I noted yesterday that there is much fussing in housebroken liberal circles about UMass economist Gerald Friedman’s prediction that, if implemented, Sanders’ economic agenda would cause GDP growth to rise to 5.3%. That’s higher than the yearly average has been since prior to WWII. Friedman defends his prediction here. Former MN Fed President Narayana Kocherlakota, a reality-based individual, implies that it’s not a ridiculous number:
Professor Gerald Friedman has argued here that, by adopting Senator Bernie Sanders’ economic proposals, the US economy would grow in excess of 5% per year over the next decade. Previously, former Governor Jeb Bush put forward (different) proposals that he has argued would lead to 4% economic growth over an extended period. These kinds of growth outcomes are often dismissed as prima face unachievable given the historical behavior of the US economy. (That’s one way that some readers have interpreted this letter.)
I don’t attempt a full examination of Senator Sanders’ or Mr. Bush’s proposals in this post. Rather, I make three points related to this discussion that don’t receive sufficient attention:
There is no technological reason why real gross domestic product (GDP) cannot grow at a materially above-normal rate over the next decade
Given (1), the relevant issue is: are the benefits of achieving such a growth path higher than the costs of doing so? I suggest that there are good reasons to believe that the answer to this question is more likely to be positive than at any time since the end of World War II.
If the answer to (2) is affirmative, the question becomes: what set of economic proposals will best allow the country to achieve those positive net benefits? As noted above, I don’t attempt a detailed examination of the consequences of Senator Sanders’ proposals or those of Mr. Bush. I only make the broad point that, given current economic circumstances, demand-based stimulus is likely to be more effective than supply-based stimulus.
I think that’s an excellent frame. Based on how the US economy has performed over recent decades, I remain skeptical of being able to hit 5.3% with Sanders’ or anyone else’s plan but I believe Kocherlakota is right, there’s no technological reason why GDP can’t grow at a much higher rate than it has been. There are huge political hurdles and technical challenges to generating that kind of growth but that doesn’t mean it can’t be done. And even if 5.3% isn’t in the cards I do believe we can do much better than we’ve done. We’re at about 2% now. Would we not be happy with 4% or even 3%?
Whether or not it’s theoretically possible to hit 5.3%, one argument against putting that number forward is that it smacks of delusional optimism and that’s not good practice. A serious candidate should not adopt implausible policy positions [see Note 1 below]. I concur. I also believe that whether Sanders’ economic plan would generate 5.3% growth or 3.5% or 2% growth is beside the point. His campaign isn’t about goosing GDP, it’s about changing the rules of the game. I doubt there are many Sanders supporters who are with him because of an expectation of any particular GDP growth rate. It’s about changing the power dynamic to improve the quality of life for most Americans.
Here’s what I want from our next President:
- End the state of perpetual war. As Commander-in-Chief the President has the power to do this.
- Do everything in his power and use the bully pulpit to end policies which advantage capital over labor and result in decent jobs getting shipped overseas. There’s a limit to what can the President can do via executive action but he can probably spike the TPP. That would be an excellent start.
- Do everything in his power and use the bully pulpit to put the brakes on the environmental destruction we’ve been wreaking on the planet. Climate change is a big piece of that but it’s not the only thing.
- Motivate people who share similar values to run for office.
- Motivate people to turn out to vote for those candidates.
Items #4 and 5 are key. Not much is going to happen for the better legislatively until we change the composition of the House and Senate. We also need to elect better candidates at the state and local level. Boosting GDP growth isn’t on my priority list. I don’t think it would even make my top ten priorities. What’s most important to me about a candidate’s plans are the broad principles that underpin them, not that they’ve worked through all the details [see Note 2 below]. Yes, plans need to pass basic reality checks but they don’t need to be specified down to a gnat’s ass. That’s the job of civil servants after the candidate has been elected.
I do care about reality checks. If a new government program or function is being proposed then we should know – roughly – how we will pay for it. The extent to which I care about details is if the success of a proposal is contingent upon specific economic outcomes, e.g., suppose single-payer health care would run badly in the red if GDP growth were <X% and unemployment were >Y%. We should know that. We should understand the probable consequences of failure. Towards that end, I believe it does make sense to exercise macroeconomic models over a range of input conditions and establish that your plan is reasonably robust with respect to your presumptions about the economy. Show plausibility but don’t try to be too fine. Odds are your model isn’t super high fidelity to begin with and you should be taking your predictions with a grain of salt anyhow. None of Sanders’ proposals appear to be contingent upon 5.3% (or any other percentage) GDP growth in order to work. I support them because if they do work then I believe our quality of life will improve [see Note 3]. I expect that increased employment and wages will be part of quality of life improvement and that GDP growth will probably increase too. Whether growth turns out to be 5% or 3% or 2% I have no clue [see Note 4 below]. What matters is an overall improvement in quality of life, an increased degree of control of the narrative of one’s life – some comfort that if you make a misstep that you can recover – that if you screw up it’s not going to be 10,000 feet down into a vat of razor blades that you can never climb out of. Are there any metrics which capture that? I think not.
- To the best of my knowledge, the Sanders campaign hasn’t been advertising 5.3% GDP growth or any other predictions re GDP. It’s just been Friedman sharing his predictions – with the approval of the Sanders campaign. That’s not remotely the same thing promising to deliver that kind of GDP growth.
- Detailed plans don’t write themselves. Unless the candidate has the resources to pay people to work out the details or has think tanks working out the details on their behalf it’s unreasonable to expect details. Demand details from the President. Don’t expect them from the candidates.
- So long as the Republicans control Congress very little of what Sanders is proposing is likely to move forward. That’s why is so important that he motivate people to run for office and to motive citizens to elect them to office.
- GDP is at best a mediocre predictor of quality of life. Yes, if it’s negative things are probably pretty ugly; however, more isn’t necessarily better. China’s GDP grew almost 7% last year, their lowest growth rate in 25 years, but it’s based in large part on resource extraction. High economic growth based on extraction rapidly turns a country into an environmental shithole. Not all growth is created equal. The average for western European countries has been low recently. With the exception of Greece, rates from a few percent positive to slightly negative. (Spain and Italy were negative but significantly less so than Greece.) Canada’s was a couple percent. Australia and New Zealand’s were about 2.5%. If I make a list of countries I wouldn’t mind living in, their GDP growth rates are all very modest. GDP growth <> quality of life.