Good news! I read through all the presidential candidates’ economic plans so you don’t have to. I even came up with a handy rule of thumb to help you quickly assess everyone’s ideas.
Here’s the rule: The more growth a candidate promises, the worse his or her economic plan probably is.
Why? Not because promising bonkers growth suggests economic illiteracy, necessarily, though it might. The reason this axiom works is that promises of big growth usually signify a statistical sleight of hand — legerdemath, if you will.
If a candidate is making ridiculous claims about how much he’ll grow the economy, he probably needs to make those claims to hide the massive deficits that his policies would create under less generous (i.e., more realistic) assumptions. Astronomically higher economic output and employment create an astronomically larger tax base, after all, which helps offset the costs of spending increases or tax-rate cuts.
Take Bernie Sanders’s suite of economic proposals, which include higher taxes, “Medicare for all,” big infrastructure investments, free college and higher Social Security benefits.
The campaign has lately been flogging an analysis of these proposals by Gerald Friedman, an economist at the University of Massachusetts at Amherst. In a glowing 53-page report, Friedman says Sanders’s policies would:
• Raise the rate of gross domestic product growth to 5.3 percent per year, more than double the Federal Reserve’s current long-run projection of 2 percent.
• Reduce unemployment to 3.8 percent, which is way below the Fed’s long-term estimates of 4.9 percent.
• Restore the share of the population in the labor force back to what it was in 1999, even though the baby boom generation is much older today and so many more Americans have reached retirement age.
If you don’t follow economic statistics closely, these numbers may not mean much to you. Here’s how I’d describe them in layman’s terms: garbage.
It’s not just that these figures assume delusionally large effects. Some show effects that don’t even point in the right direction.
Consider the claims about labor force participation. If you actually think about Sanders’s proposals — such as completely delinking health insurance from employment, making college free and increasing Social Security benefits — you’ll realize they mostly would reduce workforce participation on the margin.
That doesn’t mean they’re unworthy policy choices. Like any other choices, though, they bring tradeoffs — including making it easier or more attractive for Americans to not have a job. In no known universe would they have the effects Friedman predicts.
Usually Democrats accuse Republicans of partaking in this sort of voodoo economics.
Jeb Bush infamously promised 4 percent growth, a number he seems to have pulled from thin air during a conference call. Other Republican contenders matched and even one-upped his preposterous promise, with Donald Trump offering 6 percent growth. Both claims were widely mocked.
“Making such promises runs against our party’s best traditions of evidence-based policy making and undermines our reputation as the party of responsible arithmetic,” four former top economic advisers to Democratic presidents fumed in an open letter to Sanders and Friedman this week.
One of its signatories, University of Chicago economist Austan Goolsbee, compared the realism of the Sanders agenda to “magic flying puppies with winning Lotto tickets tied to their collars.”
There’s a good reason why Team Sanders — like Teams Bush and Trump — avoids addressing critiques of fuzzy math directly. Their economic assumptions may be laughable, but they have one serious advantage: They help make the candidates look less fiscally irresponsible.
If you assume 4 percent growth, Bush’s trillions of dollars in tax cuts suddenly cease to mar the deficit, according to his own advisers. If you assume 5.3 percent growth, Sanders’s tax-and-spend policies may induce a budget surplus (!), Friedman says.
Other experts, using different, more reasonable economic assumptions do not agree. Sanders’s health plan alone — which his campaign insists is fully paid for — has an estimated shortfall of between $3 trillion and $14 trillion.
For all of Sanders’s disgust for Wall Street, this form of numbers-fudging is actually a well-known trick in investment banking. When putting together your pitch book for a merger, you start with the price you need the valuation to come out to, then bake in more and more generous revenue projections until you get there.
And anyone who questions your numbers? Well, maybe they’re on Team Clinton, too.