James K. Galbraith* has now made a public response (that link is required reading) to the letter from the 4 former Democratic CEA chairs. On that list of 170 economists that support Sanders, Galbraith is one of those ones I’d heard of before (note that due to the similarity of names, it can be hard to separate this man’s work from his father’s when doing casual searches on the internet).
He makes some good points:
I respond here as a former Executive Director of the Joint Economic Committee – the congressional counterpart to the CEA.
He’s throwing some professional weight around there. Frankly, this sounds good, but is not as impressive as being CEA chair. This position is prestigious, no doubt. But there’s some semantics involved. He was E.D. of the Joint Economic Committee of Congress, which is an office full of economists who report to the Joint Economic Committee in Congress that’s actually made up of senators and representatives from both parties (like any other committee). Typically the chair of that is a senator, always from the party with the majority, and usually the one with the most seniority. That person gets to select their chair, who is usually an economist from their state, or connected to it.
It may be instructive to learn here how I got students who’d been through this class jobs at the JEC back in 2002-4. In 2002, Republicans controlled the Senate, and Utah’s Senator Bennett chaired the committee. Bennett chose a guy with tenuous Utah connections (I think he was LDS but I’m not sure) who lived and worked in Philadelphia. I had known this guy from conferences for several years. He knew I’d moved out to SUU in 2001, and was interested in getting a job here (that window didn’t open for several years, and by then he’d moved on to other opportunities). I have no illusions that he was cultivating that link in his network … so I got him to hire a few of our students first as interns and then one as a staff member because she acquitted herself very well based on this very class. But, let’s be realistic: was she better than all the other recent college graduates that year, and was my connection a better economist? No. It’s all politics. So back to Galbraith: he’s name dropping, and the name he can drop is a big deal, but it’s not as huge a name drop as the 4 CEA chairs, and it’s not even close.
Galbraith then quotes columnist Matt Yglesias:
To them, the 5.3 percent figure was simply absurd on its face, and it was good enough for them to say so, relying on their authority to generate media coverage.
He’s absolutely right. And you know what: this is pretty much the argument I used in class on Friday too. I plead guilty.
In class, I let a student get away with dissing on this next point, and I should have known better. That student was not correct: on a January to January annual basis, we haven’t hit 5.3% real GDP growth since 1984.
Galbraith goes a little further:
So, let's first ask whether an economic growth rate, as projected, of 5.3 percent per year is, as you claim, “grandiose.” There are not many ambitious experiments in economic policy with which to compare it, so let's go back to the Reagan years. What was the actual average real growth rate in 1983, 1984, and 1985, following the enactment of the Reagan tax cuts in 1981? Just under 5.4 percent. That's a point of history, like it or not.
You’ll note that this isn’t very specific. That’s not a bad thing here. He’s right. But there are a lot of variables here, so I’m not sure which quarters or years he measured this over exactly. If you pick the right set of continuous quarters, you can actually show that growth was as high as 6.6% over a period of several quarters that includes at least some of 1983 and 1985, and all of 1984 in between. (This calculation is kind of complex, but if you’re an Excel jock I will send you my spreadsheet where I worked this out).
Galbraith then argues that the CEA chairs are hoisted by their own petard:
You write that “no credible economic research supports economic impacts of these magnitudes.” But how did Professor Friedman make his estimates? The answer is in his paper. What Professor Friedman did, was to use the standard impact assumptions and forecasting methods of the mainstream economists and institutions. For example, Professor Friedman starts with a fiscal multiplier of 1.25, and shades it down to the range of 0.8 by the mid 2020s. Is this “not credible”? If that's your claim, it's an indictment of the methods of (for instance) the CBO, the OMB, and the CEA.
That multiplier of 1.25 is smaller than the one the Obama White House used to justify the 2009 stimulus package.
Then Galbraith drops a real bombshell that I can neither confirm nor deny:
… [You} imply that Professor Friedman [the guy who crunched the numbers for Sanders] did his work for an unprofessional motive. But let me point out, in case you missed it, that Professor Friedman is a political supporter of Secretary Clinton. His motives are, on the face of it, not political.
For the record, in case you're curious, I'm [Galbraith] not tied to Professor Friedman in any way. But the powerful – such as Paul [Krugman] and yourselves – should be careful where you step.
Lastly, he makes a broad point, parts of which concur with my blog post which we covered in class on Friday:
Let's turn, finally, to the serious question. What does the Friedman paper really show? The answer is quite simple, and the exercise is – while not perfect – almost entirely ordinary.
What the Friedman paper shows, is that under conventional assumptions, the projected impact of Senator Sanders' proposals stems from their scale and ambition. When you dare to do big things, big results should be expected. The Sanders program is big, and when you run it through a standard model, you get a big result.
That, by the way, is the lesson of the Reagan era – like it or not. It is a lesson that, among today's political leaders, only Senator Sanders has learned.
This also relates to my in class response on Friday to the question (I think it was from Brandon) about the largest proposals for increasing the minimum wage. All of our evidence on the effects of minimum wage increases is from much smaller increases. We can extrapolate that to large increases, but we’re making a leap of faith that the relationship extends out that far linearly. Sometimes that’s true, and sometimes it’s not (the most famous example is that the launch and disaster of the space shuttle Challenger was based on a linear extrapolation into unknown territory). Maybe Friedman is right: do you feel lucky this year?
* This is not the (John Kenneth) Galbraith that was really famous 40-50 years ago. It’s his son. That Galbraith worked in the Roosevelt, Truman, Kennedy, and Johnson administrations, was a Harvard professor, and mainly wrote non-fiction bestsellers about economics, government, and society. A bunch of them were required readings in various classes of mine when I was an undergraduate. I think it’s fair to say that the economics profession or wider society view them as not improving with age.
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