July 18, 2012
A couple of weeks ago the Washington Post (a.k.a. “Fox on 15th Street”) gained notoriety for running a major news article based on a study funding by military contractors that warned of large job losses from cuts in military spending. Of course folks who know economics realize that in a downturn cuts in any type of government spending will lead to job loss. In fact, cuts in most forms of government spending will lead to larger job losses than cuts in military spending. In other words, there was no real news in this study, except that the numbers were likely exaggerated.
In keeping with this spirit, the Post published a news article today that warned that allowing the Bush tax cuts to expire for the richest 2 percent would be “placing an enormous strain on the already sluggish economic recovery” according to another business financed study. This assertion badly misrepresented the study’s findings.
The projections from the study are long-run effects. They are not effects that would be felt in an “already sluggish economic recovery,” unless the assumption is that the recovery will be sluggish for 5-10 years in the future. The reporter and/or editor should have noticed the difference between the long-run impact and the immediate effect. The projections discussed in the article are long-run projections, not effects that would be felt in the next year or two.
The other major failing of this piece is that it never accurately described what the study analyzed. It calculated the impact of a tax increase that is used for higher government consumption spending. It does not measure the impact of a tax increase that is used either for deficit reduction or investment in infrastructure and education. The model used in this analysis would likely to show that either of these two uses of higher tax revenue would lead to increases in output, jobs, and wages, not decreases.
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