March 27, 2008

What does the McCain campaign know?

John McCain has admitted he doesn't know anything about economics. I guess that would be OK if his advisors knew something:

“What really happens is that the economy grows more vigorously when you lower tax rates,” said Kevin Hassett, an adviser to the presumptive Republican nominee, John McCain, and the director for economic policy studies at the conservative American Enterprise Institute. “It is beyond the reach of economic science to explain precisely why that happens, but it does.”
This is so insane in so many different ways.First, this is the sort of rationale that "liberal" Kensyian economists used to use. For decades economists looked at the relationship between inflation and unemployment and concluded that it was impossible to have low inflation with low unemployment. Economists didn't understand why, but scatter plots never lie, right?Wrong! The basis of much of the "conservative" macroeconomics has been the idea that macroeconomics has to have micro principles. This is the basis of the Lucas Critique, which says that it is retarded to base policy on correlation of historical data. Second, Hassett must not know much about economics because there is a huge body of research about why lower taxes lead to more growth.I've always been wary of the claim that the GOP worships supply-side economics. I figured they understood the growth or the starve the beast arguments. But, stuff like this is insane.