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July 29, 2006
Fifty Percent Less Disagreement Than Meets The Eye
What proportion of students will be able to follow the syllogism?
- Tax relief is good for growth only if the tax reductions are financed by spending restraint.
- The Bush tax reductions have been financed not by spending restraint but by borrowing.
- The Bush tax reductions have been bad for growth.
I hope the answer is none, because one of the premises is irrelevant. The question is not have the tax cuts been financed by spending cuts, but rather will they be financed by spending cuts. Brad's expectation may be reasonable given the politics of the situation, but you obviously cannot draw conclusions by assuming a condition that has yet to be determined.
Today, Professor DeLong responds:
It's possible that there are huge spending cuts relative to GDP in our future. It's not terribly likely.
Uh, gee. Isn't that exactly what I said? OK, I'll always accept the possibility I just wasn't clear enough, but I'm not sure where this comes from:
If I were Macroblog, I would say, instead, that the Bush tax cuts are good for growth because in response to the tax-cut magic the Growth Fairy will appear, wave her wand, and instantaneously boost labor productivity by 5%. That seems more likely than Macroblog's scenario.
I wasn't aware that I was proposing any scenario. I was really making a pretty simple, and minor, observation. The Treasury analysis in question was based on assumptions about what policy might be in the future, not on what policies are already in place (which I think everyone agrees are incomplete). Brad built a syllogism on a premise related to current and past policy, which is quite beside the point of the analysis. If the premise had been "The Bush tax reductions will not be financed by spending restraint..." I would have been perfectly happy (although I might still have suggested that opinions remain distinct from facts).
In the balance of my original post I waxed enthusiastic about Menzie Chinn's assertion that seriously evaluating spending reductions requires that those cuts be explicitly identified. And as I noted above, I did in fact say that the "Brad's expectation [that taxes will have to be increased] may be reasonable" and coupled that with a call to combine that conclusion with advocacy for a broader look at how the tax system can be made more conducive to enhanced economic performance. How that adds up to a belief in some magic tax-cut Growth Fairy is beyond me.
Brad goes on:
... only tamed economists give politicians credit for policies the politicians won't propose. It muddies the waters and degrades the quality of debate to do so.
I think that there is a knee-jerk tendency to assume that any objection to someone's criticism of a policy is the same thing as an endorsement of that policy. It is not. So, for the record: I endorse no blanket solution to bringing the government's budget back into balance. I am highly skeptical of the proposition that it can be done by reducing spending alone. I am also highly skeptical of the proposition that simply reversing the Bush tax cuts is the best possible answer. And I am 100% in agreement with the DeLong appeal that "the Bush administration propose a policy mechanism--like the Budget Enforcement Act, say--to cut discretionary and entitlement spending, title by title, as shares of GDP starting in 2010". There a quality debate awaits.
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