 Here's a real softball question. What's the optimal rate of tax on capital income? Closer to the tax rate on other income than to zero Would be Would be would be my Answer to that a fair amount of capital income reflects rents of one kind or another capital income is Financially held by those at the high end There's a fair amount of what's really capital income in the form of unrealized capital gains that never gets taxed so I think the right aggregate capital income tax rate is Closer to what would go with a comprehensive income tax Then it is to the alternative idea that Capital income taxation is just a way of taxing future consumption and therefore you should tax future consumption and present consumption At the same rate and the tax rate should be zero if we think about the 1980s There are a lot of models from that time some coming from your research Where you have an infinite horizon model with the zero tax rate on capital income at some point enough capital accumulates So that even wages are higher and there's a kind of steady-state long-run argument. That's still the number should be zero What has changed that makes those models less applicable? Is it that we think the elasticity is different or is it it's some other variable? What's what's changed in our knowledge or your understanding at the technical level there's been some mathematical work Showing that some of the results that you're referring to for the 1980s. You're just mathematically wrong. That's one part I think the second and more consequential part is That the premise of those models was essentially that the supply of capital was infinitely elastic and so you would Whatever the tax rate you would drive capital to the point where the after tax rate of return was some fixed number And that just now looks like a very poor description of reality. We've seen real interest rates fluctuate substantially and We just don't see that when real interest rates are higher Savings is lots higher and when real interest rates are lower Savings is lots lower in the way that many people including me in the early 1980s would have expected and so in the absence of That kind of evidence. I think the argument is Very much attenuated would have someone said well for the special 20-year period We lived through Bernanke's East Asian savings glass So there was always enough capital real rates were very low Arguably for demographic reasons that's starting to end and we'll end up back in an era Where actually the supply of capital with respect to the rate of return will be high again Is that possible unlikely too far away to matter? first One word one shouldn't should never use in economics is never So I don't want to preclude any possibility completely second You you uncharacteristically Made an analytic conflation there you conflated the idea that The saving that the savings rate would fall for a variety of reasons With the idea that the savings rate would become more elastic Which is a separate it sure is a separate issue I don't see any reason to think the savings rate will become more elastic and With respect to the savings rate falling my reading of the evidence would be different I think that the structural factors driving low interest rates Including longer life expectancy, which makes people save More increase in security more inequality are more likely to be Semi-permanent than they are to prove transient and I think a variety of the factors holding down investment The demographic factor the fact that you can buy an enormous amount of capital for a very low cost Think about my iPhone all of that I think operates in the direction of Meaning That we're likely to have this phenomenon of low real interest rates and secular stagnation for quite a long time to come