Term Papers Due this Friday

In my classes. And if this were one, I’d fail the author.

Full “report”. All 490 words of it (not including the words in the letterhead). It fits on one page.

More at Bloomberg.

29 thoughts on “Term Papers Due this Friday

  1. noneconomist

    Mnuchin said 100 people worked on it! We now see what results when some top Republican thinkers apply themselves.

  2. pgl

    “You have to view this as a political document, not an economic document,” said Stephen Stanley, chief economist at Amherst Pierpont Securities and a former researcher at the Richmond Federal Reserve. “The work should be viewed as advocacy rather than academic work.” (from the Bloomberg report).

    No analysis whatsoever to support this claim that real GDP growth will be near 3% for the next decade.

  3. mike v

    It’s sad because you know that the very capable analysts at the Treasury could produce a really high-quality report, if they were allowed to do so.

  4. 2slugbaits

    The scary thing is that this kind of crapola is what passes for serious analysis for way too many folks in today’s GOP. Is it any worse than the garbage coming out of Heritage or the Club for Growth? Is it any worse than the silliness that Peak Trader dishes out many times each day?

      1. Menzie Chinn Post author

        PeakTrader: Seriously, when has anybody on this blog written admiringly of Joseph Stalin?

        I did not know the Constitution stated that one needed to stand for the Star Spangled Banner. Would you have me taken away if I refused to say “under God” in the pledge of allegiance? I am curious.

        1. PeakTrader

          Menzie Chinn, I support the Bill of Rights – Joe Stalin admired America like some Americans when it’s top-down and one-size-fits-all.

      2. 2slugbaits

        PeakTrader If anyone admires Stalin it would be Comrade Trump….who also admires former KGB colonel Comrade Putin. As to the Star Spangled Banner, it’s a lousy song written to a tavern tune and penned by a racist with an ultra-racist son who made his living hunting runaway slaves. Did you know that the idea of kneeling was suggested by a former Special Ops guy? For most of human history standing was considered insulting (and even a capital felony) while kneeling was considered a sign of respect. Learn some history.

        1. PeakTrader

          Putin was able to take advantage of the Obama Administration very easily – why wouldn’t people admire Putin’s ability?

          You would be appalled what were common beliefs, including about race, in the 18th century. Why judge them with 21st century standards?

          Are we to believe, from your limited view of history, you kneel before the National Anthem as a sign of respect?

          1. 2slugbaits

            PeakTrader King Donald seems to admire a lot of strongmen…Putin in Russia, Xi in China, Duterte in the Philippines along with various Arab sheikhs who like to wave swords. I would note that many 18th century Enlightenment ideas compare quite favorably with some of the 21st century knuckle draggers in today’s GOP. Some of them even believe slavery wasn’t such a bad idea and maybe we should abolish Amendments XI through XXVII.

            I wish they would just quit playing the national anthem before sporting events. It’s not like we don’t know what country we’re in. Back in the day they never played the national anthem and somehow we all managed to get along just fine. I’m convinced that the only reason they play the anthem before games is so the networks can insert a few more commercial breaks before kickoff. An no, I don’t stand during the anthem. I usually take the opportunity to hit the refrigerator or take a quick biology break.

            But you have obviously missed the point of the kneeling. The idea was to highlight a social problem and do so in a respectful way. It’s not like Kaepernick was flipping the bird or turning around. He was trying to be both respectful and political. That’s why his Special Ops friend suggested kneeling. BTW, are we to believe that you mindlessly follow the crowd like a lemming?

          2. noneconomist

            PT: I see you’ve been reviewing the old Joe McCarthy tapes again, attempting to smear those who disagree with you by instead creating enemies where there are none.
            I’ve done my watching and reading too. Peak Trader, have you no shame?

      3. baffling

        you must excuse peak trader. he is still living in the cold war and jim crow eras, and still nostalgic for the days when families cared for one another while the slaves ran the household chores and fields. antebellum was such a peaceful and happy place for all…

  5. Rick Stryker

    An F to the author of this memo? Obviously, someone is need of some remedial macro training. It just so happens that I included this memo in the final exam of my class “Introduction to Free Market Macro” here at Wossamotta U. Here is the question and a student’s correct answer.

    3. Refer to the attached OTP memo and answer the following 2-part question:
    a) #fakenews Slate magazine said about this memo:

    “Let’s start with a little background. Earlier this year, the White House released a budget that assumed its economic plans would boost economic growth to an average of almost 3 percent per year over a decade. As many noted, this was deeply unrealistic, both because the U.S. is facing major economic headwinds like the mass retirement of baby boomers, and because many of Trump’s policies are unlikely to turbo-charge growth the way he’s vowed.

    The memo Treasury released Monday states that it “modeled the revenue impact of higher growth effects, using the Administration projections of approximately a 2.9% real GDP growth rate over 10 years contained in the Administration’s Fiscal Year 2018 budget.” In other words, it didn’t actually analyze how the Senate’s plan would influence the economy. Instead, it just recycled administration assumptions from back in May, before the bill was even written. The one-pager then goes on to predict that half the increase in growth will come from corporate tax cuts, with “the other half to come from changes to pass-through taxation and individual tax reform, as well as from a combination of regulatory reform, infrastructure development, and welfare reform as proposed in the Administration’s Fiscal Year 2018 budget.” Why does Treasury expect all this? It’s unclear, and it’s not obvious what economic modeling, if any, they’ve actually done.”

    Q: Is this criticism valid? Or are the progressives at Slate economically illiterate?

    A: The progressives at Slate magazine are in fact economically illiterate. The basis for the memo’s assumptions are clear to anyone who even slightly follows economic policy. The memo starts with the outgoing Obama Administration’s baseline of 2.2% GDP growth. The Obama Administration would not acknowledge that its anti-growth policies–regulation everywhere, Obamacare, taxes, etc–were responsible for the surprisingly low growth seen over the previous 8 years and assumed in its forecast in 2017 that GDP would grow at about its estimate of potential for the foreseeable future, since if the Obama Administration couldn’t fix the problem, no one could. In 2010 for example, the Obama Administration had forecast growth in the 4% range for many years in the future; however, GDP growth turned out to be much, much lower. However, progressives managed to convince themselves the slow growth was not the Obama Administration’s fault, since the economy must have been much weaker than anybody could have possibly known. In short, none of this is their fault–the new natural speed limit of the economy is now 2.2% per year they believe.

    Free market economists however noted that although growth of the labor force was relatively robust over the Obama years, the slow growth could be explained by the slowdown in productivity growth, which averaged about 0.6% per year, down from its historical average of about 1.4% or so. A reversal of the Obama Administration’s regulatory policies along with tax cuts could help to increase productivity growth. The Trump Administration is assuming that its policies reversing the Obama legacy will increase productivity growth by a modest 0.3% per year, thus taking the Obama baseline from 2.2% per year to 2.5% per year.

    The other 0.4% in growth comes from the effects of reductions in corporate tax rates, which reduces the user costs of capital. In a letter in the Wall Street Journal to Secretary Mnuchin, economists Robert Barro (Harvard), Michael Boskin(Stanford), John Cogan(Stanford), Douglas Holtz-Eakin(former chair CEA), Glenn Hubbard(Columbia), Lawrence Lindsey(Lindsey Group and former head NEC), Harvey Rosen (Princeton), George Schultz (Stanford, Hoover), and John Taylor (Stanford) asserted that a credible estimate of the effect of the Trump corporate tax cuts over the long run is about 4% of GDP, which is about 0.4% per year over a 10 year period. Thus, adding the 0.4% per year growth to the 2.5%, we arrive at the 2.9% growth in the memo.

    b) The #fakenews media is claiming that the analysis in this memo is somehow substandard or unusual because it is not backed up by pages of analysis and justification. Is this criticism justified?

    A: Criticism of Trump’s policies by the #fakenews media is almost never justified and this case is no exception. The calculations and arguments in the OTP memo are clear and the assumed numbers are backed up by research. Moreover, this memo is not unusually simple analysis. Recall that the memo used to justify the Obama Administration’s vast failed stimulus program was written by a couple of authors, Bernstein and Romer, who used similar back-of-the-envelope calculations. In that memo, Romer and Bernstein simply assumed representative values for multipliers for government purchases and tax cuts and then multiplied them by the components of the stimulus in a spreadsheet. They then converted to jobs growth by using the simple rule of thumb that 1% GDP growth = 1 million new jobs.

    Despite the simplicity of the Bernstein and Romer memo, no one in the #fakenews media condemned it and progressives cheered the doomed analysis. But they apply a different standard to the Trump Administration today.

    Note from Prof Stryker: I gave this student a well-deserved A for this answer.

  6. joseph

    Hey, if you look at the Social Security trustees report, they show that with an assumption of just 2.6% GDP growth that Social Security will not only be solvent but the trust fund will grow through the year 2100.

    So when will be have Mnuchin and Paul Ryan call for increasing Social Security benefits and reducing the retirement age?

  7. Steven Kopits

    Why exactly is the Fed raising interest rates when core inflation was up 1.4% in October, the latest available month?

    1. PeakTrader

      If the Fed falls behind the curve, preempting inflation, more hikes will be needed to achieve price stability.

      We have some inflation and price stability rather than accelerating inflation.

      An ounce of prevention is worth a pound of cure. The Fed errs on the side of caution.

      1. pgl

        The usual “rationale” for taking away the punch bowl prematurely. Of course this makes sure real wages did not rise. Anything to keep profits sky high.

      2. baffling

        “If the Fed falls behind the curve, …”
        IF is a hypothetical. The fed should be dealing with the REALITY of today. That said, the donald did want rate hikes.

  8. joseph

    Uh oh. Republicans have now raised their proposed corporate tax rate from 20% to 21%. Someone in Mnuchin’s office is going to have to stay up late revising their downward their former “analysis” of growth rate due to this tax increase.

  9. don

    Did anyone notice that the Treasury “analysis” seems to conflate the effects of the tax reform with other causes of economic growth? A revenue estimate is supposed to compare revenue that will be realized with and without the provision in question. Are the effects of deregulation and welfare reform part of the tax legislation? If not, their effects on growth should not be included in the dynamic scoring.
    I know that the people in the Office of Tax Analysis would never make a mistake like this – so who authored the document?

  10. Beeker

    You should realize that this paper is not worth the paper it is written on because it makes assumptions of growth predicated on what Trump would say it would be based on his budget. Have you noticed the fine print at the bottom on how much growth would come over the next few years: 2.5% in 2018 and topping out at 3% after 2020 even though every economists of every stripe says it is unrealistic. Only Stephen Moore would come out stating that the 3.5% GDP in the 3rd quarter is translated to the annual rate and yet he failed with his assumption on how Kansas would grow with the Brownback tax cuts in 2011.

    Menzie Chinn is right about one thing, it should be scored as F with recycled talking points as plagiarized. It is most likely they don’t want to get under Trump’s skin with his tweet tantrum.

Comments are closed.