One top CATO economist is letting The Wall Street Journal have it for pushing more federal bailouts for states and using liberal spin to justify it.
CATO Director of Tax Policy Studies Chris Edwards slammed The Journal for pushing “a biased news story regarding state budgets” in a piece headlined “Error and Spin in Wall Street Journal Budget Article.” The Journal’s story, headlined “Coronavirus-Hit State Budgets Create a Drag on U.S. Recovery,” reflects “only Keynesian thinking, exaggerates the plight of governments, and only quotes analysts in favor of more federal bailouts,” according to Edwards.
In his critique, Edwards slapped back at the The Journal for highlighting a claim by Moody’s Analytics “that without more federal aid, state budget gaps will ‘shave more than 3 percentage points off U.S. gross domestic product and cost more than 4 million jobs.’” As the CATO economist told it: “The Moody’s model reflects the Keynesian view that government spending boosts GDP. But other economists disagree. WSJ reporters might have interviewed Hoover Institution economists whose recent study found that cuts to government spending would boost GDP.”
The Hoover study he referenced on restraining federal spending shows “that the consolidation plan boosts short-run annual GDP growth by as much as 10 percent and increases long-run annual GDP growth by about 7 percent.”
Edwards addressed other clear problematic portions of The Journal’s narrative, such as how “State and local governments spent or invested $2.33 trillion in 2019.” The CATO economist stated: “That statement is false. The $2.33 figure is the state‐local portion of GDP (BEA Table 1.1.5). But total state‐local spending and investment in 2019 was $3.1 trillion (BEA Table 3.3).”
The Journal has since issued a correction admitting this error.
Edwards went after conservative American Enterprise Institute director of economic policy studies Michael Strain, who was reported by The Journal to be in support of federal bailouts:
Michael Strain, director of economic policy studies at the conservative American Enterprise Institute, said Congress should take similar steps to fill the budget hole for state and local governments, which have seen revenues decline by 15% to 20% in some cases.
Edwards rebutted this idea, saying “[i]t is an error to conflate the budget situations of state and local governments. State governments may face a revenue decline of perhaps 10 percent, on average, but most local governments likely face little decline.” He continued: “Almost three‐quarters of local tax revenues are from property taxes, and housing values remain buoyant so far during the recession. During the last recession, overall local government revenues did not fall for that reason.”
According to Edwards:
The article cites analysts at liberal think tanks Brookings, TPC, and CBPP. It quotes a GOP senator [Sen. Bill Cassidy (R-LA)] who is one of the few Republicans in favor of another big state bailout. It quotes a scholar at conservative AEI who has a big‐government view on this issue. And it cites Moody’s Analytics, which has a Keynesian economic model program[m]ed to show that government spending boosts GDP. Thus, the story cites six people in favor of another bailout and none against, [emphasis added].
The Journal appears to have a habit of using one-sided sources to make overly broad arguments. It recently tried to use Democratic donors in C-suites to claim Wall Street was sighing “in relief” over the economic implications of a Joe Biden-Kamala Harris ticket.
Contact The Wall Street Journal at 1-800-568-7625 and demand it interview economists and think tanks that are against more federal bailouts.