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It's time to spin the Big Wheel for April Fools' Day! Who will it be this year? Cliff Asness? Doug Henwood? Niall Ferguson? Donald Luskin? David Graeber?... No! The Big Wheel stops on... John Cochrane!
Alas! The smart Martin Sandbu has been sold a pile of horseshit by the clown John Cochrane. (No: I don't know why John Cochrane decided to become a clown in 2007, and has remained a clown without interruption since. But we describe the world as it is, not as it ought to be.)
Martin Sandbu: Free Lunch: Can the US return to high growth?: "There has been much harrumphing about Jeb Bush's pledge to target a real economic growth rate of 4 per cent... so far beyond the realm of possibility as to be irresponsible.... John Cochrane begs to differ.... From the 1950s to 1973, growth fluctuated around, yes, a 4 per cent average annual rate. For the next three decades it averaged between 3 and 3.5 per cent except for the early 1980s.... Cochrane's conclusion... "avoiding a recession and returning to pre-2000 norms gets you pretty close".
The scorn that the idea has received elsewhere is no doubt a reaction to its somewhat crank pedigree. But it also reflects a certain disregard for the historical record. Mother Jones claims no president since FDR has managed to sustain a 4 per cent average growth rate throughout his presidency. But this is just false. Truman, Kennedy and Johnson all did: Notice a pattern there: the best growth spurts all happened under Democrats. In fact, with two exceptions, every postwar Democratic president has overseen faster growth than every Republican one. The first exception is the second-worst performing Democrat, Jimmy Carter, who with 3.3 per cent was pipped to the post by Ronald Reagan, the best-performing Republican with 3.5 per cent. The second exception is Barack Obama, who was elected seven weeks after the collapse of Lehman Brothers triggered the worst financial crisis since Harry Truman was a county court judge. This prompts two thoughts. The first is that 4 per cent may be hard, even unrealistic, but certainly not impossible. The second is that Democratic presidents - and by extension, Democratic policies - have been historically much more successful at making it a reality (Obama's record, shaped by the financial crisis, is hardly representative). And there is good reason to think this may still be true. Raising growth from its lacklustre rate means bringing output closer to its potential in the short term and raising the potential growth rate in the long run. The short-term imperative involves fiscal and monetary stimulus - ie worry less about the budget deficit and don't tie one arm behind the Federal Reserve’s back. These are positions more associated with Democrats than Republicans, to put it mildly. The long-term goal can only be achieved with contribution from all the components of GDP growth: faster productivity growth, faster population growth and greater labour force participation. That observation immediately invites more policy ideas to warm a liberal's heart: boosting public infrastructure, a more open immigration policy and copying the countries that are most successful at getting people into employment: Canada, Germany and the Scandis. Indeed getting the US employment rate to the Swedish level over 10 years would entail a 1 percentage point higher growth rate a year in that period, other things being equal. Why, then, are liberal economists and policy types so up in arms against a 4 per cent target? One possibility is the fear expressed in Carole Binder's intelligent blog: targeting the growth rate may favour short-termist stimulus to boost growth rather than a long-term measure. But that could be a whole lot better than the status quo - at least if it involves broad fiscal and monetary stimulus rather than Florida-style housing bubbles. A "high-pressure economy", which prominent centre-left economists call for, may well make longer-term structural policies easier, too. Another possibility is the fear that a Jeb Bush administration would use the 4 per cent target to push through policies, such as tax cuts for the rich, that they claim will raise growth but don't. If that's the reason, it reflects a sad lack of political confidence. A more inspiring response to Jeb Bush's growth target would be to match it and try to force the politics to be about which policies are most likely to achieve the goal. On the current state of US politics, that's a fight that the centre-left can and should win.