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Home , Alan Krueger, Arthur Laffer, Christina Romer, Jason Furman, Stephen Moore (writer)

The second voice is that of the nu- Snake-Oil anced advocate. In this case, advance a point of view while recognizing the diversity of thought among reasonable people. They use state-of-the-art theory and evidence to try to persuade The Bad Math Behind the undecided and shake the faith of Trump’s Policies those who disagree. They take a stand without pretending to be omniscient. N. Gregory Mankiw They acknowledge that their intellectual opponents have some serious arguments and respond to them calmly and without vitriol. Trumponomics: Inside the America First The third voice is that of the rah-rah Plan to Revive Our Economy partisan. Rah-rah partisans do not build BY AND their analysis on the foundation of profes- ARTHUR B. LAFFER. All Points sional consensus or serious studies from Books, 2018, 287 pp. peer-reviewed journals. They deny that people who disagree with them may have hen economists write, they some logical points and that there may be can decide among three weaknesses in their own arguments. In W possible voices to convey their view, the world is simple, and the their message. The choice is crucial, opposition is just wrong, wrong, wrong. because it affects how readers receive Rah-rah partisans do not aim to persuade their work. the undecided. They aim to rally the The first voice might be called the faithful. textbook authority. Here, economists Unfortunately, this last voice is the act as ambassadors for their profession. one the economists Stephen Moore and They faithfully present the wide range chose in writing their of views professional economists hold, new book, Trumponomics. The book’s acknowledging the pros and cons of over-the-top enthusiasm for U.S. Presi- each. These authors do their best to dent ’s sketchy economic hide their personal biases and admit that agenda is not likely to convince anyone there is still plenty that economists do not already sporting a “Make America not know. According to this perspective, Great Again” hat. reasonable people can disagree; it is the author’s job to explain the basis for that ECONOMIC TRIBALISM disagreement and help readers make an Moore and Laffer served as economic informed judgment. advisers to Trump during his campaign and after he was elected president (along N. GREGORY MANKIW is Robert M. Beren with , the current director Professor of Economics at . of the National Economic Council, who From 2003 to 2005, he was Chair of the Council of Economic Advisers under U.S. President wrote the book’s foreword). From this George W. Bush. experience, Moore and Laffer apparently

176 Snake-Oil Economics

Seller in chief: Trump promoting his tax cut package in Hialeah, Florida, April 2018

learned the importance of flattering the Economic Advisers during the George W. boss. In the first chapter alone, they tell Bush administration, so do I.) But the us that Trump is a “gifted orator” who Obama administration was filled with is always “dressed immaculately.” He is prominent economic advisers who were “shrewd,” “open-minded,” “no-nonsense,” well within the bounds of mainstream and “bigger than life.” He is a “common- economics: , Austan sense conservative” who welcomes “honest Goolsbee, , Christina and fair-minded policy debates.” He is Romer, and , to name the “Mick Jagger of politics” with a but a few. It is not tenable to suggest contagious “enthusiasm and can-doism.” that with all this talent, the administra- The authors’ approach to policy is tion made only wrong decisions, and similarly bereft of nuance. In Chapter that they were wrong simply because 3, they sum it up by proudly recounting those who made them were Democrats. what Moore told Trump about U.S. The tribalism of Moore and Laffer’s President during the approach stems primarily from their campaign: “Donald, just look at all devotion to a single issue: the level of PABLO MARTINEZ MONSIVAIS / AP the things that Obama has done on the taxation. Obama pursued higher taxes, economy over the past eight years, and especially on higher-income households. then do just the opposite.” His goal was to fund a federal govern- It is hard to imagine more simplistic, ment that was larger and more active than misguided advice. To be sure, Moore many Republicans would prefer and to and Laffer can reasonably hold policy use the tax system to “spread the wealth positions and political values to the right around,” as he famously told Joe Wurzel- of those of Obama. (As someone who bacher, known as Joe the Plumber, a man chaired the White House Council of he encountered at a campaign stop in

January/February 2019 177 N. Gregory Mankiw

Ohio in 2008. By contrast, Moore and tradeoff between equality and efficiency Laffer want lower taxes, especially on just won’t go away. businesses, which in their view would promote faster economic growth. LESSONS FROM ECON 101 The debate over taxes reflects a Trumponomics is full of exhortations about classic, ongoing disagreement between the importance of economic growth. Why, the left and the right. In 1975, Arthur Moore and Laffer ask, should Americans Okun, a Brookings and former settle for the two percent growth that adviser to President Lyndon Johnson, many economists have been projecting? wrote a short book called Equality and Wouldn’t every problem be easier to Efficiency: The Big Tradeoff. Okun argued solve with a more rapidly expanding that by using taxes and transfers of economy? The book quotes Trump as wealth to equalize economic outcomes, claiming, when announcing his tax plan the government distorts incentives—or in December 2017, that it would not that, to put it metaphorically, the harder increase the budget deficit because it the government tries to ensure that the would raise growth rates to “three, or economic pie is cut into slices of a similar four, five, or even six percent.” size, the smaller the pie becomes. Based The authors offer no credible evi- on this argument, the main priority of dence that the tax changes passed will the Democratic Party is to equalize the lead to such high growth. Most studies slices, whereas the main priority of the yield far more modest projections. The Republican Party is to grow the pie. Congressional Budget Office estimates Yet Moore and Laffer aren’t willing that the Trump tax cuts will increase to admit that making policy requires growth rates by 0.2 percentage points confronting such difficult tradeoffs. per year over the first five years. A Laffer is famous for his eponymous study by Robert Barro (a conservative curve, which shows that tax rates can economist at Harvard) and Furman (a reach levels high enough that cutting liberal economist at Harvard) published them would yield enough growth to in 2018 estimates that the tax bill will actually increase tax revenue. In that increase annual growth by 0.13 percent- scenario, the tradeoff between equality age points over a decade. And that is and efficiency vanishes. The government if the changes are made permanent. can cut taxes, increase growth, and use Barro and Furman estimate that as the the greater tax revenue to help the less legislation is written, with many of the fortunate. Everyone is better off. provisions set to expire in 2025, it will The is undeniable as a increase annual growth by a mere 0.04 matter of economic theory. There is percentage points over ten years. certainly some level of taxation at which It is conceivable that standard eco- cutting tax rates would be win-win. nomic models underestimate the impact But few economists believe that tax of tax cuts on growth. A research paper rates in the have reached by the economists and such heights in recent years; to the con- published in 2010 examined trary, they are likely below the revenue- historical tax changes and found that they maximizing level. In practice, the big had larger effects on economic activity

178 foreign affairs than standard models suggest. (It is worth noting that these two authors’ political leanings are left of center, so their findings are not the result of ideological taint.) One might reasonably argue that Trump’s tax cuts will increase growth over the next decade by as much as half a percentage point per year. But that is a long way from the one- to four-percentage-point The Internship boost that the president and his associates Program have bragged of, and that Moore and The Council on Foreign Relations is seek- Laffer quote without explanation, caveat, ing talented individuals who are consider- or apology. ing a career in international relations. The authors of Trumponomics do depart Interns are recruited year-round on a ­semester from the president on one piece of his basis to work in both the City and agenda: his approach to international Washington, D.C., offices. An intern’s duties trade. Moore and Laffer are ardent free generally consist of administrative work, editing and writing, and event coordination. traders; as such, their views are well The Council considers both undergraduate within the mainstream of modern eco- and graduate students with majors in Interna- nomics. Ever since Adam Smith took on tional Relations, Political Science, Economics, the mercantilists in The Wealth of Nations or a related field for its internship program. in 1776, most economists have come to A regional specialization and language skills believe that international trade is win-win. may also be required for some positions. In They reject the idea that a trade imbalance addition to meeting the intellectual require- ments, applicants should have excellent between two nations means that one of skills in administration, writing, and re- them must be the loser, and they applaud search, and a command of word processing, agreements, such as the North American spreadsheet applications, and the Internet. Agreement (nafta), and To apply for an internship, please send a international organizations, such as the résumé and cover letter including the se- World Trade Organization, that reduce mester, days, and times available to work to the Internship­ Coordinator in the Hu- trade barriers around the world. man Resources Office at the address listed Moore and Laffer recognized early below. Please refer to the Council’s Web in the campaign that Trump rejects site for specific opportunities. The Coun- this consensus.­ To their credit, they cil is an equal opportunity employer. do not back down from their views in Trumponomics. They acknowledge that the president is playing a “high-stakes game of poker” and that “if it doesn’t work, the ramifications scare us to death.” Council on Foreign Relations But they also give Trump the benefit Human Resources Office of the doubt by expressing the hope 58 East 68th Street, New York, NY 10065 that his belligerent approach toward tel: 212.434 . 9400 fax: 212.434 . 9893 U.S. trading partners will somehow [email protected] http://www.cfr.org lead to better deals and freer trade.

January/February 2019 179 N. Gregory Mankiw

Hostility to globalization did not, of Trump were able to negotiate trade deals course, begin with Trump. It may be hard that solved this problem, the accomplish- to remember now, but when Obama was ment would be significant. But in light a senator, he opposed many free-trade of how much other nations benefit from initiatives advanced by the administration not protecting U.S. intellectual property, of then U.S. President George W. Bush, a negotiated solution won’t come easy. such as the Dominican Republic–Central America Free Trade Agreement. When GIVING THE PRESIDENT A PASS Obama ran for president in 2008, he spoke Perhaps the most disappointing aspect about the need to renegotiate nafta, of Trumponomics is the long list of crucial although he quickly put that goal aside issues on which the authors are largely after moving into the White House. silent. They offer no cogent plans to deal Similarly, during the 2016 U.S. presiden- with global climate change, the long- tial campaign, Senator Bernie Sanders term fiscal imbalance from growing of Vermont made hostility to free trade a entitlement spending, or the increase in central tenet of his platform. So popular economic inequality that has occurred did that position prove among Democrats over the past half century. Many reason- that he managed to pressure the Demo- able Republicans would support a tax cratic candidate into on carbon emissions, for example. Such opposing the Trans-Pacific Partnership— a policy would slow climate change by the very trade deal she had backed as incentivizing the movement toward secretary of state during the Obama cleaner energy, as well as provide administration. The bottom line is that for revenue that could be used to close the a politician seeking election, opposing fiscal gap or to help those struggling at free trade is a lot easier than supporting the bottom of the economic ladder. it. Many voters are more likely to view Rather than suggesting coherent foreign nations as threats to U.S. prosper- policies, Moore and Laffer seem to hope ity than as potential partners for mutually that a much more rapidly growing advantageous trade. Economists have a economy will provide the resources to long way to go to persuade the body politic address all these problems, and they seem of some basic lessons from Econ 101. to believe that this growth will follow To be fair to Trump and other anti­ ineluctably from the lower taxes and globalization zealots, amid all their mis­ deregulation that lie at the heart of information and bluster is a kernel of truth. Trump’s agenda. It would be wonderful if The United States produces a lot of that were possible. Maybe rah-rah parti- intellectual property, including movies, sans really believe it is. But more likely, software, and pharmaceuticals. The failure it is just wishful thinking. Trump appears of countries, especially China, to enforce eager to avoid most of the economic the copyrights and patents that protect problems facing the nation. By banking intellectual property constitutes a loss to on so much growth from cutting taxes, the United States similar to outright Moore and Laffer are, in effect, giving theft. The Commission on the Theft of him a pass and kicking the can down the American Intellectual Property puts the road to a future leader more interested in loss at up to $600 billion per year. If confronting hard policy choices.∂

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