The Corner

Fiscal Policy

When Policies Collide

In The Midas Paradox, Scott Sumner’s history of the Great Depression (which I reviewed for NR), he notes that the popular and even the academic understanding of it was distorted by a similar coincidence of policies. Wage-setting by the federal government was powerfully contractionary and dollar devaluation powerfully expansionary, but neither of them looked as consequential as they were because they were done in tandem.

This tweet from Paul Krugman made me think of that book. He’s saying that the corporate tax cut President Trump signed into law didn’t lead to the promised surge in investment. Some of the promises were always excessive. But we’re probably also going to underestimate both the positive effects of the corporate tax cut and the negative effects of the trade war because they were implemented at around the same time and offset each other.

Absent the increase in tariffs and uncertainty about trade, investment would likely have increased more and the corporate tax cut would look more successful. Absent the corporate tax cut, the trade war would likely have looked more harmful. Economists may be able to devise studies that disaggregate the effects of each policy, but a misleading general impression about them will linger.

Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.

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