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More Sanders’s health care plan economics

More emerges on the dispute among left-of-center economists over the possible economic consequences of Sanders’s plan according to a study by G. Friedman of the University of Massachusetts Amherst. (New links follow below.) The key argument hinges on how low unemployment can get before hitting an inflationary barrier. In other words, the allegedly implausible argument mostly involves forgetting that very low unemployment would inevitably bring inflation and in turn a harsh tightening of other policies to quash price increases. So the fiscal expansion implied by the Sanders plan would, according to critics of Friedman’s study, prove economically unsustainable.

In an earlier post on this debate, I opined the other day that the economy has needed a large and prolonged relaxation of the fiscal stance for a long time anyway. In fact, models I have worked on recently on my own and with Tai Young Taft depend on low output targets in fiscal policy and the absence of big employment programs to explain high average rates of unemployment over the medium run. It also seems to me to be solid economics that strong economic growth, under reasonable conditions, leads to stronger advances in labor productivity, and hence lower costs for business.

Also, I argued that monetary and fiscal policy could and probably would be adjusted as needed later on if inflation emerged. For now, inflation remains below the Fed’s target.

Some more recent links: A perhaps lukewarm Dean Baker cites the Economic Report of the President in defense of the claim that Friedman’s study is not overly optimistic regarding the likely inflationary effects of a big increase in growth following a fiscal expansion such as Sanders’s health care plan. Baker takes the approach of documenting fairly standard views about the determinants of inflation and adopting them for the sake of a carefully presented argument.

Meanwhile, a journalist at mass-circulation magazine Mother Jones has second thoughts regarding productivity growth and the argument made by supporters of Sanders plan. He seems to be following the economics of Nicolas Kaldor and other post-Keynesians.

And by the way, James Galbraith of the University of Texas at Austin has mooted this response to the 4 CEA skeptics.

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