Professor Emeritus at Harvard, and former chief economist at the World Bank, former Director of the National Economic Council, and former Secretary of the Treasury, Larry Summers says he might fail the Trump budget team in introductory econ:
Details of President Trump’s first budget have now been released. Much can and will be said about the dire social consequences of what is in it and the ludicrously optimistic economic assumptions it embodies. My observation is that there appears to be a logical error of the kind that would justify failing a student in an introductory economics course.
Apparently, the budget forecasts that U.S. economic growth will rise to 3.0 percent because of the administration’s policies — largely its tax cuts and perhaps also its regulatory policies. Fair enough if you believe in tooth fairies and ludicrous supply-side economics.
Then the administration asserts that it will propose revenue neutral tax cuts with the revenue neutrality coming in part because the tax cuts stimulate growth! This is an elementary double count. You can’t use the growth benefits of tax cuts once to justify an optimistic baseline and then again to claim that the tax cuts do not cost revenue. At least you cannot do so in a world of logic.
Update: For those of you who don't like Larry Summers because...well..this, here is FiveThirtyEight's take on the budget double counting trick:
The White House budget request released Monday double counts $2 trillion. It argues that the same $2,000,000,000,000 can pay for both a $2,000,000,000,000 tax cut and simultaneously a $2,000,000,000,000 budget balance. Using money twice is frowned upon in financial circles. [NBC News]
