The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Very Bad Timing

11/28/2017

I am a Supply-side economist . . . some of the time.  I am a Keynesian economist . . . some of the time.  And, I am an Austrian economist . . . some of the time.  There is a time and a place for each of the three major schools of economics.

Supply-side economics and Keynesian economics are useful for “jump-starting” a moribund economy.  Austrian economics is best for long-term management of the economy.

The good news is that the economy is doing well right now.  While there are always predictions of doom, there is no strong economic predictor of a recession in the foreseeable future.  The economy does not need to be “jump-started” right now. 

The current tax proposal would have been great in 2008 . . . but not in 2017.

Even worse, some salesmen are pulling numbers out of their imagination.  Secretary of the Treasury Steve Mnuchin is one of my favorite Cabinet officials, but he is overly-zealous in his sales pitch.  Repeatedly, he says the tax cut “will pay for itself.”  Supply-side believers argue that a tax cut will so stimulate GDP that increased tax revenue will flow from increased economic activity.  They call this “dynamic scoring,” and it works . . . some of the time.

According to Mnuchin, the $1.5 trillion tax cut will be replaced by the additional $1.5 trillion of new tax revenue from the newly-stimulated economy.  The non-partisan Wharton Budget Model predicts the tax cut will add at least $1.4 trillion and maybe $1.7 trillion to the debt.  Even the highly-partisan supply-side believers at the Tax Foundation believe the tax cuts in the House version will add $1.08 trillion to our national debt, while the Senate version will add $516 billion to our national debt.  Either way, even Supply-side “true-believers” cannot believe Mnuchin’s numbers. 

When the true-believers don’t believe, neither should you.

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