We reported before about the panic of the Democratic establishment over the estimates of Bernie Sanders economics fanboy Gerald Friedman of UMass/Amherst, who says that Bernie’s nostrums will deliver all the milk and honey in Venezuela, or something.
Now it’s the turn of Christina and David Romer, Democratic economists at UC Berkeley, to dump on Friedman. Christina Romer served on Obama’s Council of Economic Advisers in the first term, and was responsible for the infamous chart about how the stimulus bill would keep unemployment below 8 percent. Now the Romers take a close look (PDF file) at the Friedman analysis, and offer these conclusions:
Although we share many of Senator Sanders’s values and enthusiastically support some of his goals, such as greater public investment in infrastructure and education, we also believe it is vitally important to be realistic about the impact of policies on the performance of the overall economy. For this reason, it is worth examining Friedman’s analysis carefully. . .
Unfortunately, careful examination of Friedman’s work confirms the old adage, “if something seems too good to be true, it probably is.” We identify three fundamental problems in Friedman’s analysis.
- First, all the effects of Senator Sanders’s policies that he identifies are assumed to come through their impact on demand. However, his estimates of those demand effects are far too large to be credible—even given Friedman’s own assumptions.
- Second, in assuming that demand stimulus can raise output 37% over the next 10 years relative to the Congressional Budget Office’s baseline forecast, Friedman is implicitly assuming that the U.S. economy is (and will continue to be for a long time) dramatically below its productive capacity. However, while some output gap likely still exists, the plausible range for the output gap is much too small to accommodate demand effects nearly as large as Friedman finds. As a result, capacity constraints would likely lead to inflation and the Federal Reserve raising interest rates long before such high growth rates were realized.
- Third, a realistic examination of the impact of the Sanders policies on the economy’s productive capacity suggests those effects are likely to be small at best, and possibly even negative. (Emphasis in original.)
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.
There’s more at the link; the full paper is 11 single-spaced pages.
JOHN adds: So, wait! Socialism doesn’t work? Really? Who knew?