Monday, July 18, 2011

What Passes for Reasoned Economic Opinion

Professor Michael Boskin has an opinion piece in the Wall St Journal today. Excellent credentials. Professor of Economics at Standford. Has a PhD in economics. Chaired the Council of Economic Advisers under Bush. Basically it doesn't get much better than this in terms of a pedigree. Here's what he says:

The lower marginal tax rates in the 1980s led to the best quarter-century of economic performance in American history. Large increases in tax rates are a recipe for economic stagnation, socioeconomic ossification, and the loss of American global competitiveness and leadership.

Can someone explain to me how such a well educated economic expert can make a statement like this? By what measure has the post Reagan era produced the best economic performance? The Reagan era has produced much lower economic growth as measured by GDP than the prior quarter century. An amazing expansion in inequality. Why is this better?

Boskin writes:

First, as college students learn in Econ 101, higher marginal rates cause real economic harm.

They probably do learn that in Econ 101. But is there a reason to believe it based on evidence? I'm not aware of it. Boskin continues:

Second, as tax rates rise, the tax base shrinks and ultimately, as Art Laffer has long argued, tax rates can become so prohibitive that raising them further reduces revenue—not to mention damaging the economy.

Art Laffer may have argued that point. But did he show that the point was true or that tax rates in the US were stifling revenue generation? Sure, conceptually you could imagine that if tax rates got so high people would entirely lose their motivation to work and they'd work less or not work at all. That's what you might call a hypothesis. So what happened when Reagan cut taxes, or when Clinton raised them, or when Bush II cut them again. Did the Bush tax cuts produce more revenue? Did the Clinton tax increases produce less as Boskin is suggesting? I see no evidence for it.

We can either believe the experts or our lying eyes.

I just noticed Krugman also saw Boskin's piece. He's similarly rebutting delusions concerning Reagan.


Vinny said...

Mark Thomas offers a take as well.

My father, who passed away in 2003, ran for Congress and lost three times in 1952, 1954, and 1956. He used to tell me that the genius of Ronald Reagan was in convincing a lot of people who couldn't afford to vote Republican to vote for him.

HispanicPundit said...

Just to be clear - nobody, certainly not I, is arguing that we should trust the exert(singular). What I am arguing is that we should trust the expert(s) (plural!).

On areas where economists themselves disagree, I say disagree! It's the areas where the Michael Boskin's and the Paul Krugman's of the world agree where I say disagree at your own risk.

Just clarifying.

Jon said...

Of course. I don't take you to be saying that you must accept what is said by every individual expert. But to me economic experts are obviously the kind of people that get easy things grossly wrong and kind of are highly prone to error. It's like the whole profession was on board with deregulation, which lead directly to the collapse in 2008, which as you say pretty much nobody saw coming.

This thing where I disagreed with Krugman is obviously a very big deal to you, so let me address that quickly. It was at this thread:

where I disagreed with his claim that if an action improved productivity a company would have already done it. I agree with that generally, but not as a rule. If you are taking it as a rule then yeah, I disagree. It's very easy for a company to improve short term profits, like slashing wages, which allows them to pay out dividends to the delight of Wall St, but then this causes a brain drain and the company's long term prospects are harmed. If Krugman is denying this then yeah, I disagree with him.

But I honestly doubt he does disagree with this. I think he's speaking broadly. I mean seriously, who would deny this? Companies don't take risks that hurt them long term but help them short term? You think Krugman denies this? Do you deny it? It just seems obviously wrong, which is why I don't think Krugman is really saying that. But if you want to pretend that's what he's saying, fine. I disagree. Who cares? I like to talk about arguments, not how well my views align with an expert.

But obviously my granting a disagreement between me and Krugman is a huge deal for you, so let me just say that I don't think I disagree with him at all because I seriously doubt he would deny what I'm saying.

But if you think me disagreeing with someone on the left is a big strike against me, what do you make of the fact that Jagdish Bhagwati thinks financial liberalization should be slowed and that skilled workers that leave poor countries should be taxed? Bhagwati and Krugman would probably agree, so you must accept this claim, right?

HispanicPundit said...

It's not about agreeing with Krugman on everything or not (in fact, I am sure there are much deeper things you disagree with him on). My point is deeper than that. It's a mindset difference I am trying to point out. A way of viewing the world. There is an "economics way" and a populist way. A trained way, and an untrained way. You don't have the trained way. You don't even really understand it. I could be wrong - but that's how I see it.

But I am curious Jon: you say you agree with Krugman "more broadly", but if so...then how would you rebut his claims against the living wage?

More importantly, you write: But to me economic experts are obviously the kind of people that get easy things grossly wrong and kind of are highly prone to error.

I'm curious Jon: I know that you believe you are right, and those that disagree with you - even when it's the whole profession - are evil, idiots or plain delusional. I know that you put a VERY VERY high probability of truth on your beliefs (which is odd, considering how many times you have changed your mind). Humility is not big for you. But even so - indulge me here, put your right-wing cap on...what do you think Boskin would say in his defense?

DO you really think he doesn't know your argument? Is fooled by all the right-wing rhetoric and simply ignored to look at the data? What do you think is the foundation for his position here?

Please...try to understand what us morons think and explain it to me in your own words.

I am not asking you to agree with everything he believes - merely state it. Your take?

Personally, my standard view in debates is that if you think only a moron could believe what the other person believes, chances are you don't truly understand it. You haven't put in the effort necessary to atleast understand it. I disagree with leftists, liberals, and even anarchists...but I dont view them as even half as stupid and delussional as you do your political opponents.

Jon said...

See I don't think you're qualified to judge whether I understand the "trained" way and the "untrained" way. You make a lot of errors. We're both learning as we go. But I don't think you're in a position to get on a high horse and tell others they don't know the "economics way" but only the "populist" (meaning ingorant) way. You and I both should be humble.

How do I rebut Krugman's argument regarding a living wage? I already explained that I see Krugman as agreeing with me on this point. I agree with what he says with regards to the US and I say conditions in Haiti are different enough that the same arguments wouldn't apply. You say they do apply and I don't agree. So since I see myself in agreement with Krugman I'm not going to rebut an argument I agree with.

I think those that disagree with me are evil idiots or delusional? That's not what I say or think. My battle with you is to get you to read me properly instead of misrepresenting me.

I've explained before that what you take to be a high confidence level in fact is my method of learning quickly. So for instance when I first heard that neoliberalism is exactly what the third world has been implementing for decades I wasn't sure it was true. So what I did was I threw it out there towards you and others and I stated it like it was true. But I wasn't sure. I figured by stating it was true confidently I'd prompt someone to reply. I might end up with egg on my face. It might be wrong. I don't have an ability to test it all that quickly. But the people that might know how to show that this is wrong quickly are people like you. People that fully embrace the neoliberal paradigm.

What I got in response was some arguments against the claim and this focused my attention on what to look for in terms of supporting and detracting evidence. This allowed me to understand the limits of my own argument and also the nature of the argument. So for that I'm grateful to you more than anybody.

But don't confuse my confidence, which is partly a rhetorical device, with lack of awareness of my own limitations. Not that I am not over confident. Maybe I'm guilty of that. In any case I want to continue to present my claims with confidence in some cases, especially where I'm looking for a rebuttal. Also sometimes I am confident and that's fine. Lots of people are confident in erroneous opinions. Prove me wrong if you can. That's what I enjoy doing in the face of erroneous confidence.

You ask me to tell you what Boskin would say. You want to lure me into this trap again? I know how this game works. We've done this before. I tell you what I know right wingers say. But instead you have something in your head that he would ALSO say. And that's what you're thinking of. I'm well aware of that argument too, but it doesn't matter. Since what I say didn't match what you say you'll go on and on about how I'm ignorant and don't understand Econ 101. So no, I'm not going to play that game again. You want to rebut what I'm saying? Go for it. I'm not going to play "Guess the argument I'm thinking of" because when I fail to read your mind that's a springboard for insults and distraction.

So what about Bhagwati and Krugman? You accept their claims when they are in agreement?

HispanicPundit said...

So, just to be clear, you would be opposed to a living wage legislation in the United States? Right? And at the same time, you would support a living wage type rise in the minimum wage in Haiti? And you find this perfectly consistent - you are even arguing that you think Krugman would agree with you in both instances?

We don't have to go over the rational again if you don't want to, you gave it in the comments to the post. Interested readers can go to the link and read it themselves. I just want you to clearly commit one way or the other.

Regarding the "trained" way and the "untrained" way, you say I am not qualified to judge. But I think I am. I spend most of my online time reading economists. Especially debates. It's a favorite past time of mine. So when I see you argue a point, and see you cross over lines that clearly wouldn't be crossed by economists - from either side, that tells me you don't have the "trained" way of thinking. Now, again, let me reiterate, this doesn't mean you are wrong. It's just that you go against economist "general thinking"pretty easily. It's a point of observation.

In addition to that, you make a separate claim. You claim to be a former right-winger. In fact, your claim is stronger than that, you claim to be a former knowledgeable right-winger. But based on how you portray the right side, I get the feeling that you are more of a "Rush Limbaugh" type right-winger (ie populist type) than any real knowledgeable one. So aside from my hunches from reading your blog, how do I prove that? Well I let you make the argument. I ask you directly: how would a right-winger argue this? And gage your response. And when I do, you disappoint (exactly as I expected). You in fact don't know what the right-wing response is. Atleast not very well.

HispanicPundit said...

Now you write that I am trying to trap you. That you simply forgot to list ALL the arguments against the position - and I jumped all over it. But that is false Jon. I am not trying to trap you. I am just trying to get a feel for where you are coming from. You tell me one thing (knowledgeable, within the economic framework, etc) and I see something else. I am not saying this makes you wrong. I am just trying to understand you. It helps hone in my arguments. It tells me what arguments of yours I should ignore and which I should respond to. It also tells me at what level I should respond. And again: you didn't just 'forget' to list an argument - you forgot to list the arguments.The central arguments. The core of the rebuttal. The strongest argument. It would be like arguing the pro-life position without taking the humanity of the unborn child into account. If I asked a pro-choicer who claimed to know the pro-life position to then state the pro-life position, and the pro-choicer forgot to mention the argument that the unborn child is a full human being - that would tell me that the pro-choicer does not really know the pro-life position very well. This is how I see you. You miss the central argument - not an additional argument. And you missed it for the same reason most populists would miss it, frankly, because it's not intuitive. It takes economic thinking. It takes some honest studying first.

You write, what do you make of the fact that Jagdish Bhagwati thinks financial liberalization should be slowed and that skilled workers that leave poor countries should be taxed?

I have no problem with this. In fact, this intuitively makes sense to me. And it makes sense to me apart from whether Krugman believes it or not. But if Krugman also believed it, it would raise my level of confidence in the argument - yes.

I don't know why this surprises you Jon. You have known me for years. Let me reiterate: I am not some free-market fanatic. I am a pragmatist. I have never claimed to be a pure libertarian. Of course I lean libertarian, but only because economists themselves generally do as well (see here). But my view has always been to follow the data. If the data shows me a better way, that becomes my way. How do I follow the data? Well there are two ways that I know of: a) make the specific issue my issue and read everything I can about it. Make studying the issue something of a Phd thesis of mine. b) follow the consensus opinion of those that study the issue deeply.

Either one of the two methods would work. You prefer to follow method "a" (but I would argue, have yet to approach the issue with the amount of depth to really scratch the surface), but I prefer to follow method b). Both methods would work.

Jon said...

As I explained at your thread I'd oppose legislation that mandated wage hikes that would be exceptionally burdensome for business to where it could destroy business and hence destroy the jobs. It has to be evaluated case by case. I don't think another 30 cents an hour would harm Hanes.

You say you aren't looking to trap me, and then you engage in the very insults and name calling that you offered when you asked this question before and I didn't read your mind properly. Rush Limbaugh, I disappoint, I need economic thinking, honest studying. You told me nothing that I didn't already know in that thread but you won't accept that so I'm not going to get sucked into that again.

Good to see you are on board with taxes on skilled workers that move abroad from poor countries and for limits on capital movement. These are direct assaults on neoliberalism. I think we're making progress.

HispanicPundit said...

I've always been on board with progress being made.

In fact, I've always felt that immigration is a huge plus for the USA. I've always conceded that it harms the home countries and benefits us. So it makes sense for the home country to do something - taxes is one option, but there are others.

Regarding progress though: Now you agreeing that a living wage in the United States is a bad idea is a HUGE step - this puts you above ~75% of your leftist peers. This raises the bar my friend, gives me hope that maybe you do have some respect for economics after all. :-)