Empowering a Failed Hypothesis
Posted: December 20, 2010 Filed under: Global Financial Crisis, The Great Recession, U.S. Economy, WE TOLD THEM SO | Tags: Allan Blinder, joseph stiglitz, Paul Krugman, Perversions of economics, Reaganomics, START TREATY, Supply Side Economic hypothesis 58 Comments
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
The Hive Mentality
Posted: December 11, 2010 Filed under: just because | Tags: Charles Stross, Corporations are not People, Paul Krugman 42 Comments
Wow, I get to cross reference Paul Krugman and Charles Stross in one blog post. It’s a nerd’s delight!! I also get to speak out on I why opted out of corporate life and married life despite the obvious financial benefits of both. That would be the “Hive Mentality”. I hated working in large corporations. I gradually couldn’t stand my husband more and more because he wasn’t the sweet kid that I married who adored John Lennon and Science Fiction. He is how I come to know writers like Charles Stross. The ex turned into a soldier bee that I couldn’t stand to be around. If you love your freedom and your identity more than money and power, you will die a slow, painful, agonizing spiritual death as a corporate minion. They will get to you one way or another.
Stross talks about why our politics, our society, and our people are so frigging messed up these days. He also looks at why we feel–like my neighbor Antwoine–like we vote people into office that come from various backgrounds and they invariably turn on us. Tell me truthfully, when is the last time you felt like your vote did any good?
Stross argues that the “The rot set in back in the 19th century, when the US legal system began recognizing corporations as de facto people“. I’ve actually had similar thoughts. That and I believe the recent Supreme Court decision giving them Constitutional rights essentially assigns us all to a form of serfdom. Here’s the quote that Krugman lifted from Stross’ blog that caught my attention too.
Corporations do not share our priorities. They are hive organisms constructed out of teeming workers who join or leave the collective: those who participate within it subordinate their goals to that of the collective, which pursues the three corporate objectives of growth, profitability, and pain avoidance. (The sources of pain a corporate organism seeks to avoid are lawsuits, prosecution, and a drop in shareholder value.)
Corporations have a mean life expectancy of around 30 years, but are potentially immortal; they live only in the present, having little regard for past or (thanks to short term accounting regulations) the deep future: and they generally exhibit a sociopathic lack of empathy.
I do think that my exhusband’s 20 year stint as an investment officer at Mutual of Omaha turned him into something of a Pod Person. He became part of that collective hive and its goals became his goals. He would forget to replace the milk in the refrigerator for our two small children. This would force me into the minivan–yes I had a MAZDA minivan–with hungry, whiny kids needing bundling up and buckling where I would drive miles to replace it. At they same time, he would risk life and limb to get to the Hive Collective Office that’s eaten most of historic, central Omaha in blizzards and 6 foot snow drifts. What started out as my panicked young parent self, thinking, sheesh he could die doing that eventually became, wow, he could die, I’d get the life insurance, and I’d move me and my kids to London where I could get a doctorate from the London School of Economics and they’d attend pre-school with the future kings of England. I might even wind up in Oxford with some nice Hugh Grant type tottie and a title. You can see how he eventually got on the losing side of that what-if exercise.
Even worse, however, was being part of a Hive itself. I thought–because that’s how every one thought in the 1980s–that being in my suited skirt, carrying a brief case, and being in a field surrounded with men that I would become the uberWoman role model and change the world. (Yeah, you know how THAT worked out.) What I found was a situation akin to either being oppressed or being rewarded for being the oppressor. I couldn’t take either. In my years in a corporate Hive, and then later as a consultant in Dr. Deming’s methods to some of the biggest of them (e.g. AT&T and Ford) and then state and government agencies, I found that corporations suppress innovation, data, and the human spirit in search of more power, more market, and more profit. Believe me, between my consulting and Katrina experiences, I’d turn my life over to the US Air Force or any set of government workers any day over ANY private corporation. Hence, I totally agree with Stross on this final point.
We are now living in a global state that has been structured for the benefit of non-human entities with non-human goals. They have enormous media reach, which they use to distract attention from threats to their own survival. They also have an enormous ability to support litigation against public participation, except in the very limited circumstances where such action is forbidden. Individual atomized humans are thus either co-opted by these entities (you can live very nicely as a CEO or a politician, as long as you don’t bite the feeding hand) or steamrollered if they try to resist.
In short, we are living in the aftermath of an alien invasion.
My question to you is how do we humans defeat this particularly nasty form of aliens?
Note: I’ve been over to Memorandum where they’ve featured this post and I seem to be outnumbered among those bloggers who to a man don’t agree with Stross. Typically enough of the naysayers, one is a corporate attorney, one is a Hayek fetishist, and then there’s Krugman who blames greedy individuals like the Koch brothers. Frankly, I wonder if my response is a from a mother/woman viewpoint unlike the others. Go read them. I don’t think corporations have contributed much. I think individuals contributed much until their contributions become corporations themselves. (i.e. G.E. isn’t the contributor to society; Thomas Alva Edison was) OR maybe it is JUST me.
The Economic Troika Seems Confused
Posted: November 28, 2010 Filed under: U.S. Economy | Tags: joseph stiglitz, Mark Thoma, Obama and Unemployment, Paul Krugman 42 Comments
There are three economists that I read almost every day because I share a lot in common with their value system and their approach to the subject area. That would be Brad DeLong, Paul Krugman, and Mark Thoma. The three are probably the most visible group of liberal economists on the web with the exception of Joseph Stiglitz. All three of them just don’t seem to get why President Obama does what he does given that he said what he said during the election.
Now I admit to being a relative newcomer to academia compared to these three. I’m old and will never garner the prestige they’ve achieved. I spent most of my career in financial institutions and the FED so maybe that’s where the difference comes. I don’t know. But all three of them were on the same track today and the centralized blog theme began on Thoma’s Economist’s View where the topic germinated.
Is giving some one an overly generous portion of the benefit of the doubt something that liberals academics do? I’m beginning to wonder. All this year, the troika appeared to be baffled by the continuing not democratic, not progressive/liberal, and not wise economic policy coming out of the District. Did they listen to the same presidential primary debates that I listened to? Did they watch the appointments of folks like Austin Goolsbee and just miss something? Is it just me?
From the keyboard and fingers of Mark Thoma comes a series of not so rhetorical questions and a thought. The title of the thread is The Administration’s “Communication Problem”.
I find it incredible and disturbing that on the eve of the recent election in which Democrats got trounced, the administration was still trying to figure out if the unemployment problem is structural or cyclical.
Chiming in with a reply–even quoted by Thoma–is Delong. (They all obviously read each other too.) He titled his thread ‘Mark Thoma Watches Barack Obama and His Political Advisors Go Off Message Yet Again…Can we please get the White House back on message?’
Okay, so now we come full circle as Paul Krugman also responds to Thoma with his NYT blog and this title: Lacking All Conviction.
“Now”, I thought as I braced for the read, “we might be getting a little closer to the true source of this ‘communication’ or ‘message’ problem.” But, Krugman’s take on the meeting was concern that POTUS is just getting bad advice. I’m going to bold Krugman’s relevant assertion.
What I want to know is, who was arguing for structural? I find it hard to think of anyone I know in the administration’s economic team who would make that case, who would deny that the bulk of the rise in unemployment since 2007 is cyclical. And as I and others have been trying to point out, none of the signatures of structural unemployment are visible: there are no large groups of workers with rising wages, there are no large parts of the labor force at full employment, there are no full-employment states aside from Nebraska and the Dakotas, inflation is falling, not rising.
More generally, I can’t think of any Democratic-leaning economists who think the problem is largely structural.
Yet someone who has Obama’s ear must think otherwise.
No wonder we’re in such trouble. Obama must gravitate instinctively to people who give him bad economic advice, and who almost surely don’t share the values he was elected to promote. That’s what I’d call a structural problem.
Okay, there are two prominent Noble Prize winners that I’ve mentioned in this thread. Krugman is one and Stiglitz the
other. Any truly Democratic President seeking a Roosevelt/Kennedy Style economic program would call on Stiglitz in a minute’s notice. Krugman’s the obvious choice for trade and international economics under similar policy goals. There is a rich legacy of Paul Samuelson acolytes out there. Heck, Samuelson only died a year ago, so he was even available for some time; especially during the historic ‘transition’ presidency when we even got that new fangled seal. Samuelson even went to the University of Chicago and Harvard. Samuelson was the consummate neoKeynesian. He was the yang to the Milton Friedman yin. He was friggin’ brilliant.
Now, I’m feeling a bit like Inigo Montoya here except that it’s not the word inconceivable that’s confusing me. What’s confusing me is that I keep reading these guys. These guys work with models and data. They also–of course–make assumptions. I think the models are okay, but they keep using the wrong assumptions. After two years, you have to question the assumptions when the data results keep confusing you, guys!!
Let’s start with some fresh assumptions that don’t start with he said this, yet he’s doing this, it must be the message, the adviser, or the communication style. Let’s try, he said what it took to get elected. Now, he’s doing what he believes in. If he was all that interested in being the next FDR, at least one of you and Joseph Stiglitz would be on the CEA right now. He’s just not that into you, Keynes, or unemployment unless he thinks it’s going to help in 2012.
M’kay?
Susie at Suburban Guerilla had a slightly different take but with a somewhat similar line of thought.
Obama would rather preside over a graduate seminar than make hardnosed political decisions, and that continues to be a major flaw.
I think it runs even deeper than that. I think the ‘graduate seminar’ was a public relations exercise.
Digby at Hullabaloo has a little stronger sentiment than that.
If anyone’s wondering why the administration hasn’t been able to get on message about jobs and unemployment, it might be because they just don’t know what the hell they are doing.
Well, that too.







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