Thursday, May 12, 2016

Will Trump Do the Kudlow Deficit Dance?

Noah Smith notes:
Donald Trump is difficult to take seriously on policy matters, because he’s kind of a random idea generator -- he just throws out a lot of different policy plans, many of them contradictory. This is a great defense against criticism from policy wonks -- as soon as we criticize one of his proposals, he just offers up the exact opposite. For example, he’s advocated reducing the federal debt, spending more and cutting taxes (or possibly not).
OK – Trump 2016 flip flops a lot like Romney 2012 flip flopped. And President Reagan told us he would balance the budget with massive tax cuts and increases in defense spending. Art Laffer explained how this all worked on a cocktail napkin. But Paul Krugman informs us that Trump has sought the assistance of two economic experts:
Still boggled by reports that Trump, having realized that the numbers on his tax plan aren’t remotely credible, has decided to fix things by bringing in as experts … Larry Kudlow and Stephen Moore.
Of course the title of Pauls’s blog post was “Send in the Clowns” as he documented some of the real whoppers these two right wing know nothings have written over time. But my favorite goes back to November 2002 when Kudlow wrote:
The federal budget deficit was $158 billion for fiscal year 2002…As a result, actual economic performance has fallen below the long-term 3.5% historical trend line, which reflects the economy’s indisputable potential to grow. If that trend line were extended through 2002, as though no slowdown had occurred, then the potential third-quarter gross domestic product would have been $9.829 trillion. Instead, actual GDP fell $364 billion short of the mark. Cumulatively, over the past two years, the loss of potential GDP comes to $1.95 trillion — a considerable amount. All this would be academic were it not for the fact that total output in the GDP account (as compiled by the Commerce Department) equates with the taxable income base of the nation’s economy. So a smaller output pie means a shrinking tax base. If you apply the 18% economy-wide tax rate of recent years to the nearly $2 trillion loss of potential output, you get a $351 billion shortfall in tax revenues — which we’d be counting now if the economy had been running at full steam.
A $2 trillion output gap sounds yuuuge! Given that GDP in 2002 was $10.877 trillion, Kudlow was implying an output gap over 18%. Gerald Friedman take note! The CBO, however, suggests that the output gap at the end of 2002 was less 3%. So where did Kudlow get his insane calculation? First of all the 3.5% historical trend assumption was a bit silly since most estimates of potential output growth were lower. But that is not the big mistake here. After Kudlow took his trend line estimate of potential output, he found 8 quarters worth of estimated output gaps – all expressed in annualized terms. While anyone with a brain would have averaged the series but Kudlow summed the numbers thereby overstating the annual output gap by a factor of 8. With Kudlow – it is hard to tell. Is he really this incredibly stupid? Or does he just assume his audience is so stupid that he can blatantly lie to them?


Jack said...

From Wikipedia: "In 1971, Kudlow attended Princeton University's Woodrow Wilson School of Public and International Affairs, where he studied politics and economics. He left before completing his master's degree."

Studying for and failing to complete a Master's degree does not qualify one as an economist. It's about time that people who specialize in writing about a subject matter without any academic training in that subject begin to be identified as a journalist, at best, though propagandist would be more accurate.

Also, "Kudlow graduated from University of Rochester in Rochester, New York with a degree in history in 1969.[4] Known as "Kuddles" to friends, he was a star on the tennis team and a member of the left-wing Students for a Democratic Society at Rochester."

Yet another left wing ideologist headed for the Dark Side having recognized where the bread is most generously buttered. Or possibly Kudlow's leftist inclinations at the time were related to the possibility of his being drafted and sent off to Viet Nam.

ProGrowthLiberal said...

Wikipedia also reminds us of this National Review classic - "The Recession Debate is Over":

Written on Dec. 5, 2007 declaring there will not be a recession.

Jack said...

The referenced article is an example of exactly what I was getting at. Kudlow is not aqn economist, not any more so than any any other person who has obtained a baccalaureate degree, but has no additional academic training. He writes ideological screeds for a living, and that has apparently worked out well for him financially. Given the limited factual basis for what Kudlow writes it is not unreasonable to describe him as a propagandist rather than a journalist.

ProGrowthLiberal said...

Jack: The National Review gave Kudlow air time precisely because he served as a propagandist. Why do honest conservatives refuse to write for this rag? I think you have already answered that one.