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Larry Summers: Trump's Budget 'Ludicrously Optimistic'

Larry Summers: Trump's Budget 'Ludicrously Optimistic'
Former Treasury Secretary Larry Summers visits FOX Business Network at FOX Studios on January 30, 2015 in New York City. (Photo by Rob Kim/Getty Images)

Wednesday, 24 May 2017 01:28 PM

Former U.S. Treasury Secretary Lawrence Summers thinks President Donald Trump’s budget blueprint is ludicrously optimistic” due to the “economic assumptions it embodies.”

“My observation is that there appears to be a logical error of the kind that would justify failing a student in an introductory economics course," he wrote in his blog for The Washingon Post.

“Apparently, the budget forecasts that U.S. economic growth will rise to 3.0 percent because of the administration’s policies — largely its tax cuts and perhaps also its regulatory policies. Fair enough if you believe in tooth fairies and ludicrous supply-side economics,” the Harvard University president emeritus wrote,

“Then the administration asserts that it will propose revenue neutral tax cuts with the revenue neutrality coming in part because the tax cuts stimulate growth! This is an elementary double count. You can’t use the growth benefits of tax cuts once to justify an optimistic baseline and then again to claim that the tax cuts do not cost revenue. At least you cannot do so in a world of logic,” wrote Summers, the 71st United States Secretary of the Treasury from July 1999 until January 2001.

“The Trump team prides itself on its business background. This error is akin to buying a company assuming that you can make investments that will raise profits, but then, in calculating the increased profits, counting the higher revenue while failing to account for the fact that the investments would actually cost some money to make," he wrote.

"The revenue generated by the investments might exceed their cost (though the same is almost never true of tax cuts), but that doesn’t change the fact that the investment has a cost that must be included in the accounting,” wrote Summers, who was the Chief Economist at the World Bank from 1991 to 1993.

“This is a mistake no serious business person would make. It appears to be the most egregious accounting error in a presidential budget in the nearly 40 years I have been tracking them,” Summers claimed.

However, one of the most respected economic minds of modern times begs to differ.

Larry Kudlow, the veteran financial guru and former economist in the Reagan administration, said Trump’s proposed 2018 budget will help to accelerate economic growth by 3.5 percent to 4 percent a year.

“Roll back regulations and grow, grow, grow. Three percent, in my opinion, is minimal,” Kudlow told CNBC. “They can do 3.5 percent to 4 percent if they get the tax cuts through ASAP.”

The U.S. economy has grown by 3.2 percent a year on average since 1947, but never exceeded 3 percent during the Obama administration, the first time in history. Trump’s proposed budget is based on tax and spending cuts to strengthen economic growth without increasing the deficit.

Kudlow said he likes the idea of reducing dependence on the government, as Budget Director Mick Mulvaney described the spending plans on Tuesday.

“It’s a taxpayer-first budget,” Mulvaney said. “We are no longer going to measure compassion by the number of programs and the amount spent on those programs.”

Kudlow said the budget reminds him of the Clinton administration’s welfare reforms that reduced dependence on the dole.

“The measure of success is not how much cash or government or welfare assisted,” Kudlow said. “It's how many people we put back to work.”

Trump asked Congress for $3.6 trillion in spending cuts on food stamps, Medicaid health insurance payments, disability benefits, low-income housing assistance and block grants that fund meals-on-wheels for the elderly.

“You have this perverse incentive effect going on, because the work requirements have been decimated,” Kudlow said of Clinton-era policies that weaned people off government payments. “Obamacare provided the break-even working poor with incentives not to work. If they went to work, they would lose their health care.”

House Speaker Paul Ryan said Trump’s budget will get reworked in Congress, which is typical for presidential proposals. He said there are areas where the White House and congressional Republicans share similar goals.

“Here’s what I’m happy about: We finally have a president who’s willing to actually even balance the budget,” Ryan told reporters. “And we will have a great debate about the details on how to achieve those goals.”

Senate Majority Leader Mitch McConnell rejected Trump’s proposed cuts to foreign aid and medical research.

"Every president sends up a budget, and with all due respect to the current president, I can't recall any time in which we have been sort of dictated to by either a Republican or a Democratic president," McConnell said in an interview with The Associated Press. "We'll put our own imprint on it, particularly with regard to overseas."

(Newsmax wires services contributed to this report).

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Economy
Former U.S. Treasury Secretary Lawrence Summers thinks President Donald Trump's budget blueprint is "ludicrously optimistic" due to the "economic assumptions it embodies."
Larry, lawrence, Summers, Trump, Budget
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2017-28-24
Wednesday, 24 May 2017 01:28 PM
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