(Bloomberg View) — A bit of a civil war has broken out within the left-leaning wing of the economics blogosphere. Gerald Friedman, an economist at the University of Massachusetts at Amherst, recently wrote a paper summarizing Sen. Bernie Sanders’s economic proposals. But many economists and bloggers are criticizing the presidential candidate’s spending proposals for including unrealistic assumptions about growth.
A group of economists who worked in the Clinton and Obama administrations have written an open letter to Sanders and Friedman, warning that Friedman’s claims “cannot be supported by the economic evidence” and urging a return to evidence-based policy. Obama’s former chief economic adviser Austan Goolsbee puts it rather more floridly, saying that Sanders’s plans have “evolved into magic flying puppies with winning Lotto tickets tied to their collars.”
What are these magic flying puppies? Much of what Sanders is proposing consists of more government spending on public services, such as education and health care, and higher taxes on the rich. But the latter are not big enough to pay for the former if the economy stays on its current moderate-growth path.
In order for Sanders’s proposals to be feasible in the long term, they must avoid putting the U.S. fiscal deficit on an unsustainable path. The only way that will happen is if productivity grows at a historically rapid rate and labor force participation rises to historic highs. Specifically, Friedman assumes that under Sanders, real gross domestic product growth will increase to a torrid 4.5 percent from its recent rate of just over 2 percent. That is even higher than the 4 percent being promised — unrealistically, I might add — by the Jeb Bush campaign. Friedman projects that under Sanders, median household income will soar to more than $82,000 by 2026, up from the current level of around $55,000. That would be an unprecedented bonanza.
To get to 4.5 percent growth, Friedman assumes that in a Sanders presidency, productivity growth will double from its current rate of around 1.6 percent, to around 3.2 percent. To justify this, Friedman relies on the historical correlation between unemployment and productivity. Historically, times of strong growth in productivity also tended to be times when most people had jobs. So Friedman’s logic is this: Sanders will reduce unemployment, and higher productivity growth will be the result.
But Friedman is misinterpreting correlation as causation. How will lowering unemployment actually cause productivity to rise? If anything, we’d expect the reverse — the last workers to get jobs as unemployment goes down are usually the least productive, meaning that falling unemployment will usually put a little bit of a drag on productivity.
Even accepting this highly unrealistic idea, a sustained 3.2 percent growth rate in labor productivity would be historically unprecedented:
Only for very brief periods has productivity ever reached the level that Friedman assumes it will average under Sanders for the foreseeable future.
Friedman also assumes that under Sanders, the employment-to-population ratio will rise to 65 percent. As Kevin Drum at Mother Jones points out, that has never happened.