A Primer on Friedman’s Assessment of Bernie’s Economic Plans

By CPE Editorial Staff

Bernie_Sanders_by_Gage_Skidmore

On February 3rd, we posted a piece from Professor Gerald Friedman outlining the economic impact of Bernie Sanders’ economic proposals (both Friedman and the Center for Popular Economics have no connection to the Sanders campaign). The blog piece was based on Friedman’s full report, What would Sanders do? Estimating the economic impact of Sanders programs and can be found at Dollars & Sense.

As you may know by now, Friedman’s work has sparked a bit of controversy among some notable economists. Former CEA Chairs, Alan Krueger, Austan Goolsbee, Christina Romer, and Laura D’Andrea Tyson spoke out in an open letter to Sanders and Friedman calling the estimated beneficial impacts on growth rates, income, and employment “extreme” and “grandiose.”  New York Times columnist and blogger, Paul Krugman, referred to Friedman’s analysis as “voodoo of the left” and implied the economic estimates were the result of “fuzzy math,” though Friedman used entirely standard approaches combined with estimates from the Congressional Budget Office. Krugman and the former CEA chairs’ initial reaction failed to say much beyond that the numbers just didn’t seem right.

A host of economists and journalists have in turn criticized Krugman and the CEA chairs for failing to take on specifics, and pushed back at their characterizations of Friedman’s analysis as extreme and unrealistic.

With so much at stake, its no surprise that the ongoing debate has seen its share of hot air and grandstanding, particularly from those with the loudest mic, but thankfully we have also seen an abundance of reasoned and elucidating responses by academics, wonks, and financial analysts who have carefully analyzed Friedman’s numbers. We’ve collected key quotes from some of these responses and we present them here (in no particular order) to help highlight some of the disagreements driving the debate:

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From Jamie Galbraith, former Executive Director of Joint Economic Committee (1981-2), and Lloyd M. Bensten Chair of Government/Business Relations at the University of Texas, in an open letter to the former CEA heads:

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…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 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.

From Matthew C. Klein of the Financial Times blog Alphaville, in his piece “’Extreme’ doesn’t mean what is used to, Sanders vs. the CEA” (that link is behind a paywall; and we can rest assured that the paywall doesn’t come from the Financial Times’ socialist ethos):

One simple test is to compare what’s happened with actual output since the crisis against its longer-term historical trend. The trend is far from a perfect benchmark of where GDP ‘should’ be, but it’s a reasonable place to start… this supposedly “extreme” and “unsupportable forecast implies American output will return to it’s previous trend just as Sanders would be finishing up his second term, in the third quarter of 2024.

 

 

Our point is a simpler one: a prolonged period of rapid growth in the US is plausible, with the right policy mix. The burden of proof should be on those who say otherwise.

From William Black, Professor of Economics and Law at UMKC, in the Huffington Post: “Krugman and the Gang of Four Need to Apologize for Smearing Gerald Friedman”

Orthodox economists just hate the results of Friedman’s model, for the results support Bernie, rather than Hillary. Worse, they show that orthodox economists’ claims that the government can do little good is a myth.

From JW Mason, Assistant Professor of Economics at John Jay College: “Can Sanders Do It?

The bottom line is this. Ten years ago, the CBO expected GDP to be $20.5 trillion (correcting for inflation) as of the end of 2015. Today, it is $18.1, trillion, or about 12 percent lower. Similarly, the employment-population ratio fell by 5 points during the recession (from 63.4 to 58.4 percent) and has risen by only one point during the past six years of recovery. Either these facts — unprecedented in the postwar period — reflect a shortfall of effective demand, or they don’t. If they do reflect a lack of demand, then there is no reason the expanded pubic spending and downward redistribution that Sanders proposes cannot close the gap, with a period of high growth while output and employment return to trend.

From Yves Smith, of Naked Capitalism: “Krugman and His Gang’s Libeling of Economist Gerald Friedman for Finding That Conventional Models Show That Sanders Plan Could Work”:

Let us be clear about the vehemence of the salvos aimed at Friedman: this isn’t just a bad case of tribalism and intellectual dishonesty. This is purveyors of a failed orthodoxy refusing to indulge any consideration of plans that would show how badly they’ve mismanaged the economy.

 

 

The original sin of Friedman’s model of Sanders’ plan is that it projects GDP increases in excess of 5% for several years running before growth levels moderate. Mind you, Friedman did this using a completely standard model. So the real issue is about the assumptions, which Krugman and his allies refused even to look at, instead falsely accusing Friedman of being a Sanders ally who cooked up numbers. In fact, Friedman has no connection to the Sanders campaign, has donated to Hillary, and isn’t sure how he is voting this year.

From Ron Baiman, of the Chicago Political Economy Group: “The Poverty of Neoclassical Economics,”:

As Friedman’s comprehensive and detailed analysis (56 pages with four Appendices, 22 Tables, and 12 Figures) uses public data and standard techniques to estimate the economic impact of 9 major policy, 11 Revenue Enhancement, and 6 regulatory, Acts or proposals raised by the Sanders’ campaign, I tried to find out what techniques, data, or estimation errors, the CEA’s objected to? I was not able to find anything.

From Kevin Drum of Mother Jones, who piled on Friedman’s estimates at first until he “pondered it a bit more,”: “On Second Thought, Maybe Bernie Sanders’ Growth Claims Aren’t As Crazy As I Thought”:

Friedman isn’t projecting anything wildly out of the ordinary after all…it’s not insane to think it might happen if we implemented a pretty massive spending and stimulus program.

From David Dayen of The New Republic, on both the past incorrect predictions of the CEA, and their style of attack on Friedman’s projections: “The Pious Attacks on Sanders’s ‘Fuzzy’ Economics”:

Instead of going point by point on those agenda items, the CEA chairs decided to argue from authority, dismissing Friedman’s numbers as prima facie absurd. This “do you know who I am?” style of argument, first off, is just a bad look if the goal is to persuade. But it also ignores how there is no real authority when it comes to making decade-long economic forecasts. Some humility on that front would be in order.

From Dean Baker of the Center for Economic Policy Research: “NYT Invents Left-Leaning Economists to Attack Bernie Sanders”:

A NYT piece headlined “left-leaning economists question cost of Bernie Sanders’ plans” may have missed readers about the extent of skepticism among economists who consider themselves left-leaning. I can say this as a card-carrying left-leaning economist who often talks to other card-carrying left-leaning economists.

 

 

While there are undoubtedly many left of center economists who have serious objections to the proposals Sanders has put forward, there are also many who have publicly indicated support for them. Remarkably, none of those economists were referenced in this article. In fact, to make its case for left of center economists’ views, the NYT even presented the comments of Ezra Klein, who is neither an economist nor a liberal, by his own identification.

See also:

Mark Thoma, of The Fiscal Times: “Here’s Why Bernie Sanders’ 5% Growth Plan Isn’t Crazy After All.”

Dave Johnson, for BillMoyers.com: “The Sanders ‘Economic Plan’ Controversy

Andrew Perez and David Sirota of the International Business Times, questioning the motivations and motivators of the attacks on Sanders (with fact, to distinguish it from Paul Krugman’s wild speculation about Friedman’s psychological motivations): “Bernie Sanders Economic Plans Questioned By Critics With Ties To Wall Street, Hillary Clinton

Doug Henwood of Fairness and Accuracy in Reporting: “NYT Rounds Up ‘Left-Leaning Economists’ for a Unicorn Hunt