Sometimes, the best way to understand an idea is to meet the people who devote their time and energy to studying it.
The Institute’s mission to conduct and promote research that will advance economic opportunity and inclusive growth for all Americans means engaging with a diverse group of scholars who approach opportunity and inclusion from many angles. This series of short Q&As spotlights those individuals, what led them to economics, and how their research connects to opportunity and inclusion. Plus: the most useful ideas in economics, when to abandon projects, and economists to lunch with.
For this installment, Institute Writer Lisa Camner McKay sat down with 2021-22 visiting scholar Eric Ohrn, associate professor of economics at Grinnell College, to discuss the effect of corporate tax policy on inclusive growth, the potential for divergent impacts of “race-neutral” policies, and listening to People I (Mostly) Admire.
What led you to study economics?
When I was younger, I was really interested in human behavior. So when I got to college, the classes that resonated with me were anthropology and sociology. I didn't want to take economics classes because I didn't want to be a finance bro. But my mom kept hounding me to take econ. And finally, in the first semester of my sophomore year, I relented. I remember the professor putting the supply and demand diagram on the board and I looked at it and I just said, this is it, this is how the world works, this is what I've been waiting for. It was the application of economic tools to human behavior that got me really excited, asking the same questions as anthropologists and sociologists—How does our society function? How can it function better?—but from a more quantitative and structured perspective.
What do you think is one of the most useful ideas in economics?
Well, I think cost-benefit analysis is really important. I think a really useful new way to think about this is the marginal value of public funds, an idea from [former Institute visiting scholar] Nathaniel Hendren and Ben Sprung-Keyser. Their idea is to compare the benefits of a government policy to the net cost of the policy. They apply this concept to a whole bunch of different government policies to identify the ones that have the highest marginal value of public funds.
It was the application of economic tools to human behavior that got me really excited, asking the same questions as anthropologists and sociologists—How does our society function? How can it function better?—but from a more quantitative and structured perspective.
The really cool thing they’ve found here is that when you invest in health and education for children at young ages, it turns out that the net costs are always negative because whatever you spend, you get back later. And beyond that, there are many benefits to society. This analysis has allowed us to identify a suite of programs where we should be spending a ton of money—on education and health care for young people—because these programs pay for themselves and they have just tremendous benefits to society.
I also think the rise of causal inference analysis is really important. What it has provided is a unified set of tools to microeconomists to test, “does A cause B?” This can be about social programs, it can be about government policies, it can be about a number of other things. Because these methods are now fairly standardized, it means that many people can check and vet the answers. When we have an answer that we believe in—that everybody believes in—and everybody understands the methodology and the assumptions underlying it, then we can be very confident that we have the right answer.
What are you studying now?
This analysis has allowed us to identify a suite of programs where we should be spending a ton of money—on education and health care for young people—because these programs pay for themselves and they have tremendous benefits to society.
I'm currently working on projects that examine the effects of a corporate tax policy called "bonus depreciation" on workers' outcomes. Bonus depreciation lowers the cost of new equipment capital. This policy raises a serious concern that if it makes capital and equipment cheaper, then firms may invest more in capital equipment at the expense of workers—replacing workers, essentially. So implementing this policy could come at big costs to workers if firms are buying a lot of robots and self-service kiosks. Generally speaking, what my co-authors and I find is that the policy actually benefits workers. Plants both buy new machinery and increase employment in response to the policy.
And what are you hoping to study next?
In 2017 there was a huge tax overhaul, the Tax Cuts and Jobs Act (TCJA), that changed the domestic corporate tax rate from 35 percent to 21 percent and drastically changed the international tax system. I'm really interested in looking at the effects of the TCJA on worker outcomes, both domestically and abroad.
How does your research relate to economic opportunity and inclusive growth?
When I think about what my research program is, it's guided by the overarching question, how can we design a corporate tax system that raises revenue while promoting economic growth and achieving fairness, broadly defined. So when I'm examining the effect of a corporate tax policy, what I want to know is, who does it help? Does it help shareholders? Does it help workers? Which groups of workers does it help? Does it help everybody? When does it help everybody? When does it only help shareholders or certain types of workers? I hope answering these questions will be able to help us design a corporate tax system that achieves broad-based growth.
Is there a project you have decided to abandon? And if so, why?
I actually abandoned my job market paper, which also studied the effect of a corporate tax policy. In that research, I found that it was firms with weak corporate governance structures that were the most responsive to the tax policy. The implication is that if shareholders have a tight grip on CEOs and managers, then CEOs and managers aren't going to be able to act optimally in response to tax policies. But over time, I got involved in other projects that I believed in more, with results that I thought were more clearly identified. And I had to think about where my efforts would be best spent. So that one fell on the cutting-room floor and never got picked up.
I’d love to explore whether corporate taxes, like the minimum wage, may be another “race-neutral” policy that actually has very divergent effects for workers of different races.
I don’t consider this a failure. I know a lot of successful economists who never published their job market papers or abandoned some other project. But even an abandoned paper might sometimes help you get a job or it teaches you something, you learn from it, and you don't need it to be published. So to everybody out there deciding whether to abandon a project, if you think you have something better to work on, go work on something else instead. It's not the end of the world.
What economist, living or deceased, would you want to have lunch with?
I have two answers. First, [Institute advisor] David Autor, because I really admire the way that he thinks about the future of work and how jobs have changed over time—some have been eliminated, some have been created. I also appreciate that you can read his papers and look at his seminar presentations and see how his thinking on this topic has evolved over time and how he incorporates new evidence. Having lunch with somebody whose mind is so plastic and who is willing to incorporate new concepts and evidence would be really interesting.
I’d also love to have lunch with [former visiting scholar] Ellora Derenoncourt, who is doing amazing work. In her work with Claire Montialoux, she showed that the minimum wage, which we typically think of as race-neutral, actually has very different impacts on Black versus White workers. I’d love to get her take on how we can explore whether corporate taxes, like the minimum wage, may be another “race-neutral” policy that actually has very divergent effects for workers of different races.
What's your favorite podcast?
My favorite podcasts are Freakonomics Radio, Planet Money, The Indicator, and People I (Mostly) Admire—but only the ones where Levitt interviews economists. I love economics and have a fascination with the profession. I'm always thinking about which Freakonomics episode would be best when I teach the production possibilities frontier or when we introduce collective action.
If you could live anywhere, where would it be?
I would live in the Twin Cities because my whole family is there, and I’m a family kind of guy.
If you could choose any career for a day, what would it be?
At a different point in my life, I was really into wilderness tripping. I always thought that if I hadn’t been an economist, I would be leading wilderness canoeing trips for college kids.