Macroblog says that the Bush tax cuts are good for growth because even though they have so far been financed by borrowing, they will be financed--at some point in the future--by spending cuts:
macroblog: A Teachable Moment: Says DeLong:
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...
It's possible that there are huge spending cuts relative to GDP in our future. It's not terribly likely.
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.
There is a serious issue here: When one does policy evaluation of the proposals of an administration, does one evaluate the effects of the policies that the administration has proposed? Or does one evaluate the effects of the policies that the administration has proposed plus policies that the administration has not proposed, shows no inclination to propose, but that one wishes it would propose?
It seems to me that the answer is clear: Let 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, and I'll be happy to evaluate it. But 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.