Empowering a Failed HypothesisPosted: December 20, 2010
One of my neighbors is a public defender who is a New Orleanian by birth and fits all the standard eccentricities of New Orleanians. He spent some time in the Navy during the Vietnam period. Now my friend is very liberal, but one of his buddies from the Navy time that visits frequently is not. The buddy lives in rural Washington state and teaches in a small college there. How he every managed to get a gig teaching economics with just an MBA still boggles my mind, but that is the deal. When you do a stint in actual economics–not just managerial economics and your basic theory classes–you spend a lot of time proving theoretical models. By the time you get farther in a program and have completed your first few econometrics courses, you’re taught how to empirically validate or destroy other folk’s academic work and their models.
One of the easiest groups of hypotheses to shoot down empirically came from the Reagan years. The results were pretty astounding–we would call that highly significant to what ever statistic was used–so much that David Stockman and Bruce Bartlett gave those hypotheses up rather quickly and they were key architects of the Reagan Economic Revolution. You can’t find a’ conservative’ economist in the sense of Reaganomics unless it’s one at the Heritage Foundation that is paid to deliberately ignore the facts. In which case, that explains why they’re no place else BUT the Heritage Foundation.
Or they’re like my friend’s buddy who still goes back to the 1980s and pulls out old articles about things like the Laffer curve and teaches it because he wants to show all “opinions”. That’s what he says to me any way, when I ask him why he teaches a failed hypothesis. Frankly, he teaches it because he wants others to share his hopes and wishes that the silly thing is true. Because he’s not had the rigorous training to prepare to do actual economics, he just teaches want he wants to teach. He also hasn’t gone through publish or perish where you don’t get to have opinions without peer-reviewed facts. This drives me nuts. You can’t teach theory or empirical evidence or the scientific approach by clinging to a failed hypothesis. This makes you an intellectual flat earther.
What we currently have right now is a president that is giving the Flat Earth Society the primary voice in NASA policy and funding when it comes to economic policy. Paul Krugman has an op-ed from this weekend that firmly states that Obama has empowered the economics version of the Flat Earth Society. His op ed is called ‘When Zombies Win.’ It’s exactly what needs to be said.
First, the original Obama stimulus plan was anything but text book Keynesian economics and can’t be seen as a way to shout fail on Keynesian theory. It was more based in Reagan philosophy and those failed hypotheses than any neoKeynsian model. While I’ve continually called the Supply Side wishful thinking as a failed hypothesis, Krugman is more direct. He refers to it as failed doctrine.
For the fact is that the Obama stimulus — which itself was almost 40 percent tax cuts — was far too cautious to turn the economy around. And that’s not 20-20 hindsight: many economists, myself included, warned from the beginning that the plan was grossly inadequate. Put it this way: A policy under which government employment actually fell, under which government spending on goods and services grew more slowly than during the Bush years, hardly constitutes a test of Keynesian economics.
Now, maybe it wasn’t possible for President Obama to get more in the face of Congressional skepticism about government. But even if that’s true, it only demonstrates the continuing hold of a failed doctrine over our politics.
I wrote repeatedly at the time–no Nobel winning economist am I either–that the stimulus was bound to be way too little to be of any use. You can read me screaming ‘Tax Cuts Don’t Cut It or Cure It’ from January 2006, 2009 where I quote John Mishell’s study that talks about how the Bush tax cuts didn’t grow jobs and didn’t grow the economy. As a matter of fact I have many posts up along that line. Here’s one covering the FT’s Martin Wolf where I talk about the same thing and it’s even called ‘Still Too Little and WAY TOO Republican” from January 17, 2009. You can search my archives during that time period and find I’m very consistent at writing how the Obama stimulus would fail and that it was primarily because it was based on tax cuts.
It’s really quite a logical situation and one the most flawed precepts sits right there in the Obama-McConnell tax travesty. There’s a huge tax write off in the bill for companies buying new equipment. This is something completely ineffective because it just helps the few companies that would’ve done that any way. The majority of companies are hurting for customers. No amount of tax write offs for equipment or even employees is going to make them expand if they don’t have customers or revenue. In fact, my guess will be that an academic study some where down the line will show that the majority of those tax cuts were used by corporations who expanded in emerging markets instead of here. That’s because that’s where the inflation, growth and action is and there’s nothing in the bill that says tax benefits stay here.
Krugman also talks about something I spoke to recently in that nearly every Republican put in charge of some committee dealing with some aspect of the economy is so far out there on doctrine and short on economic theory and evidence that we’re bound to see more of the same stuff that tanked us the last time out. The Republicans sitting on the Financial Crisis panel just put out their financial version of the Earth is Flat manual last week. They said it was too much regulation which is pretty much the exact opposite of everything that every empirical study has shown us. Here’s one I keep pushing called “Slapped in the Face by the Invisible Hand” because it’s nontechnical in nature. Krugman called the release of the document ‘Wall Street Whitewash’.
So, Krugman’s op ed from this weekend isn’t astounding in that we all know what neoKeynisans like Stiglitz, and Blinder, Sachs and Krugman have been saying for months now. Now that I’ve read BB’s morning links, I’m even getting a better feel for the source of my weekend wonderment on Krugman’s bottom line. Krugman was one of a group called before the President in an attempt to get them to STFU. The deal is this. The Nobel Peace Prize may now be given on an ‘aspirational’ basis, but the Nobel Prize for economics is not. Stiglitz and Krugman earned their Nobel Prizes. I admit to having empirically tested some of Blinder’s models doing my first Masters in Economics so I’m very familiar with his contributions to the literature. These economists live in a world of peer review where there’s a very dim view of people who cling to failed hypotheses.
So, here’s the wonderment from Krugman’s December 19, 2010 op-ed.
President Obama, by contrast, has consistently tried to reach across the aisle by lending cover to right-wing myths. He has praised Reagan for restoring American dynamism (when was the last time you heard a Republican praising F.D.R.?), adopted G.O.P. rhetoric about the need for the government to tighten its belt even in the face of recession, offered symbolic freezes on spending and federal wages.
None of this stopped the right from denouncing him as a socialist. But it helped empower bad ideas, in ways that can do quite immediate harm. Right now Mr. Obama is hailing the tax-cut deal as a boost to the economy — but Republicans are already talking about spending cuts that would offset any positive effects from the deal. And how effectively can he oppose these demands, when he himself has embraced the rhetoric of belt-tightening?
Yes, politics is the art of the possible. We all understand the need to deal with one’s political enemies. But it’s one thing to make deals to advance your goals; it’s another to open the door to zombie ideas. When you do that, the zombies end up eating your brain — and quite possibly your economy too.
What is even more significant is that this horrible tax bill was put forward so as not to stall things like START. So, what is the status of the START Treaty and the Republicans who said they’d play ball if the Tax Cuts for Billionaires program was passed. Has this eased the hostage crisis?
Well, the vote is supposed to be held tomorrow so we shall see. But, this is quote is fresh from the AFP 4 hours ago from the moment I’ve hit the publish button.
Democrats expressed astonishment that top Republicans continued to oppose ratification when virtually every present and past foreign policy or national security heavyweight backed the move, regardless of their political stripes.
In that same announcement, Mitch McConnell was quoted as saying he’d vote against it the ratification. So is John Kyl. Collin Powell and Condoleeza Rice support the ratification of this treaty. This is what you get when you negotiate with terrorists; domestic or otherwise.
This President has consistently used the failed dogma of Reaganomics in economic policy. It makes no difference if the wackiest of the right wing say he is a socialist. The evidence clearly points to his obsession with failed tax cut dogma. I don’t know if his reasons are political or if–deep down–he is a Republican in Democrat Clothing. All I know is that we can no longer empower a failed hypothesis. I certainly hope that Michael Hirsch’s list of ‘Disillusionati’ continue to expose this economic policy for what it really is.
File this under we told you so,
love, the Sky Dancing Cassandras