March 22, 2013

Another View: Evidence shows that Frank is wrong about economic growth

In his column on March 17 ("Government spending can create jobs"), former Congressman Barney Frank ironically says, "Persistence by the right in contradiction of the evidence reflects the difficulty of settling policy debates. Outside of a controlled experiment, it is hard to isolate the impact of any one action from the multiple factors affecting outcomes."

The irony is that economists have been working on the very task of "isolating the impact" of multiple policy approaches.

As Mr. Frank says, we must look at the resulting evidence. However, the conclusions are inconveniently counter to his argument.

In "The Design of Fiscal Adjustments," (Working Paper 18423 of the National Bureau of Economic Research, available on the Bureau's website), Alberto Alesina and Silvia Ardagna examined over 50 instances of various spending cuts and tax increases in 17 OECD countries between 1978 and 2009.

Their objective was to examine this mix of policies to see what worked.

Their conclusions? Cuts in government spending tended to create either economic growth or, at worst, mild recessions. Tax increases tended to create "prolonged and deep recessions."

Therefore, to Mr. Frank I say, "Like you, I believe in evidence. Too bad it runs counter to your argument in this case."

John Voyer, Ph.D., is a professor of business administration at the University of Southern Maine.

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