Whose blog do you want to believe?
1. Mark Thoma points to a NYT story with the headline Investment Boom From Trump’s Tax Cut Has Yet to Appear. It says,
Data on the gross domestic product, released Friday, showed that business investment grew at a 6.1 percent annual clip during the first three months of 2018, down from 7.2 percent during the first quarter last year. Excluding oil and gas investment, which is particularly volatile, the investment pace grew slightly over the past year.
2. Tyler Cowen points to a Bloomberg column by Lu Wang with the headline Trump Tax Windfall Going to Capex Way Faster Than Stock Buybacks.
Among the 130 companies in the S&P 500 that have reported results in this earnings season, capital spending increased by 39 percent, the fastest rate in seven years, data compiled by UBS AG show. Meanwhile, returns to shareholders are growing at a much slower pace, with net buybacks rising 16 percent. Dividends saw an 11 percent boost.
I like both bloggers, but in this case I fault each for showing only his preferred side of the story.
I think that this also shows that it is difficult to trust economic analysis on politically salient topics.
Truman famously begged, “Give me a one-handed Economist.” Now we have lots of them. Trouble, is, the other evidence doesn’t go away just because the other hand won’t hold it.
If I am not mistaken, most provisions in the bill only became active for 2018. Basing any kind of analysis on 4 months of data seems premature.
Everyone uses the corporation as a straw man. But it is a regulatory hodge podge, impossible to find a cohesive variable to test. The variance in investment over the hodge podge is high, making the stat useless.
Most likely both are true. Capex often comes in the form of mergers and aquisitions which don’t add to investment and often reduce it as it is rationalized between them.
If there is an area where mood affiliation has poisoned serious analysis it has been corporate tax reform. There was a time when there was reasonable consensus among tax analysts that US corporate taxes needed change. Even Progressives had to admit that the US was an outlier when it came to the level of corporate tax rates and the worldwide basis for taxation – even against tax justice “exemplars” in Progressive Europe. (And forget about tax incidence, which some could game while others could not, further supporting the need for change.) Since December, left-of-center tax analysts in academia and the media, and even among former Clinton/Obama A-list economists, have been working hard to make us think that Pelosi’s take on the Tax Bill may have not been so overblown after all.