(Continued from last week) History is never perfect. Indeed, Michael Goldfarb teases us with the seductive proposition that journalism is the first rough draft of history.
Regardless, the retired partners of KPMG who are still awaiting their gratuity and pension could not resist the invitation of our beloved Fred Marks to savour the delights of Edinburgh, in Scotland while participating in the epochal first outing of Global Economic Transformation, whose main agenda items are the challenges of the global economy – inequality; slow growth and changes like work (versus boredom and repetitive tasks). It was Nobel Laureate Professor Michael Spence of New York University who showed up on BREAKING NEWS on CNN to deliver a powerful message of hope:
“A wide range of economies and societies are facing difficult and challenging changes. We keep talking about it and doing nothing. Britain is busy with Brexit while the United States of America is busy shouting at each other. We need to deal with these issues or we will continue on this path of political polarisation.”
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It was the same Professor Spence who delivered a dazzling performance on “Quest Means Business” when he said: “The recent improvement in the global economy should not leave any room for complacency in addressing long-term challenges. Policymakers and economists have so far largely failed to address the concerns of those left behind by globalisation, helping to fuel the rise of populists such as President Donald Trump. The economics profession is on a long list of things that people don’t trust. We are sometimes overzealous about defending globalisation. We want to listen to the people who don’t trust the elites.”
He was clearly on the same page as his fellow Nobel prize-winner [Economics], the magnificent Professor Joseph Stiglitz who previously served as the Senior Vice-president and Chief Economist of the World Bank from February 1997 to February 2000. For both of them, the current President of the United States of America is the embodiment of the tidal wave of political populism which is the hurricane that snatched certain victory from Hilary Clinton and handed it to an unrepentant Donald Trump.
As confirmation that the moving spirits behind Global Economic Transformation [GET] are the first eleven, it boasts of the likes of Mohammed El-Erian, chief economic adviser at Allianz, the mega-giant German insurance company; Winnie Byanyima, executive director of Oxfam International and Lord (Adair) Turner former Chief Executive of U.K. Financial Services Authority.
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We must remain grateful to Tommy Stubbington for advertising the pedigree of GET having been spawned by the New York Think Tank – New Economic Thinking. Among the hot topics listed for discussions is climate change; increased migration; insurgency; refugees; human trafficking; the disruption to work from the rise of robots and most importantly, outstanding payment of gratuity and pension to the retired partners of KPMG. The Global Economic Transformation Commission has been mandated to produce a robust report along with profound recommendations on “How to Tackle Problems and Emerging Crises In The World Economy” within two years.
What a wonderful surprise from Netflix. It has been streaming the riveting debate between two colossi of economics. ZAKARIA: So, you have said in “The Washington Post” that as treasury secretary, undersecretary, deputy secretary, you have worked with seven chief economists for the White House, seven heads of the council of economic advisors, and you have never come across an analysis that you described as dishonest in the way that this is dishonest.
Explain what you mean by that.
SUMMERS: Look, the jobs to do economic analysis and different economists will have different perspectives, but each of the previous people in the job has taken positions that were well within what professional economists believed and argued regarding the effect of policies. And the claims here that you’d see an increase of $4,000 to $9,000 in a typical family’s income from a corporate tax cut are just outside the range of what the economics profession believes. Even the people who have come down most squarely on Kevin Hassett’s side on the op-ed page of “The Wall Street Journal” come up with estimates far below the lower end of his range.
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So, he’s trying to help the administration politically, I guess. But the analysis is really of remarkably low quality. And that’s why I chose to speak so critically of it.
I’ve written critically and in disagreement with things that the Bush administration did, various Republican congressional proposals have tried to do, but the claims that this administration makes that the tax cut will pay for itself, that the tax cut will raise incomes more than anything else that’s happened in the country in many years, that the tax cut isn’t skewed towards helping rich people, those are fake facts. And I think they need to be called out as fake facts.
Is corporate tax reform a good idea? Yes. Will it have some positive impacts? Yes. Are the claims being made by the administration valid? I think not. Is the corporate tax reform they’re proposing well designed to help the economy and the middle class rather than be a giveaway to the very fortunate? I don’t think it is well designed in that regard.
ZAKARIA: Basically, as I calculated it using some of your analysis, the tax cut, if you work it out per American worker is about $1,300 per worker.
And you say, Kevin Hassett assumes that when you give $1,300 to every American worker in the form of a tax cut passed through by corporations, his or her wages will rise by $4,000 or even $9,000. That seems – it’s difficult to understand how that would happen.
SUMMERS: Yes. Look, I think what Kevin Hassett assumes is that when you give that corporate tax cut, you’re giving it to corporations and that the corporations in response will decide to grow and that that’s what will create the higher wages.
The problem is that maybe the corporations will just keep the money and pay it out in the form of higher dividends or doing more repurchases of shares. And even if they do grow somewhat, how much will they grow. And to finance that corporate tax cut, you’re going to need to do something else like borrow money which is going to drive up interest rates and have adverse effects on the economy.
So, the idea that this tax cut is going to be enough to raise incomes by anything like the suggestion seems a highly implausible one.
ZAKARIA: You said that if Kevin Hassett had submitted his testimony or this proposal to you and he was a student at Harvard in an economics course you were teaching, you would have failed the paper. Do you stand by that?
SUMMERS: Yes, I do. I would have failed the paper. After all, it was egregiously selective in the use of evidence because it didn’t defend the plausibility of its conclusions. After all, the methodologies were very far from the state-of-the-art methodologies in economics, and because the professional economic analysis is supposed to be analytical and objective rather than constituting a political brief.
If I taught a course at Harvard in campaign management and somebody presented a paper like that as an example of what a presidential campaign political document would look like, I might have thought it was a pretty good political document making that case.
But what’s always been special about the Council of Economic Advisers is that it has stood heretofore for objective professional economic analysis, not the kind of stuff that campaign staffs produce or White House political staffs produce.
What disappointed me about Kevin’s work was not that I had never seen any document like that before, but that I had seen them only from campaign or White House political staffs before, never with the imprimatur of the Council of Economic Advisers.
Bashorun J.K. Randle
