Greg Mankiw read Trumponics by Art Laffer and Stephen Moore so we don’t have to:
When economists write, they can decide among three possible voices to convey their message. The choice is crucial, because it affects how readers receive their work. The first voice might be called the textbook authority. Here, economists act as ambassadors for their profession. They faithfully present the wide range of views professional economists hold, acknowledging the pros and cons of each … The second voice is that of the nuanced advocate. In this case, economists advance a point of view while recognizing the diversity of thought among reasonable people … The third voice is that of the rah-rah partisan. Rah-rah partisans do not build their analysis on the foundation of professional consensus or serious studies from peer-reviewed journals. They deny that people who disagree with them may have some logical points and that there may be weaknesses in their own arguments. In their view, the world is simple, and the opposition is just wrong, wrong, wrong. Rah-rah partisans do not aim to persuade the undecided. They aim to rally the faithful.
Guess which voice Laffer and Moore used throughout their book. While I appreciate Mankiw’s three categories – one has to wonder how we should place some of the over the top arguments for the 2017 tax cut by Republican economists not in this White House. Mankiw to his credit writes:
The authors offer no credible evidence that the tax changes passed will lead to such high growth. Most studies yield far more modest projections. The Congressional Budget Office estimates that the Trump tax cuts will increase growth rates by 0.2 percentage points per year over the first five years. A study by Robert Barro (a conservative economist at Harvard) and Furman (a liberal economist at Harvard) published in 2018 estimates that the tax bill will increase annual growth by 0.13 percentage points over a decade. And that is if the changes are made permanent. Barro and Furman estimate that as the legislation is written, with many of the provisions set to expire in 2025, it will increase annual growth by a mere 0.04 percentage points over ten years.
Liberal economists had a bit of a debate in 2016 over some rah rah economics on our side. Rather than revisit that mess, can I slightly object to this from Mankiw?
The tribalism of Moore and Laffer’s approach stems primarily from their devotion to a single issue: the level of taxation. Obama pursued higher taxes, especially on higher-income households. His goal was to fund a federal government that was larger and more active than many Republicans would prefer and to use the tax system to “spread the wealth around,” as he famously told Joe Wurzelbacher, known as Joe the Plumber, a man he encountered at a campaign stop in Ohio in 2008. By contrast, Moore and Laffer want lower taxes, especially on businesses, which in their view would promote faster economic growth.
Smaller governments do not necessarily mean faster growth. Conversely, some progressives argue that the economic plan put forth by Senator Sanders could have led to a fairer society and somewhat faster growth by getting closer to full employment and the use of more public investment. But Mankiw and I agree that anyone who promises growth rates of 4% per year or more on a permanent basis are doing rah rah. While I’m at it – permit me to nitpick two other parts of this otherwise interesting review of what has to be a really stupid book:
The bottom line is that for a politician seeking election, opposing free trade is a lot easier than supporting it. Many voters are more likely to view foreign nations as threats to U.S. prosperity than as potential partners for mutually advantageous trade. Economists have a long way to go to persuade the body politic of some basic lessons from Econ 101.
Free trade may be a move to efficiency but we must acknowledge free trade may lead to equity issues. I have asked this before but does the Harvard economics department teach the Stopler-Samuelson theorem? Finally, a strong objection to this:
To be fair to Trump and other anti-globalization zealots, amid all their mis-information and bluster is a kernel of truth. The United States produces a lot of intellectual property, including movies, software, and pharmaceuticals. The failure of countries, especially China, to enforce the copyrights and patents that protect intellectual property constitutes a loss to the United States similar to outright theft.
Pharmaceutical companies make a ton of profits off of their patents as it allows them to enforce extreme and costly monopoly privileges. If the Chinese government wants a more competitive drug market, perhaps we should emulate their policies not object to them.
“If the Chinese government wants a more competitive drug market, perhaps we should emulate their policies not object to them.”
From something I am writing this week:
[cut-and-paste]
Some countries reserve the moral right to ignore patents in the face of widespread epidemics, such as AIDS. They call the practice “compulsory licensing.” Thailand is taking it one step further licensing a heart drug.
https://www.csmonitor.com/2007/0131/p07s02-woap.html
US drug monopolies add up to tariffs for other countries — and at 1,000 percent or 10,000 percent rates, not 25 percent. In India Gilead prices Harvoni at $999 a treatment — maybe because the company is afraid of what India might do if it tried to price sky high.
* * * * * *
If India and or China or wherever would like to break the American drug monopolies (a.k.a., drug patents) they can offer to wipe out Hep C in here by the immediate future for a cool $1 billion (not $300 billion!)) — but US drug patent laws would have to double-reverse their incentives to allow it.
One possible deal: replace the system of drug patents with government funded research on drugs and medical devices — all new drugs become generic. For already patented drugs, erect a regulated monopoly setup (like our electric power companies). Harvoni, for example having long since,paid off Gilead’s (not very chancy) $11 billion dollar gamble could be immediately designated generic.
What could American politicians explain to voters for refusing an offer to wipe out — and not revamping pharma pirate laws? Would Americans be willing to go on paying Gilead $15 billion a year waiting for Gilead’s 20 year patent to run out — while more sufferers come down with Hepatitis all the time and 20,000 a year die?
https://www.cdc.gov/media/releases/2016/p0504-hepc-mortality.html
Denis – thanks for the very informative comment. The WTO on compulsory licensing:
https://www.wto.org/english/tratop_e/trips_e/public_health_faq_e.htm
PGL — Thanks for the heavy heads-up — always good to really understand the basics. 🙂
Denis:
All my time around these parts, I have not seen PGL give many compliments. Nicely done.
So I have to agree with this and disagree both at the same time. This is a longer comment and more probably a post.
Years ago I wrote a proposal to the Guv about direct funding to the citizens of the TARP funds rather than the version they inevitably used for bailing out big corpa. My proposal which got shot down by a few folks in Washington would have had funding of families of 4 with a direct government compensation of around $12,600, which would have floated the average American through about 3-6 months worth of expense, and lessened the amount of foreclosures/bleed out back in 07/08. But that was too socialist for those in charge. That end part is funny because, well, I am all over the place politically but I digress. Needless to say tax funds used on a granular level to the direct tax payer is inherently wrong by our government and its lobbyists. It has to be macro and good for the donors to sell it. So bureaucracy is the status quo, and a micro tax approach is crazy. Save the billionaires!
Thus;
What we see from a direct taxation of business is two fold. We can look at it from a Milton Friedman approach and that corporate taxes are a direct tax on the public. I agree with that. somewhat. We must also factor in that a tax on business where their costs are fixed is also within play, and therefore tax rate is a huge factor.
I have, in my career, decided to go by way of the small business. As a Keynesian economist, leftist, rightist, (former) socialist, conservative, I can say that the tax break on my company allows us to benefit by way of increased retained earnings that has allowed us to seek other business ventures and hire a few folks to tend to that new business. The increase in collateral (RE), is helpful across the board. And being able to obtain assets to hold on a balance sheet as a product of the measly 3% decrease in taxes leads me to my next point. We planned for this all in 2016, well before the TDrump.
This doesn’t help us, or us or us or them, or anyone but the top of the food chain. And we know it. We ALL know it. What we need is a collection of tort reform and also tax reform that allows less loopholes. In connection with a reduction of costs from publicly traded for profit companies that control a huge cost of business: healthcare.
Tax reform doesn’t help anyone run a business. Tax reform helps billionaires. What helps the mid-market and/or small business folks is lowering healthcare costs, lowering direct taxes on a real scale, and access to capital (which is cheap if you have the right debt/equity %) which is hard to qualify for new ventures.
No political party really “gets it”. On one hand the GOP wants to bankrupt small/mid business with billionaire tax pilfers and loading us with unrealistic costs that hinder our RE and YoY cash flows. and the Dems wants to saddle us with huge payouts with socialist reforms and judgments in political arenas that look like lotteries for IP/PI cases, insurance, tech, etc. Neither side is cognizant of reality.