The headline at CNN was surprising: “Under Sanders, income and jobs would soar, economist says”; the opening paragraph of their article even more so:
Median income would soar by more than $22,000. Nearly 26 million jobs would be created. The unemployment rate would fall to 3.8%.
Those are just a few of the things that would happen if Bernie Sanders became president and his ambitious economic program were put into effect, according to an analysis given exclusively to CNNMoney. The first comprehensive look at the impact of all of Sanders’ spending and tax proposals on the economy was done by Gerald Friedman, a University of Massachusetts Amherst economics professor.
Like Sanders, Friedman believes in democratic socialism. He also believes an unlikely series of events could happen: Sanders becomes president (very unlikely), President Sanders is able to push his plan through a GOP-controlled Congress (politically impossible), and then median household income magically rises to $82,200 by 2026 (the current projection by the Congressional Budget Office is that it’ll be around $59,300).
You would expect Republicans and conservatives to mock this type of wishful thinking. But some of the strongest criticism has come from a seemingly unlikely source: liberal economists who once chaired the President’s Council of Economic Advisers.
Alan Krueger of Princeton University, Austan Goolsbee of the University of Chicago Booth School, and Christina Romer of the University of California at Berkeley all chaired President Obama’s Council of Economic Advisers at different times during his administration, while Laura D’Andrea Tyson of the University of California’s Haas School of Business was the chair under President Clinton. The four published a rather scathing open letter to both Sanders and Friedman. Here is the full text of the letter:
Dear Senator Sanders and Professor Gerald Friedman,
We are former Chairs of the Council of Economic Advisers for Presidents Barack Obama and Bill Clinton. For many years, we have worked to make the Democratic Party the party of evidence-based economic policy. When Republicans have proposed large tax cuts for the wealthy and asserted that those tax cuts would pay for themselves, for example, we have shown that the economic facts do not support these fantastical claims. We have applied the same rigor to proposals by Democrats, and worked to ensure that forecasts of the effects of proposed economic policies, from investment in infrastructure, to education and training, to health care reforms, are grounded in economic evidence. Largely as a result of efforts like these, the Democratic party has rightfully earned a reputation for responsibly estimating the effects of economic policies.
We are concerned to see the Sanders campaign citing extreme claims by Gerald Friedman about the effect of Senator Sanders’s economic plan—claims that cannot be supported by the economic evidence. Friedman asserts that your plan will have huge beneficial impacts on growth rates, income and employment that exceed even the most grandiose predictions by Republicans about the impact of their tax cut proposals.
As much as we wish it were so, no credible economic research supports economic impacts of these magnitudes. Making such promises runs against our party’s best traditions of evidence-based policy making and undermines our reputation as the party of responsible arithmetic. These claims undermine the credibility of the progressive economic agenda and make it that much more difficult to challenge the unrealistic claims made by Republican candidates.
For now let’s set aside the partisan sniping (we’ll come back to that in a moment) and any questions about their motives (sure, they most likely all support Hillary Clinton for president) and highlight something we can all agree on: Government decision making should be based on “evidence-based economic policy” and that partisans should call out their own side for supporting policy that is contrary to the evidence.
Most reasonable people will nod their head and agree that this is a reasonable standard. Yet it is a standard that is rarely used by either liberals or conservatives. Too often both sides allow the public to remain confused about the actual evidence in order to achieve a political objective.
Take, for example, the Democrats support of minimum wage laws. The clearest evidence we have is that it disproportionality affect African Americans. That’s not really disputable.There is also almost a universal agreement that it won’t do much at all to fix the problem of poverty. But economists do disagree about the effects of small increases in minimum wages (less than 20 percent), and whether it mostly helps or mostly hurts the working poor.
If it were truly the case that the Democratic Party is “the party of evidence-based economic policy,” then we would have Democratic politicians admitting that while minimum wage increases harm African Americans and don’t do much to fix poverty, we should nevertheless support small increases.
Instead, the party is fully behind an increase from $7.25 an hour to $15 an hour — a policy position that absolutely cannot be justified by an appeal to the evidence. So why do liberal economists mostly remain quiet about the damaging effect the increase would have? Because (a) the policy is popular with the party’s voters, and (b) there is almost no chance the voters will realize that policy is economically destructive.
Even those who are affected the most — low-skilled poor workers — aren’t going to connect the dots and recognize the reason they can’t find jobs is because they have been priced out of the market because of a government-mandated wage floor increase. Unless liberal economists tell them the truth (assuming they won’t listen to conservatives) they will remain blissfully ignorant about the real effect of the $15 minimum wage.
Similarly, conservatives have taken an evidence-based approach to taxes and skewed it for political reasons. Take, for instance, the Laffer curve, a representation of the relationship between rates of taxation and the resulting levels of government revenue. The concept, popularized by economist Arthur Laffer, seem rather obvious: no tax revenue will be raised at the extreme tax rates of 0 percent and 100 percent and that there must be at least one rate which maximizes government taxation revenue. Theoretically, that rate could be anywhere on the curve, but it’s assumed that in the U.S. the rate is somewhere above 50 percent (and maybe even above 70 to 90 percent).
Another obvious implication of the Laffer curve is that if the rate is to the right of the optimal percentage, lowering the rate will increase government revenue. Yet somehow this conclusion was transformed and dumbed-down into the idea that “lowering taxes raises government revenues.” Even now, when the marginal tax rates are below 40 percent (a rate far lower than most respectable Laffer curve enthusiasts would say is the peak rate), some conservatives still falsely believe that if the government would simply cut tax rates even more, it’d reduce the deficit.
Part of the reason this misguided belief persists is because some conservative economists (and economically minded conservatives) support lowering taxes for other reasons, and this mistaken idea, while wrong, is politically useful in achieving that goal.
This type of politically partisan expediency is something all Christians should reject. Whether we are on the left or right, Christians should be strong partisans for the truth. We may draw different conclusions about economic evidence or even disagree about what counts as evidence. But we should not make unjustifiable claims about what the evidence is or falsely present the implications simply because it increases the chances of our side winning elections.
Economic policy affects people’s lives, which is why we should be careful to have solid reasons for the policies we support. If we truly love our neighbors, we won’t support economic policies we know have no relation to reality.
Addendum: John Cochrane agrees the heart of the letter is “worthy, and commendable” but calls out the unnecessary partisanship of the CEA chairs:
Oh. I thought you were simply doing what all good economists, do, all good CEA chairs do, and you were working to make evidence-based policy a routine feature of all government policy under all administrations. I thought you were working for the benefit of the country, not just the Democratic party.
Economic Thinking for the Theologically Minded provides an introduction to what has been called "the economic way of thinking." This involves explaining some of the critical concepts and foundational assumptions employed in economics.