Kudlow channels his inner Gerald Friedman:
Larry Kudlow, picked to be President Trump’s new economic adviser, has privately told the White House that the nation’s economy is on the verge of 4 percent to 5 percent growth, or more than double the last decade. In a recent gathering with Trump, he said that many firms held back investing until the tax reform package passed and “some of that is already showing up.” What’s more, he told the president, “We’re on the front end of the biggest investment boom in probably 30 to 40 years.” The president responded, “Well, I couldn’t have said it any better.”
OK – I get that Friedman was looking at a progressive fiscal agenda whereas Kudlow supports Starving the Beast to pay for more tax cuts for rich people. My point is that both of them take a cavalier modeling of potential GDP. And when Friedman’s supporters try to argue that potential output has been growing by 3.5% per year since 2000, I noted that his is also Kudlow’s approach:
It is sort of funny that Kudlow and Novak were making a Keynesian economics argument given both of their disdain for Keynesian economics. Of course summing 8 numbers when the right approach would be to take the average of 8 numbers is a conceptual error that one would trust a first grader could point out. It is also interesting that Kudlow wanted to assume that potential real GDP always grows at 3.5% as he is likely going to be Trump’s chief economic adviser. Trump is even bragging that Kudlow now favors tariffs. And why not – Lawrence Kudlow’s entire career has been telling any lie that his political master want him to tell as long as there is another tax cut for rich people in store.
Brad DeLong has this silly idea that we should take modeling seriously:
The rule-of-thumb is that each 1% point rise in investment as a share of national product adds 0.1% point to the annual growth rate. To get from a growth rate of 2.5% up to 4.5% would thus require a 20% point jump in the investment share of national product—if you were to get it from investment. If you were to get it from employment growth, with Okun’s Law, you would need the unemployment rate to fall by 1% point per year—which means the unemployment rate would hit zero by the start of 2022. And there are no signs of a productivity growth recovery: given demography, labor productivity growth would have to consistently hit 3.75% per year in order to get to 4.5% per year real GDP growth.
When I read this, I noted over at Brad’s place:
I guess Kudlow thinks the FED will keep interest rates really low even if we soar past full employment and inflation takes off! Me thinks he learned the wrong lessons from the 1980’s when the Volcker FED made sure real interest rates soared in response to the 1981 tax cuts. Of course given that it is Kudlow, he likely does not know the difference between changes in nominal interest rates v. changes in real interest rates.
So what was the quip about something that happened over 30 years ago? Oh yea – we have very strong growth over the 1983 to 1985 period – something else the Friedman supporters are fond of noting. But of course that was the recovery from the deep Reagan recession. If one looks at potential GDP growth over the 1981 to 1992 period or even actual real GDP growth over the same period, the growth rate was closer to 3% per year in large part because the Reagan fiscal stimulus crowded out investment. Menzie Chinnrecently suggested:
Mr. Kudlow is apparently on the short list for new National Economic Committee chair. Maybe a good time to review some of his macro predictions.
OK – his track record on economic forecasts is dreadful. So why would this time be any different? Then again when people were filling out their brackets for March Madness the thought process was generally that no 16 seed had ever defeated a 1 seed.
I would say Kudlow is much more like ProGrowthLiberal than Frieman.
Both are servants to their political masters and will brazenly lie and distort the truth in order to push the “message of the day” handed down by the center left Dem establishment – the “good cops” to the Republican “bad cops.”
Krugman, DeLong, and PGL try to equate the Right with the Bernie Sanders left and they just look like out-of-touch fools.
Hillary followed their playbook and was “realistic” about jobs and growth and lo and behold – she lost to the orange clown who promised jobs and growth and going after the corrupt political and corporate elite.
Now that Trump’s promises have been shown to be lies, the Democrats look likely to take Congress with the Bernie-Warren wing in the ascendant.
PGL looks like an idiot. The quesion is how fast will the Fed raise rates? Too fast and cause a recession? Or too slow allow inflation.
The center left technocrats like DeLong, Krugman and their sycophants PGL and Chinn have been arguing for years that the economy doesn’t have much potential left and we’ll see inflation before we see growth.
So far that hasn’t been the case.
Instead of PGL, you get me. Different place than EV. The name calling just does not work. Make your points and move on please.
Run, my thoughts exactly for Peter.
“And there are no signs of a productivity growth recovery:”
Among honest commenters on the progressive left, economists suggest that a prolonged period of full employment at capacity could spur productivity growth. We will see if the Fed doesn’t raise rates too quickly.
If the Fed raises rates too quickly, then we won’t find out if the center left pessimists like Delong, Krugman, Chinn and PGL are correct about the limited capacity for the economy to growth. The Fed will short-circuit the experiment.
BUT if the Fed doesn’t raise rates too quickly, we’ll see if inflation pops up. The pessimists are predicting inflation sooner than later. Maybe we’ll find out.
They’ve been saying we’re near full employment during the 2016 primary through 2017 and now in 2018. When does inflation go up?
Trump just gave the economy a huge stimulus with the tax cut and budget agreement.
Will the pessimists predict that if Powell allows the experiment to run, we’ll see above target inflation in 2019? 2020?
I for one am not worried about inflation.
So typical. Brad DeLong is honest but I am not even though we make the same argument. Oh well – time to sit back and listen to the same old name calling.
” . . . she lost to the orange clown who promised jobs and growth and going after the corrupt political and corporate elite.”
In fact, she won. By nearly 3 million votes. Trump was appointed by the electoral college over the will of the people.
He’ll be back as ChristopherH if you are not “nice” to him.
He has absolutely devastated discussion at EV. Good job at stopping him before he spreads.
I have not done anything to him. Just asked he make his comments name-calling-free and move on into something else. I remember him and thanks for the reminder.
I meant the warning was a good step.
Thank you. I do not like booting people.
Over at EV – Christopher H. denies he is PeterK. Good to know he is at least being honest about his name here.
EMichael and PGL would like to ban anybody who doesn’t agree with their views.
I’ll just note apparently it’s okay to insult and namecall Gerald Friedman. That looks like hypocrisy to me.
I am accused of such all the time. Friedman (thought you guys meant Milton) can defend himself. He does not need you to do it.
This pointlessness has transitioned from EV to Angrybear alas. At least there is an adult conversation going on over at Econospeak thanks in part to someone named bbk.
As I noted many times – the actual Sanders fiscal proposal was a very good one and deserved a much better analysis than that sloppy paper by Gerald Friedman.