The Economic Report of the President

The Economic Report of the President (warning, 4 mb PDF) has just been published. Brad DeLong has already written about 9 posts sniping on just one number from the report - the more than optimistic employment forecast.

My suggestion is to ignore the forecasts and anything said in direct support of the President's economic policy (this is good advice in any year). Instead, read the ERP because it contains some of the best examples of well-written, jargon-free, economics.

Chapter 4, for example, contains an admirably clear explanation of tax incidence theory (who bears the burden of a tax). Beginning with the classic example of a sales tax, the ERP moves on to a careful discussion of payroll taxes (mostly borne by workers) and capital taxes (a significant fraction born by workers in the long run). The ERP nicely summarizes, "the incidence of a tax depends upon the law of supply and demand, not the laws of Congress." This chapter would make excellent reading for many econ classes.

You don't have to read to far between the lines of Chapter 2 to realize that the economists on the CEA reject most of what the administration says about manufacturing. As I noted earlier

Jobs in the manufacturing sector are disappearing and have been doing so for 30 years. The reason this has occured, however, is not because we have "sent the good jobs overseas" and it is not because our manufacturing sector is "rusting." Jobs have disappeared because the manufacturing sector has been spectaculary successful.

The ERP lays out the data. (Nice to see also that they went out of their way to repudiate China bashing.)

Chapter 11 on the Tort System is also excellent. Critics of the tort system often focus on outrageous examples of the system run amok (e.g. here, here, here, and here) but a larger issue raised by the ERP is that the tort system is an inefficient way of compensating injured people - many people are left uncompensated and the "transactions costs" (read lawyers) eat up a large fraction of any transfer. Health insurance is a much more important and better compensation system. Ironically, tort law is one of the factors making the health care system more expensive.