Monday, July 9, 2012

Yet Again, Robert J. Samuelson Proves He Is No Economist

In today's Washington Post, the regularly execrable Robert J. Samuelson yet again proves that the only reason anybody thinks he is able to write anything intelligent about economics is because they mistakenly think he is related to the late Paul A. Samuelson.  He blames economic advisers of JFK in the 60s, one of whom unofficially was in fact the better Samuelson, for our economic problems today, pretty much all of them in fact, although in particular our high debt/GDP ratio and supposedly resulting inability to get our economy going again. It was those darned neo-Keynesians back in the 60s whispering in JFK's ears all their heresies about deficit spending being OK!

Now, our old friend Dean Baker does an excellent takedown of this remarkably silly column at .  Among other things he points out that the debt/GDP ratio continued to decline for more than a decade after JFK's tax cuts, and that it was with the Reagan presidency that it began to rise.  Also, it declined under Clinton, but rose again afterwards under Bush, Jr. and now Obama, although RJS somehow never mentions the names of either Reagan or Bush, Jr.  They are missing actors in his tragicomedy.

So, I want to pile on more, mostly by just pointing out some further absurdities in the column.  The first is that he does not recognize that those advising JFK were never of the "deficits don't matter" school.  They always argued that one should watch the debt/GDP ratio and the costs of servicing the debt as well.  They also tended to be of the "balance the budget over the business cycle" view, and indeed the column itself shows evidence of this.  It is in the citing of LBJ's income tax surcharge that came into effect in 1969, motivated by a desire to restrain emerging inflationary pressures, which led to a budget surplus that year.  This clearly reflected the views of this old group of neo-Keynesians who argued that one should use short-term fiscal fine tuning to control aggregate demand. 

There were two clear problems with this outdated view.  One was that people do not respond nearly as strongly to policies announced to be short term than to ones announced to be long term, particularly involving tax changes in either direction, although they do respond somewhat.  The other is that there is a political asymmetry regarding fiscal policy that has only gotten more extreme over time: it is much easier to engage in expansionary fiscal policy than to do the opposite.  That LBJ made his income tax increase a temporary surcharge was an early sign of this, which is now much more fully entrenched with the Grover Norquist-enforced total GOP opposition to any tax increases.

This shows up further in RJS's sneering remarks about the surpluses during the Clinton years of 1997-2001.  He says they only occurred because of high economic growth and were unexpected.  There is some truth to this, but it is way over-exaggerated and ignores the enormous efforts that Clinton made to move the budget towards balance.  His economists were projecting reaching a balanced budget by around the end of his presidency, which RJS should recognize, and that the balance did better and went into surplus was indeed due to high growth.  But, the cost of Clinton's efforts were that the GOP took control of Congress in 1993 after not a single one of them voted for the tax increases that Clinton implemented in order to undo the wild deficits of the Reagan era, with most of them loudly forecasting a major recession, which most certainly never happened, although none of them have ever admitted how totally wrong they were.

In any case, none of this is noted by RJS, and he certainly does not mention how we fell from the period of Clintonian surpluses into our current condition of a rapidly rising debt/GDP ratio.  It was the Bush wars and tax cuts, followed by our plunge into the worst recession since the 1930s, also somehow not mentioned by our wise columnist.  I remember the Bush team citing Reagan and his claims that tax cuts pay for themselves (although Cheney more honestly declared that "deficits do not matter"), not the long lost neo-Keynesian advisers of JFK.  Maybe today Obama is harking back to them a bit, but he has indeed inherited an awful situation, and saying that the fiscal problems he faces are due to JFK and his advisers rather than Reagan and Bush, Jr. and their advisers is really a scandalous distortion of history.


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