Who is an Expert on the Stimulus Package?
posted by Frank Pasquale
The sheer size and complexity of the proposed stimulus package makes quality journalism about it difficult. Striving for some scientific perspective on the problem, journalists have asked many economists what they think about the package. Having earlier questioned the legal system’s reliance on some economic experts, I’d like to offer some skeptical thoughts about their role in the stimulus debate.
Fair news outlets always try to balance “conservative” and “liberal” economists, anticipating that politics will be driving their perspectives. Just as Jeremy Waldron has argued that the use of majority voting among appellate judges should lead us to suspect any characterization of them as “above the political fray,” perhaps this journalistic practice should lead us to reconsider economists’ objectivity. Certainly macroeconomist Robert Barro wants to discredit Paul Krugman in this way:
[Krugman] just says whatever is convenient for his political argument. He doesn’t behave like an economist. And the guy has never done any work in Keynesian macroeconomics, which I actually did. He has never even done any work on that. His work is in trade stuff. He did excellent work, but it has nothing to do with what he’s writing about. . . . He hasn’t done any work on [new Keynesian economics]. Greg Mankiw has worked in that area. [emphasis added]
But Mankiw’s own opinions on the current crisis have been trashed on their own terms by Nate Silver. Barro also notes sarcastically that “attacking Iran is a shovel-ready project . . . but I wouldn’t recommend it,” possibly undermining conservative economist Martin Feldstein’s dreams of funding a massive military buildup with stimulus money.
Of course, economists have always been the subject of jokes about indeterminacy in their profession (one classic: if you laid all the economists in the world end to end, they still couldn’t reach a conclusion). But Barro’s comments strike me as revealing more about the role of econo-pundits than he would like.
Consider the following excerpts from Matt Miller’s superb book, The Tyranny of Dead Ideas:
“Of all the policy-relevant aspects of economics,” says Princeton economics professor Alan Blinder, “the one on which there is the closest to total unanimity among economists is that free trade is good. The result is that anyone in the fraternity who says anything that could even obliquely give aid and comfort to the enemies of free trade is considered traitorous.” . . .
“What most economists don’t realize is that when they say that free trade is good for the country as a whole, they’re adding an ethical layer almost unthinkingly,” says Dani Rodrik, a leading trade iconoclast at the Harvard Kennedy School. “You’re now taking off your hat as an economist and you’re putting on your hat as a political philosopher.”
Rodrik and Blinder offer important demarcations between descriptive and normative economics. Done scientifically, economics can offer illuminating accounts of how and why various policy initiatives succeeded or failed. But going forward, in a veritable no man’s land of economic catastrophe, we have little reason to believe that old studies are extrapolable to the new landscape we face. Instead, we have only a church-like institution, with definite moral stands, but little inherently scientific rationale to guide action. When heretics challenge its authority, they are duly punished.
The stimulus debate should focus on real human needs and long-term economic productivity–not the kind of pseudo-scientific projections of output stimulation the media is now consumed with. As I’ve said before in another context, when it comes to government spending on stimulus, I’m all for it–not because I think it will jump start the economy, but because on balance we have enough crying public needs to justify a great deal of spending. Consider the state of public transit in cities like St. Louis:
One stop scheduled to be cut is in the western suburb of Chesterfield, Mo., just up the road from a bright, cheerful nursing home called the Garden View Care Center. Without those buses, roughly half of the center’s kitchen staff and half of its housekeeping staff — people like Laura Buxton, a cook known for her fried chicken who comes in from Illinois, and Danette Nacoste, who commutes two hours each way from her home in South St. Louis to her job in the laundry — will not have any other way to get to work.
“They’re going to be stranding a whole lot of people,” said Val Butler, a nurses’ assistant at Garden View, who said that she feared looking for work elsewhere in a tightening economy. “A lot of people are going to lose their jobs. A lot of people.” . . . Money that some lawmakers had proposed to help transit systems pay operating costs, and avoid layoffs and service cuts, was not included in the latest version [of the stimulus bill].
Some conservative economists may well be more concerned with speeding millions more in tax cuts to the Fortunate 400 than they are with the plight of workers at nursing homes and their residents. (Who knows the level of pain now endured by those who earned, on average, $263 million in income last year?) But it’s long past time to recognize that preference as an ideological and philosophical one, not one dictated by the science of economics.
February 7, 2009 at 9:23 am
Posted in: Economic Analysis of Law, Politics
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Responses (13)
James Grimmelmann - February 7, 2009 at 10:06 am
The “country” is not the relevant unit of analysis for free trade policy. Free trade is good for humanity.
A.J. Sutter - February 7, 2009 at 10:37 am
At the risk of repeating issues I may have raised in past comments: When you say “done scientifically,” do you mean simply done descriptively, rather than normatively? Can economics offer “illuminating accounts” of why various policy initiatives succeed or fail without having some sort of explanatory theory? Can such a theory be “scientific” if its principles aren’t derived empirically, but rather from an a priori analogy to physics? Is it “scientific” if it doesn’t make testable predictions, and pass the tests? Does economics have a “scientific” explanatory theory?
In addition to economists’ tendency to weave back and forth across the blurry line between description and normativity (unless their feet are firmly planted on the latter side), there’s the question of whether the objects of study of a “scientific” economics have any stable reality. For example, macroeconomists speak glibly of GDP, corporate profits and revenues, “value added,” and so on, and present nice time series graphs of GDP, production, consumption and all the rest. Do they concern themselves with the politicised negotiations about FASB standards, tax regs, and other definitions that business people are spending all their lobbying dollars on? Definitions of the underlying quantities several layers below the aggregates used in macroeconomics are changing all the time, out of sight of the macroeconomists. Is it routine for historical graphs of GDP to describe the dynamic changes in defintions of the underlying data? Or for a multinational comparative time series graph to details the differences in national definitions of GDP? Even the economic definiton of a corporation — in the sense of which activities are deemed to be within the corporation and which without — is determined by negotiated convention.
When the raw data of economics are “socially constructed” and dynamic in time, what’s the appropriate object of study for a “scientific” economics, in your view? For some accounting scholars, such as advocates of “positive accounting theory,” reality is constituted by share prices. Would you be satisfied with having share prices constitute economic reality?
A.J. Sutter - February 7, 2009 at 10:41 am
James, please forgive the dumb question: was your comment ironic?
Frank - February 7, 2009 at 12:21 pm
A.J., those are all good and difficult questions. Here’s a beginning of a response.
1) I have also questioned aggregate measures of well-being. I applaud Sarkozy’s decision to ask Sen and others to refine them. But questions like yours suggest the validity of a broader rejection of the notion of measurement here.
2. Though I’ve derided some of its adherents as engaging in cute-o-nomics, I do feel that the “clean identification” school in economics is at least groping towards an experimentalist approach to understanding some very specific phenomena. It can often go wrong when it tries to make big claims, and when it makes small claims it may seem less relevant. But sacrificing relevance and scope for an increase in parsimony and accuracy is a common trade off in social science.
3) Ultimately, I agree with Barry Lynn’s suggestion that we need to see a return of “institutionalists” to the field (here: http://www.newamerica.net/publications/articles/2007/why_economists_cant_see_the_economy_5058)
Institutionalists “would study and model the power of large firms and trace the effects of these concentrations of power on such factors as pricing and employment. This approach implie[s] that markets are, at least indirectly, the products of law acting on or through the corporation and other institutions. It also implie[s] that the concentration of economic power, especially through a public institution like the corporation, transform[s] the affected marketplace into a largely if not entirely political realm.”
4) I think the ultimate weakness of economics here is an assumption that functionalism is the narrative or descriptive key to social relations, and a refusal to acknowledge the degree to which scarcity necessitates conflict between groups. A rising tide does not lift all boats. If we cut taxes on the richest people in St. Louis by 10% (as Senate Republicans are now proposing), we have little reason to believe their spending will redound to the benefit of the people in that article I quoted whose bus service was cut.
Political philosophy properly done can address distributional justice compassionately and rigorously. Mainstream economic thought on the issue is often muddled, as Matt Miller shows.
And finally, as for James’s comment: let’s stipulate that trade leads to gains of $6 and losses of $5. If that $6 primarily goes to elites and that $5 is primarily lost by middle class folks, there’s not much of an argument for trade. But even if the $6 goes to the desperately poor, I don’t see why in the long run we should support a process that may ultimately be tending toward reducing a de facto “global wage” to subsistence levels while eviscerating hard-won labor and environmental standards. David Grewal’s account of Keynes is illuminating here:
“Here there is an essay of Keynes from 1933 called “National Self-Sufficiency,” which is an excellent piece. . . What Keynes basically says here is, “Like all good Englishmen of the prewar generation”—prewar meaning World War I at that point—”I was brought up to believe in the principles of free trade and that anything against free trade could be nothing more than an actuarial mistake, an accounting error. It was almost immoral in the grossness of the inefficiencies it would introduce.”
He says later, “But I’ve come to see that because free trade, and especially free capital flow, entangles us in complicated ways with the destinies and decisions of other countries, free trade, actually, even if it’s economically advantageous, can be disadvantageous to the cause of international peace.”
“He says that it was through hard experience—hard experience—that England learned this lesson: Goods, he said, should be homespun as much as possible, and above all, finance should be national, because if you let your debts and your assets fall out of the hands of a single political community and separate them across different political communities, how do you reckon those accounts? There’s only one way. It’s either through complex international negotiation or it’s warfare. Whereas within a single country, you can use laws and you can do all the stuff that national sovereigns are good at doing.”
from
http://www.cceia.org/resources/transcripts/0093.html
Dave - February 7, 2009 at 5:18 pm
“Trade” is not a choice. The possibility of trade comes about because of advances in technology, not because of a choice to trade. It is the attempt to restrict trade in the face of its availability that is often harmful (often to the poorest… look at the effect of US agricultural subsidies on the Latin American rural poor). When a country closes itself off to available trade, it has two effects that hurt its economy in the long term: First, it fails to develop efficient industries because its inefficient industries are allowed to survive and draw resources. Eventually the foreign products are so superior to the domestic products that no tariff or quota can stop the importation, and the domestic industries collapse, despite all the wasted money spent on trying to prop them up. Second, the domestic economy does not receive the foreign inputs that would help industries grow (if you force your industries to buy expensive crappy domestic products instead of cheap efficient foreign products, your economy will suffer).
I, too, am troubled by the income distribution effects of global trade. I think there is a valid critique there. But I am much more troubled by the disastrous effects that anti-trade development policies had on the third world in the 70′s and 80′s. The answer is not to seek to restrict the growth of free trade, which is only postponing the inevitable and increasing the social and economic cost of adaptation. Instead we should adopt policies that help make trade more equitable. One simple way to do so is to allow labor to flow as easily as capital, although that is, of course, antithetical to first world labor, the primary beneficiary of restricting both capital and labor flows.
Trade is good. Even the structuralists of the Economic Commission for Latin America, who provided the economic basis behind dependency theory, eventually recognized that import substitution industialization was a really, really bad idea, and realigned their development proposals into a neostructuralist, trade-oriented approach (See Sunkel, Osvaldo, Development from Within: Towards a Neostructuralist Approach for Latim America.)
The debate is over on trade (just ask Paul Krugman… he did, after all, receive a Nobel Prize for his work demonstrating the benefits of free trade). Your argument that the evidence that economists often disagree (for example, on the stimulus effects of government spending) is a basis for concluding that economists might then be wrong about something they are in agreement on (the benefits of free trade) is like saying that because physicists can’t agree on how old the universe is then they thus must have been wrong about gravity, too.
Keynes comment, in 2008, is less of an argument against trade and more of an argument against state sovereignty. There is an international trading system in place today that simply did not exist in 1933, and that clearly doesn’t lead to world wars.
Miriam - February 7, 2009 at 10:36 pm
Just a comment about Paul Krugman. Barro has his own ideological axe to grind. Paul Krugman wrote a book about depression economics. He is not just a trade guy.
A.J. Sutter - February 7, 2009 at 11:16 pm
Thanks for your reply. On points (1)-(3) I think you’ll find the “economy of conventions” literature of interest. Generally, though, I think you’re way too timid. E.g., you cite approvingly the comment “This approach implie[s] that markets are, at least indirectly, the products of law acting on or through the corporation and other institutions.” Why so tentative? Where do markets directly come from, anyway? If what you’re suggesting in a soft voice is that a more sociological approach to descriptive economics would be on the right track, I’m inclined to agree. But this shouldn’t take the existence of markets as an a priori matter. Are you really satisfied with “invisible hand” mysticism?
And is the definite article really sufficient when describing the “ultimate weakness[es]” of (mainstream) economics? How about its pretense of political neutrality? (Here the economists who voted for the same candidates I did are no different from those on the right.) How about its physically unrealistic view of the relationship between the environment and economic activity? Why is “a refusal to acknowledge the degree to which scarcity necessitates conflict between groups” more “ultimate” than a refusal to acknowledge, say, forms of relationships between people that are based neither on conflict nor utilitarian considerations?
On trade, suffice it for now to say that the benefits really depend on the usual journalism questions, such as who, what, when, where and how. Currently, e.g., Japan is getting hammered for being too dependent on exports, at least according to the talking heads on Bloomberg, CNN and elsewhere (who never mention that Japan’s export dependency ratio is around 15%, less than for any developed country other than US). Neat economic determinist arguments, such as the inevitable hegemony of “superior” foreign products, ignore that there are many other factors at work in how people behave. E.g., Iran just launched a home-made satellite, even though many other countries have a clear comparative advantage in all aspects of satellite technology. (BTW, even adopting a more politicized view as Frank suggests, is Iran’s main motivation for satellites, bombs, etc., worries about Lebensraum or some other form of scarcity here?) Countries are right to worry about the hollowing out of their own technological — and social — capabilities. Politics is only one reason; another is that viewing people as consumers is not an exhaustive description.
Of course, Dave is right to point out that free movement of labor — or, as Roberto Unger has puckishly proposed, the abolition of all national borders — is an available solution. As for Nobel Prizes in economics: they don’t end debates, they are part of the performance of the debate. Or are the views of, say, Debreu, Milton Friedman, Samuelson, Buchanan and Sen all mutually consistent?
Dave - February 8, 2009 at 5:06 am
A.J.
Your point about Iran seems a bit off the mark… Iranian satellites seem to not be a very good example of trade effects, if for nothing else because I’m sure Iran would love to just buy a satellite… if anyone were willing to sell them one. But if your point was along the lines that any country is capable of producing high tech products… well, yes, but the question is at what cost (particularly if they are not an oil state rattling it’s saber). I don’t doubt that if Bangladesh really wanted to drop everything and make its own automobiles that they probably could. But that is missing the point entirely.
My point in noting that Krugman had a Nobel was not to end the debate. Rather, it was an ancillary point that Krugman is an ardent free trade supporter. I noted this because he seems to be about the only economist Frank has much respect for, evidenced by his original citation of Krugman for his views on the stimulus bill.
Further, there is no need to cite to Nobels to end the debate, because the debate is closed regardless. There is no debate on a few fundamental propositions: trade is increasing and is likely to continue to do so, nations that set up trade barriers do so at their peril, and that increased trade is net positive for countries under practically any circumstances, even if we can still argue about the distributional effects. In particular the last point is important, as just a few decades ago many – and possibly most – economists believed that trade was net negative for “periphery” countries. As noted, many of the those same economists now acknowledge they were wrong, even as they continue to argue for a more egalitarian trade framework.
I would like to retract the statement I made in my earlier comment about Frank “arguing” that because economists disagree in stimulus effects that is evidence that they are wrong to agree on trade. After re-reading, I realize Frank made no such argument, but rather I confused myself with the going back and forth from stimulus to trade. So, sorry about that.
simone - February 8, 2009 at 10:22 am
Those supporting the stimulus are not utilizing economics to justify their plans. Confidence is noit inthe realm of economics. In addition we know from Japan’s experience that the idea does not work. Third we know from the TARP mess that stimulus did not act as advertized. Forth we know that Stimulus fails to account for pricing theory a well established principle. Fifth animal spirits as advocated by Krugman et al fails to account for simple expectation ideas.
simone - February 8, 2009 at 10:23 am
Those supporting the stimulus are not utilizing economics to justify their plans. Confidence is noit inthe realm of economics. In addition we know from Japan’s experience that the idea does not work. Third we know from the TARP mess that stimulus did not act as advertized. Forth we know that Stimulus fails to account for pricing theory a well established principle. Fifth animal spirits as advocated by Krugman et al fails to account for simple expectation ideas.
simone - February 8, 2009 at 10:23 am
Those supporting the stimulus are not utilizing economics to justify their plans. Confidence is noit inthe realm of economics. In addition we know from Japan’s experience that the idea does not work. Third we know from the TARP mess that stimulus did not act as advertized. Forth we know that Stimulus fails to account for pricing theory a well established principle. Fifth animal spirits as advocated by Krugman et al fails to account for simple expectation ideas.
Humblelawstudent - February 8, 2009 at 11:19 am
Barro is making a perfectly legitimate point.
Krugman is a brilliant man and has made important contributions to economics. Barro’s point, however, is rather simple. You don’t consult an expert on African history regarding the history of an Asian country. You consult an expert on Asian history. The fact that they are both history experts does not mean their knowledge and expertise is so easily transferable from one place to the next.
Of course, this hardly precludes Krugman from having an informative opinion on Keynesian macroeconomics. Nevertheless, he hardly studied that area to same depth and breadth as his trade theory (or as others have done). As such, his opinion should be understood from that perspective (and not as the all-knowing-economics-God that many liberals make him out to be)
A.J. Sutter - February 8, 2009 at 9:33 pm
Dave, you are correct that Iranian satellites are not a good example of trade effects, and also correct to mention saber-rattling. My point was exactly that trade and economics ideas do not always explain economic behavior, even at the macro level, nor do they necessarily set the best norms for it, in political terms. The current Iranian regime certainly benefits from national pride that the satellite and rocket are 100% Iranian-made, with a presidential election coming up soon; for all I know, it may give Iran’s opponents some cause for worry, too. It would not help the regime so much, nor have the same international political impact, had Iran simply bought a satellite from, say, China or Belgium.
Another example is the Chinese “taikonaut” program. Countries do send up astronauts on other countries’ rockets. But for military (i.e., political) reasons, they may prefer DIY. Moreover, if you were in Beijing around the time of the first taikonaut shot (something like the Mercury missions 40+ years previously), it would be very obvious, as it was to me at the time, that military needs were not the regime’s sole political objective.
As for the generalizations about Japan’s experience, I am not an expert on Japanese history but I do live in Tokyo, and I can tell you that I would rather be living in Japan than in any other OECD country at this moment. Those who, like Paul Krugman, make glib references to the “lost decade” generally are speaking with reference to certain economic indicators, and not to the experience of Japanese people as lived.
(For those who don’t have a chance to talk with Japanese who lived through this period, a very rough proxy may be to note that male suicide rates in Japan had an historical peak in 1986, during the “bubble” period, then fell sharply after the Nikkei Index fell from its peak, and then hit a new peak in 1998, during an uptrend in Japan’s trade balance with the US, i.e., at the start of the “global boom” Krugman says saved Japan. They remained high during the “boom” years not shown on the linked graph. And female suicide statistics changed relatively little during the past 10-15 years.)
Moreover, there are some (such as Nomura Securities chief economist Richard Koo, a former economist for the NY Fed), who regard Japan’s 1990s stimulus package as on the whole quite successful. This package didn’t include tax cuts or “bad banks”, BTW. I’d say that given the current situation in Japan compared to what I hear about the US, Koo & al. are right. E.g., the rate of job cuts (per capita of population) here is well below what it is in the US, and peoples’ threshold of alarm about the cuts is far lower than in the relatively callous States. When a company announces a cut of even 600 (six hundred) people, it’s headline news here.
I’m also intrigued by the frequent reliance on appeals to expertise in the argumentation in this thread. Does that mean that, say, only experts in astrology are entitled to question its efficacy?
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