Saturday, December 29, 2012

Marginal Revolution: "What are the policy implications of capital-biased technological change?"

Another addition to the link-vault.
From Tyler Cowen:
Paul Krugman has a very interesting post on this topic, so I will add a few points:

1. Taxing capital per se is not the way to go, since capital (of some kinds) bids up the wages of labor.  If one accepts Krugman’s distributional premises (not exactly my view but let’s see where it brings us), the answer is to tax mainly those forms of capital which substitute for labor, either directly or indirectly.  That would mean high taxes on the internet and other media of communications as well as high taxes on software and embedded software.  I don’t myself favor those policies, all things considered, but still I find it worth pursuing this logic to its implied conclusion.  It would imply especially high taxes on our technologically most dynamic sectors.

2. Intellectual property rights of many kinds should be weaker, as Alex discusses in his Launching the Innovation Renaissance.  That is one way to “tax” some forms of capital.  But do not expect the main action here to be found in easy-to-reproduce forms of capital, rather look to the more durable rents.
 3. If you believe that the wages of labor are “stickier” than payments to capital, and there is downward pressure on wage shares, this implies a higher steady-state rate of price inflation.  I know, I know, there are various nominal vs. real finesses buried in my claim but still I think it holds up for the most part....MORE