Michael J. Boskin — former George W. Bush economic adviser, Hoover Institute fellow, and staunch advocate of conservative anti-tax doctrine — appears today, as is his wont, in The Wall Street Journal op-ed pages to warn that the Democratic president’s economic policies will lead us to misery.
If you are an investor, Boskin’s doomsaying is a sure sign of a coming bull market. Four years ago, Boskin penned a Journal op-ed whose thesis was captured in the headline, “Obama’s Radicalism Is Killing The Dow.” That was the signal for the Dow to go on a tear, doubling over the next four years. As Kevin points out, the Dow’s current “high” is an overstated artifact of dumb, unweighted statistics, but the underlying reality remains that the stock market has enjoyed an incredibly good four years under Obama’s radicalism.
One might suppose that Boskin has simply suffered a single unfortunate coincidence. In fact, his career is a mighty testament to the power of enduring, invincible wrongness. In 1993, Bill Clinton enacted an economic program centered around some public investment, coupled with deficit reduction with higher taxes on the rich. Boskin was very, very sure it would fail. In a Journal op-ed entered into the Congressional Record by grateful Republicans, he accused Clinton’s administration of “fundamental distrust of free enterprise.” He made a series of predictions: “The new spending programs will grow more than projected, revenue growth will be disappointing, the economy will slow, and the program will reduce the deficit much less than expected.”
Boskin repeated his prophecies of doom in a summerlong media blitz. Boskin labeled Clinton’s plan “clearly contractionary,” insisted the projected revenue would only raise 30 percent as much as forecast by dampening the incentive of the rich, insisted it would “take an economy that might have grown at 3 or 4 percent and cause it to grow more slowly,” and insisted anybody who believed in it would “Flunk Economics 101.” (The preceding pre-Internet quotes are all via a Lexis-Nexis search.)
As it happened, literally every Boskin prediction turned out to be the opposite of reality. The economy grew much faster than predicted, revenues surged by a much greater amount than forecast, and the deficit shrank by a much greater amount than Clinton forecast.
Following the utter repudiation of the Clinton years, Boskin decided to take his talents back to Washington. He had spotted a brilliant new economic mind in Texas governor George W. Bush.
"These people were immensely impressed with him, how quick he was to pick stuff up," Boskin said. "His instincts were all very good, very much market-oriented; that created a very, very favorable impression."
Boskin went to work as a Bush adviser, and thus, unfortunately for the historical record, had to limit his ability to make terrible predictions in public forums. He did return to public punditry to insist that George W. Bush’s tax cuts would reduce revenue by far less than the official forecasts predicted. (“I don't think it's going to cost anywhere near $674 billion.”) This was another natural outgrowth of Boskin’s worldview — just as it was necessarily true that Clinton’s tax hikes on the rich must reduce the work incentive and hamper economic growth, Bush’s tax cuts for the rich must do the opposite. Naturally, tax revenue declined by far more than the forecasts predicted.
Now, in defense of Boskin, he is probably suffering from a large dose of bad luck on top of a horrendously wrong ideology. He is probably not universally and inherently wrong. If you chained a thousand Boskins to a thousand keyboards for a thousand years, eventually one of them would make a correct prediction.
The point is this: Taxing the rich has clear first-order effects. It gives affluent people less money to spend on nice things and gives the government more revenue to reduce the deficit. Boskin insists that the first-order effects will be overwhelmed by second-order effects: The economy’s health is largely tethered to the fate of tax rates on the rich in particular, and the success of the Republican economic agenda in general. In reality, the second-order effects are very minor.
If Boskin were lucky, Clinton’s tax hike would have been followed by a double-dip recession, or Bush’s tax cuts by an impressive boom, or Obama’s stimulus by a market crash. But, in addition to being in thrall to a rigid and disproven ideology, Boskin suffers from unbelievably bad timing. Any investors who have actually put real money on the line after listening to him deserve the punishment they’ve received.