Greg Mankiw read
Trumponics by Art Laffer and Stephen Moore so we don’t have to:
When economists write, they can decide among three possible voices to convey their message. The choice is crucial, because it affects how readers receive their work. The first voice might be called the textbook authority. Here, economists act as ambassadors for their profession. They faithfully present the wide range of views professional economists hold, acknowledging the pros and cons of each ... The second voice is that of the nuanced advocate. In this case, economists advance a point of view while recognizing the diversity of thought among reasonable people ... The third voice is that of the rah-rah partisan. Rah-rah partisans do not build their analysis on the foundation of professional consensus or serious studies from peer-reviewed journals. They deny that people who disagree with them may have some logical points and that there may be weaknesses in their own arguments. In their view, the world is simple, and the opposition is just wrong, wrong, wrong. Rah-rah partisans do not aim to persuade the undecided. They aim to rally the faithful.
Guess which voice Laffer and Moore used throughout their book. While I appreciate Mankiw’s three categories – one has to wonder how we should place some of the over the top arguments for the 2017 tax cut by Republican economists not in this White House. Mankiw to his credit writes:
The authors offer no credible evidence that the tax changes passed will lead to such high growth. Most studies yield far more modest projections. The Congressional Budget Office estimates that the Trump tax cuts will increase growth rates by 0.2 percentage points per year over the first five years. A study by Robert Barro (a conservative economist at Harvard) and Furman (a liberal economist at Harvard) published in 2018 estimates that the tax bill will increase annual growth by 0.13 percentage points over a decade. And that is if the changes are made permanent. Barro and Furman estimate that as the legislation is written, with many of the provisions set to expire in 2025, it will increase annual growth by a mere 0.04 percentage points over ten years.
Liberal economists had a bit of a debate in 2016 over some rah rah economics on our side. Rather than revisit that mess, can I slightly object to this from Mankiw?
The tribalism of Moore and Laffer’s approach stems primarily from their devotion to a single issue: the level of taxation. Obama pursued higher taxes, especially on higher-income households. His goal was to fund a federal government that was larger and more active than many Republicans would prefer and to use the tax system to “spread the wealth around,” as he famously told Joe Wurzelbacher, known as Joe the Plumber, a man he encountered at a campaign stop in Ohio in 2008. By contrast, Moore and Laffer want lower taxes, especially on businesses, which in their view would promote faster economic growth.
Smaller governments do not necessarily mean faster growth. Conversely, some progressives argue that the economic plan put forth by Senator Sanders could have led to a fairer society and somewhat faster growth by getting closer to full employment and the use of more public investment. But Mankiw and I agree that anyone who promises growth rates of 4% per year or more on a permanent basis are doing rah rah. While I’m at it – permit me to nitpick two other parts of this otherwise interesting review of what has to be a really stupid book:
The bottom line is that for a politician seeking election, opposing free trade is a lot easier than supporting it. Many voters are more likely to view foreign nations as threats to U.S. prosperity than as potential partners for mutually advantageous trade. Economists have a long way to go to persuade the body politic of some basic lessons from Econ 101.
Free trade may be a move to efficiency but we must acknowledge free trade may lead to equity issues. I have asked this before but does the Harvard economics department teach the Stopler-Samuelson theorem? Finally, a strong objection to this:
To be fair to Trump and other anti-globalization zealots, amid all their mis-information and bluster is a kernel of truth. The United States produces a lot of intellectual property, including movies, software, and pharmaceuticals. The failure of countries, especially China, to enforce the copyrights and patents that protect intellectual property constitutes a loss to the United States similar to outright theft.
Pharmaceutical companies make a ton of profits off of their patents as it allows them to enforce extreme and costly monopoly privileges. If the Chinese government wants a more competitive drug market, perhaps we should emulate their policies not object to them.
From Mankiw:
ReplyDeleteThe Congressional Budget Office estimates that the Trump tax cuts will increase growth rates by 0.2 percentage points per year over the first five years. A study by Robert Barro (a conservative economist at Harvard) and Furman (a liberal economist at Harvard) published in 2018 estimates that the tax bill will increase annual growth by 0.13 percentage points over a decade
It's actually worse than that. Even those pitifully small increases in growth rates only reflect changes in GDP, not changes in GNP. That's important because GNP (or better yet, NNP) is what generates our standard of living. If the tax cuts are financed with overseas investment into the US, that might raise GDP, but if the income from that investment leaves our shores, then workers are no better off. Basically they find themselves working longer hours for no more real income.
"The Congressional Budget Office estimates that the Trump tax cuts will increase growth rates by 0.2 percentage points per year over the first five years."
ReplyDeleteIt's tough to make predictions, especially about the future. Actually, predictions are bullshit. They give those who make them an illusion of control over something they have no control over. The future is uncertain. There is a better than even chance that "next year" will be somewhat like this year. But that isn't really a prediction. That's just inertia.
It has occurred to me that the whole point of "growth" is to have something whose trend relatively "predictable" over time that economists can make predictions about. Other than facilitating predictions, ignoring the components of growth make those predictions utterly meaningless. Utterly! Growth is bullshit because the most important thing it does is facilitate bullshit.
I don't expect to get a thoughtful answer to my argument. Economists are too wedded to their fantasy of prediction to risk questioning it. But all critique is self criticism. I just made a prediction about the reception of my argument. I'm committing the same error that I accuse economists of making. What else does my argument do, then, if I'm pretty sure that it won't persuade anyone?
It is beginning to seem to me that the debate over what should be done to mitigate climate change is framed by a contest of predictions. Lurking behind those predictions is the solipsism of "man's triumph over nature." The classical version of the triumph of man identified the accumulation of wealth as the "trophy" of that triumph:
"The wealth of the civilized world, after all, is only the trophy of man's triumph over nature. It measures what, from barbarism to the highest civilization he has rescued from the forces of his environment," said Judge P. S. Grosscup in 1893.
"Industry, I repeat it with pleasure, is the triumph of man over nature," wrote Victor Cousin in 1828, "whose tendency was to encroach upon and destroy him, but which retreats before him, and is metamorphosed in his hands: this is truly nothing less than the creation of a new world by man."
"The crux, the fulcrum over which the argument chiefly rests," said chemical industry spokesman Robert White Stevens in 1963, "is that Miss Carson maintains that the balance of nature is a major force in the survival of man, whereas the modern chemist, the modern biologist and scientist, believes that man is steadily controlling nature."
O.K. so much for the troglodyte view, but what about ecological modernizers or even "degrowth"? It's still all about finding a way for "man" to "triumph" over nature. In this case to triumph over the bad consequences of two centuries of triumphalist hubris. I'm sorry to say that the pooch has been screwed. The game seems now to be about how to "unscrew the pooch" (to use Dan Savage's graphic phrase).
But there are no take backs. The pooch will not be unscrewed. There is no feasible, technocratic "just transition" from fossil fuels on the horizon, just as there is no "constitutional" remedy for the Trump/GOP cleptocracy. The only remedy available now is to kick out the jams. Pull the emergency brake cord and bring out the pitchforks.
Predictions? We don't have to show you any stinking predictions.
.. constitutes a loss to the United States ... Inappropriate collective again - some American registered companies is not the same as the United States.
ReplyDeleteIt is even worse than that, thinking about it. Economic rents flowing to the United states might have the effect of pushing up the USD reducing the demand for many us products in a sort of Dutch disease.
Delete“If the Chinese government wants a more competitive drug market, perhaps we should emulate their policies not object to them.”
ReplyDeleteFrom something I am writing this week:
[cut-and-paste]
Some countries reserve the moral right to ignore patents in the face of widespread epidemics, such as AIDS. They call the practice “compulsory licensing.” Thailand is taking it one step further licensing a heart drug.
https://www.csmonitor.com/2007/0131/p07s02-woap.html
US drug monopolies add up to tariffs for other countries — and at 1,000 percent or 10,000 percent rates, not 25 percent. In India Gilead prices Harvoni at $999 a treatment — maybe because the company is afraid of what India might do if it tried to price sky high.
* * * * * *
If India and or China or wherever would like to break the American drug monopolies (a.k.a., drug patents) they can offer to wipe out Hep C in here by the immediate future for a cool $1 billion (not $300 billion!)) — but US drug patent laws would have to double-reverse their incentives to allow it.
One possible deal: replace the system of drug patents with government funded research on drugs and medical devices — all new drugs become generic. For already patented drugs, erect a regulated monopoly setup (like our electric power companies). Harvoni, for example having long since,paid off Gilead’s (not very chancy) $11 billion dollar gamble could be immediately designated generic.
What could American politicians explain to voters for refusing an offer to wipe out — and not revamping pharma pirate laws? Would Americans be willing to go on paying Gilead $15 billion a year waiting for Gilead’s 20 year patent to run out — while more sufferers come down with Hepatitis all the time and 20,000 a year die?
https://www.cdc.gov/media/releases/2016/p0504-hepc-mortality.html