Politics vs. Economics
By Arnold Kling
On one of the comment threads, a reader asked me if I disagreed with the economics of Lawrence Kudlow.
“Honestly, I never thought he had any to disagree with,” was how I began my reply. Let me revise and extend my remarks.
I think that it is common to assume that there is a “conservative economics” and a “liberal economics.” But I think of politics and economics as being on different dimensions. When I listed five economists at different points on the political spectrum in Real World 101, I did not mean to imply that we differ on economics. I think we all still use similar models. That is part of what makes trying to explain our political differences such a speculative exercise.
Let me walk through two issues as examples. I will talk about Social Security on this post, and then add a second post on supply-side tax cuts.
More important, I take seriously the golden rule for economic growth, which implies that the return on capital is likely to be close to the growth rate of the economy. And even if you do not buy that, I believe that Stein’s Law precludes stock prices from rising faster than the economy indefinitely. (Herbert Stein’s Law is that any process that cannot go on forever, eventually stops.)
There are conservatives who argue vehemently–although not explicitly–against what I see as the implications of the golden rule or Stein’s Law. For example, see Peter Ferrara, with whom I imagine Kudlow would agree. I doubt that Kudlow has the first clue how to write down any sort of model of stock market returns embedded in an economic growth framework, much less produce such a model that generates stock market returns far in excess of economic growth.
Having said all that, politically my views are probably closer to Kudlow’s than they are to those of, say, Robert Solow. The notion of collective responsibility for the income of the elderly has more appeal for Solow than it does for me. Still, his economic analysis of the issue is one with which I would not quarrel.