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Tuesday, April 21, 2009

Goolsbee’s Comments on C-SPAN Reveal Themes Underlying Obama Administration’s Policies

During a C-SPAN broadcast on Sunday, reporters interviewed Austan Goolsbee, staff director and chief economist of the President’s Economic Recovery Advisory Council, eliciting comments that, both directly and by implication, highlighted key themes driving the Obama administration’s economic policies.

In an a possible attempt to spotlight a contradiction between administration policy and Goolsbee’s past scholarship as an economics professor at the University of Chicago, Associated Press reporter Steve Scully asked Goolsbee to comment, in the light of the Obama administration’s current deficit projections, on a paper Goolsbee published two years ago. The paper asserted that deficit reductions are an important “insurance policy against global economic shocks and over-reliance on foreign lenders.”

Goolsbee clarified that the current policy does not contradict his past scholarship on the role of deficits during emergency situations.

“This economic crisis would warrant large deficit spending by any measure,” Goolsbee said. “The two-year window in which we are in the middle of crisis is absolutely not the time to try to balance the budget. That was one of the terrible mistakes that Herbert Hoover made….”

The view that deficit spending is a crucial government tool in emergency situations is held widely among economists, as is the converse principle that budget surpluses are advisable during a strong economy.

Although responses to questions about the Obama administration’s tax policies were not directly linked during the broadcast to Goolsbee’s past scholarship, the proposal to increase taxes on households earning over $250,000 annually as part of the strategy to reduce the deficit in the coming years is also consistent with his published research.

While many conservatives continue to assert the supply-side doctrine that tax increases on households with higher incomes impact the economy negatively by discouraging investment and “taxing the job creators,” Goolsbee’s research has included findings that policies reducing the tax burden on higher-income groups may not have the desired effect.

For example, a Brookings paper Goolsbee authored with Mihir A. Desai makes the case that the Bush administration’s tax cuts were not effective in stimulating increased capital investment.

Goolsbee has also tied such research findings directly to a refutation of basic supply-side theories, including a column last year in the New York Times in which he asserts that the consensus of academic research makes the Laffer curve look like “a fleeting figment of economic imagination.”

This apparent grounding of administration policies in solid research gives an all the more hollow ring to the shrill voices of many conservative pundits as they continue to blast the administration’s stimulus package and budget, assert incorrectly that government spending created the current crisis, and support a misguided “Tea Party Movement.” Sphere: Related Content

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