Stephen Hill and I, along with some others, have been debating, in part, whether it is ok to lump all economists together, and put a “dumb” sticker on the whole lot.
Have a look at this post - text is below – by Mark Thoma (US economist and prolific blogger). It seems very clear to me that both Mulligan and Laffer (he of “curve” fame) are some combination of dumb and disingenuous. But the same cannot be said of either the interviewer (whom I don’t know) or Thoma. That is what I mean by the need for differentiation when criticising economists.
Here’s the text:
Mulligan and Laffer
Casey Mulligan says that trying to help the poor “had the unintended consequence of deepening-if not causing-the recession.” There was a financial crisis, but that wasn’t the problem according to his story, and it wasn’t the decline in housing wealth. Nope, everything would have been just fine (or at least “two to three times” better) if we had just let the poor struggle like they deserved:
Redistribution, or subsidies and regulations intended to help the poor, unemployed, and financially distressed, have changed in many ways since the onset of the recent financial crisis. The unemployed, for instance, can collect benefits longer and can receive bonuses, health subsidies, and tax deductions, and millions more people have became eligible for food stamps.
Economist Casey B. Mulligan argues that while many of these changes were intended to help people endure economic events and boost the economy, they had the unintended consequence of deepening-if not causing-the recession. … The book … reveals the startling amount of work incentives eroded by the labyrinth of new and existing social safety net program rules, and, using prior results from labor economics and public finance, estimates that the labor market contracted two to three times more than it would have if redistribution policies had remained constant. …
We are also told that “…Casey B. Mulligan offers … groundbreaking interpretations…” Groundbreaking? Perhaps, but there’s a reason nobody else is suggesting these things. It may be groundbreaking, but it’s also a dry hole.
Moving on to another ideologue, Arthur Laffer is attempting humor as well, though he gives the appearance of being quite serious:
Jeff Horwich: …What’s so wrong about raising taxes on this small segment of wealthy Americans, and lowering them or keeping them the same for other folks?
Laffer: The problem with raising taxes on rich people — what they call rich people — is rich people have many options open to them that other people don’t have, and you won’t get the money. You know, if you could get the money from them without costs, I’d love it. But you can’t.
So the problem is that the rich are just too clever for the rest of us. If we try to tax them, they’ll find a way to avoid it, so why even try? But wait, aren’t Republicans constantly whining that the rich are paying more taxes than they used to (while ignoring how much their incomes have risen)? How did that happen if they are so clever at avoiding such things?
Later, he also asserts that tax increases pay for themselves despite a mountain of evidence pointing in the other direction:
Laffer: Yeah, a lot of common sense. Even if you did get more money from the top 1 percent, it would be more than offset by the losses other people would not pay in taxes because these people aren’t employing as many people, aren’t investing as much, aren’t buying as much. I mean, it’s much more than just one little group.
That’s nonsense, there’s no evidence that raising taxes from their current rates would decrease revenues even when such secondary effects — which are small — are accounted for.
How do you come to such conclusions? By ignoring the data when it disagrees with you:
Horwich: Many economists will say the data is extremely inconclusive in practice as to how marginal tax changes actually affect personal and business activity. What makes you so sure?
Laffer: Because basically, these economists you talk about never worked in the real world. They’re just looking at the econometrics and the data there. ...
Horwich: But am I right that I just heard you criticize economists for actually looking at the data and making their decisions based on that?
Laffer: …I think it’s really silly to look at this aggregate data and not make any judgments beyond those aggregate data.
Finally, he is asked about inequality, but he never actually answers the question of how his center could have put out such a laughable report:
Horwich: Many other economists left, right and center will point to various kinds of data that show income and wealth inequality in the U.S. are increasing, maybe the worst in many, many years. And yet, your center just put out a report claiming to debunk this narrative on income inequality. Are you saying that’s not true?
Laffer: You know, this is a debate that’s going to go on for years and years and years. I don’t mind inequality if people are rising in incomes in all groups. I do mind equality when everyone’s brought down to the lowest common denominator. You don’t want to make the rich poor; you want to make the poor richer. These inequality specialists all around the place aren’t proposing that. In all the quest to achieve less inequality, they are creating equality by lowering everyone. And that’s silly.
He makes it sound like this is a “debate,” but the debate is over for those who can be swayed by evidence. Income inequality has been rising, and tax cuts for the wealthy — which somehow didn’t produce the wonderful economy the Laffers of the world promised us — played a big role in redirecting income to the top.
All Content
Enjoyed the above!
Thanks,
Phil E.
Is that a typo: “when he asserts that tax increases pay for themselves”? It’s “tax cuts,” right?
OK Andrew, fair enough. But as an illustration of the point I am trying to make, let’s look at the health care crisis that occurred in France and other parts of Europe during a blistering heat wave during August 2003, in which thousands of elderly died because too many doctors and hospital staff were away on vacation during the traditional summer holiday period. No one was available to check in on the elderly, especially those who were the most isolated and vulnerable. The cumulative result of such poor planning was one of the great health care tragedies in modern European history. I’m sure there were some INDIVIDUAL doctors and health care professionals who probably had warned in advance that this could be a problem – though not enough of them warned about it, and not loudly enough, to prevent it from happening. Yet it was such a simple thing – can’t we say that the SYSTEM failed? And isn’t it accurate and appropriate to say that the health care PROFESSION which designed and implemented the system also failed?
Saying that the health care profession failed isn’t the same as saying that everyone in that profession is an idiot. But it is saying that they didn’t design a system that anticipated a rather obvious defect in the health care system.
Similarly with economists and the economics profession. Saying that the economics profession failed is not saying that all economists are idiots. But it IS saying that something about the economics profession – whether because it indoctrinates most economists to fail to ask the right questions or take the right measurements, or because most economists are bunkered down in their own micro specialty and so don’t take a whole system view, or because economists were in thrall or fear of Alan Greenspan, or whatever – is plagued by something endemic that they SHOULD have foreseen. After all, an $8 TRILLION housing bubble in the U.S. alone is pretty massive, even by inflated bubble standards! What is it about the economics profession that prevented enough economists from not only seeing this, but being alarmed by it enough to raise so many red flags that Greenspan and others couldn’t just ignore it?
Since the collapse, the economics profession has undergone a little bit of introspection, but not nearly enough, in my view. Look at the royal treatment that is afforded Paul Krugman by many on the Social Europe Journal website and on the European left, just like was afforded to Alan Greenspan previously. Yet Krugman can’t even get right something as basic as youth unemployment! To recap what I wrote on my post on your other article, even Krugman apparently doesn’t understand the difference between unemployment RATES and RATIOS. Here is a quote from Krugman’s column in the New York Times on April 29, 2012 (and here’s a link to that column, http://www.nytimes.com/2012/04/30/opinion/krugman-wasting-our-minds.html), he begins his widely read column with this in the very first paragraph: “In Ireland almost a third of the young are unemployed.” When Krugman writes that “almost a third of the young” are unemployed in Ireland, he actually represents that a third of the ENTIRE POPULATION of Irish 16 to 24-year-olds is unemployed, wouldn’t you agree? So in methodological terms, Krugman actually is describing the unemployment “ratio” of Ireland, which is a measurement of unemployment using the number of all young Irish 16-24 as the denominator, not just those in the labor force. Yes? And he says “almost a third,” yet the unemployment ratio for Irish youth actually is 11.7%. The unemployment “rate,” taken as a measure of the labor force which does not include all youth in school or job training, is 30.5%. Should we say that Krugman doesn’t understand the difference between the ratio and the rate? Or, in his ideological zeal to push for more stimulus spending, is he dishonestly misrepresenting the data? This from a Nobel Prize winning economist?
And here’s Joseph Stiglitz, another Nobel prize-winning economist, writing in his Project Syndicate column that was distributed around the world: “Youth unemployment in some countries is approaching or exceeding 50%.” (see http://www.project-syndicate.org/commentary/after-austerity). There is no attempt in Stiglitz’s column to contextualize this number in a way that takes account of the various definitions and conditions that we have been discussing, and qualified it by saying the “work force” doesn’t include all youth in school or job training. It simply makes it look like, of all the “youth” in some countries, around 50% are unemployed. Doesn’t it?
Andrew, these are two Nobel Prize winners of YOUR profession, and they are grossly distorting the youth unemployment situation. Yet no other economists are calling them on it. It really is incredibly embarrassing for the economics PROFESSION that Nobel Prize winners not only put out such confused information regarding something so basic and simple, but apparently do it with little criticism from fellow economists like yourself. So what is the responsibility of you and others in your profession to criticize your own? Krugman and Stiglitz are both misrepresenting the youth unemployment situation, for whatever reasons, in a way that actually distorts policy discussions. Doesn’t that disturb you?
And this is just one measurement out of many that the economics PROFESSION gets wrong. As I wrote in that opening paragraph, “One thing we have learned from the economic crisis is that we need better ways of measuring economies, at both national and global levels.” I listed several other distorted measurements in the opening paragraph of my original article at http://www.social-europe.eu/2012/07/youth-unemployment-is-overstated/. I hope you and other economists become more pro-active in trying to do something to correct this methodological car wreck that your profession has created and seems to be doing nothing to untangle.
Steven