Wednesday, May 11, 2011

Two thoughts on the way we talk about economic policy

1. File this post by Niklas Blanchard under my "the dangers of libertarian social engineering" file. The argument is essentially that for all the talk of "uncertainty" out of the right and the libertarians, a Ron Paul/Tea Party would introduce vastly more uncertainty than anything Obama would ever consider doing. As Jonathan points out, of course, even if they're elected it doesn't mean anything will happen. But it still makes all this "uncertainty" talk look a little silly.

2. Megan McArdle has a good article in this month's Atlantic on Bill Gross and the "bond vigilante" phenomenon in general. I actually came out of it thinking more highly of Gross than I did before. I think he seemed less reasonable to me the way I heard him promoted by some of his fans. After reading this, he strikes me more as a Carmen Reinhart than a Peter Schiff. Most of the article was great, but this line at the end bothered me:

"This is exactly the problem, really. Our national conversation about deficits is about politics—about ideology—not math. It’s a proxy war in our eternal battle over how much to tax and spend. Republicans care about deficits when spending is on the table, but as soon as they get a chance to pass some tax cuts, they forget they ever cared. Meanwhile, Democrats, who were outraged—outraged!—when the deficit averaged less than 3 percent of GDP under George W. Bush, are now silent about deficits that are running three times as high, and that are projected to stay above Bush’s even after Obama has left office. Very few true deficit hawks are left in America—only deficit vultures."

This sort of thinking pervades the way we talk about things in this society, and it's frustrating. Paul Krugman has called it the "opinions differ on the shape of the Earth" approach. This equivalence between the GOP and the Democrats on this point is absurd. Democrats rallied behind running surpluses when Clinton was in office, they continued to demand it under Bush, and they started talking about running large deficits when the crisis started, before Obama was even elected. And yes now some (very few of course, but some) want to continue to run deficits until we're out of the woods. There is a widely understood and widely accepted economic theory behind the idea of embracing these counter-cyclical deficits, but instead of talking about that, McArdle attributes the difference to politics.

In contrast, there is no viable economic theory at all that advocates pro-cyclical deficits. None. And yet McArdle acts like these two responses are political and it all comes down to politics. This is what bothers me about our culture. If I say "I'm not a partisan - I consider myself an independent, but I think the Democrats are more reasonable and the Republicans are considerably more driven by ideology", then that reasonable inference of mine is discounted and itself considered partisan. You can't be "non-partisan" in this country unless you overlook the failures of one party and ignore that good points of another party. Here's another particularly bad analysis that falls into the same trap that McArdle does.


  1. I am afraid that you engage in false equivalence in the first part, and then complain about false equivalence in the second part.

    A free market oriented incumbent (or in the American case, a President) will be largely unable to repeal a single existing legislation. He will, however, be a major obstacle to any new radical legislation ever being passed. He can simply keep sending the bill back for review over and over and over again, and once they run out of concessions, he can veto it outright.

    So yes, I think such a bent to an existing government would do much to reduce business uncertainty and much to remove inhibition in business houses to invest, who will know that no new legislation may be passed within the next year.

  2. I have to disagree, Prateek. Didn't I make precisely this point when I cited Jonathan? How am I guilty of false equivalence if I highlight exactly what you're pointing out here?

    The point is this - if Obama got everything he wanted and if Paul got everything he wanted, Paul would introduce considerably more disruption and uncertainty. If instead we consider what both would be capable of achieving, the gap would narrow but I still think Paul would introduce more disruption and uncertainty.

    Yes, he would veto "radical" legislation - but what radical legislation is able to make it out of the Congress anyway? In addition to vetoing "radical" legislation he could veto reasonable, uncertainty-reducing legislation like raising the debt ceiling or a budget bill. It doesn't matter if he couldn't actually close the Fed. A Paul administration would be extremely radical, if for no other reason than its use of the veto to grind everything to a halt.

    No false equivalence here, Prateek. No failure to consider the difference between what Paul could actually achieve and what he would want to achieve.

  3. Okay fine, fine. I think you are one of the last people to ever use false equivalence anyway, and I'll consider the issue of budgetary bills and debt ceiling bills.

    If the debt ceiling is not raised, can't the Senators and Congressmen (sorry, don't know which) secretly sneak in some loopholes as to what kind of debt can or not be included in the ceiling, and raise more funds anyway? I believe it was done so by Republicans in Reagan's time, even after the raising of the debt ceiling. I think I read this in either Bob Murphy's or Brad DeLong's blog, and it reminds me that the debt ceiling may be just a purely cosmetic issue.

    Moreover, the budget: Ron Paul would not be able to launch a successful attack on Social Security, Medicare,.etc. On everything else, he could have an easier time. Since his priniciples seem to dictate that people can take money from the government when they are simply taking back what they gave to it, he'll have to have second thoughts on the above. So he'll be made to agree to rise in Social Security, Medicare,.etc spending, and he'd probably be left to cut (or hold) military spending only. He would only be left to vote against spending appropriations that have a negligible effect on the budget, other than military.

    I can't be wrong in saying that if government spending doesn't increase too much, and if taxes remain where they are, the Ron Paul crowd could take that alone as a big victory. They would have put the brakes and slowed the rise in size of the public sector, thus effectively bringing it to a gradually smaller percentage of the GDP.

    The above can't be radical, because fiscal consolidation of that sort was done in Canada and Netherlands. No business uncertainty resulted there, right?

    PS: I recently took the World's Smallest Political Quiz. I answered "Disagree" to "Government spending should be reduced by more than 50%". The results showed, "Centrist".

    I thought it was interesting. Even if I were not a "centrist", the maximum possible change I would be able to effect as a radical world leader would have been no different from what I would effect as a "centrist". I simply see no difference between what one can do and what one should do.

  4. "In contrast, there is no viable economic theory at all that advocates pro-cyclical deficits."

    Definitely going to take that out of context.

  5. Nevermind, mistook pro-cyclical for counter-cyclical. Darn it! What about MMT? ;)

  6. "...a Ron Paul/Tea Party would introduce vastly more uncertainty than anything Obama would ever consider doing."

    Would consider doing now. Before he was elected he considered all sorts of radical shit* (like single payer - this is documented on YouTube). Ron Paul would be equally chastened I suspect; he'd live within the politics of the possible rather quickly.

    Ronald Reagan campaigned on ending the Dept. of Education; that festering sore on the body politic and waster of the public fisc is larger than ever.

    *This is why it is easy to paint Obama as a socialist in his heart of hearts; or at least as an advocate of "social democracy" (never mind that European governments are abandoning that non-sense as fast as they can) - which makes him amazing retrograde.

  7. I would consider abolishing the Fed considerably more radical than implementing single payer, and I think that's about the most radical thing I'm aware of that you could pin on Obama. People may differ with me on that. I agree - Ron Paul practically speaking would be chastened, but with the veto I think he could do a lot more damage.

  8. Single-payer would radically change the relationship between the state and the individual in the U.S. (which is why it must be opposed); it would be a greater sea change than anything undertaken by say the perfidious FDR.

    Anyway, only the Congress can abolish the Fed; it is a creature of the Congress after all (though it pretends that it is independent of such). If anything, Ron Paul has more power now to abolish the Fed than he would as President.

  9. What could Ron Paul do?

    Hmm, veto funding for the DEA?

    Veto agricultural subsidies?

    Actually withdraw U.S. forces from Iraq and Afghanistan (and other areas of the far flung American empire - including Europe and S. Korea), instead of implementing the Bush plan for a long term presence there.

    Actually end torture, rendition, end much of the government snooping on the American populace, etc. instead of just making a bunch of noises from his mouth about doing so.

    Unlike the weak tea which is Obama on any number of policy areas that he was supposed to be "good" on (as opposed to what he pronounced prior to becoming President), Ron Paul would be a real choice who would undertake what he believed in to the best of his ability. That isn't to make him (Paul) a saint, or right on every policy position he takes - it does make him live up to the ideal (to some degree) of the "fearless politician" which politicians like to paint themselves as.

    Disclaimer: I have no plans to vote for Ron Paul or anyone else for that matter; as a general rule, I don't vote, and I've never voted for Ron Paul.

  10. "A Paul administration would be extremely radical, if for no other reason than its use of the veto to grind everything to a halt."

    If this happens to piss of a majority of fiscal conservatives, it begs the question as to what the hell do the tea touting cheerleaders have in mind when they cry out for balanced budget amendments and limited government. Of course once the specifics are laid out on the table, they all start jumping ship.

  11. Scratch that; I have decided to vote for Gaius Baltar in 2012. :)

  12. Does anyone know if Ron Paul wants to sell the TVA to private enterprise?

  13. This post actually makes sense.


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