Pro-Growth Republicans Revisited

September 9th, 2008

In comments on my recent post—which discusses how the economy performs (much) better under Democratic presidents—my friend Steve uses a few different rather familiar arguments to undercut the import of the facts imparted therein.

He claims first that presidents don’t have any effect on taxes and such—that congress controls the purse strings. But he acknowledges at least:

Reagan had influence for sure

Even though Reagan had a Democratic congress. So, can we stipulate to the fact that presidents at least predominate on tax policies? That, for instance, Reagan and Bush II cut taxes, while Bush I and Clinton raised them?

That the Reagan revolution has had a profound effect on tax levels for the last twenty-eight years?

And proceed to look at how those actual economic actions have played out, empirically?

Back to my previous post: the empirical results are clear.


You can’t argue away deadweight losses using cherry-picked statistics.

1. I’m not arguing away deadweight losses (see below). That’s a straw-man argument.

2. These are not not cherry-picked results about this year or that year, this administration or that administration. They’re big-picture, long-term views, and as such they’re the best indicators we have from which to draw conclusions. Add to them the many multi-decade cross-country analyses detailed in my previous posts.

These are the best long-term, big-picture facts we have.

Dropping down from that big empirical picture to a particular aspect of theory: deadweight loss. It exists, or course, but not in isolation. Mankiw’s discussion in Chapter 8 of his textbook rather conveniently ignores (at least) two things.

1. The positive effects of government spending (which of course is dependent on taxes unless you’re a Republican)—particularly investment spending. As a big champion of “dynamic scoring,” it seems hypocritical for Mankiw to ignore an obviously huge effect, while clamoring to consider its opposite effect.

2. In his sidebar, The Deadweight Loss Debate, Mankiw takes an approach that’s common among right-wing economists. He details the mechanism of the substitution effect at length, but completely ignores the income effect (among others). This heavily tilts the rhetorical scales toward an elastic labor supply and a high deadweight estimate.

I say familiar because I had a lengthy email conversation with a Cato economist recently, and despite repeated queries, couldn’t get him to even acknowledge that the income effect exists.

This is like a climate scientist going on at length about increased humidity as a greenhouse increaser, but ignoring the reflective effect of clouds.

Likewise, right-wing economists enthuse about the invisible hand, but refuse to discuss the tragedy of the commons.

Centrist economists acknowledge and attempt to incorporate all these effects—income, substitution, government spending, deadweight loss, invisible hand, and tragedy of the commons (though of course they differ on their relative strengths and interactions).

Who is most likely to deliver an accurate model: the one who includes or ignores cloud reflectivity? Who’s the most judicious, centrist, and reasonable?

Who’s likely to deliver the best economic results? The one with a more complete, accurate model, or the one with a model ignoring major factors?

The empirical results are in.

Mankiw says that we should ignore all those messy empirics, and go with intuitively appealing theories—but only the intuitively appealing theories that support his a priori beliefs.

Everything we need to know, we learned in kindergarten—or Econ 10.

Clear-eyed economists have taken the field somewhat further—incorporating the full scope of economic theory, and giving credence to the actual “facts on the ground.”

Their conclusions are clear: progressive policies work better—for everyone (except the very rich).

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