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Home Publications Blogs Beat the Press David Brooks Is Worried About Non-Existent Economic Crises

David Brooks Is Worried About Non-Existent Economic Crises

Tuesday, 13 November 2012 05:40

It's so cute to see all the serious people who are so worried about economic crises that do not exist. They are constantly telling us how the "job creators" (a.k.a. rich people) who run businesses are just so nervous and uncertain they don't know what to do. The current concern is that taxes could rise at the end of the year and government spending will fall.

Of course this would be bad news, but would it be a crisis? As many people have pointed out, this is called "deficit reduction," which is exactly what most of the people now complaining about an imminent crisis have been advocating. The tax increases and spending cuts would weaken the economy and, if left in place over the course of the year, would sharply slow growth and likely push the economy into a recession.

But none of this happens in January. In fact, almost nothing happens in January except the Bush tax cuts expire, substantially improving President Obama's bargaining position. This is bad news for Republicans, but so what?

Hence we have David Brooks telling us this morning:

"The first thing to say about this strategy [letting the tax cuts expire] is that it is irresponsible. The recovery is fragile. Europe may crater. China is ill. Business is pulling back at the mere anticipation of a fiscal cliff. It’s reckless to think you can manufacture an economic crisis for political leverage and then control the cascading results."

Is there any evidence for this assertion whatsoever? "Europe may crater." What on earth does Brooks mean by this? People will not want to hold euros because the U.S. economy might be slowing slightly (we're talking January, not the whole year)?

Look, this is utter nonsense. Brooks is pushing hard to protect the bargaining position of his Republican friends. He is obviously willing to say anything to advance the cause including inventing crises that do not exist.

It makes for entertaining reading. After all, here is a guy who was completely oblivious to the largest economic crisis in 80 years until it sank the economy who is now seeing crises in every closet. It is about as serious as those predictions of a Romney landslide that we heard last week.


I almost forgot to ridicule Brooks for one of the main points in his piece. He tells readers:

"Before he gets lost in the mire of negotiations, the president could step back and practically describe the task ahead. Between 1947 and 2007, the U.S. economy grew an average of 3.3 percent a year. But over the next few decades, according to forecasts from the Congressional Budget Office, it’s projected to grow only at 2.3 percent per year. The task ahead is to make the sort of structural changes that will get America back on its old growth trajectory."

There are three reasons why this paragraph deserves buckets full of ridicule. First, the main reason for the projected slowdown in growth is slower labor force growth. We will have slower growth of the population and we will have more people enjoying leisure time. Perhaps Brooks has a problem with that, but that is Brooks' problem, it is not "the task ahead." [I hate to break the bad news to Mr. Brooks, but having a column in the NYT does not give you the right to dictate the agenda for the president and the country over the next three decades. Apparently your editor misled you.]

The second reason why this statement is ridiculous is that no one has a clue as to how to raise the annual rate of growth by a percentage point. If we do good stuff on infrastructure and education we may be able to increase long-term growth by 0.1-0.2 percentage points. That would be a real accomplishment. I don't know of any economist who could say with a straight face that they have a plan to increase the long-term growth rate by a full percentage point.. If Brooks has one in mind, he could do us all an enormous service by calling the world's attention to this person.

Finally, since most people have seen little or none of the gains of economic growth over the last three decades, they would find a world with more equal distribution to be a big winner even if it implied the same or even a slower rate of growth. In this sense, the bar for most of the population is actually quite low. If we had 2.0 percent annual growth that was equally shared, then most people would be doing hugely better over the next three decades than they did over the last three decades.

Comments (17)Add Comment
Brooks wants a bargain that's no bargain
written by Robert Salzberg, November 13, 2012 5:22
David Brooks says Republicans must accept higher taxes on the rich and Democrats must accept entitlement reform.

David Brooks wrote last Spring about the question:

"What do we want from government?"

But the real question is:

What do we want from government and how do we want to pay for it?

Americans overwhelmingly want Social Security and are generally willing to pay higher taxes to maintain current scheduled benefits.

If the cap on wages subject to the Social Security payroll tax was lifted then Social Security would be fully paid for until 2082.

The other two big pieces of the social safety net that Brooks and Republicans merge into 'entitlement reform' are Medicare and Medicaid.

BTP regulars know that America spends about 18% of GDP on health care which is roughly twice what the rest of the industrialized world spends and America has generally worse health outcomes to show for it.

Brooks and many Republicans have deluded themselves into the idea that somehow the private sector can solve the health care spending problem. Nothing could be further from the truth.

On the world stage, top-down government controlled health care that eliminates the for-profit health insurance industry and negotiates prices with all health care providers at the country level is the proven way to reduce costs and increase positive outcomes.

In short, the proven way to control costs is for the federal government to control costs.

Americans are overwhelming in their support of some form of government sponsored universal health care. Congress should work for the people in this regard not against them.

So by simply eliminating the cap on wages subject of the Social Security tax and providing government sponsored universal health care, the 'entitlement reforms' that fiscal conservatives insist, insist, insist must cause severe pain to accomplish can be accomplished with very little pain at all for the vast majority of Americans.

Why would tax increases weaken the economy?
written by Robert Baillie, November 13, 2012 7:07
Dean, you wrote, "The tax increases and spending cuts would weaken the economy".

How, exactly, would tax increases weaken the economy? If the federal government spent the money, wouldn't that stimulate the economy, to the extent that the tax revenue came from rich people who wouldn't have spent it? And as for the non-rich, what difference does it make if they spend it, or the federal government spends it?
The tax increase are just tax increases, not spending
written by Dean, November 13, 2012 7:19

there is no connection between taxes and spending next year. We are just talking about a scenario in which taxes rise and spending doesn't change (actually falls from the sequester).
written by jennifer reft, November 13, 2012 7:39
The second reason why this statement is ridiculous is that no one has a clue as to how to raise the annual rate of growth by a percentage point.
This a point that I think is not emphasized enough, that nobody knows of how to increase enconomic growth by large amounts. I believe Mitt Romney was going to increase growth by 4%--it was amazing to me how few people pointed out how unrealistic this was. I would enjoy the hysterics of media over the "fiscal cliff" more if I didn't think the Obama adminstration didn't take them seriously.
Tax Rates
written by FoonTheElder, November 13, 2012 9:53
During 50 of the 60 years that Brooks raves about the growth, the top tax rate was 70 to 90 percent.

On one hand he whines about tax increases for the wealthy and then praises an era where they were twice as high as they are now.
make up your mind Bobo
written by Peter K., November 13, 2012 10:26
I find Bobo Brooks confusing. Column after column he scolds us about the deficit, debt and greedy grandma screwing over the grandkids. No that we're going to get some serious deficit reduction, he changes his mind.
Is there a chart that shows increased tax payments as a median??
written by jumpinjezebel, November 13, 2012 11:24
All the "cliff-hangers" are using a data point of "americans will pay $3600 a year more in taxes on average"!!!!!! So what. Is there a chart that shows how much will be paid by earnings bracket. I bet that the 3600 number is hugely swayed because of the increases by the top earners. So how much more will the average Joe; making say $50K, pay. I bet it's trivial.
written by PeonInChief, November 13, 2012 11:40
Boomers have been paying higher taxes to maintain our Social Security benefits for nigh on 30 years. We were told that the increased tax and higher retirement age would insure than the system survived. We did not agree to pay increased taxes so that rich people could pay less in taxes for the same 30 years, and then have our benefits cut so that rich people would never have to pay more in taxes.
Breakdown by quintiles
written by AndrewDover, November 13, 2012 1:45
For jumpin...


Average Increase in taxes by Quintile
Lowest Quintile $590
Second Quintile $1,327
Middle Quintile $1,942
Fourth Quintile $3,415
Top Quintile $12,964

I think Dean is right here. First, let all expiring tax laws expire. Second, clearly and publically write a law which lowers some taxes according to the desires of the Senate and President. Third, let the Republicans in the House decide to whether to vote for lowering most people's taxes.

If the Republicans refuse, start the campaign to throw them out in two years.

If they compromise, then do a compromise.
written by PeonInChief, November 13, 2012 1:58

Here's a quick and dirty calculator that can estimate taxes with the expiration of the Bush tax cuts. Many people will get hit by the expiration of the SS tax cut.

written by David, November 13, 2012 2:06
[url= http://www.forbes.com/sites/ro...right-now/

Dean, what about the AMT? A friend brought out up.
link retry
written by David, November 13, 2012 2:21

my phone can't paste links, apparently.
The Fed can counteract
written by Floccina, November 13, 2012 3:28
The Fed can counteract any negative effects of teh fiscal cliff.
written by fuller schmidt, November 13, 2012 3:30
It's amazingly delusional and/or nervy to think that BO was the one who manufactured this crisis for political advantage.
written by liberal, November 13, 2012 7:26
AndrewDover's tactical plan is the right way to go.

Floccina wrote,
The Fed can counteract any negative effects of teh fiscal cliff.

Sadly, that's not at all clear. The Fed has lowered interest rates and has engaged in esoteric stimulative efforts to combat the Second Depression, to little avail.
you too can increase the growth rate by a percentage point in your own home
written by jd, November 13, 2012 8:18
Aren't these two points that you make contradictory?
1. Average growth slowed by a percentage point because population growth has slowed.
2. No one has a clue how to raise the growth rate by a percentage point.

So you increase immigration by X people a year...

Of course your usual point about per capita GDP being a more useful measurement is spot on.
written by Calgacus, November 15, 2012 3:52
Dean Baker:we may be able to increase long-term growth by 0.1-0.2 percentage points. That would be a real accomplishment. I don't know of any economist who could say with a straight face that they have a plan to increase the long-term growth rate by a full percentage point..

Well, there's the work of Vatter & Walker.

In particular
How fast can the US economy grow, 1995–2020? Futures Volume 32, Issue 2, March 2000, Pages 121–129

From abstract:
This article of concern with future US economic growth responds to several major policy issues presently absorbing widespread attention in American society. It shows that much faster growth than the conventional estimates is possible. This more optimistic forecast requires in particular a policy recognition that growth is not exclusively determined by supply side factors, but is also to an important extent dependent upon demand-side influences.

Wray surveys their work in Demand Constraints & Big Government

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.