Empowering a Failed Hypothesis

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.

UPDATE via commenter waldenpond at TL.

File this under we told you so,

love, the Sky Dancing Cassandras


58 Comments on “Empowering a Failed Hypothesis”

  1. Pat Johnson says:

    You must be a very good classroom teacher because even I can understand your points and that is saying a lot!

    Thank you for taking the time each day to offer us a “free lecture” on economic issues that usually go right over my head!

  2. Pat Johnson says:

    Just don’t go throwing any of those “surprise tests”! Ouch!

    • dakinikat says:

      I don’t even do that to my IRL students!!! Don’t do comprehensives either. Cruel and unusual punishment and all that.

      I don’t do anything to my students that I wouldn’t want done to me.

  3. Branjor says:

    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”.

    Sort of like “science” teachers who teach creationism as though it were just another theory on a par with the theory of evolution.

  4. grayslady says:

    Notice who was conspicuously absent at the White House meeting for economists? James Galbraith. Galbraith, alone (IMO), has decimated the administration’s economic policies without pretending that “Obama is a nice guy who really means well”. The phrase “extend and pretend” pretty much covers all of Obama’s economic pronouncements, not just the mortgage scandal. Galbraith said recently (http://tinyurl.com/3xqk7k9):

    The original sin of Obama’s presidency was to assign economic policy to a closed circle of bank-friendly economists and Bush carryovers. Larry Summers. Timothy Geithner. Ben Bernanke. These men had no personal commitment to the goal of an early recovery, no stake in the Democratic Party, no interest in the larger success of Barack Obama. Their primary goal, instead, was and remains to protect their own past decisions and their own professional futures….

    lnstead they announced “stress tests,” plainly designed so as to obscure the banks’ true condition. They pressured the Federal Accounting Standards Board to permit the banks to ignore the market value of their toxic assets. Management stayed in place. They prosecuted no one. The Fed cut the cost of funds to zero. The President justified all this by repeating, many times, that the goal of policy was “to get credit flowing again.”

    My guess is that Obama thought he could mimic Clinton’s economic success if he only hired in the same people who worked for Clinton. What he failed to consider is that Clinton benefited from a tech bubble, Clinton raised taxes, and Clinton wasn’t trying to fight two useless wars of choice on borrowed money.

    • Dee says:

      I also think Clinton was (is) a total wonk when it came to policy. Because of his understanding and focus when he received economic advice he knew what was garbage and he threw it out.

      Obama doesn’t have that ability but I am sure he thinks he does.

  5. RalphB says:

    Monitoring America

    Police state anyone? Don’t we all feel much safer now?

    Nine years after the terrorist attacks of 2001, the United States is assembling a vast domestic intelligence apparatus to collect information about Americans, using the FBI, local police, state homeland security offices and military criminal investigators.

    The system, by far the largest and most technologically sophisticated in the nation’s history, collects, stores and analyzes information about thousands of U.S. citizens and residents, many of whom have not been accused of any wrongdoing.

    The government’s goal is to have every state and local law enforcement agency in the country feed information to Washington to buttress the work of the FBI, which is in charge of terrorism investigations in the United States.

    Other democracies – Britain and Israel, to name two – are well acquainted with such domestic security measures. But for the United States, the sum of these new activities represents a new level of governmental scrutiny.

    This localized intelligence apparatus is part of a larger Top Secret America created since the attacks. In July, The Washington Post described an alternative geography of the United States, one that has grown so large, unwieldy and secretive that no one knows how much money it costs, how many people it employs or how many programs exist within it.

    • RalphB says:

      The FBI’s “suspicious” files.

      At the same time that the FBI is expanding its West Virginia database, it is building a vast repository controlled by people who work in a top-secret vault on the fourth floor of the J. Edgar Hoover FBI Building in Washington. This one stores the profiles of tens of thousands of Americans and legal residents who are not accused of any crime. What they have done is appear to be acting suspiciously to a town sheriff, a traffic cop or even a neighbor.

    • dakinikat says:

      This is horrible. The noose is just tightening around our necks. Now there’s some nutjobs that want to introduce a constitutional amendment to allow states to opt out of Federal laws. I swear this continues to be the drumbeat of fascism and the end of our country if it’s not stopped soon.

      • RalphB says:

        I agree. If this isn’t well down the road to fascism, I will be very surprised. Before degrading those nutjob’s proposal, we should consider that the fascism is coming from the Feds down and not from the state’s up. It’s a lunatic amendment but so is what our country is becoming.

        • Minkoff Minx says:

          Not to mention the stuff going on with censoring the internet…To me, the governments (of any country) censoring the net is the same sort of tactics used by the Church, Bolsheviks, and so many others…when they destroyed the printing press to keep the people from decimating the truth.

          The long history of censorship

          Here is a short historical account of censorship, if you have a moment take a look.

          • RalphB says:

            +1000. Almost all media is effectively censored now, due to the ownership. The net is all people have left where largely unfiltered information can be found. If the more-or-less censorship free internet is taken under control of governments or corporations, we could enter a new Dark Ages.

            One of my fears from our growing police state is that will happen to maintain better control of us serfs.

  6. NW Luna says:

    What else he failed to consider is that he doesn’t have Clinton’s brains.

  7. fiscalliberal says:

    Of course the economists won’t talk, but I wonder how long the meeting was and which way was the information flowing. My guess is that they tried to explain to Obama and he did not want to hear it.

    I suspect he was one of those black good looking students who got along on baloney and quota,s, Now that he is butting the real world, he does not have a clue in countering the likes of Stiglitz or Krugman.

    He could not get the compliant press conference with them and came out snarky which is nothing but a political hack technique

  8. Minkoff Minx says:

    Oh wow, what a post Dak!

  9. paper doll says:

    I think Obama is like Bush……just exchange Bush’s smirk for Obama’s snark….same thing. Like Bush, Obama knows money talks and BS walks…and that’s all he has to know to be at 1600 PA Ave. The economists will do as thry are told, just as he does

    Now watch this drive

  10. RalphB says:

    Gallup can’t get no satisfaction.

    PRINCETON, NJ — Seventeen percent of Americans say they are satisfied with the way things are going in the United States at this time, the low point in a year when satisfaction levels generally have been in the 20% range.

    I actually think it’s a positive that only 17% are happy with the direction of the country. When you see CNN poll that 75% are happy with the tax cut deal, you have to shake your head in amazement.

    • Sima says:

      Got in a mild argument with a friend over the tax cut deal. She’s very liberal, and yet she thought that the estate tax cut was a good thing. I asked her why. She says so she can inherit her mom’s estate. I told her it was not valuable enough to have been affected by that tax cut. It was only those over 5 million that would be affected, or not affected if it hadn’t passed. She got in a tizzy, saying it was 1 million. I said yea that was the last time they did it. This time they upped the cut off.

      ‘oh’.

      Then a few seconds later, ‘But don’t think it’s better if the super rich give money to charity instead of having it taxed?’

      I wanted to bang my head on the wall. I couldn’t get it through to her that if you inherit an estate of 5 mil, that’s enough. ENOUGH! You don’t need any more. Yeesh. And I also couldn’t get it through to her that even if she inherits her mom’s 1.5 mil estate, or whatever it is, that she’s still not RICH. She’ll never be rich like that, ever. Period.

      So yea, we liberals have a huge message problem. Everyone in this country thinks they are gonna be a Donald Trump. They’ve no conception at all of how few Donald Trumps there are, and how many upper middle class mensch there are.

      • RalphB says:

        A larger problem is that, until the recession at least, almost everyone thought they were upper middle class no matter their net worth. People had been living on credit for so long, they thought it was actually their money. That level of delusion is kind of scary.

        Your friend is really not a liberal. She believes she is a liberal and likes the cachet perhaps, but she’s internalized some libertarianism and maybe a lot of it. I think that makes her a “progressive”.

  11. Teresa says:

    If you don’t mind my asking, which small college in rural Washington State are you referring to in this post?

  12. mablue2 says:

    Kat, you said

    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.

    Umm,maybe because he’s actually a Flat-Earther himself.

    James Kwak had a related post a couple of days ago: The Obama Renaissance

    I don’t think Obama is abandoning his principles for political advantage; I think these are his principles. And while I’m upset at him, I’m upset at him for being wrong on the policy level, not for abandoning anything or selling out. I think a lot of the bitterness on the left comes from people who thought he was more progressive than he is, and now feel betrayed.

    Glen Ford, in another must-read had this to say about Obama:

    Now that the Democrats have been shrunken in Congress, Obama is “in his element, where he can maneuver among fellow rightist Democrats and Republican Neanderthals, seeking ‘bipartisan’ nirvana.”
    […]
    His reverence for Ronald Reagan is genuine. Indeed, if Obama were not Black, and if his supporters had not been busy getting drunk in a wishing-well, he would have been widely recognized as a stylistically updated Reagan Democrat.

    Count me among those who are now convinced these are actually the policies he believes in.

    • dakinikat says:

      Well, given that he doesn’t seemed to have even cracked a book during his university days, I suppose its unlikely he’s ever actually read anything remotely close to a policy paper. He probably thought it sounded good when he was at law school and decided it was the stuff of good speeches.

      At least Bill Clinton triangulated which means he had some core values he sold out. Obama doesn’t even appear to be a Democrat at this point and we did see signs of it early on. Certainly, the BAR was shouting it during the primary.

      • mablue2 says:

        Both Glen Ford and James Kwak make the point that he was never a Liberal or a Progressive in the 1st place, it was just some people who were deluding themselves.

    • zaladonis says:

      Count me among those who are now convinced these are actually the policies he believes in.

      Just had a little convo [posting on her site] with Taylor Marsh — I know, I shouldn’t have, but someone here linked to her the other day and I thought what she wrote was spot-on so I’ve been looking in the past few days — and this afternoon she insisted to me she warned this is exactly how Obama would be. She probably doesn’t remember me, that I was one of the people who DID warn this is exactly what Obama would be and she and others there repeatedly attacked me for it. Pretty funny.

      Those two articles you linked to are terrific.

  13. zaladonis says:

    What a great post, Kat.

    Not only did we told them so, we’re still telling them so and most of them are still deluded into believing Obama might stand up to Republicans, when the truth is he and his own people like Geithner want the same thing Republicans want. Extending Bush’s tax cuts for the rich wasn’t a compromise, it was agreement.

    • mablue2 says:

      Extending Bush’s tax cuts for the rich wasn’t a compromise, it was agreement.

      Yup! I hate to quote Glen Ford again but I have to:

      [I]t is incorrect to say that Obama “caves” to Republicans. His m.o. is far more aggressive – against fellow Democrats, whom he has relentlessly pummeled since his first days in office. With Obama in the White House, who needs Republicans?

    • dakinikat says:

      Obama is Illinois version of Ben Nelson. Nelson couldn’t get elected when he was a republican. Couldn’t get through the primaries. So he became a democratic candidate because he could get through and beat the real dem in the primary. He glide to office with cross over vote. The liberals wouldn’t vote for the republican nor would independents and moderate republicans. I think both are republicans but no moderate republican in a republican state has a chance to come through without passing the grassroots bircher/fundie litmas test with a 100% score.

  14. mablue2 says:

    Oh my! This is no longer funny.

    Obama to blink first on Social Security

    The tax deal negotiated by President Barack Obama and Senate Republican leader Mitch McConnell of Kentucky is just the first part of a multistage drama that is likely to further divide and weaken Democrats.

    The second part, now being teed up by the White House and key Senate Democrats, is a scheme for the president to embrace much of the Bowles-Simpson plan — including cuts in Social Security. This is to be unveiled, according to well-placed sources, in the president’s State of the Union address

    That’s Bob Kuttner writing. This is getting scary.

  15. Dee says:

    Zal – if you are still around… I just noticed that Dan Choi has been invited to the signing ceremony at the White House

    It brought tears to my eyes – maybe because of all he has gone through, particularly lately. He deserves to be there – certainly as much as Joe S.

    Good Cheer Good Queers!