Adjustments based upon spending cuts are much less costly in terms of output losses than tax-based ones. Spending-based adjustments have been associated with mild and short-lived recessions, in many cases with no recession at all. Tax-based adjustments have been associated with prolonged and deep recessions.But Glenn’s new blog starts by touting this argument:
Our view of balanced fiscal policy is more in line with Christina Romer, the first chair of Obama’s Council of Economic Advisers. In 2010, she published a study in the American Economic Review that said, “Tax increases appear to have a very large, sustained, and highly significant negative impact on output.” Romer found that, on average, every tax increase of one percent of GDP is linked to a three percent drop in real GDP over the next 10 quarters. A tax increase is the false mother to prosperity.Where to begin? Of course, we should note that Glenn is misrepresenting the views of Christina Romer – a foul that Brad DeLong called on Greg Mankiw earlier. Glenn Hubbard and Tim Kane also love to use the term “balance” when they describe their views on fiscal policy. Sort of like Fox News call itself “fair and balanced”. I guess as we watch the Republican convention, we should now enjoy the fact that Team Romney now has two economist blogs.