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Christina Romer refutes Gerald Friedman's analysis of Bernie Sanders economic plan: A Rebuttal & Observation

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In all fairness to those critical of Sanders' plan as analyzed by Gerald Friedman, a University of Massachusetts Amherst economics professor, Chair of the Council of Economic Advisers from 2009 to 2010, Christina Romer and economist David Romer have read the Friedman analysis and replied. They say of his conclusions:

The bottom line of our evaluation of Professor Friedman's analysis is that it is highly deficient. The estimated demand-induced effects of Senator Sanders's policies are not just implausibly large but literally incredible. Moreover, even if they were not deeply flawed, Freidman's enormous estimates of demand-fueled growth could not and would not come to pass. Even very generous estimates of the amount of slack still present in the American economy would not be enough to accommodate demand-driven growth of anything near what Friedman is estimating. As a result, inflation would soar and monetary policy would swing strongly to counteract them. Finally, a realistic evaluation of the impact of Senator Sanders's policies on productive capacity (something that is neglected in Friedman's analysis) suggests that those impacts are likely small and possibly negative.

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I'm sure Friedman will counter-reply at some point and I am not trained in macro-economics to the point where I can refute the Romers, but I do see a couple of possible pitfalls in their analysis.

1. They claim that the unemployment rate is ~5% and therefore there is not enough slack in capacity to get to the 5% growth Sanders envisions (again, through Friedman) without inflation. But the statistics aren't what they used to be. At one point they say the rate is 1/5 of what it was in the Great Depression and that therefore we COULD have >5% growth through WWII because the starting point was so abysmal and the ending point was actually above our capacity. But various manipulations in the last generation have made the numbers not comparable. See shadowstats.com for how this was done and also the figures for people working substandard jobs, or 1,2 or even 3 PT jobs with little or no benefits, when they used to work FT jobs.
Of course, this argument could mean that fewer people will willingly work under Sanders plan to provide free health care and a high Social Security payout, but this is misleadingly negative in two ways.
First, Social Security recipients spend almost all of what they receive and this stimulates demand which creates new jobs. In my article on "Asking how to Pay for Social Security is Asking the wrong Question on OEN and in my book, "America is Not Broke!" I cite two studies that show that every dollar spent produces from $1.80-$2.00 in national income, thereby adding to capacity (which the Romers say is limited, more on that in a moment), depending on the study (Southern Rural Development Center and AARP). So, in the push-pull of the Sanders plan, there would be some pull from taxes (i.e. lower growth) but also new push from demand and that demand might lead to actual jobs vs. just more growth in asset bubbles that Sanders and Friedman argue is depleting our capacity currently by taking money out of the productive economy.

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Also, if there is demand and not enough workers to fill the demand -- as the Romers imply by citing capacity constraints - other alternatives will surely follow. Many experts think automation will accelerate to take many low-end jobs anyway -- from driving cabs to flipping burgers -- and a recent White House report found:

The lowest-wage workers are profoundly affected by technology, " with professions paying less than $20 an hour more likely to be automated.

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Automation, of course, has always increased capacity, so the Sanders' policies might just speed that up. Workers may need to be retrained. This equals more jobs for trainers too.

2. "Job Killing." The jobs that might go away as a result of doubling the minimum wage, at least in those states where the states themselves have not already done so (to negligible effect, as the Romers say would be the case on employment overall if the policy went national), are arguably not "real" jobs in the sense that a job is something from which an employee can be expected to derive a salary above subsistence level. This sounds counter-factual on the surface, but remember, Hilary Clinton's husband did away with permanent welfare and in its place other forms of government compensation, some begun as far back as the Reagan Administration, became more important and were expanded, and this has continued to the present. It's not a stretch to say many minimum wage jobs are really "half jobs" with the other half of compensation due to government indirect subsidies to large corporations via their underpaid employees. It wasn't that long ago that Walmart was offering classes in how to gain government benefits to augment their "always low wages."

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Scott Baker is a Managing Editor & The Economics Editor at Opednews, and a blogger for Huffington Post, Daily Kos, and Global Economic Intersection.

His anthology of updated Opednews articles "America is Not Broke" was published by Tayen Lane Publishing (March, 2015) and may be found here:
http://www.americaisnotbroke.net/

Scott is a former President of Common Ground-NYC (http://commongroundnyc.org/), a Geoist/Georgist activist group. He has written dozens of articles for (more...)
 

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