Dear Citizens and Elected Officials:
The great economic dispute continues to grow, and rightly so in my view. It began a few days ago when four prominent economists who worked for Presidents Bill Clinton and Barack Obama attacked an economic “colleague,” Gerald Friedman of the University of Massachusetts, Amherst, and the high GDP growth rates he found when he “vetted - ran the numbers” on Bernie Sanders’ economic policies. It was a nasty attack both on Friedman professionally (who ironically leans towards Clinton) - and Sanders’ politically. Now Yves Smith at Naked Capitalism and Bill Black, of the University of Missouri, Kansas City have weighed in to defend those who have been assaulted, here www.nakedcapitalism.com/… and here www.nakedcapitalism.com/…
Why should this matter to citizens and voters? It matters because rightly or wrongly, economics has assumed a role, with high scientific and professional pretensions surrounding it, as the indispensable policy dispenser and certifier sitting right next to Presidents, and contenders for that high office.
This comes at a time when the reigning world view in economics — neoliberalism — I like to call it “Market Utopianism" - dominant since the late 1970’s — has undergone a huge shock in 2008-2009 when 99.9% of professional economists failed to see the Great Financial Crisis coming, a lapse so great the Queen of England formally asked them to give an accounting of their failures. And as the “real world” economy has, since the Asian crisis of 1997, grown increasingly unstable.
But that hasn’t dented the prestige and arrogance with which the “major names” banish and mock the growing number of dissidents within the profession. I comment at , and have recently been invited to post at, one such site for dissenting professional economists (I am not one myself, I am self-taught), the Real World Economics Review blog, but there are a growing number of others. Gerald Friedman works at one of the “dissident” academic outposts, the University of Massachusetts, and Bill Black, Michael Hudson, L. Randall Wray at another, the University of Missouri at Kansas City, which loaned its Department Head, Stephanie Kelton, at the request of ranking Democratic member Bernie Sanders, to the Senate Banking Committee, for her to become Chief minority staff economist. And James Galbraith has been writing fine books for the serious public for the past decade or more, and I’ve learned a lot from them, but most of the time, despite consulting abroad for governments, he has been banished to the economic wilderness. He does get a lot of awards and speaking engagements, though — in Europe.
The New York Times gave prominent place to the attack of the four on Sanders and Friedman, but I haven’t seen a single reference to Galbraith’s fine letter, nor Bill Black’s coming to the defense today. The public has a right to know of Galbraith’s points, and his courage in taking on such “lofty” figures: So here is the original “attack letter," and then Galbraith's reply, and last, my protest letter to the public editor at the Times:
An Open Letter from Past CEA Chairs to Senator Sanders and Professor Gerald Friedman
Dear Senator Sanders and Professor Gerald Friedman,
We are former Chairs of the Council of Economic Advisers for Presidents Barack Obama and Bill Clinton. For many years, we have worked to make the Democratic Party the party of evidence-based economic policy. When Republicans have proposed large tax cuts for the wealthy and asserted that those tax cuts would pay for themselves, for example, we have shown that the economic facts do not support these fantastical claims. We have applied the same rigor to proposals by Democrats, and worked to ensure that forecasts of the effects of proposed economic policies, from investment in infrastructure, to education and training, to health care reforms, are grounded in economic evidence. Largely as a result of efforts like these, the Democratic party has rightfully earned a reputation for responsibly estimating the effects of economic policies.
We are concerned to see the Sanders campaign citing extreme claims by Gerald Friedman about the effect of Senator Sanders’s economic plan—claims that cannot be supported by the economic evidence. Friedman asserts that your plan will have huge beneficial impacts on growth rates, income and employment that exceed even the most grandiose predictions by Republicans about the impact of their tax cut proposals.
As much as we wish it were so, no credible economic research supports economic impacts of these magnitudes. Making such promises runs against our party’s best traditions of evidence-based policy making and undermines our reputation as the party of responsible arithmetic. These claims undermine the credibility of the progressive economic agenda and make it that much more difficult to challenge the unrealistic claims made by Republican candidates.
Sincerely,
Alan Krueger, Princeton University
Chair, Council of Economic Advisers, 2011-2013
Austan Goolsbee, University of Chicago Booth School
Chair, Council of Economic Advisers, 2010-2011
Christina Romer, University of California at Berkeley
Chair, Council of Economic Advisers, 2009-2010
Laura D’Andrea Tyson, University of California at Berkeley Haas School of Business
Chair, Council of Economic Advisers, 1993-1995
Lyndon B. Johnson School of Public Affairs
The University of Texas at Austin
Austin, TX 78712
February 18, 2016
The Honorable Alan Krueger
The Honorable Austan Goolbee
The Honorable Christina Romer
The Honorable Laura D'Andrea Tyson
Dear Alan, Austan, Christina and Laura,
I was highly interested to see your letter of yesterday's date to Senator Sanders and Professor Gerald Friedman. I respond here as a former Executive Director of the Joint Economic Committee – the congressional counterpart to the CEA.
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.
You go on to state that Professor Friedman makes “extreme claims” that “cannot be supported by the economic evidence.” You object to the projection of “huge beneficial impacts on growth rates, income and employment that exceed even the most grandiose predictions by Republicans about the impact of their tax cut proposals.”
Matthew Yglesias makes an important point about your letter:
“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.” 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 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.
To be sure, skepticism about standard forecasting methods is perfectly reasonable. I'm a skeptic myself. My 2014 book The End of Normal is all about problems with mainstream forecasting.
In the specific case of this paper, one can quibble with the out-year multipliers, or with the productivity assumptions, or with the presumed impact of a higher minimum wage. One can invoke the trade deficit or the exchange rate. Professor Friedman makes all of these points himself. But those issues are well within mainstream norms. There is no “magic asterisk,” no strange theory involved here. And the main effect of adjusting the assumptions, which would be a perfectly reasonable thing to do, would be to curtail the growth rate after a few years – not at the beginning, when it would matter most.
It is not fair or honest to claim that Professor Friedman's methods are extreme. On the contrary, with respect to forecasting method, they are largely mainstream. Nor is it fair or honest to imply that you have given Professor Friedman's paper a rigorous review. You have not.
What you have done, is to light a fire under Paul Krugman, who is now using his high perch to airily dismiss the Friedman paper as “nonsense.” Paul is an immensely powerful figure, and many people rely on him for careful assessments. It seems clear that he has made no such assessment in this case. Instead, Paul relies on you to impugn an economist with far less reach, whose work is far more careful, in point of fact, than your casual dismissal of it. He and you also imply that Professor Friedman 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 not tied to Professor Friedman in any way. But the powerful – such as Paul and yourselves – should be careful where you step.
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.
Yours,
(Jamie)
James K. Galbraith
Executive Director, Joint Economic Committee, 1981-2
Editor’s Note: the bold is my emphasis, not Galbraith’s.
And here is the letter of protest I sent today to the Public Editor of the New York Times:
Dear Margaret Sullivan:
I've publicly protested the unfair treatment of Bernie Sanders in the NY Times, bias I see in its reporters, editors and editorials. Your paper made great use of the denunciation of Gerald Friedman's economic work in projecting the impacts of Sander's policies, and gave prominence to four well know economists, with Paul Krugman weighing in twice in his usual arrogant way (which I've seen once face to face in Wash DC when I tried to speak with him before a conference at the Center for American Progress.)
An economist, James Galbraith, at the University of Texas, has issued a two page rebuttal to these five which makes very polite and very serious accusations against their work in attacking Friedman. Here at:
big.assets.huffingtonpost.com/…
Don't you think you owe it to the voting public and your readers to publish Galbraith's article? I can't find any response to it by the five in question, anywhere. I think they are afraid that Galbraith has faced them down with facts. Won’t you at least run an article on Galbraith's letter; what's the problem? Not high enough standing? Who determines that? If that's the case, whose judgement is it and what are the grounds?
Books, articles, consulting abroad, Galbraith has done it all.
I'm disappointed in your paper's obvious bias in an area I follow very closely. You're confirming that what we Americans are up against: it is a political and economic establishment, and you know who is at the heart of it - the Clinton's and mainstream economists who lived comfortably and more while we deindustrialized, millions lost their homes, and the Fed fed cheap capital for speculation to those who already had plenty, banks borrowing at under 1% and paying nothing on little people's savings deposits, meanwhile gouging them on credit card interest rates.
You would think this crew of five would at least offer us a CCC or WPA or heaven forbid, at least two of the eight economic Rights in FDR's Second Bill of Rights from 1944.
Sincerely,
billofrights at the Daily Kos
graccibros at the Real-World Economics Review Blog