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Saturday, January 6, 2018
‘Economists Say’ A Lot Of Things. But They’re Mostly Wrong
“A wave of optimism has swept over American business leaders, and it is beginning to translate into the sort of investment in new plants, equipment and factory upgrades that bolsters economic growth, spurs job creation — and may finally raise wages significantly,” opens a recent New York Times article surveying the state of the American economy.
One imagines readers of the esteemed paper were surprised to run across such a rosy assessment after being bombarded with news of a homicidal Republican tax plan for so many weeks. Not to worry! Over the next few thousand words, the authors do their best to assure readers that neither deregulation nor tax cuts are really behind this new economic activity — even if business leaders keep telling them otherwise.
For example, “There is little historical evidence tying regulation levels to growth,” theTimesclaims. A few paragraphs later we again learn that, “The evidence is weak that regulation actually reduces economic activity or that deregulation stimulates it.”
A reporter without an agenda might have written that evidence was “arguable,” because I bet I could corral a bunch of economists to tell you that lowering the cost of doing business spurs economic activity quite often. And though the Trump administration somewhat overstates its regulatory cutbacks, it has stopped hundreds of Obama-era regulations from being enacted. Even better, it’s stopped thousands of yet-to-be-invented regulations from ever being considered. There’s plenty of evidence, in the article and elsewhere, that this kind of deregulation has plenty to do with investment and job growth.
There is also plenty of evidence that econ reporters at major publications have spent the past decade propping up economists who tell them what they want to hear. That is to say, propping up economists who obsess over “inequality” rather than economic growth, who worry about the future of labor unions or climate change or whatever policy liberals happen to be plying at the moment. There are plenty of economists out there making good, free-market arguments who will never be member of the “economists say” clique.
For eight years we were persistently hearing about how “economists say” everything Democrats were doing was great (even when hundreds disagreed). Unsurprisingly, “economists” were wrong about a lot. The rosy predictions set by President Obama’s Council of Economic Advisers regarding the “stimulus” weren’t even close to what happened, nor were any other of their forecasts, for that matter.
In 2009, when Democrats ran everything, the administration predicted4.6 percent growth by 2012. It turned out to be half that. The Congressional Budget Office’s predictions about Obamacarewere even less accurate. Once these prophecies were no longer politically valuable — suddenly more art than science– we were offered counterfactuals: Without Obama’s bailouts, everything would have been much worse.
Perhaps the weakest recovery in American history could have been worse; perhaps not. There are thousands of unknowns that can’t be quantified or computed, including human nature. But after decades of using data to help us think about goods and services, jobs and consumption, and our choices, “economists say” is now used to coat liberal policy positions with a veneer of scientific certitude. And since Democrats began successfully aligning economics with social engineering, we’ve stopped seriously talking about the tradeoffs regulations bring.
A good example of this trend is the push for a $15 minimum wage — an emotionally satisfying, popular, and destructive policy idea Democrats are pushing now. Most cities that have passed the hike have experienced job losses. When researchers at the University of Washington studied Seattle’s $15 minimum wage hike, one of the largest in the nation, they found thousands of fewer jobs created and thousands of people lost hours of work, making them poorer.
A lot of people were, no doubt, surprised. That’s because for years ideologically motivated reporters and politicos have pushed the idea that the consensus view of “economists” was that the minimum wage “would have little to no impact on employment.” Vox, a leading light in the liberalism-masquerading-as-science genre, ran an article headlined, “The controversial study showing high minimum wages kill jobs, explained.”
You might wonder why incessantly quoted studies from liberal “nonpartisan” groups that falsely predicted minimum wages wouldn’t hurt the economy aren’t “controversial?” Because if you want raise the minimum wage you will raise the price of labor and often reduce the amount of labor that’s going to be hired. That’s the tradeoff. For decades, most economists agreed that was the tradeoff.
Yet wishful thinking bleeds into all kinds of policy (including cultural debates.) If you want to push environmental regulatory schemes, then the United States will no longer be on the cusp of enjoying “energy superpower” status. Perhaps you think the price is worth it. But it is insincere to argue, as Democrats always seem to do, that layering the economy with thousands of new regulations won’t inhibit economic growth.
While most economists I’ve known are relatively humble about forecasting, the ones that aren’t get most of the press. “Out of 42 top economists, only 1 believes the GOP tax bills would help the economy,” Vox recently noted. Indeed, 36 percent of economists polled gave the rational answer of “uncertain,” which is probably the answer all of them should be giving on everything. (Back in 2012, top economists believed that tax cuts would spur economic growth.) “We’ll be lucky to have 2% [growth],” said every media outlet’s favorite economist Mark Zandi to CNN in May.
Certainly the economy doesn’t have the room to grow that it had in 2007 or 2012, but so far Zandi is wrong. As he often is. New York Times columnist and Nobel-Prize-winning economist Paul Krugman has a relentless habit of saying so much that doesnot come true — once predicting that by 2005 “the Internet’s impact on the economy” would be “no greater than the fax machine’s.” Yet he will always be a member of “economists say.”
Neither deregulation nor tax cuts are a panacea. We can’t know what’s going to happen to the economy over the next few years. But businesses have already acted on deregulation and corporate tax cuts.Dozens of companieswere handing out bonus checks to hundreds of thousands of workers before the corporate tax cut was even enacted.
Perhaps these corporations only did it all to gain favor with the administration. Hey, some people suck up to government by cutting bonus checks for their workers and some people make electric cars no one wants. The fact is that deregulation and tax cuts matter. We already have evidence. We just don’t give voice to the economists who would tell us so.