Rah Rah Economics

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.