Has Dean Baker Joined Team Republican?

December 4, 2017
mm

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.

Article Categories:
Financial Economics Blogs

Leave a Comment

Your email address will not be published. Required fields are marked *