Ezra Klein & The Megamind: Lower Your Economic Expectations
Left wing journolister, Ezra Klein, posted an article yesterday wherein he argues that the economy will continue to suck, we should all prepare for tax hikes, and Pawlenty is lying. He comes to his authoritative conclusion by consulting an economic megamind consisting of people made famous for being wrong, and/or being tied to Think Progress, but I repeat myself.
Ezra begins his article by having Jared Bernstein define the economic speed limit as, “the growth rate of productivity plus the growth rate of the labor force”, no problems here really. I am sure Ezra would have liked more from Bernstein, but then he’s the other name on the infamous Romer-Bernstein graph on the effects of stimulus on unemployment…
This graph is what led to Okun’s Law being spun to create the Orwellian concept of jobs ‘Saved or Created’.
Our next Klein megamind member , Clinton appointee to the Fed and early Cash for Clunkers proponent, Alan Blinder picks up Okun’s Law and applies it with a fixed constant, building a nice straw man he can then knockdown. There is a relation between growth and unemployment just as there is between taxation and revenues, and just like the Laffer curve, this relationship is qualitative not quantitative.
“Trend growth is three percent or so, five percent growth would be two percentage points higher[ed. note Wow! Did you see those wicked math skills?? -AG], which should cut the unemployment rate by about one percentage point per year. So after 10 years, it will have fallen from nine percent to minus-one percent. Nice trick!”
I’ll admit to being an economic simpleton, but even so I believe there to be a obvious flaw and fundamental disconnect here. I’ll quote someone far brighter than I am to make the point, long time contributor to RedState and frequent guest of Coffee & Markets, Francis Cianfrocca…
The real unstated piece here is that the economy is currently performing far below capacity. According to a study quoted by Jack Welch, we could grow GDP by something like 12% without adding a single new job.
And you’d better believe that if the opportunity ever comes to add that growth, that’s exactly how the guys running the big companies will do it.
So the simple Okun’s Law multiplier that Alan Blinder is obviously quoting isn’t operative anymore. That’s one problem.
So, while Ezra and the megamind are talking about the speed limit set by Okun’s Law they’re totally disregarding the fact that the economic policies of the current administration have us moving about 15mph under the speed limit like some weirdo riding a bicycle while wearing mom jeans. We will have to have growth just to get to capacity, after that we can have real growth and talk about the effects of Okun’s Law as a rule of thumb.
Rounding out Klein’s megamind, and source for various left wing talking point regurgitators, is Think Progress’ Michael Linden and his deep analysis of Pawlenty’s tax plan. Linden is a fine fellow from the Center for American Progress, and Ezra assures the reader that his models are “[t]he most respected tax models.” Based on these models, Klein argues that the tax cuts in Gov. Pawlenty’s plan will decrease revenue and result in a deficit of $8.4 trillion, even with an 18% cap on spending.
Oh dear! That sounds bad, doesn’t it?
I went down the rabbit hole of links from Klein to Linden, there I found that the models came from the Tax Policy Center’s analysis of Paul Ryan’s plan. Linden had just multiplied it by two. Lot’s of heavy lifting there Michael, make sure you don’t get a hernia. The point I will make about these “most respected tax models” is simple, and in fact the Tax Policy Center made the point first…
The table does not estimate the revenue effects of the entire FY 2012 Budget Resolution proposed by Rep. Paul Ryan (R-WI). The proposed resolution includes measures to broaden the individual and corporate tax bases, but lacks sufficient detail for an estimate including those provisions.
Because they can’t quantify the broadening of the tax base they assume it to be zero. The model is inherently flawed, and cannot be trusted as an accurate prediction of what our revenue would be if the base broadening measure were enacted. And this doesn’t even touch on the growth effect that other policies, not directly related to taxation, would have on our economic productivity. Multiplying it by two and changing your target to Pawlenty doesn’t change the inherent flaw.
If the Klein megamind had ever bothered to read the works of people like Burke, they’d have realized that economic freedom is the seed from which prosperity and economic growth sprouts…
And what is the soil or climate where experience has not uniformly proved that the voluntary flow of heaped-up plenty, bursting from the weight of its own rich luxuriance, has ever run with a more copious stream of revenue than could be squeezed from the dry husks of oppressed indigence by the straining of all the politic machinery in the world?
Lowering the tax and regulatory burden on producers and job creators while also limiting congressional spending will have a demonstrably positive effect on economic growth in the United States. Creating an environment where business is embraced rather than squeezed will undoubtedly lead to greater employment and growth opportunities as well.
The Klein megamind doesn’t get these simple facts of life, or doesn’t want to. Unfortunately for them, that just results in their continued beclowing all over the internet. Especially Ezra Klein, who closed out with what I can only imagine was an attempt to pierce the space time continuum and send a message to himself on the morning of Nov 4th 2008…
Let me be clear: If there’s any presidential candidate out there who can force the unemployment rate below zero and cut the deficit by 40 percent before we need to make a single spending cut, he or she has got my vote. But there isn’t. There’s just a presidential candidate saying he can do these things and hoping voters don’t look closely enough at the numbers to call him on it.
Aaron B. Gardner
P.S. As I was adding Tags to the post I got to Bernstein and my mind did an automatic word association which reminded me to include ‘Unemployment’ as a tag. Thanks Jared, you are the gift that keeps on giving.