Tuesday, February 9, 2010

Is Obama's Bush Bashing Really Just Motivated by Bad Economics?

While doing research for an upcoming book, I came across an interesting bit of economics research from UC Berkeley which I believe may explain President Obama's continuous Bush blaming.  The report, "THE MACROECONOMIC EFFECTS OF TAX CHANGES: ESTIMATES BASED ON A NEW MEASURE OF FISCAL SHOCKS," addresses the implications of tax changes on economic output.  In a nutshell, the authors divided motivations for tax changes into endogenous and exogenous categories.  Endogenous changes are those intentioned to correct or preempt an undesirable economic outcome, such as preventing a recession.  Exogenous changes are not done to correct the economy; they are done for other reasons.

The report concludes by stating that endogenous tax changes have little affect, i.e. statistically insignificant, on economic output while exogenous tax changes have a three-fold impact on economic output, i.e. tax change of 1% of GDP results in 3% of GDP economic impact.  However, it caveats that tax changes implemented for the purpose of reducing an "inherited deficit," a subset of exogenous changes, have no statistically significant impact on economic output.  It would seem the authors are attempting to justify a tax increase for the purposes of deficit reduction.  Ironically, they are quick to explain that endogenous changes may have little economic impact because the economy is already headed in the "intended" direction.  Somehow, this explanation is not considered a possibility when describing the deficit reducing motivation for a tax change even though this is highly likely.  In other words, politicians are unlikely to increase taxes during a recession, even if it's purpose is to reduce a deficit - they would probably only undertake this during good economic times because very few politicians are into career suicide.  Therefore, small tax changes during good economic times are far less likely to impact economic output.

Okay, so what does this seemingly obscure report have to do with Obama?  It turns out one of the authors is Dr. Christine Romer, President Obama's Chief Economic Adviser.  It begs the question: Is Obama constantly trying to blame Bush for the deficits because he wants to be seen as raising taxes to reduce an "inherited deficit?"  

If this is the case, then it is a clear indication he and his adviser have the economic literacy of a common garden slug.  The paper by Dr. Romer is still listed as a draft, probably because it could not pass peer review.  Furthermore, the conclusions and obscurity of referring to "inherited deficits," as if this is the only kind of deficit in existence or of concern, show that the report was not written for the benefit of economic knowledge.  If not written for a 2008 Democratic Presidential contender, it can only be explained as a justification for the Clinton tax increases.  Similar to the deterministic "science" prevalent in the IPCC's Global Warming, this report is an excellent example of trying to make the "research" fit the desired conclusion.

If my accusation is correct, then Obama's constant Bush blaming is not just representative of a pitiful lack of accountability, it's also a completely asinine attempt to affect an economic outcome by wrapping increasing tax burdens from his overspending into a psychologically more pleasing package.  Of course, the approach will be a miserable failure because it is based upon even more miserably misguided economists.  I'll leave you to draw your own conclusions - you can obtain a PDF copy of the study here.

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