eat fewer calories, you will lose weight….Of course Greg is 100% right, both in theory and in practice”

    Not so. That is like counting benefits and ignoring costs.

    The weight loss will be based on the balance of calories consumed and calories expended. It is very possible that a cut in calories will result in a change of metabolism and behavior that will not result in weight loss.

    A quick look at Arctic explorers reveals the truth if this. They consume 10,000 calories a day and still lose weight.

    Is Larry merely stating what I have said about calories in terms of taxes, or are they different?

  5. 5 5 alex

    Richard D.:

    You suggest that the median worker was able to consume more cake using money that didn’t exist. (The graph shows that it didn’t exist.) A different explanation is that it wasn’t him: https://aneconomicsense.org/2015/02/13/why-wages-have-stagnated-while-gdp-has-grown-the-proximate-factors/

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