Hoisted from the Archives from Ten Years Ago: Some Notes on the Dilemmas of Economists in a Not-Very Technocratic Government:

September 21, 2017

On fiscal policy, for my entire adult life, Republicans have fallen into four groups:

  1. The few who care about a smaller government and about properly financing that government now and into the future.

  2. Rather more who want a smaller government and who regard the higher debts and large deficits that result from tax-cutting policies misleadingly sold as not a bug but the feature: once the debt and deficit are created, some Democrats who sincerely believe in budget balancing will come over to the spending cut side.

  3. Those who want to tax cuts and really don’t care very much and whether they are good or sustainable policies.

  4. Those who see an opportunity to profit personally by selling misleading rationales for tax cuts.

Back before 2007, I had thought of Greg Mankiw as a member of faction number one. But now…

Greg: the fiscal space you threw away over 2002-2008 would have been a very valuable thing to have to have available for use in 2009-2011.

As Max Sawicky says: if you take a political appointment—particularly one working for a politician for whom technocratic accuracy and effectiveness is not Job #1 or even Job #5—you cannot then protest when you are accused of having been political:

Hoisted from Ten Years Ago: Jared Bernstein and I Cannot Credit Greg Mankiwhttp://www.bradford-delong.com/2007/07/jared-bernstein.html: “Greg Mankiw writes:

[Jared Bernstein] seems incredulous that I could honestly [have] favor[ed] the [2003] Bush tax cuts. But I do…

I confess that I, too, am incredulous.

Like Jared Bernstein–like nearly every other economist I know–I had assumed that Greg Mankiw as chair of the Council of Economic Advisers in 2003-2005 was playing the “inside game”: arguing to Bush, Cheney, and company that tax cuts were good policy only if they were matched by spending cuts. If they weren’t matched by spending cuts, I thought he was arguing inside the administration’s councils, tax cuts were destructive and counterproductive—and so real spending cuts had to be a sine qua non for tax cuts. 2003—the year the Bush administration committed us to Medicare Part D and to the extraordinarily expensive misadventure in Iraq without a single sign of spending restraint—was certainly not a year for spending cuts. Hence not a year in which I would have believed that Greg Mankiw was sitting in the administration’s councils advocating tax cuts not matched by equal additional spending cuts.

In his post, Greg Mankiw goes on about the long-run supply-side benefits of the 2003 Bush tax cuts, made in some alternate universe, by some alternate Bush, who was serious about spending restraint and budget balance. He is oblivious to the reality in which we live—a reality in which the 2003 Bush “tax cuts” were not tax cuts at all, but only destructive tax shifts.

Alex Tabarrok explains the point:

What Tax Cut?: Newsroom: The Independent Institute: I favor a much smaller government but I do not favor the Bush tax cut. Or, to be more precise, I would support a tax cut if one had been proposed. But so far President Bush has neither proposed nor implemented a tax cut—-only a tax shift.

To grasp the difference between a tax cut and a tax shift, we must first understand that what ultimately drives taxes is spending. If spending increases, as it has under the current administration, then sooner or later taxes must increase (or inflation, a type of tax, will go up)…. If spending isn’t cut, then less taxes today means more taxes tomorrow. Thus, the Bush tax cut plan is really a plan for future tax increases…. Bush is shifting taxes to precisely a time when future taxes will be increasing for other reasons. Sound tax policy aims to smooth taxes over time, not to concentrate them so that we take our hits in one staggering blow.

Against these considerable negatives are some small positives… a small short-term stimulative effect, but the key word is “small.”… [A]lthough Bush’s tax proposal does shift taxes away from capital (which, other things equal, would promote long-run economic growth), the mismatch between the tax cuts and spending increases means a rise in government borrowing to make up the difference. Some of this borrowing will… [drain] private investment. Thus, on net, I don’t expect significant gains in long-run economic growth from these tax cuts.

Some conservatives… have a secret Machiavellian argument held in reserve. The Bush deficits, they believe, will force future administrations—-presumably of a more liberal bent—-to cut spending. Conservatives used to argue that the public didn’t want big government but was fooled by deficit financing and other hidden taxes into thinking that it costs less than it actually does. Today, conservatives seem to believe that the public does want big government and that the only way to curb government growth it is to fool the public with lower taxes today so that the costs of government will be so high tomorrow that no one will accept the offer. How cynical.

Will deficits in fact force future administrations to cut spending?… I am fearful…. Today it is evident that we have two political parties: the Tax and Spenders and the No-Tax and Spenders. Neither party is fiscally conservative. Is there no room at the inn for an honest conservative? A conservative who makes the case for smaller government on its merits and not just as the fallback option when fiscal bankruptcy threatens?

Alex Tabarrok makes sense: listen to him.

As for Greg Mankiw, I’m incredulous…


Hoisted from Ten Years Ago: Max Sawicky on the Dilemmas of Economists in High Government Officehttp://delong.typepad.com/sdj/2007/07/max-sawicky-on-.html: Max Sawicky writes about the dilemmas of economists in government. These dilemmas were soft in the Clinton administration. (Here’s where I state that the “200,000 net jobs projected from NAFTA” number was mine: we took an estimate of overall economic efficiency gains from tariff reductions and an employment elasticity with respect to the real wage from the Labor Department, and estimated that in the long run stable-inflation employment would grow by 0.14 percent as a result of the deal. I think it was the right answer to the question that we were asked by virtually the entire journalistic community in 1993; I don’t think that was the right question for them to be asking.) These dilemmas have been much harder in the Reagan and Bush administrations, where Dick Cheney especially has let few opportunities to claim that tax cuts increase revenues pass him by.

Here is Max:

MaxSpeak, You Listen!: J’ACCUSE: Professor N. Gregory Mankiw takes umbrage at the implication from some “bigshot at the left-wing thinktank Economic Policy Institute” (that would be labor market genius Jared Bernstein) that he is “a hypocrite.” But Jared did not use that word, and his remark was not personal…

Here’s Jared Bernstein:

Predicting with a Handicap: Why are Economists’ Predictions So Often Wrong?: Economists sometimes serve vested interests, and will change their views accordingly. The best example is also one of the best economists, Greg Mankiw. This textbook-writing Harvard prof was Bush’s chief economist for awhile, and during his confirmation hearing and subsequent tenure at the White House, he constantly defended Bushonomics, including supply-side beliefs that he once argued were the musings of “cranks and charlatans.” Now, Mankiw may well have felt he could do the nation more good if he were working from the inside, trying to nudge the administration’s economic policy in a better direction (if so, he failed)…

Let me call this one for Jared: Mankiw was indeed correct in thinking that he personally could do more good for the country and the world working inside than if he were to march up to Dick Cheney, tell him “you have to stop saying that tax cuts raise revenues,” and so get fired. But the Bush administration did frequently argue that tax cuts raised revenue. And there is the much harder question: is it worth the sacrifice of the economics profession’s outside credibility and the further confusion of the public that is entailed when good economists defend bad policies on the outside that they are working to change on the inside?

I don’t know the answer to that.

Max Sawicky continues:

[Jared Bernstein’s point] went to whether NGM altered his respectable views on supply-side economics out of political considerations when he took the helm of the President’s Council of Economic Advisers. Unfortunately [Mankiw] does not make the case he wants. (Nor by the way does Jared provide conclusive evidence in the original post, which is mostly about other things.) Jared does, however, point to Mankiw’s testimony at his confirmation hearing. Mankiw’s defense is that he has always taken explicit issue with the most notorious of the supply-side tenets—that across-the-board reductions in tax rates would raise revenue…. In his book, NGM is forthright that the giant revenue response from a tax cut is hokum. In his testimony, he is less emphatic, or as he puts it, “skeptical” of such claims. Moreover, he asserted that the Bush Administration did not adhere to the “extreme” view, which is flat wrong, as Senator Paul Sarbanes made explicit in the hearing….

We should not be surprised when academics in political positions use and invoke their professional expertise to defend their bosses in public. This could happen in any administration. When you take a political appointment, you can’t protest when you are accused of having been political. Political service can be an honorable pastime. The bigger source of embarrassment here is the disjunct between Mankiw the academic ace and Bush the economic nitwit, between the standards of professional work in academia and the intellectual corruption of really-existing Bush economic policy…

And here’s Brendan Nyhan:

Brendan Nyhan: McCain and Mankiw on supply-side economics: Harvard’s Greg Mankiw, who bad-mouths McCain on his blog:

The interviewer, however, did not ask [McCain]… “If you think tax cuts increase revenue, why advocate spending restraint? Can’t we pay for new spending programs with more tax cuts?” I doubt that, in fact, Senator McCain believes we are on the wrong side of the Laffer curve. But unfortunately, fealty to the most extreme supply-side views is de rigeur in some segments of the Republican party.

But what Mankiw doesn’t mention is President Bush and Vice President Cheney’s expressed “fealty to the most extreme supply-side views,” which Mankiw conspicuously failed to change…. [D]uring his Senate confirmation hearing, Mankiw was asked about claims that tax cuts were self-financing, and he disavowed them, saying “I remain skeptical of those claims.” However, he also stated that he thought the administration had not made such claims, which was—and is—false:

[T]he most extreme advocates of tax cuts, I think, sometimes paint an excessively rosy picture out of what they can get out of them. I don’t think this administration has done that….

Now that he is no longer part of the administration, will he admit that Bush and Cheney have repeatedly suggested that tax cuts increase revenue? Shouldn’t Mankiw have asked his question #2 to President Bush? What’s good for the goose is good for the gander and all that…

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