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Member since: Tue Nov 23, 2004, 11:22 PM
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Regarding the "18 trillion in debt" attack on Sanders' proposals

Urban-Brookings Tax Policy Center's analysis of Sanders' agenda concludes that the proposals, if fully implemented, would add 18 trillion to the Federal debt in 10 years.

In contrast, an earlier and more extensively reviewed analysis by Gerald Friedman concludes this:

After increasing in the first years of the Sanders Administration, the Federal budgetís cash deficit will drop sharply and there will be a significant and growing surplus in a Sanders second term. Instead of a deficit of $1.3 trillion in 2026, there will be a large budget surplus.

Gerald Friedman
Professor of Economics
University of Massachusetts at Amherst
Estimating the Economic Impact of Sanders Proposals

What's the difference? Friedman's analysis includes the projected increase in economic output as a result of the public investment.

Four ex-chairs of the White House Council of Economic Advisers (CEA) wrote an open letter attacking Sanders' proposals and Friedman's analysis. Paul Krugman joined the chorus. Others piled on.

One problem. The CEA ex-chairs (or "gang of four" as William Black has referred to them) failed to actually "run the numbers."

Dave Johnson provides a great summary of the controversy, in a post on the Campaign for America's Future web site. Here's a sampling of responses to the "gang of four" (and the chorus echoing them) from the post:

William K. Black
Krugman and the Gang of 4 Need to Apologize for Smearing Gerald Friedman

Orthodox economists just hate the results of Friedmanís model, for the results support Bernie, rather than Hillary. Worse, they show that orthodox economists' claims that the government can do little good is a myth. They set out to kill the messenger, Friedman, even though Friedman shares their support for Hillary.

... Friedman's modeling of Bernieís plan is so terrifying Ö because it shows Ė under the orthodox economic models Ė that the government can be a powerful engine of producing "huge beneficial impacts." What is required is that our President has the nerve to junk the orthodox economic myths. Ö

Notice that they do not claim that Friedmanís "arithmetic" is inaccurate in the sense of making a computational or data input error. Nor do they attack his use of the conventional models they embrace. No, their criticism is that they hate the results of Friedmanís accurate arithmetic. They point out no errors in Friedmanís arithmetic. There is no indication that they ever checked out the accuracy of how he modeled the impacts of Bernie's plans.

Yves Smith
Krugman and His Gangís Libeling of Economist Gerald Friedman for Finding That Conventional Models Show That Sanders Plan Could Work

The original sin of Friedman's model of Sanders' plan is that it projects GDP increases in excess of 5 percent for several years running before growth levels moderate. Mind you, Friedman did this using a completely standard model.

David Dayen
The Pious Attacks on Bernie Sanders' "Fuzzy" Economics

it's worth pointing out that his economic growth numbers would simply eliminate the GDP gap that was created by the Great Recession and was never filled in the subsequent years of slow growth ó which should be the goal of public policy, however "extreme" it sounds

Mike Konczal
In Praise of the Wonk: Dissecting the CEA Letter and Sandersís Other Proposals

I would have done Gerald Friedman's paper backwards. He gives a giant headline number and then you have to work into the text and the footnotes to gather all the details. But a core assumption within the paper is that we are capable of getting back to the 2007 trend GDP through demand. We can get the recovery we should have gotten in 2009.

Ö Iíd recommend reading JW Masonís excellent analysis about why this is an important and reasonable argument to have: "In other contexts, it's taken for granted that more expansionary policy could deliver substantially higher growth" when thereís still an output gap, and if the output gap has shrunk understanding why is essential.

J.W. Mason
Can Sanders Do It?

The people who are saying that Jerry's growth numbers are impossible on their face are implicitly saying that we should expect all output losses in recessions to be permanent. This is not orthodox economic theory, at all.

To address the criticism, Christina and David Romer, two members of the "gang of four," decided it might be a good idea to actually bother to "run the numbers." They published Senator Sanders' Proposed Policies and Economic Growth.

All well and good, except that there is a major forecast failure in their model, as discussed by Yves Smith in James Galbraith Describes Major Forecast Failure in Model Used by Romers to Attack Friedman on Sanders Plan. From the article:

So why do the Romers say so confidently that Friedman is off base? They are using a different model. And as Galbraith explains long-form, it's one with a pretty crappy track record in post-crisis America.

There is little doubt that the Urban-Brookings analysis, the latest contribution to the effort to discredit Sanders proposals and Friedman's analysis of them, will, like the efforts before it, fail to stand up to serious scrutiny.

Additional references

Alan Harvey
Standard Fare or Fantasy Economics?

James K. Galbraith
interviewed on the Real News Network, Attacks on Sanders Economic Plan By Former CEA Chairs Are Irresponsible.

Mark Thomas
The Fiscal Times
Hereís Why Bernie Sandersí 5% Growth Plan Isnít Crazy After All.

Ryan Cooper
Why are big-shot liberal economists hippie-punching Bernie Sanders?

In short, the whole debate is about how much extra economic capacity there is in the economy, and some fairly strong evidence suggests that the answer is "a lot," provided the government is willing to try really hard. As Matthew Klein writes, "This supposedly 'extreme' and 'unsupportable' forecast implies American output will return to its previous trend just as Sanders would be finishing up his second term."

James K. Galbraith's Ultimate Takedown of the Critics: Response to CEA

You write that you have applied rigor to your analyses of economic proposals by Democrats and Republicans. On reading this sentence I looked to the bottom of the page, to find a reference or link to your rigorous review of Professor Friedman's study. I found nothing there.

Thomas Piketty, author of Capital in the 21st Century, has an Op-Ed in the Guardian in which he discusses lessons from history and the economic implications of Sanders' proposals.

And if you are not familiar with Capital in the 21st Century, Stephen Marche's review of it is typical:

If you want to understand the world, if you want to comprehend the mechanics of the forces shaping our time, if you want to know the political choices we face, you must read it. I cannot think of a more important book published in my lifetime.

A final consideration

In addition to the question of including projected growth in estimates of the economic impact of Sanders proposals, there is another factor that gets ignored. Piketty points out that the data available for such analyses do not take understatement of income by the top decile into account. As Piketty puts it in his section on the Explosion of US Inequality after 1980, the data:

take{s} account only of income declared in tax returns, and in particular do not correct for any possible understatement of capital income for legal or extralegal reasons. Given the widening gap between the total capital income (especially dividends and interest) included in US national accounts and in the amount declared in tax returns, and given too, the rapid development of tax havens (flow to which are, in all likelihood, mostly not even included in national accounts), it is likely the Figure 8.5 underestimates the amount by which the upper decile's share actually increased.

Any regulation that makes it difficult to "hide" income would increase revenue. The effect could be substantial.
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