U.S. economic policy debate is a sham, driven by politics

Watching Democrats and Republicans hash out their differences in the public arena, it’s easy to get the impression that there’s a deep disagreement among reasonable people about how to manage the U.S. economy.
Nothing could be further from the truth.
The debate in Washington about economic policy is phony. It’s manufactured. And it’s entirely political.
Let’s start with Obama’s stimulus. One standard talking point is that it failed, meaning it didn’t reduce unemployment. Yet in a survey of leading economists conducted by the University of Chicago’s Booth School of Business, 92 percent agreed that the stimulus succeeded in reducing the jobless rate.
Or consider the widely despised bank bailouts. Populist politicians on both sides have taken to pounding the table against them. But while the public may not like them, there’s a striking consensus that they helped: The same survey found no economists willing to dispute the idea that the bailouts lowered unemployment.
Do you remember the Republican concern that Obama had somehow caused gas prices to rise? There’s simply no support among economists for this view. They unanimously agreed that “market factors” have driven gas prices.
How about the oft-cited claim that tax cuts will boost the economy so much that they will pay for themselves? Perhaps when the top tax rate was 91 percent, the idea was plausible. Today, it’s a fantasy. The Booth poll couldn’t find a single economist who believed that cutting taxes today will lead to higher government revenue – even if we lower only the top tax rate.
The consensus isn’t the result of a faux poll of left-wing ideologues. Rather, the findings come from the Economic Experts Panel run by Booth’s Initiative on Global Markets. It’s a recurring survey of about 40 economists from around the United States and across the political spectrum. The only things that unite them are their first-rate credentials and their interest in public policy. They aren’t purporting to know all the right answers. Rather, they agree on the best reading of murky evidence.
The disjunction between the state of economic knowledge and our current political debate has important consequences. Right now, millions of people are suffering due to high unemployment. Our textbooks are filled with possible solutions. Instead of debating them seriously, Congress avoids discussing even those policy proposals that strike most economists as uncontroversial.
This inaction has no basis in economics. Instead, it’s raw politics – a cynical attempt to score points in a phony rhetorical war or a way of preventing their opponents from scoring a policy win.
The debate about the long-run challenge posed by the federal budget deficit has also become divorced from economic reality. The same panel of economists was almost unanimous in agreeing that “long-run fiscal sustainability in the U.S. will require cuts in currently promised Medicare and Medicaid benefits and/or tax increases that include higher taxes on households with incomes below $250,000.” Only one in 10 was uncertain. None objected.
Likewise, popular tax deductions such as that for mortgage interest didn’t fare well in the surveys and would be on almost any economist’s list of targets for reform. Yet neither party is willing to propose such policies.
On the probable consequences of economic reforms, though, leading economists are more likely to be right than politicians running for re-election. •


Betsey Stevenson is associate professor of public policy at the University of Michigan. Justin Wolfers is associate professor of business and public policy at the University of Pennsylvania.

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