Trump’s Budget is Simply Ludicrous

Larry Summers:

Trump’s budget is simply ludicrous: Details of President Trump’s first budget have now been released. Much can and will be said about the dire social consequences about what is in it and the ludicrously optimistic economic assumptions it embodies. My observation is that there appears to be a logical error of the kind that would justify failing a student in an introductory economics course.

Apparently, the budget forecasts that US growth will rise to 3.0 percent because of the Administration’s policies—largely its tax cuts and perhaps also its regulatory policies. Fair enough if you believe in tooth-fairies and ludicrous supply-side economics.

Then the Administration asserts that it will propose revenue neutral tax cuts with the revenue neutrality coming in part because the tax cuts stimulate growth! This is an elementary double count. You can’t use the growth benefits of tax cuts once to justify an optimistic baseline and then again to claim that the tax cuts do not cost revenue. At least you cannot do so in a world of logic. ...

This is a mistake no serious business person would make. It appears to be the most egregious accounting error in a Presidential budget in the nearly 40 years I have been tracking them. ...

I have no doubt that there are civil servants in OMB, Treasury and CEA who do know better than this mistake. Were they cowed, ignored or shut out? How could the Secretary of Treasury, Director of OMB and Director of the NEC allow such an elementary error? I hope the press will ferret all this out.

The President’s personal failings are now not just center stage but whole stage. They should not blind us to the manifest failures of his economic team. Whether it is Secretary Mnuchin’s absurd claims about tax cuts not favoring the rich, Secretary Ross’s claim that the small squib of a deal negotiated last week with China was the greatest trade result with China in history, NEC Director Cohn’s ludicrous estimate of the costs of Dodd Frank, or today’s budget, the Trump administration has not yet made a significant economic pronouncement that meets a minimal standard of competence and honesty.