A Response to the Romers’ Critique of Friedman Bernienomics Analysis

By Ron Baiman of the Chicago Political Economy Group

To her credit Christina Romer, one of the four former CEA Chairs who wrote a scathing four paragraph letter dismissing Gerald Friedman’s detailed study of the impact of the Sanders economic program, has acknowledged that Friedman’s estimates warrant a detailed and substantive analysis. Romer has, with her husband and prominent fellow “Neoclassical (NC) Keynesian” Economist, David Romer, produced a more detailed critique that attempts to back up the stridently critical statements of the CEA Chair’s letter.

As Friedman notes, in his detailed rebuttal, the Romers’ major critique appears to be that a stimulus program that ramps up from $300 billion in 2016 to $600 billion by 2021 and then declines to the $300-$400 billion per year range from 2022 to 2026 (Romers, p. 2) cannot produce permanent gains in GDP growth rates via increased emp/pop ratio and productivity rather than a one-time boost in output that tapers off as the stimulus declines. Indeed, the Romers appear so sure of their NC methodological approach that they speculate that Friedman must have made an elementary miscalculation by not calculating multiplier impacts off of an unchanged (for 10 years) CBO baseline.

But as the Sanders economic program is directed toward positive radical structural changes in the economy using an unchanged baseline is inappropriate. As prominent Post Keynesian (PK) economist Jamie Galbraith has related in detail, Romer made the same mistake in estimating the impact of the Obama stimulus after the 2008 Lesser Depression which also radically changed the underlying structural parameters in a negative way. The massive long-term stimulus from the Sanders economic program will continuously reduce the aggregate savings rate by dramatically reducing inequality (Friedman estimates the 95 to 5 percentile income ratio declining from 27.5 to 1, to 10.1 to 1), and thus lead to large sustainable increases in private sector investment propelling productivity increases per Verdoorn’s Law (see Freidman and Lars Syll responses on this point). Other Sanders programs will rapidly drive up the U.S. labor force participation rate (Friedman, Figure 6). The modest public spending multipliers that Friedman uses, especially in the out years (Friedman, Table 22) are thus, as far as I can tell, appropriately applied to prior year baselines that reflect these changed parameters and not to a CBO baseline that does not.

A lack of awareness of the importance of changes in class structure (via income distribution) is another important distinction between mainstream Neoclassical (NC) Keynesian macroeconomics and the Keynesian-Kaldor PK macroeconomic tradition that Friedman is working out of. Left PK heterodox economists incorporate class analysis as a fundamental driver of macroeconomic outcomes, whereas it is largely absent in mainstream NC macroeconomics as a fundamental driver of economic growth. Again, I refer readers to my forthcoming book: The Morality of Radical Political Economics: Ghost Curve Ideology and the Value Neutral Aspect of Neoclassical Economics, Palgrave, 2016, for more on this.

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