Ronald Coase was one of the few economists who was easy to admire. There are and have been a few out there, and it was Coase by and large leading the critique of the increasingly detached state of economics (really Economics). In his 1991 Nobel Prize acceptance speech, he was as usual blunt in his admonishments, saying, “I have made no innovations in high theory. My contribution to economics has been to urge the inclusion in our analysis of features of the economic system so obvious that…they have tended to be overlooked.”

In other words, long before anyone else realized it Coase had seen economics transform from a discipline centered on how an economy works to more and more abstractions defined exclusively by statistics. In the latter course, economists had become disinterested, he believed, about the basics of how the economy truly functioned on especially on an intuitive level so that they could focus on regressions of data.

That view extended, of course, into a lot of areas. In regressing variables the math can’t work unless you pare back their number. That means a lot depends upon which specific ones get included into econometric models, a cherry picking that can lead in the wrong direction. So often, the effective tax rate is treated as one of the most important in any set.

A huge subset of economists is simply obsessed with the tax rate. That has been true for a very long time, including in the Great Inflation seventies when Coase wrote:

Of course, more recently, the desire to reduce the burden of taxes has become another way of explaining why businesses adopt practices they do. In fact, the situation is such that if we ever achieved a system of limited government (and, therefore, low taxation) and the economic system were clearly seen to be competitive, we would have no explanation at all for the way in which the activities performed in the economic system are divided between firms. We would be unable to explain why General Motors was not a dominant factor in the coal industry, or why A & P did not manufacture airplanes.

For many Economists, taxes have become so important in their math that if taxation were to truly drop low enough they really wouldn’t know where or how to begin. We aren’t quite where Coase was thinking more than four decades ago, but the US tax system is nowhere near as oppressive as it was at that time. That should make a big difference, but it doesn’t seem mean to anything.

Economists persist on making so much out of taxation, and changes to it (to be clear, this is purely an economic argument about the possible effects of tax law changes, not an argument for or against them on any other grounds). In one other interesting tidbit taken from last December’s FRBNY Primary Dealer survey, 16 out of the 23 responses rated as “very important” expected changes in the outlook for US tax policy (under Trump) for setting market expectations in 10-year UST yields. By comparison, only 2 dealers thought changes in the outlook for monetary policy was likewise “very important” for the same thing.