Sunday, July 19, 2015

The Debate Over Jeb Bush's 4% Growth Rate Claim

Jeb Bush claimed that he will introduce free market policies that will cause the US economy to reach a 4% growth rate.  Noah Smith, among others, raised questions about Jeb's claim.  John Cochrane responded by criticizing Noah Smith and accused him of rejecting free market policies and their ability to produce a 4% growth rate.  This article by Noah Smith provides his interpretation of the debate.  Smith takes the position that free market ideologists like Cochrane are the real outliers within the profession.  The great majority of economists believe in the mixed economy.  He argues that liberalization may have some positive effects on the growth rate, but that Cochrane has not provided any evidence that "free market nirvana" will achieve a 4% growth rate.  Jeb Bush's claim, like Cochrane's defense, is derived from a belief in "free market nirvana". 

The debate between Cochrane and Smith is important because a small minority of economists are true believers in free market nirvana.  In a sense it describes "heaven on earth".  Heaven is a world in which market forces are allowed to operate in the absence of government regulation and high tax rates.  Ronald Reagan is viewed as prophet who was instructed by an economic God to liberate the economy from an oppressive government.  Heaven was reachable, according Reagan, by getting government off of our backs.  The belief in a free market nirvana is utopian, but it has an influence that goes well beyond its credibility.  There are a large number of "churches", that are called think tanks, which evangelize the public about their nirvana.  Its not clear whether the evangelists really believe in their nirvana, but their belief system helps to make the tax system less progressive and it shifts government spending away from things that they don't like and in directions that maintain a plutocracy.

We would be better off if we spent less time debating free market nirvana and the other utopia in which governments controlled everything.  Our central problem is to make the mixed economy work better, and that requires a more effective government that is responsive to democratic forces.  The plutocracy hates democracy.  They spend millions to keep it from working.  Government is fine if they can control it and free market nirvana is one of their control mechanisms.

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