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A while back, Salon's Andrew Leonard had a pretty good take on Fed economist (and self-described "worker bee") Kartik Athreya's elitist rant "Economics is Hard. Don't Let Bloggers Tell You Otherwise".
Here's the solid core of Leonard's response:
"Do we expect advances in cell-biology to be immediately accessible to anyone with even a college degree?" he asks plaintively.
But here is where Athreya makes a serious misstep. The science of cell biology is by no means monolithic, but there is a pretty good consensus about what constitutes scientific truth for the bulk of the field....
The same is demonstrably not true for economics. Nobel Prize winners disagree on the most basic points, such as: what's the proper role of fiscal and monetary policy during a recession? Does the minimum wage or illegal immigration hurt or help employment? Economists disagree. What impact does regulation have on the economy? Economists disagree. Yes, economics is hard -- so hard that even economists with fancy degrees don't appear, to the layman, to know what the heck is going on.
This wouldn't be such a big deal if weren't for the nagging little problem that economic policy is something we expect governments to do. We don't expect Congress to cure cancer, but we do expect our leaders to do their best to avoid inciting Depressions and bank panics and devastating trade wars.
But Barry Ritholtz's response, "Economics is Easy; Comedy is Hard" took things to a whole 'nother level:
Athreya's circle the wagon's defense raises a valid point - economics is too important to leave to just anyone.
Especially economists.
Towards that end, and to further illuminate the discussion our Federal Reserve researcher began, I suggest the following questions be used for all economic PhD candidates as part of their qualifying exams: ....
• Nobel Laureate Joseph Stiglitz wrote: "The Chicago School [of economics] bears the blame for providing a seeming intellectual foundation for the idea that markets are self- adjusting and the best role for government is to do nothing." Discuss the intellectual errors of The Chicago School, from Milton Friedman forwards....
• Joan Robinson of Cambridge University: "The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists." What did she mean by this? ....
• John Kenneth Galbraith: "We have 2 classes of forecasters: Those who don't know... and those who don't know they don't know." Please explain what Galbraith's statement means in the context of Wall Street economists....
• A Federal Reserve researcher recently wrote: "I still feel ill at ease with my grasp of many issues, and I am fairly confident that this is not just a question of limited intellect." How would you explain the Dunning-Kruger effect to this person? What does Dunning-Kruger mean in practical terms to the work of economists?
• Statistician George Box said, "Remember that all models are wrong; the practical question is how wrong do they have to be to not be useful." Discuss.
Why bring this up now? Isn't this bruhahaha receeding rapidly in the rearview mirror? Well, yes, but...
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| when the infamous Arthur Laffer makes a mega-big comeback bid, maybe there's good reason to keep this controversy in mind. Laffer, you'll recall, was one of the key figures in helping to destroy America's industrial base under Ronald Reagan. It's not that things weren't in decline before then, or that America has no industrial capacity today. Both are demonstrably false. But it was under Reagan that American elites consciously decided that (outside of the military-industrial complex), maintaining an industrial base was simply not a political priority.
Laffer was not directly responsible for that. Rather, he played a major propaganda role in the attack on taxes--which is to say, on the ability of government to pay for things in a relatively sane and stable way. Part one of Laffer's argument was trivially true: If government imposed an 100% tax, its revenues would fall to zero, just as they would if government imposed a 0% tax. Part two was a little more iffy: Laffer assumed a an absurly simple curve (the notorious "Laffer Curve"), whereby tax revenues went up as tax rates went up from 0% and down 100%, meeting somewhere in between. This is the part that Martin Garden particularly zeroed in on in his last "Mathematical Games" column for Scientific American, "The Laffer curve and other laughs in current economics" (online here) which included this rather more realistic illustration of what Gardner dubbed "the neo-Laffer curve":
Part three was pure BS: Laffer simply asserted that we were on the part of his curve where cutting taxes would bring in more revenue. Hence Reagan could promise to cut taxes, and the government would get more money as a result! This wasn't just "free market" economics. It was free lunch economics.
Of course it didn't work. Reagan promised he would eliminate the deficit by 1984, instead he more than doubled it during his time in office. But instead of Laffer's idea being discredited, it became subsumed in the larger rightwing meme, "tax cuts good, spending bad." Of course, the latter only applied to spending that conservatives didn't like. And the tax cuts were overwhelmingly targetted to benefit the rich. But, details, details....
And this my children, is but one of countless reasons that blogging about economics is not quite like blogging about differential equations. But I didn't just pull it out of thin air. Laffer is back, you see. He's arguing that unemployment benefits are not a stimulus (2+2=22!), and that the way to really stimulate the economy would be to eliminate all taxes:
No income tax, no corporate profits tax, no capital gains tax, no estate tax, no payroll tax (FICA) either employee or employer, no Medicare or Medicaid taxes, no federal excise taxes, no tariffs, no federal taxes at all, which would have reduced federal revenues by $2.4 trillion annually. Can you imagine where employment would be today? How does a 2.5% unemployment rate sound?
Well, at least I'll say this for Laffer: he's one rightwinger who's not screaming ludicrous nonsense about the deficit.
That's for his next column.
But one truly has to marvel at the full-throttle embrace of utter incoherence in economic "thought" that the Wall Street Journal has brought to such new heights, previously beyond imagining. "It's not just stranger than you imagine, it's stranger than you can imagine."
Indeed.
And on the other hand, we have Kartik Athreya telling us not to hurt our heads thinking about it. Just let the grownups take care of everything.
Like they've been doing ever since Laffer first showed up on the scene. |
