We’ve Been Measuring the Economy All Wrong
Questionable theoretical assumptions drive economic models to rubber-stamp disastrous policy changes.
The Trump administration made some bold claims about the 2017 Tax Cuts and Jobs Act, which slashed the corporate-tax rate. Larry Kudlow, the head of the former president’s National Economic Council, said it would boost GDP so much that it would “virtually” pay for itself. Steven Mnuchin, the Treasury secretary, went further, saying the tax cut would “in fact create additional revenue.”
This was fantastical nonsense; tax cuts rarely if ever pay for themselves. But the Congressional Budget Office gave the Trump team’s sales pitch one important boost: The agency ran the bill through its model and concluded that it would have a positive, if muted, effect on long-term growth. Most Republicans were going to support Trump’s bill no matter what, but now they could do so with a straight face.
