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Home Publications Blogs Beat the Press David Brooks Tackles Progressive Caucus Budget: Remedial Logic to the Rescue

David Brooks Tackles Progressive Caucus Budget: Remedial Logic to the Rescue

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Tuesday, 19 March 2013 04:03

David Brooks has trouble with issues of logic and arithmetic as he frequently demonstrates in his column. His criticisms of the Congressional Progressive Caucus (CPC) budget suffer badly from this problem.

The piece begins by telling readers that the CPC has broken with past liberalism by seeing the government, rather than the private sector, as the engine of growth. His basis for this argument is that the CPC proposes a large program of public investment to restore the economy to full employment. Brooks distinguishes this spending from prior efforts at stimulus:

"liberals have always believed in Keynesian countercyclical deficit spending. But that was borrowing to brake against a downturn when certain conditions prevail: when the economy is shrinking; when debt levels are low; when there are plenty of shovel-ready projects waiting to be enacted; when there is a large and growing gap between the economy’s current output and what it is capable of producing.

"Today, House progressives are calling for a huge increase in government taxing and spending when none of those conditions apply. Today, progressives are calling on government to be the growth engine in all circumstances. In this phase of the recovery, just as the economy is finally beginning to take off..."

Let's see, Keynes advocated large amounts of spending when the debt to GDP ratio in the United Kingdom was well over 100 percent. (FWIW, our interest to GDP ratio is extraordinarily low.) He also advocated this spending when the economy was not shrinking, it was just stagnant or growing slowly at a time when there was mass unemployment and the economy was far below its potential. Maybe Brooks doesn't consider Keynes a Keynesian.

Brooks obviously doesn't have access to government economic forecasts (or anyone else's) since he is operating under the illusion that "the economy is finally beginning to take off." The Congressional Budget Office (CBO) projects 1.4 percent growth this year. It doesn't expect unemployment to fall back to more normal levels until the end of the decade. Virtually all private forecasters have similar growth numbers. If Brooks is getting his picture of an economy that is taking off from someone, he doesn't tell readers who it is. It is also worth noting that CBO has consistently been overly optimistic through this downturn, projecting that the economy would be near back to normal 4 years in the future for the last four years.  

It is this context of prolonged and sustained stagnation that provides the backdrop for the CPC budget. Since Brooks is apparently unable to understand the economic situation the country is facing, he thinks that the CPC budget is a gratuitous effort to increase the government's role in the economy.

He also apparently is not aware of how large the U.S. economy is. He complains:

"These Democrats try to boost economic growth with a gigantic $2.1 trillion increase in government spending... " and later adds "these Democrats want to take an astounding $4.2 trillion out of the private sector and put it into government where they believe it can be used more efficiently."

The "gigantic" $2.1 trillion in spending is over a decade in which GDP is projected to be more than $200 trillion, meaning that it is a bit more than 1 percent of GDP. This commitment is a bit more than half of the spending associated with the wars in Iraq and Afghanistan. It is also worth noting that it is measured against a baseline in which discretionary spending is shrinking sharply as a share of GDP. 

The "astonishing" $4.2 trillion, to which Brooks refers, is actually not being pulled out of the private sector. If Brooks understood the point about the economy being in a downturn in which it is operating well below full employment, then he would realize that most of this money would not be spent by the private sector. If the government did not spend this money, it would simply represent lost output. 

Then we get to the meat of Brooks' problem, he is unhappy that the CPC would raise taxes on rich people:

"The top tax rate would shoot up to 49 percent. There’d be new taxes on investment, inheritance, corporate income, financial transactions, banking activity and on and on.

"Now, of course, there have been times, like, say, the Eisenhower administration, when top tax rates were very high. But the total tax burden was lower since so few people paid the top rate and there were so many ways to avoid it. Government was smaller."

Huh? We had a top marginal tax rate on the rich of 90 percent in the Eisenhower years, but the CPC's 49 percent rate is supposed to be worse because the total tax burden was smaller? This one doesn't make any sense. The burden of the tax burden on rich people depends on their tax burden, end of story. The 49 percent rate in the CPC budget is well below the 90 percent rate of the Eisenhower era and even the 70 percent rate following the Kennedy tax cut. Because the top one percent's share of income has roughly doubled, from 10 percent to 20 percent, we can get twice as much money from them with the same tax rate. (Isn't arithmetic fun?) 

Then Brooks gets upset that the CPC budget doesn't answer all budgetary issues from the next three decades telling readers:

"As an analysis by the group Third Way demonstrated, even if we threw every semiplausible tax increase at the rich, the national debt would still double over the next three decades."

Actually, most of Third Way's horror story is about rising per person health care costs. If U.S. health care costs were in line with costs in other countries we would be looking at long-term budget surpluses, not deficits.

The CPC budget in fact takes big steps to contain health care costs. It proposes to bring drug prices in the U.S. more in line with what people in other countries pay by having Medicare negotiate prices with drug companies. It also creates a public option in the health care exchanges, which would offer a low-cost alternative to private insurers. In this way, the CPC is much more interested in containing public sector spending than others in the budget debate. (We could go further and allow Medicare beneficiaries to buy into the lower cost health care systems in other countries, but protectionists like Brooks would throw a fit.)

Finally, it is worth noting Brooks' complaint about Europe's tax burden. (Europe's tax share of GDP would still be far higher than the U.S. total tax share even with the CPC budget.)

"In the 1950s when their taxes were low, Europeans worked more hours per capita than Americans. Then their taxes went up, reducing the incentives to work and increasing the incentives to relax. Over the next decades, Europe saw a nearly 30 percent decline in work hours."

This is a very important point. Europeans do work much less on average than do people in the United States. They enjoy 4-6 weeks a year of paid vacation, family leave, paid sick days and generally a shorter workweek. The difference in work hours explains most of the gap in per capita income between the United States and Europe.

Tax rates were likely a factor. It is also the case that high overhead costs in the United States, like health care insurance and traditional pensions, gave employers a strong incentive to increase the length of the work year rather than hiring more workers. In short, taxes were not the only factor involved.

Brooks obviously considers leisure time to be a bad thing. However it is worth noting that the fact that Europe opted for more leisure rather than income is a reason that we still have the chance to save the world from disastrous levels of global warming.

Greenhouse gas emissions are highly correlated with income. If Europe had followed the same path as the United States and had been emitting twice as much CO2 per person as is now the case, we would have already exceeded the levels of carbon dioxide that have been viewed as key limits. For this reason, those of us who care about the future should be enormously grateful that Europe went the route of more leisure and less income.

 

Addendum:

Gary Burtless call my attention to one other important error in David Brook's piece which appears in the very first sentence:

"There is a statue outside the Department of Labor of a powerful, rambunctious horse being reined in by an extremely muscular man."

In fact that statue appears in front of the Federal Trade Commission, not the Department of Labor.

Comments (14)Add Comment
Good Government Doesn't Kill It's Citizens WIth Neglect
written by Robert Salzberg, March 19, 2013 7:10
From USLegal: "Negligent homicide is the killing of another person through gross negligence or without malice."

When state and federal government officials do not fund repairs of bridges that are considered structurally deficient and the collapse of a structurally deficient bridge kills people, is that negligent homicide?

The American Society of Civil Engineers has estimated that America has an over 2 trillion dollar infrastructure deficit. Government negligence is literally killing us when bridges collapse, gas mains explode, and levees are breached.

Brooks argues adequately funding infrastructure is some shift away from Capitalism. Good infrastructure is the basis of Capitalism.
...
written by liberal, March 19, 2013 7:45
The 49 percent rate in the CPC budget is well below the 90 percent rate of the Eisenhower era and even the 70 percent rate following the Kennedy tax cut.


These numbers aren't very meaningful, given that the truly filthy rich take much of their incomes in capital gains and other forms that aren't subject to the highest rates. The different treatment of the income of the filthy rich is very, very old.

Marginal rates are fairly meaningless without specification of the definition of taxable income.
Austerity is Nirvana
written by Union Member, March 19, 2013 7:56
According to Brooks, we have been at Paradise levels of long-term unemployment and underemployment going on Five Years now. Why fix something when it isn't broken?
Brooking Brooks
written by Fred Upp, March 19, 2013 8:04
It is reassuring that from time to time our host holds his nose and patiently refutes the NYT's bi-weekly neocon artist David Brooks. I for one have joined those who recommend not brooking him anymore. What an awful way to start the day.



...
written by Union Member, March 19, 2013 8:15
The Department of Labor is named after Frances Perkins, the greatest women in American history!
"crowding out"
written by Jennifer, March 19, 2013 8:32
I do not understand how anybody can make the government-is-crowding-out-private-investment line now. For years now every major company has been sitting on a pile of money which they refuse to utilize because there is no demand. It's painfully obvious this demand has to come from the government.
Infrastructure
written by pjm, March 19, 2013 8:44
Rob, infrastructure is the basis of Civilization (perhaps that leaves it open to debate whether that includes Capitalism or not;>)
Babbling Brooks of Bobos in Paradise
written by Last Mover, March 19, 2013 9:11
If Brooks understood the point about the economy being in a downturn in which it is operating well below full employment, then he would realize that most of this money would not be spent by the private sector. If the government did not spend this money, it would simply represent lost output.


Well yes, so not understanding it is essential to painting the Congressional Progressive Caucus as takers from the makers of Bobos in Paradise isn't it. Output isn't everything you know. First comes just rewards to pillagers and plunderers.

Damn the torpedoes. Full speed ahead. Backwards.
Our tax laws promote thoughtless health spending: at least Brooks noticed that
written by Rachel, March 19, 2013 10:15

That is, he mentioned that "people shift compensaions to untaxed fringe benefits." It is an oblique way of admitting, perhaps, that one reason our health care is too expensive is that, due to our tax code wealthy people in the US are freer than some to be rather stupid about how they spend their health dollars.

But perhaps I am giving Brooks too much credit. Of course I can not imagine him, or the other mediocre minds with whom he consorts, admitting to other reasons that US health care costs so much, namely not enough doctors, and too much market control in the hands of hospitals, doctors, pharmaceutical companies, imaging companies. Oh, and we also suffer from some very credulous consumers, all those fans of that Medicare-can-solve-everything doctors' lobby. Well-meaning, many of those consumers are, but oh, so ill-informed.)
...
written by Chris Engel, March 19, 2013 4:01
One point that you missed, Dr. Baker:

"liberals have always believed in Keynesian countercyclical deficit spending. But that was borrowing to brake against a downturn when certain conditions prevail: when the economy is shrinking; when debt levels are low; when there are plenty of shovel-ready projects waiting to be enacted; when there is a large and growing gap between the economy’s current output and what it is capable of producing."

You're right in hitting Brooks for his sophomoric interpretation of Keynes.

However, he also exhibits an outright denial of reality in the latter point about the gap between potential gdp and actual gdp.

The output gap may not be "growing", but it's large and rather sustained, even in the most generous of calculations of Potential GDP.

The way he dismisses the gap though seems as if he's pushing the idea that it's essentially closed, which it is absolutely not.

The most updated graph I have yet of this is at lostoutputclock (.) com

SO this gap very much does still exist, but Brooks is trying to just gloss over it and claim the issue of lost output is behind us.

But after the sequester and the current DC fight of Austerity-Harsh vs. Austerity-Light, we're not likely to see this gap close unless people begin to liquidate production facilities and suicides spike up.
...
written by urban legend, March 20, 2013 1:34
And, um, modernizing infrastructure is putting money into the private sector
We didn't need no steenkin' shovels
written by Procopius, March 20, 2013 3:44
I don't understand how Brooks thinks "...when there are plenty of shovel-ready projects waiting to be enacted;..." ever existed in the 1930s. The New Deal was implemented on the fly, as disparate ad hoc programs, it was not constrained by previously worked out plans. One of the things they employed people to do was design construction projects for people to work on. Does Brooks think the Tennessee Valley Aughority existed before the WPA? I understand he's a young kid who has no sense of history (he probably thinks Amity Shlaes is a historian), but geez Louise, this is really poor. Yeah, I know, it was one of the Republicans' talking points about why the stimulus was so terrible, but a lot of Democrats buy into it, too. There should never have been any requirement for "shovel ready."
It's Just Lying For the Man at the Top
written by FoonTheElder, March 20, 2013 10:58
Yep, government is sure crowding out private industry. According to Forbes, that socialist rag, US corporations are holding onto a record $1.45 trillion. Not to mention that the banks are still stashing well over another $1 trillion in the federal reserve collecting no risk interest.

http://www.forbes.com/sites/afontevecchia/2013/03/19/u-s-companies-stashing-more-cash-abroad-as-stock-piles-hit-record-1-45t/
...
written by Alex, March 21, 2013 1:53
Also, the statue represents man and trade (according to the artist), not government and capitalism.

http://languagelog.ldc.upenn.edu/nll/?p=4524

It's not as important as his other lies in the column. But art is about symbolism, and it's a symbol that captures Brooks' dishonesty

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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.

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