12 October 2011
Ms. Lori Wallach, Director
Public Citizen’s Global Trade Watch
Dear Ms. Wallach:
Apparently because of some bizarre sense you have that American corporations deserve special government privileges purchased at the expense of American consumers – namely, protection from competition – you are distressed that Pres. Obama pledges to sign pending free(r)-trade pacts. Indeed, you’re so angered that your office blasted an e-mail this evening featuring this headline:
Obama Shifts Away From Jobs Message to Promote Bush-Signed Trade Pacts Projected by Official Government Studies to Increase Trade Deficit.
Permit me to re-word your headline in a way that changes its factual meaning not one whit:
Obama – in a Step that Will have No Long-Run Effect on the Number of Jobs– to Promote Bush-Signed Trade Pacts Projected by Official Government Studies to Increase the Amount of Capital that Foreigners Invest in America.
Can you give me one good reason why we Americans should be distraught over legislation that makes our economy a more attractive place to invest?
Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA 22030
Note that exactly 519 years ago today the trade deficit of the Americas began to rise.
In this recent post, I made the following claim:
The evidence for the Keynesian worldview is very mixed. Most economists come down in favor or against it because of their prior ideological beliefs. Krugman is a Keynesian because he wants bigger government. I’m an anti-Keynesian because I want smaller government. Both of us can find evidence for our worldviews. Whose evidence is better? I’m not sure it’s a meaningful question. My empirical points about Keynesianism won’t convince Krugman. His points don’t convince me. I am not saying that we will never get any kind of decisive evidence on the question. I’m saying it sure isn’t here now.
I have evidently disillusioned Daniel Kuehn:
This is a statement about Russ that I wouldn’t have even made before I read him say it himself. He holds his views on Keynesianism to conform to his ideology. That’s a really disheartening thing to read, even though I’ve never been particularly in agreement with Russ in the past. I would have figured he at least had other objectives. Scientific conclusions based on adherence to an ideology are worthless. This is how we get the persistence of ideas like creationism and geocentrism. That isn’t to say that in ruder stages of society creationism and geocentrism weren’t decent explanations – they were decent at one time. But when the evidence starts to stack against them, adherence to ideology is what impedes scientific advances. That Russ actually embraces this is dumbfounding to me.
Needless to say, I see no evidence at all that that’s why Krugman views Keynesianism favorably. Russ doesn’t appear interested in offering any reason for thinking that’s Krugman’s motivation. It doesn’t really make any sense. There are Keynesians who favor and oppose larger government (just as there was at one time a fairly active community of Austrian socialists). Your view on how the economy works doesn’t require a certain political philosophy.
I recently interviewed Valerie Ramey on the multiplier. In her work, the multiplier ranges from .8 to 1.2. A multiplier of 1 means there is no stimulus from the spending–GDP rises by the amount of the increase in G but by no more. Private spending doesn’t grow. When you include the taxes (either today or in the future to pay back debt from the increase in spending) that finance the government spending, it’s particularly costly. Ramey uses a very clever idea to generate her estimates, but she is respectful of what other people find and in her survey of the literature and in our interview she says that the multiplier may be as small as .5 or as large as 2.
That’s a four-fold range. That in itself is discouraging. (Ramey and I had a very interesting conversation about the implications of that range. You can listen to that podcast in about ten days.) Much more discouraging is the fact that most if not all of the people who think the multiplier is large are fans of larger government and most if not all of the people who think the multiplier is small are fans of smaller government.
What is one to make of this alignment of ideology and belief? Is it a coincidence? Or perhaps causation runs the other way. It is possible. It is also possible that the small estimates of the multiplier are the right ones. Or the large ones are. And the other side, whichever side that is, does econometrics poorly. But to me it suggests scientism rather than science. It suggests that we are unable to measure the impact of the government on the economy with any precision. This is a particularly persuasive idea when you consider that few (any?) proponents of one view or the other change their mind when confronting the findings of the other side. And each side would certainly concede that the other side’s proponents are exceptionally bright, well-trained economists.
My view is that we cannot accurately measure the effect of government spending on the multiplier. To think otherwise is the pretence of knowledge. I don’t view my view as anti-scientific but rather a view that recognizes the limits of knowledge and the tools we use to measure the impact of government on the economy. It is not scientific to use science for tasks it cannot achieve. That is scientism. Very dangerous.
Daniel is right that I provided no evidence for my claim about Krugman, that his views on stimulus are driven by ideology as I know that mine are. The evidence is implicit in the post but I should have made it clearer given the boldness of the claim. Daniel “sees no evidence” of the claim in his own reading of Krugman. Here is my evidence. I will be interested to see if Daniel finds it persuasive.
(And one more point before proceeding. I do not believe that ideologies are evidence-free. I hold my ideology for a wide range of reasons many of which are based on what I observe about the world and human behavior along with a set of beliefs about how the world would work if my ideology were more prominent in policy decisions. But I don’t pretend I’m against government spending because the multiplier is small. Now on to Krugman.)
1. Krugman demonizes those who oppose more government spending. He rarely or ever grants the possibility that they might be right and that he might be wrong. This is not the way a scientist thinks. It is the way an ideologue thinks.
2. Krugman cherry-picks data and stories that confirm his worldview. He doesn’t just dismiss data that challenges his worldview. He usually ignores it. He does not write about the Japanese malaise that persists after trillions of increased spending. He does not write about the growth in the US economy when World War II ended. He rarely if ever writes about the work of Higgs or Ramey or Barro who find that wartime spending during WW II hurt the US economy. If he does, he writes about their work dismissively. He does not concede the possibility that the failure of the 2009 stimulus might challenge his views. (I recognize the possibility that it may have failed because it was badly designed or because the problem is worse than we thought and it was too small. Krugman never to my knowledge writes that he might have to reconsider his views based on the evidence.)
I did find a post where Krugman conceded that John Taylor “actually has a pretty good point.” That point is that there was actually very little stimulus in the 2009 stimulus package. Krugman calls that point “pretty good” either because he really thinks it is or because it confirms his own world view. The evidence suggests the latter. In other posts on Taylor he refers to a “zombie claim” of Taylor’s or says Taylor has lost his mind or that his mind is corroded, that it’s a “good bet he [Taylor] doesn’t believe what he’s saying.” I mention Taylor because I know him a little bit. He’s a fine person and thoughtful and I’ve never seen him write or say anything like this about his intellectual opponents.
Krugman has written once or twice about the austerity of the World War II economy from a consumer’s viewpoint. He as explained that as being caused by rationing. He does not explain why rationing was necessary.
Certainly, Krugman has a story to tell that can explain the failure of the 2009 stimulus package, the on-going malaise of Japan, the World War II and post-World War II experiences. I’m sure he has a story about why stagflation was consistent with the Keynesian model of today (it’s been improved!). His stories would have facts. His stories could be right. What I find interesting is that I do not remember a time when he written for the New York Times where he has conceded uncertainty, or the possible virtue of the ideas of his intellectual opponents unless they comported with his own views. By the way, in his other writing, Krugman writes like a scientist. In his book, The Return of Depression Economics, he often says some issue is unsettled, we don’t know the full story and so on.
Of course I’m not a big fan of Krugman’s work in the Times. Maybe I’ve cherry-picked examples and failed to notice the times he was gracious or thoughtful about people who disagreed with him or more importantly where he conceded that his own views might be wrong or that further study was needed before reaching a definitive conclusion. Happy to learn about those writings from Daniel or others. But on the surface, he does not write like a scientist. He writes like an ideologue. That’s OK. He is an ideologue. Me, too. Nothing wrong with that. What is wrong is to be an ideologue while pretending that your ideology doesn’t affect your views on economics. I think it does. And pretending or claiming that economics has a great deal of certainty when you know that it doesn’t also doesn’t strike me as something a scientist should do. It’s what ideologues do.
This week’s EconTalk is with Frank Rose about his fascinating book, The Art of Immersion which tells the story of how the web interacts with storytelling, movies, videogames, and advertising. I really enjoyed the conversation.
In the book, Rose describes how technology lets viewers and readers create their own story and affect the narrative. A primitive version of this took place in the 19th century when the readers of Dickens’s novels which were released in serial form, reacted to the story as it unfolded and affected how Dickens worked on his novel. The modern versions of this are much more dramatic and allow readers and viewers to immerse themselves in a narrative in ways that were not possible in the past.
In the podcast, Rose mentioned how we all like to create our own narrative. I realized how much this applies to sports and yes, especially to macroeconomics, a topic we went on to explore a bit in the conversation. Check it out. That part of the conversation reminded me of Ed Leamer.
… is from page 232 of Hayek’s 1968 collection Studies in Philosophy, Politics, and Economics; it’s in his 1962 essay “The Moral Element in Free Enterprise”:
Free societies have always been societies in which the belief in individual responsibility has been strong. They have allowed individuals to act on their knowledge and beliefs and have treated the results achieved as due to them. The aim was to make it worth while for people to act rationally and reasonably and to persuade them that what they would achieve depended chiefly on them. This last belief is undoubtedly not entirely correct, but it certainly had a wonderful effect in developing both initiative and circumspection.
It’s too bad that Peter Wallison’s exceptionally clear and concise explanation of the causes of the housing bubble is available in full only to subscribers to the Wall Street Journal. Here’s his conclusion:
The narrative that came out of these events [the government-sponsored bubble and its inevitable bursting] —largely propagated by government officials and accepted by a credulous media—was that the private sector’s greed and risk-taking caused the financial crisis and the government’s policies were not responsible. This narrative stimulated the punitive Dodd-Frank Act—fittingly named after Congress’s two key supporters of the government’s destructive housing policies. It also gave us the occupiers of Wall Street.
Andrew Bolt – Thursday, October 13, 11 (06:42 pm)
Julia Gillard was adamant. She would put her bill to save her Malaysian people swap deal to Parliament, even though the Greens and the Coalition would block it in the Senate.
Why this pointless effort? To shame the Coalition MPs in the House of Representatives, Gillard said:
They should record their votes, name by name, person by person, stand up in the Parliament and say that they are people who believe their cheap politics is more important than protecting our borders and protecting our Australian values in the way we deal with refugees.
Labor MPs wondered why on earth she’d embarrass herself like this, pushing legislation that could solve nothing and would only focus attention on a losing issue for Labor.
Well, this pointless gesture has worked out even worse than they could have imagined. It’s wiped out whatever triumph they had from yesterday’s “win” on the carbon dioxide tax - the one success they’ve had to boast of for weeks.
The Government had hoped to secure passage of legislation resurrecting the Malaysia deal through the lower house on this morning. But key crossbench MP Tony Crook announced he would not support the Bill, meaning the Government did not have the numbers in the lower house to pass it.
But this was never a bill that was meant to pass Parliament. It was meant to shame the Coalition. So why did Gillard drop it today, when she could have dropped the idea at the very start? All she got was another horror day of headlines, turning yesterday’s triumph into today’s disaster.
The death of the Malaysia deal has left Gillard with two options: back the Coalition’s proposal to reopen the detention centre in Nauru that once worked so well, or back the Greens’ demand for on-shore processing that the Government admits will be a lure to people smugglers.
THE Gillard government has shelved plans for offshore processing of asylum-seekers, announcing it will allow boat people to live and work in the community as detention centres overflow.
Under a plan announced by the Prime Minister today, all asylum-seekers will be processed on Australian soil with community detention and bridging visas provided to those unable to be processed within the existing detention centre network.
Those granted bridging visas can expect work rights, housing and money for living expenses.
Yes, the Greens win again, just when Labor is desperate to shake the tag of being a Greens catspaw.
But not only has Gillard backed the Greens policy over the Coalition’s, she’s added extra lures - in the bridging visas and apparently quicker release from detention - that will tell boat people our laws are now softer than they have been since 2001.
Labor MPs keep telling me that once Gillard passed the carbon dioxide tax and hung tough for a couple of years, she’d win grudging respect from voters and restore Labor’s numbers. This latest farce simply confirms that her judgement is so terrible, that every month will bring a fresh humiliation. How much longer can this go on?
I’m told up to 10 boats are already in the queue.
Andrew Bolt – Thursday, October 13, 11 (11:46 am)
One day after the carbon dioxide tax “victory”, Julia Gillard deals herself a losing hand:
Labor faces an embarrassing defeat in the House of Representatives after West Australian Nationals MP Tony Crook said today he would not support the amendments.
As ministers left an emergency cabinet meeting this morning without revealing whether the bill would be withdrawn, the opposition said the government was stalling.
I’m told up to 10 boats are preparing to come. The people smugglers know this Government has no off-shore processing now, and cannot act on its threat to send 800 boat people to Malaysia.
Andrew Bolt – Thursday, October 13, 11 (10:44 am)
Here’s Perth radio host trying too crassly to get attention:
IT isn’t every day that you are invited to meet the Queen… In conscience I couldn’t.
How could a bloke who had passionately campaigned for an Australian Republic and had once disrespectfully urged his audience to ”ditch the bitch” turn up to pay homage to an institution he wanted removed.
Sattler is a boor.
(Thanks to reader David.)
Andrew Bolt – Thursday, October 13, 11 (06:04 am)
Tell me it’s not possible that Barack Obama, who bowed so deeply to the Japanese emperor, was also planning to apologise for the nuclear bombs which finally ended Japan’s war of aggression:
In the Sept. 2009 cable, U.S. Ambassador to Japan John Roos tells the Obama administration that Japan doesn’t think it’s a good idea for President Obama to visit Hiroshima or to apologize for using an atomic bomb on two Japanese cities during World War II…
The cable was sent to Secretary of State Hillary Clinton in advance of President Obama’s visit to the country. Here’s the important part, where Roos refers to a conversation with the then Vice Foreign Minister Mitoji Yabunaka:VFM Yabunaka pointed out that the Japanese public will have high expectations toward President Obama’s visit to Japan in November, as the President enjoys an historic level of popularity among the Japanese people. Anti-nuclear groups, in particular, will speculate whether the President would visit Hiroshima in light of his April 5 Prague speech on non-proliferation. He underscored, however, that both governments must temper the public’s expectations on such issues, as the idea of President Obama visiting Hiroshima to apologize for the atomic bombing during World War II is a “non-starter.” While a simple visit to Hiroshima without fanfare is sufficiently symbolic to convey the right message, it is premature to include such program in the November visit.
The White House won’t comment in Wikileaks cables, so it’s unclear if Obama was actually planning an apology or whether the Japanese out of the blue warned against something hypothetical. I suspect the first, given this report last year:
Akiba seized the moment to invite President Obama to visit Hiroshima, and the president responded politely (if vaguely) that he would “like to come.” ... Further energizing this debate (on whether he’d apologise) was last week’s visit by the U.S. Ambassador to Japan to the commemoration ceremony at Hiroshima, which marked the 65th anniversary of the bombing. This was the first time a U.S. official has ever attended the annual August 6 ceremony. It was the Ambassador’s second visit; he visited for the first time last October, and said he was “deeply moved” by the experience. At last week’s visit, Roos gave neither a speech nor comments to reporters who sought his reactions. A previous statement released by the U.S. Embassy in Japan said that the Ambassador’s attendance at the ceremony was intended to “honor all of the victims of World War II” and to testify to the Administration’s commitment to disarmament: ...
Although many people were no doubt disappointed by the absence of a U.S. apology at last week’s ceremony, to some Roos’s visit promotes a broader goal. Many supporters of an Obama visit say that a presidential trip to Hiroshima would further the global anti-nuclear agenda.
Andrew Bolt – Thursday, October 13, 11 (05:09 am)
Kevin Morgan warns that the Gillard Government $36 billion national broadband network already seems to be blowing out badly:
In Tasmania, where the network was first switched on, the take-up rate is less than 15 per cent. Worse, the cost of deploying what little fibre has been rolled out is double the estimate contained in NBN Co’s first corporate plan. That November 2010 plan estimated it would cost $2300 to pass each household with fibre but the progress report suggests it is costing $4700 with connection adding a further $1000 per household.
If those construction costs cannot be reined in and were repeated for all 12 million premises, then the NBN’s capital cost could blow out by $28bn.
In April, NBN Co ended negotiations with 14 contractors hinting there was collusion and price gouging. It’s small wonder there couldn’t be a deal given the vast gap between what the government has budgeted and actual costs.
No one, of course, is pointing out that the NBN’s costs could explode. Why would they when NBN Co’s 900 employees are averaging more than $150,000 a year? And the gravy train doesn’t stop there. Consultants, lawyers and IT contractors are doing even better. In the 12 months to June, NBN Co spent $60m on consultants and a whopping $42m on legal costs while $220m has been spent or committed to a billing and operational support system even though NBN Co will be dealing with at most only a couple of hundred customers. And this cost could double.
Andrew Bolt – Thursday, October 13, 11 (05:00 am)
One of the most expensive and subsidised forms of “green” electricity is set to cost a lot more:
THE runaway take-up of rooftop solar panels is undermining the quality of electricity supplies, feeding so much power back into the network that it is stressing the system and causing voltage rises that could damage household devices such as computers and televisions…
One of Australia’s biggest electricity network providers, Ausgrid, yesterday warned that there was a “significant likelihood” that costs would have to rise because of the impact of the solar photovoltaic cells.
Andrew Bolt – Thursday, October 13, 11 (04:57 am)
Our public insitutions not only swing to the Left, but tend to look to the Left for yet more of what makes them so sympatico:
COMMONWEALTH Ombudsman Allan Asher has been caught colluding with the Greens to criticise Julia Gillard’s border security policy and enlist the minor party’s support for his campaign for extra funding for his office.
And Greens senator Sarah Hanson-Young faces questions about why she used a Senate budget estimates committee hearing in May to ask Mr Asher questions he had scripted for her, then later used those answers as the basis to demand a funding boost.
Evidence of the collusion, released in the Senate yesterday, sparked a political uproar, with the government questioning the Ombudsman’s impartiality and integrity and the Coalition insisting Mr Asher was forced into his unusual actions by frustration over government incompetence.
I suspect Asher’s perceived impartiality is now fatally flawed. Not that I’m a big believer in the “impartiality” of any public official.
Andrew Bolt – Thursday, October 13, 11 (04:43 am)
Labor politicians yesterday held a celebration in Parliament over the carbon dioxide tax that can only infuriate the electorate they deceived:
Father of two Craig Flanigan, who has worked at the Hazelwood power plant for 24 years, said workers were sickened to see footage of politicians celebrating the successful vote in the chamber.
Brown went on to list the usual climate scares: a “wrecked Great Barrier Reef and Murray-Darling Basin”, “no ski fields left by the middle of the century” and 700,000 coastal properties doomed.
Of course he never explains that a carbon tax in Australia will make zero difference to the climate.
Labor’s defiant declaration that the tax could not be repealed may prove as toxic as Gillard’s initial decision to break the promise there would be no carbon tax under a government she led.
Claiming that a new prime minister, a new government and a new parliament wouldn’t be able to overturn the most unpopular piece of Labor legislation feeds the sense of voter betrayal and angry impotence. Having lost all its good will with a broken promise, Labor is rubbing voters’ noses in an unpopular tax.
Labor is celebrating a useless tax we didn’t vote for, don’t want and can’t repeal. I don’t think it quite realises how betrayed and abused voters will feel.
Former Greens candidate Professor Clive Hamilton explains that democracy is actually the enemy of warmist scientists:
Over the last decade or so, politically driven climate deniers have adroitly used the instruments of democratic practice to erode the authority of professional expertise. They have attempted, with considerable success, to undermine the authority of climate science by skilful exploitation of a free media, appeal to freedom of information laws, the mobilisation of a group of vociferous citizens, and the promotion of their own to public office. In this way, democracy has defeated science.
Then there’s that pesky free media:
Well, the Greens and Labor between them are doing their best to “fix” that problem of the free press.