Harvard economist Greg Mankiw, who was chairman of the Council of Economic Advisers under President George W. Bush, says Joe Biden’s $3.5 trillion reconciliation bill threatens economic prosperity. Mankiw doesn’t doubt whether, “from a narrow budgetary standpoint,” the United States can afford to spend $3.5 trillion. Unlike the reconciliation bill’s Republican opponents in Congress, he thinks we can. The problem, he says, lies in the “broader economic effects” of the bill’s economic redistribution.
Mankiw’s argument appeared Friday in that space in the dead-tree New York Times that used to be reserved for lead editorials. The Times has lately been substituting op-eds for editorials. It’s a policy I favor (and possibly helped inspire through something I wrote 16 years ago, though I’ve been known to overestimate my influence). Even so, it was jarring to see that honored space occupied by an opinion piece with which the Times editorial board so obviously disagreed. It didn’t make me feel unsafe, as the kids say; it made me feel useful, because now I will explain why Mankiw is wrong.
“The costs of an expanded welfare state,” Mankiw explained, “extend beyond those reported in the budget.” To elaborate, Mankiw cited the economist Arthur Okun’s 1975 book, Equality and Efficiency: The Big Tradeoff, which argued that too much government redistribution will compromise the proper working of the economy.