Monday, December 4, 2017

Has Dean Baker Joined Team Republican?

The dishonesty ab out the Trump tax cut for the rich from certain Republican leading conservatives are been extensively noted so let’s not go there. But why is Dean Baker writing this?
There are two ways in which we can say that a deficit/debt is will hurt our children. The first is by slowing economic growth and therefore making the economy and our kids less wealthy in the future than they otherwise would be. The route through which this is supposed to happen is that deficit pushes up interest rates and crowds out investment, thereby slowing productivity growth. (We can also see a rise in the value of the dollar, which means larger trade deficits and more foreign debt.) There are no projections that show any substantial negative effect in this way. In fact, most projections show at least a modest positive boost to growth. So this one doesn't make any sense.
There are no projections that the Trump tax cuts for the rich will lower national savings? If not, there should be. We tried this back in 1981 and what was the result? A massive increase in real interest rates and a massive appreciation of the dollar. The former did crowd out investment and the latter did lead to large trade deficits. I’m sure Dean remembers this. I would assert that the proposed tax cut today is a lot like the 1981 tax cut. If Dean disagrees – might he tell us why.


JDM said...

I thougt Dean was pretty clear. Look at his ending two paragraphs:

To be clear, there will be ways in which the debt can actually make our kids worse off. For example, if we want universal pre-K education or free college, the tax cutters will turn back into deficit hawks and say we can't afford these programs that will help our kids. But, this is not because of any economic reality about debts or deficits being too large, it is about lying politicians who don't want to do anything to help anyone's kids but their own.

Let's keep our eye on the ball here. The problem is lying politicians who work for the rich, not the size of the debt.

Wallfly said...

Dean's statement then would put him squarely (or at least nearby) the MMT camp (which as many MMT friendlies claim is nothing more than fairly orthodox Keynesian ideas). Many liberal economists (including PK) simply write it off as nonsense.
So while not taking a side on this, I do wonder (if naively) how any statistics from 1981 are particularly dispositive given the outside influence of the Volcker recession confounding everything in sight.

kevin quinn said...

"not because of any economic reality"? Can you say "government budget constraint" - I knew you could!

ProGrowthLiberal said...

JDM - his close was spot on. Granted that the real GOP agenda is not fiscal stimulus but starve the beast. They talk the talk of deficit neutrality and if they accomplish this goal via starve the beast - maybe we would see a very modest increase in real income. But the median American would see his income go down as the Hampton crowd would get more than 100% of the rise in aggregate income.

My point is as long as they are playing this Laffer free lunch nonsense - let's not concede any of it as it is nonsense.

JDM said...

But the Laffer thing's wrongness has nothing to do with debt per se, which Dean is pointing out. And he pointed that out a lot, especially that the cost of debt service now is very low, and that accepting the idea that our federal government carrying debt is inherently bad is wrong - not just wrong as in inaccurate but wrong as in trapping ourselves because we accepted this bogus federal debt is horrid framing.

ProGrowthLiberal said...

JDM - I'm not concerned about the level of the debt either. My concern has more to do with income flows. If the Trump tax cut for the rich leads them to consume more - this means either the rest of us will get to consume less (slashes in transfer payments perhaps) or we will have less national savings. The notion that one can have more growth via an alleged investment boom when one cuts the national savings rate strikes me as not only bogus economics but also an indication that Team Republican flunked first grade arithmetic.