Links on the Kerfuffle about Friedman’s Sanders Analysis

There’s been quite a fuss about our columnist Jerry Friedman’s analysis of the macroeconomic effects that implementation of all of Bernie Sanders’ proposals would have. (The analysis was the basis of two of Jerry’s recent columns for us, here and here.) Here’s a minimally annotated round-up of articles and blog posts related to the kerfuffle:

Jackie Calmes, New York TimesLeft-Leaning Economists Question Cost of Sanders’s Plans I linked to this in my last blog post; this article mentions Jerry Friedman and his analysis, but doesn’t quote him (they apparently didn’t contact him before running the piece–I am sure he would have spoken to them if they had!). The piece also makes it sound as if Jared Bernstein, about the only truly left-leaning economist they quote, is harsher on Friedman than he is, and even more misleadingly, that he is skeptical of Sanders’ plans (more on this below).

Dean Baker, Beat the Press, NYT Invents Left-Leaning Economists to Attack Bernie Sanders.  Lots of good points here critiquing the Calmes NYT piece, especially how the people they quote aren’t leftists, and in one case (Ezra Klein) not an economist.

Doug Henwood, FAIR blog, NYT Rounds Up ‘Left-Leaning Economists’ for a Unicorn HuntAlso a very good critique of the Calmes NYT piece, plus a great new metaphor for hippie-punching–the “unicorn hunt.” Since the kerfuffle really blew up, though, Henwood has been harsh about Friedman on Twitter, calling his analysis “embarrassing.” (Henwood finds Jerry’s the growth-rate projections “risible.” Ouch, comrade.)

Alan Krueger, Austan Goolsbee, Christina Romer, Laura D’Andrea Tyson, An Open Letter from Past CEA Chairs to Senator Sanders and Professor Gerald FriedmanHere is the real driver of the kerfuffle. It is amazing that they take Friedman to task for growth projections that they say are not credible (and take Sanders to task for relying on them–though the Sanders campaign did not commission this analysis), but they don’t give any specific empirical criticism of his analysis. Instead, they fault Sanders/Friedman for making projections that are outlandish in the way that GOP projections standardly are. (But see below–many observers have defended Friedman on this score.)

Jim Tankersley, at WashPo’s Wonkblog, The economist who vouched for Bernie Sanders’ big liberal plans is voting for Hillary Clinton.  Ok, this is just weird. Not an entirely unsympathetic article, but I wish Jerry were more careful not to feed into Clinton’s “one-issue candidate” talking point. (“I agree with Bernie on economic issues, but there are other issues.”)

James K. Galbraith, open letter (dated February 18) to Kreuger, Goolsbee, Romer, and Tyson (posted here). A lengthy response, starting by taking them to task for not providing any substantive critique or analysis of Friedman’s research: “You write that you have applied rigor to your analyses of economic proposals by Democrats and Republicans. On reading this sentence I looked to the bottom of the page, to find a reference or link to your rigorous review of Professor Friedman’s study. I found nothing there.” Then there are a couple of pages of analysis defending Friedman’s analysis and methods. (“There is no ‘magic asterisk,’ no strange theory involved here.” The conclusion: “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.”

Matthew Klein, FT Alphaville, “Extreme” doesn’t mean what it used to, Sanders vs the CEA.  This piece (which you have to be registered to see) explains why Friedman’s growth projections may not be as outlandish as Kreuger et al. suggest, using this chart, showing that Friedman’s optimistic growth rate under Sanders programs only brings the growth rate back to the 1984-2007 pre-recession trend line:

Sanders-growth-590x275

Matthew Yglesias, Vox, Top Democratic economists don’t think much of Bernienomics. He doesn’t care.  Surprisingly, a piece from Vox that is pretty sympathetic to Sanders and Friedman (though he identifies the parts of Friedman’s analysis that he thinks are implausible). Under the heading “Imperious dismissals only make Sanders stronger,” Yglesias writes: “It’s noteworthy that the former CEA chairs criticizing Friedman didn’t bother to run through a detailed explanation of their problems with the paper. 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.”

Nick Timiraos and Laura Meckler, Wall Street Journal, Democratic Economists Say Bernie Sanders’s Math Doesn’t Add Up. Reporting on the past CEA chairs’ open letter; does better than the NYT piece on reporting Jared Bernstein’s actual views. Requires subscription.

Jared Bernstein, at his blog, I Endorse…(No One!)  Does the best at explaining Jared Bernstein’s actual views. He thinks Friedman’s projections are overly optimistic, but he repudiates the CEA chairs’ comparison with Republican “fairy dust”: “I do give Friedman credit for running all of Sanders’ plans through a macro model, versus Republican candidates’ hand-waving claims that the power of their personalities leavened with massive sprinklings of supply-side fairy dust will generate GDP growth of 4, 6, 8 percent! But such models are a function of your assumptions, and his, including his multipliers, the sharp increase in labor supply and productivity, diminished health care inflation, and a passive Fed amidst all this stellar growth, all seemed way too sunny to me (I called them ‘wishful thinking’ in the NYT).”

Paul Krugman, his NYT blog, Worried Wonks.  (Plus he has two other blog posts on the kerfuffle.) What’s interesting about them is not what Krugman says (which is what you’d expected now that he is in Hillary shill mode) but how many of the commenters (more than three quarters, I would say) are unsympathetic to his siding with Kreuger, et al.

Kevin Drum, Mother Jones, The Sanders Campaign Has Crossed into Neverland. Another piece highly unsympathetic to Friedman, but with no actual counter-analysis–just name-calling (see below). Surprising, for MoJo and Drum.

Ryan Cooper, The Week, Why are big-shot liberal economists hippie-punching Bernie Sanders?  A vigorous defense of Friedman and Sanders. “Ironically, in the frenzy to destroy Friedman’s reputation, nobody actually explained in detail what the problems were with his paper. The CEA pronouncement had no data or economic argument at all — it was 100 percent political handwringing. Krugman gave a very brief gloss suggesting that Sanders couldn’t possibly get labor force participation back up to 1990s levels due to aging, and trying to do so would cause inflation. Kevin Drum gave a similar incredulous stare argument about worker productivity and GDP growth, pronouncing it ‘insane,’ worse than Republican ‘magic asterisks.'” Cooper does what the big-name wonks should have, and has a mixed assessment Friedman’s analysis. But his point is: “Friedman is just a professor who thought it might be interesting to game out the Sanders platform. He doesn’t work for the campaign, or have platoons of graduate students, think-tankers, or public relations experts at his beck and call. His major error, it seems to me, is that he didn’t realize he’d be walking into a buzzsaw of Clinton supporters if he didn’t fiddle with his numbers to make them look ‘sensible.'”

Mike Konczal Roosevelt Institute Rortybomb blog, In Praise of the Wonk: Dissecting the CEA Letter and Sanders’s Other Proposals. This is a nice discussion, which agrees with Kreuger, et al. that Democrats and the left need to have good policy analyses (hence “In Priase of the Wonk”), but takes them to task for not explaining why they reject Friedman’s idea that an expansionary policy could get us back to the historical trend of growth (he uses Klein’s graph from the FT Alphaville post). “To reject Friedman’s analysis, as the former CEA chairs do, seems to involve rejecting that component of the analysis. If so, they have an obligation to explain what happened to that potential output trend from 2007.” He discusses various possibilities, plausible and not.

J.W. Mason, at his blog, Can Sanders Do It?  A nicely argued defense of Friedman, by a former student of Friedman’s who now teaches at John Jay College. He says the discussion should focus on this question “Is it reasonable to think that better macroeconomic policy could deliver substantially higher output and employment?”, where many of Friedman’s critics have focused on whether Sanders programs will get us there, or on whether Friedman has just the right numbers. Mason: “Is it plausible that there could be 5 percent-plus real GDP growth and 300,000 new jobs per month over the eight years of a Sanders presidency? I think it is — or at least, I don’t think there is a good economic argument that it’s not.” He gets there via five points (with arguments for each point–read the post for the arguments):

  1. It’s not controversial to say that a historically deep recession ought to be followed by a period of historically strong growth.
  2. Friedman’s growth estimates are just what you need to get output and employment back to trend.
  3. In other contexts, it’s taken for granted that more expansionary policy could deliver substantially higher growth.
  4. Friedman’s projections are unreasonable only if you think the US is already at full employment.
  5. The argument against Friedman’s piece comes down to the claim that the economy is already close to potential.

Ron Baiman, Chicago Political Economy Group, posting at the D&S blog, The Poverty of Neoclassical Economic Analysis. I’ll give Ron the last word: “No one assumes that Bernie’s economic program will be passed as currently conceived. The fate of these proposals depends on the power of the ‘political revolution’ that the Sander’s campaign is leading. Like the Clinton campaign, the NC-economics trained, former CEA Chairs exhibit abundant ‘pessimism of the intellect” but no ‘optimism of the will’. This is not an economic debate. It’s a political and ideological debate that reflects the deep division in fundamental theoretical outlook between NC progressive and radical democratic socialist economists.”

This is all I have for now. I am sure there will be more.

The Poverty of Neoclassical Economic Analysis

By Ron Baiman, Chicago Political Economy Group

 

 

When I first got wind of the denunciation of Prof. Gerald Friedman’s Bernienomics impact estimates by prominent liberal Economists two questions came immediately to mind.  Who were these “liberal economists” and what were their objections?  A little googling around got me the first answer in a jiffy.  The liberal economists were four former Chairs of the Council of Economic Advisors (CEA) under Democratic Presidents Clinton and Obama: Alan Kreuger, Austan Goolsbee, Christina Romer, and Laura D’Andrea  Tyson.  It took more time and more work to establish the second answer.  According to their three paragraph letter, they: “are concerned to see the Sanders campaign citing extreme claims by Gerald Friedman” (Italics mine) that Bernienomics  could have: “huge beneficial impacts on growth rates, income and employment”  because these “exceed even the most grandiose predictions by Republicans about the impact of their tax cut proposals” and “no credible economic research supports economic impacts of these magnitudes”.

As Friedman’s  comprehensive and detailed analysis (56 pages with four Appendices, 22 Tables, and 12 Figures) uses public data and standard techniques to estimate the economic impact of 9 major policy, 11 Revenue Enhancement, and 6 regulatory, Acts or proposals raised by the Sanders’ campaign, I tried to find out what techniques, data, or estimation errors, the CEA’s objected to?  I was not able to find anything.  As Jamie Galbraith has pointed out in his excellent retort there are no specifics.  The CEA’s three paragraph letter presumes that Friedman’s report does not even warrant careful study as growth rates, income, and employment, have not reached these levels in recent years.  Adding insult to injury, the former CEA chairs imply that Bernienomics , and Friedman’s estimates of its impacts, is equivalent to Republican “Laffer Curve”  assertions that have never passed muster in any standard impact analysis of the kind that Friedman has subjected the Sanders proposals to.

As Galbraith, citing Mathew Iglesias  notes, the CEA’s appear to believe that their status entitles them to a blanket dismissal, without a shred of argument or analysis, of a standard economic analysis of a raft of economic proposals the scale and scope of which have not been seen since the New Deal. Far from being an “extreme” analysis, the Friedman study conservatively uses standard techniques such as those employed by the CBO, OMB and CEA to estimate economic impacts.  In another excellent retort Matthew Klein shows that real GDP growth rate projections of 5.3%  by the end of a Sanders second term (one of the Friedman estimates that the CEAs believe is not credible) is in line with pre-2007  estimates of long-term U.S. trend growth.  Klein points out that short-falls in government spending and residential construction can explain much of the gap.  But under Bernienomics government spending would undergo a massive increase so that it is not hard to imagine infrastructure and direct green energy job creation programs including housing and energy retro-fitting providing a more productive economic boost than pre 2007 residential housing construction – see for example CPEG jobs program.

Klein and Iglesias also both discuss the extra-ordinarily low post-2007 Emp/Pop ratio in the U.S. , see Figure 1 below:

Baiman-fig.1

The U.S. Emp/Pop ratio is more than 5% below its pre Lesser-Depression 2007 level.  This is a lot of labor market slack that could be drawn upon by large scale job creation programs that should be able to at increase employment above its pre-2008 level.    To the argument that changing demographics have made prior Emp/Pop ratios unobtainable, see Figure 2 below shows that the current ratio is roughly r3% below its demographically adjusted pre-2008 Emp/Pop ratio.  Paid Family leave, child care, equal pay, youth job programs, should significantly drive up the Emp/Pop ratio, whether this is measured after adjusting for demographics or not. As Klein points out, is it really that unrealistic to hope that we can achieve things are a reality in Canada?

Bernie’s economic program is exposing the long politically dormant deep fissure within economics between generally “progressive” economists who still broadly adhere to mainstream Neoclassical (NC) economic theory and “radical” economists who have long rejected core NC theory. I don’t know Prof. Friedman personally but he teaches at one of the five “heterodox,” or “radical” in U.S. economics parlance, Ph.D. granting economics departments in the U.S. The “radical” moniker stems from the name of the major professional organization of left leaning heterodox economists in the U.S. – the “Union for Radical Political Economics” (URPE).  Jamie Gailbraith is a prominent Post-Keynesian heterodox economist.  In contrast, the four former CEA Chairs all teach in mainstream NC economics departments that reject heterodox economics as unscientific value-laden deviance. To be fair the CEA foursome are known as political liberals who, like Paul Krugman,  another generally progressive NC economist, have often been stalwart supporters of politically progressive economic policies and principles, using data analysis that is indistinguishable for all practical purposes from that employed by radical economists.  But this time apparently, the structural economic changes that Sanders is proposing have simply gone too far for them.

Baiman-fig.2

The CEA’s blanket argument is that economic outcomes that have not occurred in the recent past are not possible.  This reminds one of the, similar, refusal of the vast majority of NC economists to contemplate the 2008 crash because this had never happened in recent history, and the optimistic estimates of the CEA, based on the average of post-war recessions, of the impact of the woefully inadequate Obama stimulus.  I believe that the former CEA chairs are, like 99% of economists in the U.S., a victim of the NC economic school that they have been trained in. They think of economics as an objective “science” and cannot accept the possibility that a fundamental change in the basic structure of the economy can lead to impacts that have not been seen in recent years, because they cannot accept the possibility of fundamental structural economic changes.  The New Deal raised U.S. real GDP growth rates by over 10% in years of government spending expansion.  Is 5.2% late in a second Sanders term unrealistic assuming these programs are passed?

And this brings me to my final point. No one assumes that Bernie’s economic program will be passed as currently conceived.  The fate of these proposals depends on the power of the “political revolution” that the Sander’s campaign is leading.  Like the Clinton campaign, the, NC economics trained, former CEA Chairs exhibit abundant “pessimism of the intellect” but little “optimism of the will”. This is not a technocratic economic debate. It’s a political and ideological debate that reflects the deep division in fundamental  theoretical outlook between NC progressive and radical democratic socialist economists.   For more background on this see my upcoming book: The Morality of Radical Economics: Ghost Curve Ideology and the Value Neutral Aspect of Neoclassical Economics (Palgrave, 2016).

Postscript  (2/21/2016)

Unfortunately, even politically liberal, mainstream or “Neoclassical”, economists do not believe that massive increases in effective demand, or other large scale public spending and policy measures, can produce lasting major and fundamental structural changes in the economy (in spite of the examples of the New Deal, WWII, etc. ). They also don’t accept Verdoorn’s law (which Friedman employs) in spite of numerous empirical studies and common sense validation: long-term growth in demand leads to increased investment and thus increases in productivity and by implication structural changes in the economy. NC “Keynesians” believe only in short-term Keynesianism, not in a long term principle of effective demand. To the extent that Friedman (rightly) employs a long-term “Post Keynesian” principle like Verdoorn’s law (in addition to all of the other standard techniques that he uses) he crosses a line that NC economists will not cross. I belatedly remembered after writing and posting this piece that Friedman had employed Verdoorn’s Law in his study of the long-term economic impact of Bernienomics.