September 07, 2012

The Only Economist Worth a Damn

Sure it's fun to watch economists fight.  We had a great one a couple of weeks ago.

Simon Wren-Lewis wanted Mankiw and Taylor drummed out of the corps for writing things he didn't like.  Krugman joined in the chorus.

My first reaction was:  um, ok guys, it worked for Stalin.

My second: if Taylor and Mankiw really misquoted and misattributed as severely as Krugman claims (Taylor denies all), they have sold their professional reputations for a sackful of silver.  Which, since they both already have many sackfuls, and work for famous universities, is quite annoying.

And dysfunctional.  I'm a moderate, and I mean it.  I want diverse views, based on sound evidence and vetted by professional economists, aired around election time.  That's how this thing is supposed to work.

It's not happening, and frankly, Krugman's protestations aside, I'm not seeing it on either side.  I have Taylor and Mankiw pretending Mitt Romney's team can do math, and I have Krugman DeLong, etc., between self-righteous reminiscences of the Nixon administration, pretending we're in a liquidity trap when core inflation is running 1.8% y/y, within 0.2% of the Fed's target.

The reason everyone gave up on Keynesianism in the first place is that increases in government expenditures do not magically create growth, or value to society.
If I wanted to, I could hire 10,000 people to do nothing but paint my picture every day for the rest of my life. And the GNP would go up.  But the utility of the product would be zilch...  - Warren Buffett
And don't give me that bullshit about how easy it is to borrow money.  It won't be easy forever, and every Democrat-in-power I've ever met is delighted to throw dollar N+1 at the nation's problems, whether the long term effects will be inflationary, destabilizing, or ebola.  And don't tell me it's the Republicans fucking up the schools when Jerry Brown is building a magic train to nowhere that will cost $68 billion, no doubt because some alleged economist told him the multiplier effects would be higher than school funding.  I'm sorry, that's a little unfair, let me rephrase that:

It will be fine day when the California schools receive an appropriation of $68 billion and the California High Speed Rail Authority has to hold a motherfucking bake sale.

Meanwhile, the elephant in the room - health care costs that have run several percentage points above inflation year after year for decades - is lost in a mess of posturing, indignation and counter-indignation.  This is amazingly stupid - the U.S. healthcare system is a cocktail of mis-incentives that is destroying the country.  It's it not "going" to do so, it is doing so now.  Hagist and Kotlikoff called it back in 2005:
Although healthcare spending is growing at unsustainable rates in most, if not all, OECD countries, the U.S. appears least able to control its benefit growth due to the nature of its fee-for-service healthcare payment system. Consequently, the U.S. may well be in the worst long-term fiscal shape of any OECD country even though it is now and will remain very young compared to the majority of its fellow OECD members.
Ezra Klein explains further, because, apparently, that is necessary.

The only president who has successfully instituted measures that can help deal with the core problem is a fellow named Barack Obama.  Even if the Republicans win it will be extremely difficult to repeal Obamacare because it actually helps solve the problem.

It would be nice to see more economists who think like him.


Blogger First Sea Lord said...

I don't think anyone serious on the Left would argue that the simple fact of spending alone, regardless of its substance. I think they would argue that you have to connect the dots between the effectiveness of spending in a depressed economy and actual social and educational needs that create future economic benefits. That's certainly what the Democratic party wants, as well as the President.

As you know far better than I, military spending especially is not far from painting several million paintings of Warren Buffet, in terms of multipliers. Manly-man tanks and nifty-jiffy fighters tend to sit there like lumps doing nothing and demanding extremely expensive maintenance, sort of like the Kardashian girls. They lead mostly to enormous emmissions of carbon dioxide by hawkish pundits until we actually need to shoot people. In the meantime, this vast area of government spending has apparently risen above the slightest criticism.

As I be-lecture my art students, subject matters: what the spending is about, as I'm sure you agree, is key. Let's say we halved our expenditures on carrier groups, raised the top tax rates to the last time when won a war properly, and put that all business into schools, green energy, schools, science, research, and also schools. Might be some trains in there, even. Would America become stronger or weaker? Would economy grow, or falter? I can't argue the numbers, but I can make the case for their meaning- and these are more or less the most radical demands of the most radical wing of the Democratic party.

In that scenario, a lot of very wealthy people might leave the country; certainly their money would. One point of our possible disagreement: I'M WILLING TO TAKE THAT RISK.

The schools situation in CA, is of course, super-duper intolerable. We all know more or less what do to: raise taxes sensibly, hire oodles of teachers, fix the buildings. The longer we wait, the more our systems of democratic citizenship break down. This is where the polyp-like blockage of the GOP is so extremely toxic to the state.

You're absolutely right that the 68 Billion rail system is off-priority compared to education, but all transportation systems are heavily subsidized. Is it really out of balance with say, I-5, or how rail systems work in Europe, considering the externalities involved? That's an actual question.

BTW, the entire NEA budget, about $158 million, would pay for 10,000 artists to paint about 3 decent portraits of Warren Buffet each. And man, for a while, that multiplier would go like gangbusters, stabilizing the finances of half the artists in America, enabling them to invest in marketing, more education, rent, food, travel and any number of immediate expenses. The only flaw is the subject. The WPA of the Depression is still a model of hiring great artists cheap to help to build a national identity, a national culture: the kind that might value everyone's work.

September 8, 2012 at 10:17 AM  
Blogger The Other Front said...

I would totally spend $1 billion on another WPA, and then the other $67 billion on schools.

September 8, 2012 at 10:21 AM  

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