Later On

A blog written for those whose interests more or less match mine.

Paul Krugman on Economic Arrogance

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Paul Krugman writes in the NY Times:

According to press reports, the Trump administration is basing its budget projections on the assumption that the U.S. economy will grow very rapidly over the next decade — in fact, almost twice as fast as independent institutions like the Congressional Budget Office and the Federal Reserve expect. There is, as far as we can tell, no serious analysis behind this optimism; instead, the number was plugged in to make the fiscal outlook appear better.

I guess this was only to be expected from a man who keeps insisting that crime, which is actually near record lows, is at a record high, that millions of illegal ballots were responsible for his popular vote loss, and so on: In Trumpworld, numbers are what you want them to be, and anything else is fake news. But the truth is that unwarranted arrogance about economics isn’t Trump-specific. On the contrary, it’s the modern Republican norm. And the question is why.

Before I get there, a word about why extreme growth optimism is unwarranted.

The Trump team is apparently projecting growth at between 3 and 3.5 percent for a decade. This wouldn’t be unprecedented: the U.S. economy grew at a 3.4 percent rate during the Reagan years, 3.7 percent under Bill Clinton. But a repeat performance is unlikely.

For one thing, in the Reagan years baby boomers were still entering the work force. Now they’re on their way out, and the rise in the working-age population has slowed to a crawl. This demographic shift alone should, other things being equal, subtract around a percentage point from U.S. growth.

Furthermore, both Reagan and Clinton inherited depressed economies, with unemployment well over 7 percent. This meant that there was a lot of economic slack, allowing rapid growth as the unemployed went back to work. Today, by contrast, unemployment is under 5 percent, and other indicators suggest an economy close to full employment. This leaves much less scope for rapid growth.

The only way we could have a growth miracle now would be a huge takeoff in productivity — output per worker-hour. This could, of course, happen: maybe driverless flying cars will arrive en masse. But it’s hardly something one should assume for a baseline projection.

And it’s certainly not something one should count on as a result of conservative economic policies. Which brings me to the strange arrogance of the economic right. . .

Continue reading.

Later in the column:

It would be nice to pretend that we’re still having a serious, honest discussion here, but we aren’t. At this point we have to get real and talk about whose interests are being served.

Never mind whether slashing taxes on billionaires while giving scammers and polluters the freedom to scam and pollute is good for the economy as a whole; it’s clearly good for billionaires, scammers, and polluters. Campaign finance being what it is, this creates a clear incentive for politicians to keep espousing a failed doctrine, for think tanks to keep inventing new excuses for that doctrine, and more.

“Who benefits?” is often a revealing question.

Written by LeisureGuy

20 February 2017 at 1:30 pm

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