Thursday, August 2, 2012

Who Has the Rosy Scenario About GDP Growth?

On Tuesday, Greg Mankiw gives this lecture to the Obama Administration:
Of course, the Administration's optimistic forecast feeds directly into its budget projection. If we get the slower growth that private forecasters predict, we will get less tax revenue and larger budget deficits than the Administration projects.
I was tempted to fire off a post yesterday taking perhaps a couple of different approaches. One approach might have been – we’ll let’s hope that the weak economy recovers faster than the private forecasters predict. But then I remembered that macroeconomy policy has been stuck in this dysfunctional nonsense leading to short-term austerity. The second approach might have been to scoff at the idea that anyone from Team Republican could toss this reality at a Democrat as it is Team Republican that gave us the Laugher Curve back in 1981. But to be fair to Greg Mankiw – he did not serve Reagan’s Administration and once called the Lafferites “crooks and charlatans”. He did work for George W. Bush, however, but let’s stick with the 2012 election. No one from Team Romney would ever overestimate economic growth – would they? I woke up this morning, however, to read this from Paul Krugman:
And the Romney people respond with deep voodoo, invoking the supposed fabulous growth effects from his tax cuts. And who could argue? Remember how the economy tanked after Clinton raised taxes? Remember how great things were after Bush cut them? Oh, wait.
Paul links to this:
“This is just another biased study from a former Obama staffer that ignores critical parts of Governor Romney’s tax reform program, which will help the middle class and promote faster economic growth,” Chen wrote in a statement Monday evening in response to the study by the Tax Policy Center released earlier in the day. “The study analyzes only half of Governor Romney’s tax program, ignoring the reforms that would make America’s corporations more competitive by moving from the highest corporate tax rate in the industrialized world to one that is comparable to our trading partners. And the study ignores the positive benefits to economic growth from both the corporate tax plan and the deficit reduction called for in the Romney plan. These glaring gaps invalidate the report’s conclusions."
Lanhee Chen omitted the fact that the other co-author was Adam Looney who served on Bush41’s team. But mull over the premise that a gigantic tax cut for the rich somehow leads to more economic growth because it allegedly reduces the deficit. This was exactly the Laugher nonsense that Greg Mankiw once attributed to crooks and charlatans. Funny thing – we haven’t seen Greg mocked this rosy scenario. At least yet. Greg? Update: Glenn Hubbard argues that a mix of more austerity with a few supply-side sprinkles will produce the following results:
the Romney reform program is expected by the governor's economic advisers to increase GDP growth by between 0.5% and 1% per year over the next decade. It should also speed up the current recovery, enabling the private sector to create 200,000 to 300,000 jobs per month, or about 12 million new jobs in a Romney first term, and millions more after that due to the plan's long-run growth effects.
Dare I say that Glenn must be drunk on the Kool-Aid.

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