Our estimates suggest that a tax increase of 1 percent of GDP reduces output over the next three years by nearly 3 percent. The effect is highly significant.
The basic idea that if you increase government spending or you cut people's taxes that stimulates the economy and lowers the unemployment rate, is a very widely accepted idea. It's in every economics textbook, that's what we teach our undergraduates, and I certainly try to teach them the truth.
Fewer people working means permanently lower tax revenues.
I think where I differ a little bit, we absolutely have to think about the deficit looking down the road. And certainly that's something the president has said that we need to, as the economy recovers, have a plan in place for getting it down.
Recovery measures work better when they raise confidence - as Franklin D. Roosevelt understood. His fireside chats, and his inaugural address proclaiming he would fight the Great Depression with the same resolve he would muster against a foreign foe, were aimed at reassuring Americans.
What we're going to do is redouble our efforts on financial regulatory reform, because that has in it sensible things like say on pay, so at least the shareholders are minding the store, sensible things like saying, for heaven's sakes, compensation should be focused on - on long term, so that you don't have rewards for short-term risk-taking.
