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The Lousy Economics of Friedman's Analysis
Bernie Sanders is an enthusiastic advocate of free education and redistribution of wealth from the rich to the poor, to the point that his political enemies call him out for “socialism”. However, he has argued that his policies could advance the United States’ medical and educational systems drastically, and a study had shown that his policies would cause an economic boost. Recently, that has been shown to be bad economics.
Professor Gerald Friedman, an economist at the University of Massachusetts, stated that “fully implementing the Sanders program would lead per capita ... to grow one-third higher in 10 years time than it would otherwise.” The study was not affiliated with the Sanders campaign, but the document was praised heavily by campaign members.
It’s such an impressive claim that four different former chairs of the Council of Economic Advisers looked in depth at Mr. Friedman’s paper. To say the least, they were not impressed. Christina Romer and David Romer, professors at Berkeley, recently released an examination of Friedman’s analysis.
Most economists agree that temporary increases in government spending will increase output temporarily. The key word here is temporarily, as when the government stops it’s spending increase, it must also cut budget and bring down output. Friedman’s key mistake was forgetting that output will go down after increased spending: He said that the investments into free universities and other policies would increase output, but never counted the output going back down.
The moral of the story is: double check your economics before writing a paper supporting the political ally of your choice: a small mistake can create a huge difference.