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Marketplace of Ideas

Before you head out for the holiday weekend, catch up on some of the week’s economic news:


  • Congratulations, America—most of you survived tax day! If you’re getting a refund, you essentially made an interest-free loan to the government last year. According to the Brookings Institution, tax overpayments in 2013 totaled $192 billion. Washington Post’s Wonkblog has some maps illustrating how over- and underpayments are distributed across the country. Overpayments are centered in Appalachia and the deep South, while underpayments are concentrated in the Plains states. Wonkblog also looks at H&R Block’s claim that taxpayers are leaving $1 billion in potential refunds on the table by doing their own taxes. While Americans’ tax returns are rife with errors, those errors can lead to both under- and overpayments—even when a tax professional does the return. Worried about getting audited? Wonkblog says the likelihood is decreasing, in part because the IRS has fewer auditors now than in the 1980s. Last year fewer than 1 percent of returns were audited. Meanwhile, the New York TimesEconomix blog looks at debates over whether the tax code is “fair”—a tough task, since there are many, often conflicting, ways to evaluate fairness. Wherever you stand on the issue, you can likely agree that the chances Congress will get its act together and reform the tax code are pretty low.

  •  Speaking of fairness, does taking a big paycheck to study income inequality make you a hypocrite? That’s what some are alleging of Paul Krugman. The outspoken liberal economist has accepted a faculty appointment at the City University of New York’s Graduate Center for $225,000—much more than the average CUNY professor. Under the terms of Krugman’s employment letter, made public by Gawker this week, he will be tasked with “building up” the school’s income inequality institute but will not be required to do any teaching in the first year. That led conservative blog to charge that he’s getting paid “basically do nothing.” But Slate argues that CUNY is actually getting a bargain, because Krugman’s value to the school lies not in his teaching, but in his ability to attract other prominent faculty members, high-caliber graduate students, and deep-pocked donors. The article also notes that Krugman is most likely taking a salary cut by giving up his current appointment at well-endowed Princeton. While The Wall Street Journal lambasts Kruman as a “poor little rich man,” New Republic says his CUNY salary “doesn’t even make him that rich.” You may have noticed that this debate has more to do with political mudslinging than substantive economic issues. Perhaps the real story isn’t that CUNY is paying Krugman too much, but that hard-working, well-educated professors are getting paid too little.
  •  Fed Chair Janet Yellen this week addressed over 2,000 members and guests of the Economic Club of New York—the highest-attended event in the Club’s history. Yellen stressed the importance of the Fed remaining flexible and responsive to unanticipated changes in the economy, especially given the fact that it has been relying on two “less familiar” policy tools—forward guidance and large scale asset purchases, also known as “QE.” “If the economy obediently followed our forecasts,” Yellen said, “the job of central bankers would be a lot easier and their speeches would be a lot shorter.” She added that the Fed expects the economic recovery will be complete in about two years—a testament to lingering “headwinds” from the financial crisis. Harvard economist Martin Feldstein, who has criticized the Fed’s monetary policy as “very risky,” grilled Yellen on whether the Fed is truly committed to fighting inflation. Yellen said she’s confident the Fed has both the “tools” and the “will” to do so, but that right now Fed officials believe inflation is more likely to undershoot than overshoot the 2 percent goal. Her response seemed to be good enough for Feldstein: “I found the answer very, very reassuring,” he said. Any chance there was just a touch of sarcasm in his voice?
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