Economic Wonks Spar Over Sanders Proposals

By SAM URETSKY

While the Republican party is engaged in something between self immolation and the destruction of the planet, the Democrats are having a debate about economic growth. It started poorly, but is finally starting to become a serious discussion between highly qualified economists – which means it’s now largely unintelligible. On the other hand, the participants are now throwing around numbers, which is a vast improvement over some of the brickbats that started the discussion.

The November/December 2015 issue of Dollars & Sense magazine featured an article by Prof. Gerald Friedman of University of Massachusetts-Amherst. Prof. Friedman holds a Ph.D. from Harvard and has been employed by the University of Massachusetts since 1984. His paper examined seven of Sen. Sanders proposals, both for expenses and and offsetting cost reductions. For example, “Universal childcare and free college tuition … would replace existing spending on programs for childcare assistance and much of the spending on Pell Grants for students at public colleges, spending on infrastructure would offset some required maintenance spending, and raising Social Security benefits would allow some seniors to avoid dependence on Supplemental Nutrition (SNAP) and other safety net programs. The programs would also increase tax revenues by eliminating some existing ‘tax expenditures’ —tax breaks that subsidize private spending—like deductions for employer-provided child care.”

Prof. Friedman concluded that implementation of Sen. Sanders’ programs would lead to economic growth of 5.3% per year, with unemployment down to 3.8%. This paper was picked up by the Sanders campaign, perhaps too quickly, and shown as evidence of the benefits of Sen. Sanders’ policies.

Perhaps regrettably, four former Chairs of the Council of Economic Advisers for Presidents Barack Obama and Bill Clinton, Alan Krueger, Austan Goolsbee, Christina Romer and Laura D’Andrea Tyson, published an open letter which concluded, “As much as we wish it were so, no credible economic research supports economic impacts of these magnitudes. Making such promises runs against our party’s best traditions of evidence-based policy making and undermines our reputation as the party of responsible arithmetic. These claims undermine the credibility of the progressive economic agenda and make it that much more difficult to challenge the unrealistic claims made by Republican candidates.”

The failing of the open letter was that it didn’t provide any evidence of errors on Prof. Friedman’s part, leading to a number of claims and counter claims. One highly respected economist was called a “shill for the Clintons” and just about everybody was accused of trying to get in good with the next administration. At least there were no comments about tacky neckties or spashing water. Dignity counts.

A couple of points should be obvious; the most notable of which is that adoption of Sen. Sanders’ programs would be beneficial overall. An expansion of social programs financed by a more progressive income tax would not only reduce the problem of inequality and its adverse effects on democracy.

Prof. Friedman’s assumptions both about the benefits and offsets are essentially true. The questions deal with the assumptions on which the results are based. The key is that as sciences go, economics is both dismal and soft. In chemistry and physics there are constants, the speed of light, the number of molecules in a gram molecular weight.

In the soft sciences, things are called laws when they’re really just models based on past observation, and their validity is confirmed by their ability to predict future economic behavior. Also, hard sciences can adjust for variable such as changes in temperature and pressure – soft sciences may have to start over again if there are changes in culture.

On Feb. 25, Christina and David Romer issued their own analysis of Prof. Friedman’s paper. The second paragraph begins: “Although we share many of Senator Sanders’s values and enthusiastically support some of his goals, such as greater public investment in infrastructure and education, we also believe it is vitally important to be realistic about the impact of policies on the performance of the overall economy.”

The Romers maintain that Prof. Friedman has overestimated the amount and duration of the stimulus that the Sanders proposals would provide. For example, Sen. Sanders proposes spending $1 trillion on infrastructure from 2017 until 2021. This would boost employment dramatically during those years, which would increase spending and lift the economy – but this stimulus would have little or no effect after the infrastructure program has been completed. Similarly, an increase in healthcare spending would lift the economy in its first year, but at that point those expenses would be a constant, part of the base level, and wouldn’t lead to an increase in the GDP in subsequent years.

The Romers conclude “Though we have been frankly critical of Professor Friedman’s analysis, he has provided a service to public debate by posting his analysis so that other economists can evaluate its validity. We are posting our evaluation in the same spirit.”

What may be most important is that the Sanders proposals, taken individually or together, would offer important social benefits without damaging the economy though either major inflation or deflation. Given the anticipated social benefits, this projection is all the reassurance we need.

Sam Uretsky is a writer and pharmacist living on Long Island, N.Y. Email sdu01@outlook.com.

From The Progressive Populist, April 1, 2016

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