War of words between Wharton and Trump White House

Trade Politics
President Donald Trump listens during a meeting with steel and aluminum executives in the Cabinet Room of the White House, Thursday, March 1, 2018, in Washington. Trump's announcement that he will impose stiff tariffs on imported steel and aluminum has upended political alliances on Capitol Hill.

Wharton, 1; White House, 0?

Wharton economists Kent Smetters and Kimberly Burham never expected the Trump White House to take issue with the latest version of their extremely dry economic model, which predicted less-than-expected growth from President Trump’s proposed $200 billion federal government infrastructure funding.

But this week, the White House’s Council of Economic Advisers issued a sharply worded critique of their Penn-Wharton Budget Model of the president’s infrastructure plan. For the full statement, visit the White House CEA website: https://www.whitehouse.gov/articles/issues-penn-wharton-budget-model.

“The Penn-Wharton Budget Model is flawed,” the statement read, and “not transparent to the point where one cannot help but question whether the authors who produced it had any bias.”

Wharton shot back with its own response, and the war of words continued on Twitter.

Wharton’s Burham said the department was “excited to see the White House engaging with us about our model. This was a new thing. We’re always happy to have this discussion.”

Why the war now?

“We are guessing the White House really wants their infrastructure plan to produce a goal of $1.5 trillion of new investment. We’re saying it would produce something more in a range like $20 billion or $230 billion,” Burham said.

Moreover, these capped federal funding grants haven’t ever worked at producing high-level economic growth in any administration — including under the prior president, Barack Obama.

“Numerous previous studies overwhelmingly indicate that no previous administration has figured out how to use small, targeted infrastructure grants to substantially stimulate increases in total spending,” Smetters wrote in a rebuttal on Wharton’s website. Uncapped grants generally produce growth but are far more expensive, he argued.

“There are no elements in President Trump’s $200 billion infrastructure plan that indicate anything different from past experience,” Smetters added. “Federal targeted grants produce the largest increase in total spending … using more-costly ‘open-ended’ grants, or if the federal dollars target infrastructure resources directly controlled by the federal government (e.g., air traffic control systems or Amtrak).”

For the full Wharton response, visit the website: http://budgetmodel.wharton.upenn.edu/economic-matters/2018/3/5/response-to-white-house.