Worstall Won’t Let Facts Get in the Way of Economic Theory
March 31, 2017
By Eric Harris Bernstein
Earlier this week I responded to a blog post by Tim Worstall, who took some belated shots at the tax paper I wrote with Marshall Steinbaum. Yesterday, I was thrilled to see his response to my response up at Forbes. I have some responses of my own, but for starters, I would like to address the following: Worstall’s central theme is an analogy in which I am Politico founder Michael Lind and he is a Nobel laureate. I will say up front that, if offered, I will accept that alternate reality.
I would not, however, accept the other scenario he poses, in which I am a chihuahua and he is a leader of Britain’s Labour Party. I would never wish that fate on the British left.
Worstall’s (woefully inadequate) response continues to lean on theory filled with problematic assumptions, in an effort not just to explain away but to actually deny real-world developments. It is the economic equivalent of insisting that a smoker could not get cancer because leading experts say the body is supposed to heal itself.
Addressing one of my primary points—that Worstall’s tax analysis assumes a false relationship between lower tax rates and increased investment—he argues that, as a matter of accounting, increased payouts resulting from tax cuts must be productive because, to paraphrase, “that money’s gotta go somewhere!” Unfortunately, if you look at the numbers, as the Roosevelt Institute has, there is simply no evidence that payouts are spent productively (or, at least not as productively as in decades past). To be fair, though, Worstall’s is a common misconception. So common, in fact, we included a detailed analysis of it in a list of FAQs about short-termism. See questions 3, 4, 5, 6, 7, and 8, starting on page 11. In short, there is no evidence that payouts result in increased productive economic activity.
Worstall’s next point of contention centers on whether increases in investment and growth would lead to higher average wages (the so-called “productivity-pay gap”). Here, Worstall makes another common mistake (or, perhaps, sleight-of-hand trick), which is swapping average wage with national income. Vox’s Matt Yglesias did this, Larry Mishel refuted him, and Jared Bernstein (no relation) summed it all up with a brilliant Microsoft Paint transposition of Larry’s head on a wrestler’s body. The problem, as Mishel and the other Bernstein explained, is that national income includes incomes of the top 1 percent and thus skews the relationship between productivity and median wage, which is what we are actually concerned with.
There’s some more tired malarky about price deflators that is explained in the articles linked above, but you get the picture.
Best of all, though, is Worstall’s artful but ultimately misguided attempt to turn my own words against me. Throughout the essay, Worstall cleverly weaves in quotes from an unattributed Nobel laureate. In the final turn, he reveals his mystery source to be Paul Krugman, who I mention in my own piece, confounding my Krugman citation and exposing me as a “bro.”
This would be embarrassing for me, except for the fact that Worstall’s citation is off-topic and dates back to 1996. Since then, Krugman has written a lot on the subject, including this glowing review of the very EPI research Worstall is attempting to dismiss.
See, Tim? People change. It’s not too late.