The so brilliant as to be goddess-like Chye-Ching Huang gets this one, I think, wrong: In response to: Jared Bernstein: "For the [Trump-McConnell-Ryan tax] cuts to have more than near-term growth impacts, they’d have to boost biz investment a lot more than we’ve seen so far, though these are early days. Both WSJ and Slate show “muted” investment results..." She writes: Chye-Ching Huang: "My concern is the frame that "growth' is what we should be focused on. If what we care about is how workers are doing—and GOP lawmakers claimed the 2017 tax law would help workers—we should focus on the metric that directly shows how they're doing! If the claimed point of tax cuts for corporations was to raise wages, we should first and foremost look at real wage rates to assess the results...
But those economists shilling for Trump-McConnell-Ryan committed not just to wage increases, but to a particular mechanism for wage increases: (1) U.S. a small open economy -> (2) tax cuts produce a huge jump in investment -> (3) faster growth -> (4) factor shares revert -> (5) higher wages.
To see whether this argument makes sense we can—and should—look at this causal mechanism at every one of its five steps.
Simply focusing on (5) alone leaves vulnerability to the parry of "this is a long-run process". And & being able to say a decade hence that it did not work is of little use in the policy debate now. Better, I think, to say everything:
- U.S not a small open economy
- No sign of any jump in investment
- Growth boost small and driven by Keynesian demand rather than by (nonexistent) supply-side investment jump
- No sign of factor-share reversion
- No sign of even short-term wage boost
Admittedly, making an argument that complex is far beyond the attention span of your standard NYT insider-access journalist. But do we really have any alternative other than to play our position and make the accurate and correct argument? Just saying "no wage growth" is met with parry "it will come in the long run" and being able to say "we told you so" a decade hence is of limited use in today's policy debate, no?
#shouldread #publicfinance #equitablegrowth #orangehairedbaboons #economicsgonewrong #playingourposition #highlighted #ontwitter