I call an intellectual foul. Penalty. Fifteen yards against the Washington Times:
The deficit drumbeat -- The Washington Times: ...Bush administration economists do not deny that a larger deficit will raise interest rates ? all other things being equal ? but think the impact is much less than the Brookings economists believe. They base their estimate on the work of economists N. Gregory Mankiw of Harvard and Douglas Elemendorf of the Federal Reserve. This research indicates that a $100 billion increase in the deficit, which is the first-year impact of the Bush plan, would raise rates by just 1 or 2 basis points ? a trivial amount.
Elmendorf and Mankiw's estimate is of the effect of a (i) $100 billion dollar increase in the deficit this year, and a (ii) tax increase or spending cut to reduce the deficit by $100 billion dollars next year.
I suspect that Bruce Bartlett--the author of the Washington Times column--knows this, because of the careful wording: it's not "a $100 billion increase in the deficit, which is about the size of the Bush plan"; it's "a $100 billion increase in the deficit, which is the first-year impact of the Bush plan." If challenged, he can respond, "I didn't say that Elmendorf and Mankiw's estimates are that the Bush plan would raise interest rates by one or two hundredths of a percentage point, I said that Elmendorf and Mankiw's estimates of a temporary one-year tax cut the size of the Bush plan's first year that is then reversed would raise interest rates by one or two hundredths of a percentage point."
But maybe the intellectual foul is on whoever in the Bush administration provided Bruce with the talking points he used to write his column...
Posted by DeLong at January 23, 2003 02:00 PM | TrackbackAh, what is "deemed dividend"? (Floyd Norris)
And deficit as non FICA?
If Mankiw is already being misused in the deficit/interest rate debate, how does that play into the notion that he will replace Hubbard? If, on the deficit/rates issue, Mankiw is now where Hubbard was prior to joining the Bush II team, where will Mankiw end up should he also join up? In his case, at least as much as in Hubbard's, acquiring a shadow of a doubt about credibility seems too high a cost.
A $100 bln rise in the deficit this year offset by a $100 bln tax hike next simply enforces Ricardo. Where does Mankiw stand on unenforced Ricardian equivalence?
Posted by: K Harris on January 24, 2003 05:33 AMI saw a link to a Bartlett column in "Townhall" referencing a Mankiw/Elmendorf paper (including URL). Skimming the paper I could not find any reference to a $100B deficit.
Mankiw and Elmendorf explicitly state that Ricardian equivalence does not seem to hold, and list all the possible ways in which government debt will be detrimental.
http://www.townhall.com/columnists/brucebartlett/bb20030116.shtml
http://www.federalreserve.gov/pubs/feds/1998/199809/199809abs.html
Posted by: Wolf on January 24, 2003 09:14 AMyes, but the Washington Times is not a newspaper.
Posted by: John Isbell on January 24, 2003 02:51 PMDeficit drive interest rates up (may be) and the moribund economy drives them down (quite surely). So current economic policies, in their totality, decrease interest rates --- as we can see in the bussiness section.
Posted by: Piotr Berman on January 24, 2003 07:27 PM