An article published in the Washington Post on August 15,
2012; written by Glenn Hubbard and Kevin Hassett has the title: “Obama
inconsistent on pace of economic recovery”. The two authors are economic
advisers to Republican presidential candidate Mitt Romney. What they do in the
article is play a version of the “Heads I win; tails you lose” game. Come to
think of it, this is an appropriate game for economists to play because money
is their game, and because economists hold opinions so sharply opposite to each
other, they cover the whole landscape, thus create a vast menu from which to
cherry pick what they want when they want it.
And this is what Hubbard and Hassett do in the article. But
before we look at how they maneuver their way to the end, let us look at the
last two paragraphs where they put forth the exaltation about them winning
either way. The essential argument contained in the two paragraphs is shown
here in a single paragraph: “If … the Reinhart and Rogoff analysis is correct,
then the White House should … stop calling for marginal hikes in tax rates … If
the president wants to continue claiming that the … Reinhart and Rogoff's
results do not explain the slow recovery of the U.S. economy … [he should
concede] that the more likely explanation is the failure of his own policies.”
Now, how do they get to this point? Well, the first thing
they do is remind the readers what the president has said which is: “that
recoveries after financial crises are always slow.” They agree with this
notion, but do so with a caveat: “Carmen Reinhart and Kenneth Rogoff documented
this … But their study ... cannot be used as a logical explanation for the
economic policies advanced by the administration.”
And because you want to know why they say so, they tell you
why: “Michael Bordo … and Joseph Haubrich … concluded … that, contrary to the
findings of Reinhart and Rogoff, recessions stemming from financial crises in
the United States
tended to be followed by faster recoveries.” Aren't they lovely, these
economists when they contradict each other! But are we supposed to be surprised
by that?
Our two authors, Hubbard and Hassett, now start to work on
setting the gotcha trap. They do it this way: “The president's … campaign
rhetoric is inconsistent with the analysis of his own economic team.” Well,
does this mean, we should be surprised? They don't bother answering the
question but they go on to say that shortly after taking office, Obama
projected a 4.6 percent growth for the GDP. That was then and this is now you
say, but they shout: Aha, look here. And they point to something else they want
you to know about: “Even today, Obama is implicitly declaring that we are
doomed to a slow recovery for five more years – the administration's estimates
call for GDP growth climbing to 4.1 percent in 2015.” Are we caught in
semantics about what constitutes a fast recovery or a slow one?
They do not clarify this point but go on to give a lecture
as to when a Keynesian stimulus is most effect and when it is not. This is
followed by the last two paragraphs where they claim to have won the argument
either way. Not satisfied with any of this, you wonder how much the two believe
in what they say. Knowing that they advise the campaign of Mitt Romney, you seek
to find out what they are telling their candidate. You unearth this from the
foreword that Hubbard wrote for the “Mitt Romney's Plan for Jobs and Economic
Growth.”
Attributing the thought to Nobel laureate Robert Lucas,
Hubbard says this: “even slight increases in growth rates, when accumulated
over time, have an overwhelming impact on quality of life.” Well, it seems that
he is not so obsessed about the rate of growth that it can be said his concern
is real. In fact, it even looks like he harbors a concern of another kind. Look
at this passage: “To bring the unemployment rate back to its
pre-financial-crisis level by the end of next president's first term would
require real GDP growth averaging 4 percent per year over that period. That is
an aggressive goal.” Considering that this was written a year ago, Hubbard is
giving himself five years to attain this goal which is a modest one by his own
standard. But that's not what he says now as he hedges his bet by warning that
it is an aggressive goal.
And he has a good reason for wanting to hedge his bet. It is
that he knows the problem is a structural one, and it is deeply entrenched.
Look what he says: “the crisis years of 2008 and 2009 pulled back the curtain
on a problem: economic growth had been slowing. U.S. GDP growth has averaged
3.3 percent over the past 50 years. But in the 2002-07 period … that growth
averaged just 2.6 percent.” Well, this is not too far from what we have now.
Does it not mean that Obama has brought the economy back to the pre-financial-crisis
level?
Still, Hubbard does not stop here. He goes on to say: “And
many economists argue that we are in a growth downdraft, where deleveraging and
an aging population limit growth.” In other words he agrees with the economists
he berated in his Washington Post article. Also, in using the word
“deleveraging” he admits that the problem is essentially a financial one;
something he mocked the President for. But like the President, he points to
what he has called an “excuse” to tell why he may not be able to do better
should Romney win the election, and he is called upon to run the economy.
And guess what he does after that. He uses the words of the
same old economists to erect a wall against which he liens so as to stay on his
feet but also to cover his back. Here is how he does that: “Some economists
speak of a 'new normal' of growth of at most 2 percent per year for an extended
period of time. At that rate, joblessness will remain high.” Yes, he stays on
his feet for now, and he prepares for the day when he might have to say: But I
did tell you that 2 percent was the best we can do, and joblessness was going
to remain high. After all – get this now, my friend –: “Getting economic policy
right is not just about GDP numbers.” What? Say that again, Glen! Not just
about GDP numbers?
Well, dear reader, contrast this with the way that he mocked
Obama in his Washington Post article: “In other words, according to the excuse
narrative, even though the Obama stimulus was brilliant and timely, it could
not deliver a normal recovery because the financial crisis made that
impossible.”
And what is Glen Hubbard's excuse for allowing himself to be
caught with his pants down? Gotcha!