Wednesday, June 8, 2011

Let's hope this is the floor...




and not the ceiling for Republican economic thinking over the next year or two. First of all, Bartlett is correct that getting to 5% GDP growth sustainably (for a decade like Pawlenty proposes) is absolutely ridiculous. Second of all, tax-cutting ad naseum is not going to get you that growth- even if you combine it with massive deregulation and fiscal austerity to get spending to the 18% of GDP level that Pawlenty has supported. Sensible conservative economists understand that taxes have modest effects on long-term economic growth. They push lower marginal rates and other specific tax policies to minimize even that modest-level. They don't run around claiming you could get to the GDP growth levels Pawlenty proposes, let alone that any government action could cause it! Does Pawlenty have any understanding of economics and how economic growth is heavily related to productivity increases, and what ridiculous causal pathways would be needed to explain how cutting taxes so much like Pawlenty proposes- particularly the specific tax cuts he favors- would get you such growth? Who is his campaign's economic adviser? Kevin Williamson from the National Review makes similar points here and here in response to this weird meme spreading among conservatives that the solution is magical unicorn economic growth. This makes Reagan's Rosy scenario and Ryan's Heritage estimates look modest in comparison. I'll also point out that his specific tax cuts would also exacerbate the economic changes that have resulted in economic stagnation for about 90% of all Americans for the last few decades, since they are so heavily focused on capital income. This is an economic, and political messaging, problem for Republicans suffering from weak economic thinking that ignores the American middle class. Ramesh Ponnuru (also of National Review fame) captures this problem here. Reagan may have been an economic simpleton (to his credit, most politicians also are fools), but he was politically savvy enough to know the Republican Party couldn't succeed by focusing solely on the richest 1% and ignoring the American middle class. Reagan was smart enough to know that Americans don't trust trickle-down economics, and nor should they after the past decade's experiences. In addition, let's note that Pawlenty's preferred spending levels could only be reached by something like the Republican Study Committee budget (even more extreme than Paul Ryan's), which specifically proposes $9 trillion in total spending cuts, cuts nondefense discretionary spending by 70%, and cuts non-ACA Medicaid, SSI, and SNAP by 50% or more (all levels from what they would be otherwise over the next decade). Even if Pawlenty could somehow get spending levels that House Republicans wouldn't pass, his phenomenally low revenue levels would result in sizable deficits that would eat away many of the gains of his fantasy-land economic growth. Yes we need strong (plausible) economic growth, but we also need small deficits- which by definition means getting revenues and spending close to one another. If you can't get to Ryan's spending levels, let alone the Republican Study Committee's, then you can't have Pawlenty's tax policies (and you can't have Ryan's either- which are looking more fantastical as time passes). Oh, and the spending cuts Pawlenty's words indicate he would support- and what it would take to get to them- would almost certainly cause a double-dip recession if started anytime soon. Also, achieving the growth Pawlenty wants would almost certainly require far looser monetary policy than he or any other prominent Republican would support. I know Pawlenty wants to win the primary, which means throwing red-meat to the foolish base, but does he have any sense of shame? After this and other ridiculous things Pawlenty has said (dog-whistling to the Tea Party about moving back to the gold-standard for instance), I can no longer consider him a moderate or an acceptable potential Republican President. And he's this crazy now and Bachmann hasn't even gotten into the race yet!!! Right now the only Republicans with any shred of sanity appear to be Romney and Huntsman- though who knows what they'll say now. (Oh, and did anyone notice how he never mentioned Medicare. We'll see if talking tax cuts out the wazoo will get Pawlenty a pass on his not-so-subtle backing away from Ryan's proposal to privatize Medicare)

3 comments:

TJE said...

http://online.wsj.com/article/SB10001424052702304432304576371811156235004.html?mod=WSJ_Opinion_LEADTop

Patrick_L said...

a) interesting characterization of Osama Bin Laden's death. The implication being that Obama did it for political gain. Classy

b) until reading this article, I had no idea that people were talking about Midwest Tornadoes affecting growth. Anyways, the worst headwind is the rising gas prices, which economists agree had a significant drag effect. The problems in Japan (natural disaster) and Europe (debt crisis) likely had some effect, though smaller than oil prices, and more likely limiting job creation as opposed to causing job destruction. The continued housing slump is problematic. That last part is important, because it's much harder to detect- particularly in the moment- what's affecting job creation. Even if BLS did find data supporting that causal story, I'd almost certainly reject it as a statistical aberration. Hence, the very limited quote Henninger gets from BLS is of almost no value. (I'll point out that I am concerned the economy is still too weak, below where it should be, and likely got worse a little bit last month. I just think the real problem is why the economy hasn't become self-perpetuating with growth at this point, not that last month's data is a sign that things are likely worsening permanently. The still too weak economy is worrisome because so many things could push us back into a recession at this point.)

c) I don’t understand how anyone could say that Obama’s economic policy has solely been focused on the demand-side when he has passed hundreds of billions in supply-side tax cuts over the last few years as part of the stimulus and lame duck tax cut-UI extension deal.

d) I agree that Pawlenty’s speech and ideas aren’t about coming up with a “provable” or credible agenda. It’s about lying to the American people about what you can achieve, or even come close to hoping to achieve, in terms of growth and how much any President or Congress can affect it.

e) the difference between Pawlenty and Obama is not on theories of economic growth, it’s about the size of government (something which economists agree has a very modest- tenths of a percentage point- impact on growth). Obama wants government to be able to perform the same functions as it has for the last 50 years, even if the baby boom (and then rising health care costs) requires the big 3 entitlement programs be modified, while discretionary spending is cut to 1960’s historical levels and tax revenue levels be allowed to rise to make room for Obama’s acceptance that you can’t modify the big entitlement programs fast enough unless you want to massively shifts costs onto the elderly, disabled, and poor. Pawlenty wants to shrink the government by massively shifting health care costs onto the backs of the elderly, disabled, poor, and states through massive cuts to Medicare and Medicaid while cutting discretionary spending to pre- New Deal levels. This cutting of government enables him to pass trillions of tax cuts for corporations and wealthiest Americans. Pawlenty’s nonsense isn’t going to cause economic growth or newfound prosperity for the American middle-class (in fact, his restructuring would significantly hurt the middle-class), just as Obama’s economic policies aren’t going to CAUSE substantial economic growth- because government actions of any sort (getting bigger and investing or cutting back for the private sector) aren’t going to substantially juice the economy.

Patrick_L said...

http://www.frumforum.com/pawlentys-growth-rate-too-good-to-be-true