A heated debate over an analysis of presidential candidate Bernie Sanders’ economic agenda continues today with dueling commentaries over whether its conclusions of phenomenal economic growth were based on an error – and whether that error discredits the entire premise of the Sanders approach to repairing the economy.
This is one of those wonkish debates that has serious kitchen-table ramifications. It’s the difference between being able to use the tools of government to raise members of America’s working class to where they would have been if the 2008 recession had not decimated their jobs, wealth and earnings, and accepting the slow growth of the Obama administration years as the new normal for the foreseeable future.
You may recall that this all started in early February when economist Gerald Friedman took a look at Sanders’ economic policy proposals and concluded that the rate of economic growth would more than double – to more than 5 percent a year – and unemployment would fall below 4 percent if Sanders’ agenda was fully enacted. That growth, in turn, would mean that the federal government would be running surpluses at the end of Sanders’ second term even with the significantly increased federal spending that Sanders proposes, Friedman concluded.
That conclusion unleashed a caustic series of attacks by economists allied with the Obama and Bill Clinton administrations and with Democratic candidate Hillary Clinton, typified by former Council of Economic Advisers chairman Austan Goolsbee’s snarky dismissal of Sanders’ economic agenda as “magic flying puppies with winning Lotto tickets tied to their collars.”
One of the more substantive attacks last week came from another former Obama administration Council of Economic Advisers chair, Christina Romer, along with her spouse economist David Romer. As recounted by University of Michigan economics professor Justin Wolfers in The New York Times, Friedman takes Sanders’ temporary boosts in government spending, such as his $1 trillion plan to repair and update various parts of America’s infrastructure, and assumes that the economic stimulus that results continues long after the spending itself stops. “Mr. Friedman’s calculations assume that removing a stimulus has no effect. The result is that temporary stimulus has a permanent effect,” he wrote.
Wolfers argues that this is not standard economic theory. It’s also not what we saw when President Obama’s stimulus bill, the American Recovery and Reinvestment Act, took effect; as spending wound down, the stimulative effect of the spending leveled off. The spending left the economy at a higher plateau than it otherwise would have been, but the rate of growth leveled off. That’s why the Campaign for America’s Future, along with a number of progressive economists in 2011 encouraged President Obama to propose a second round of economic stimulus.
But Wolfers also contacts Friedman directly, who says that while “I may have made a mistake” in characterizing his analysis as based on “standard” economic analysis, its his critics who are making the more fundamental, theoretical error.
“To me, when the government spends money, stimulates the economy, hires people who spend, that stimulates more private investment. That remains, and at the next year, you’re starting at the higher level,” he told Wolfers.
Economist James Galbraith came to Friedman’s defense today, echoing Friedman’s framing in a post that appeared on Naked Capitalism. “Suppose a temporary jobs program establishes an employment history and income stream for a household, sufficient to make them “creditworthy” going forward, when they weren’t before and would not have been otherwise. In that case, the higher level of activity initiated by the public program devolves upon and can be sustained by the private sector afterward; you don’t return to the prior status quo even though the public program comes to an end,” Galbraith wrote.
Galbraith’s conclusion is that while “there could be a ‘math error’ in the Friedman paper,” the bottom line is that the controversy over the plausibility of his growth projections “have no bearing on the desirability of Sanders’ program, which consists of major structural reforms in health care, education, and public investment, in public governance and in the distribution of the tax burden.”
Economist Jeff Faux, who helped establish the Economic Policy Institute, also jumped to Friedman’s defense this weekend and called into question the motives behind the attacks on his analysis, particularly from people who have moved from their perches in the Clinton and Obama administration into comfortable jobs serving the corporate and financial sectors.
“His program is not being attacked because of fear that he is endangering the ‘progressive economic agenda.’ Rather it is being attacked out of fear that he actually believes in it, thus exposing the cynicism behind the Democratic elites’ showy concern for the poor and middle class that hides the shallowness of their commitment,” he wrote.
Sanders, Faux wrote, is deliberately pushing the boundaries of the politically acceptable, including the boundaries of the academic infrastructure that justifies how political boundaries are drawn. Instead of a message that essentially tells voters to “shut up and lower your expectations,” Faux concludes that “Sanders’ campaign is about raising expectations to the point where people won’t put up with this debasement of democracy any more. Such a concept is, of course, well over the head of cynical bean counters whose arithmetic – sadly, of course, even at times tearfully – always sums to the same political conclusion: there is really not much you can do about who gets the beans.”
For people following this debate, and who might have to reduce it down to plain-speak to their friends, here’s some advice: No economic model perfectly predicts the future. But we do know a lot about the mistakes that brought us to the present. We can choose leadership that doubles down on those mistakes, a leader that acknowledges some of the mistakes but does not dare to make drastic changes, or leadership that sees that an economy that has drastically gone askew needs a bold correction to set things right. Yes, the numbers have to “add up” when charting the course toward making the vision real, but get the vision wrong and the numbers don’t matter.