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links for 2010-02-27

Ten Pieces Worth Reading, Mostly Economics: February 27, 2010

1) David Leonhardt: Health Economists Urge Passage of Reform:

Obviously, not all economists are in favor of the current proposals in Congress. But a pretty impressive list of health economists and other policy experts has released a letter making the following argument:

We commend the President’s pursuit of bipartisan solutions. Yet the summit made plain that it is now time to move decisively and quickly to enact comprehensive reform. We believe that the only workable process at this point is to use the President’s proposal to finish the job. After long debate, the House and Senate have passed two similar bills that do crucial things to improve U.S. health care.

The signers include Daniel Kahneman, the Nobel laureate and behavioral economist; David Cutler and Len Nichols, who have advised Congress on health policy over the last year; Theda Skocpol, the political scientist; and Henry Aaron of the Brookings Institution.... Like many on this list (and like some opponents of the current bills), I wish the bills did more to reduce cost growth. But after watching the debate over the last year — and seeing just how bad the politics of cost control are — I wonder when we will next see a bill that goes even as far as these do...

2) Matt Corley: Evan Bayh tries to walk back inaccurate claim about Congress not creating jobs, but still gets it wrong:

After announcing his retirement last week, Sen. Evan Bayh (D-IN) mused about his future employment to CBS News, saying “if I could create one job in the private sector by helping to grow a business, that would be one more than Congress has created in the last six months.” Bayh’s comment about job creation has irked some of his Democratic colleagues. “I’ve got material on my desk that shows the jobs that have been created in Louisiana,” Sen. Mary Landrieu (D-LA) told Politico. “I don’t think that’s true; in fact, I know it’s not true.” In an interview with Politico, Bayh attempted to backtrack a little bit, though he maintained that his statement was “probably largely true” if limited to the past six months:

Bayh walked back his statement in an interview with POLITICO Tuesday, saying it was “hyperbole” and he “wouldn’t say it again.” Still, he said, the statement was “probably largely true” if limited to the past six months — even if what he really meant was “that we’re not doing enough.”

But Bayh’s new claim is discordant with the fact that the stimulus passed by Congress in Feb. 2009 has been creating jobs in the past six months. Yesterday, the Congressional Budget Office reported that the Recovery Act “added between 1.0 million and 2.1 million to the number of workers employed in the United States” in the fourth quarter of last year, which ranges from Oct. 2009 to Dec. 2009.

3) John Emerson: Does Brian Riedl of National Review Finally Get It?:

Not completely on topic, but close enough: when conservatives argue "The New Deal didn't end the depression, World War Two did", aren't they admitting the effectiveness of Keynesian spending and criticizing Roosevelt for not doing enough of it? (And rightly so, considering his Mellonist 1937 budget proposal, which he made as soon as the threat from his left had been eliminated in the 1936 election.)

4) Catherine Rampall Predicts That Her Colleagues in the Press Will Not Do Their Jobs:

[T]he February jobs report... will probably be very, very ugly.... The main culprit behind the expected jobs plunge is the blizzard, which closed businesses and kept people from going to work or even seeking work.... The Labor Department is of course well aware that the blizzard will distort its numbers... officials will... try to isolate the effects of the storm....

But even though everyone will know that “snowmageddon,” and not President Obama, is really at fault for the poor report, the headline number may still be shocking enough to sufficiently discredit economic policy of Democrats...

5) Tom Levenson: Great Read: MacFarquahar on Krugman in the current New Yorker:

[E]conomics as practiced in the academy is in possession, its practitioners believe (and I mostly do too, not that my opinion matters) of a body of methods and a growing number of results that suggest that it is a powerful way of analyzing certain kinds of human behavior, and for making useful predictions about some things.  But it is far from as comprehensive in its explanatory power as some of its practitioners — and many more in the economic pundit class — would have one believe. What’s more, it’s important to remember that there is a difference between a valid result and an empirically valuable one.  More bluntly: it’s not just possible, but common to come up with something that is absolutely “right” within the framework of economic thinking that is simply false in the real world.  MacFarquar writes:

The most successful paper Krugman ever wrote was about target zones, and it was completely wrong. In the years before Europe adopted the euro, it was thought that establishing something between floating exchange rates and fixed ones—a “target zone” within which a currency would be allowed to float—might reap some of the advantages of each. He estimates that by the time the paper was officially published, in 1991, some hundred and fifty derivative papers had already appeared. “Empirically, it doesn’t work at all,” Krugman says. “People loved it as an academic thing, but it had some very strong predictions about interest rates inside target zones. Those predictions all turned out to be wrong. But nobody attacked me for that. I was showing that if target zones worked the way that people say they’re supposed to work, then this is how it would play out.”

Economics — academic economics — “knows” much more than it knows… and that’s perfectly alright for the development of a body of thought.  The problem only surfaces either when economics results are given more credence than they deserve in the making of public policy and/or opinion.  I’d blurt “supply side” here, except that this was explicitly controversial within the profession, and so the history of supply side policy is not simply a story of a consensus too confidently achieved, but rather of the catastrophic process by which bad ideas are transformed into political certainties…which leads directly to the second half of my diagnosis of pathologies…

…and that would be when economists  — or political/ideological allies — present as settled conclusions that are either uncertain or false.

6) DELONG SMACKDOWN OF THE DAY: Eric Rauchway: DeLong Smackdown/Bottomsup:

I’m shocked that in his Keynes compendium, Brad DeLong left out the great economist’s sole regret: that he should have drunk more champagne. Wise words for dark times and advice to keep the season bright. Cheers.


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8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Michael Wolff: It’s Not Politics, It’s Bonkers:

Let’s make nuttiness in America the issue. Forget right or left or any matters of ideology. Why not make the pressing public issue about logic, perspective, rationality, proportion, and even humor? There ought to be a new political test: If you talk like a nut, if you act like a nut, if you associate with other nuts, you’re a nut. Joe Stack’s daughter, Samantha Bell, is, like her father, who flew his plane into the IRS office in Austin, Texas, last week, a nut. His suicide and murder of an innocent bystander was, according to Bell, her father’s way of speaking out against injustice. “Nothing will ever be accomplished,” she said, if there aren’t people like her father willing to strike a blow against big government (she also called him a hero, but then, as nuttily, thought better of that and retracted it)....

We think it’s unfair or incorrect or plainly not nice to call people cuckoo, daft, deficient, around the bend. Political debate, I’d argue, is quite often a way to avoid the real subject. The very impersonal and humorless nature of political discussions—so that even in the privacy of our own homes we can sound like talking heads—means we overlook the real emotional subtext: Many American are truly out-and-out over the edge. (Arguably, the more you talk about politics the more distant you are from your emotions and, hence, the nuttier you are.) And the problem keeps getting worse. I would have said the annual CPAC conference, held this past week in Washington, was a pretty estimable collection of people worked up in more or less scary and disproportionate ways. Now Mike Huckabee... says CPAC is way too reasonable for him. The Tea Party movement... is where the real soul of his party is.... Republicans, once the party of boring sobriety and solidness, are now the party of the kooky, the cracked, the unhinged. Republicans are not conservative in the least. Rather, they act out in the most deranged and dramatic ways.

The Democrats, being doggedly literal, in addition to scrupulously respectful about people’s mental health (a liberal issue), accept these barmy conservatives as having a bona fide, if objectionable, political view. Whereas, they might more effectively be arguing that the real issue isn’t taxes or big government or health care, but drugs, alcohol, loneliness, neglect, paranoia, grandiosity, obsessiveness, and so many other American creeds and conditions.

9) IF CLARK HOYT OF THE NEW YORK TIMES WERE NOT ALREADY STUPIDEST-MAN-ALIVE-FOR-LIFE, THIS MAN WOULD BE: University of Chicago Economics Professor Casey Mulligan, as observed by John Quiggin: Zombie economics gets a mulligan: or, how Obamacare caused the Global Financial Crisis:

I’m adding a little section to each of the chapters in my Zombie Economics book called “Reanimation”, about the attempts that are already under way to revive economic ideas killed (at least according to the standard rules of hypothesis refutation) by the global crisis. I wasn’t surprised to find plenty of examples for the efficient markets hypothesis (easy to render immune from any kind of refutation by an appropriate formulation) or for policy ideas that yield big benefits to the rich and powerful, such as privatisation and trickle-down economics. But I was surprised a little while ago to see the crisis described as a transitory blip in the continuing Great Moderation. Still that pales into insignificance compared to this piece by Casey Mulligan of Chicago (h/t commenter Daniel ), in which (I swear this is true!) the crisis is the result of financial markets correctly anticipating the adverse labour market impacts of possible legislation under Obama, such as a health plan that might include means tests....

There is one problem with Mulligan’s neat explanation. Writing in October 2008, when the crisis had already erupted and when Obama’s victory was virtually assured Mulligan had this to say about proposals for economic stimulus:

So, if you are not employed by the financial industry (94 percent of you are not), don’t worry. The current unemployment rate of 6.1 percent is not alarming, and we should reconsider whether it is worth it to spend $700 billion to bring it down to 5.9 percent.

This piece, which got the endorsement of his Chicago colleague, Freakonomist Steven Levitt, doesn’t even mention the possibility that a Democratic Congress might raise taxes, or that the health plan that was a central plank of candidate Obama’s platform might include means tests. Yet he now claims that these possibilities (still hypothetical as of 2010) caused a massive increase in unemployment, the anticipation of which caused the crash!

10) HOISTED FROM THE ARCHIVES: DeLong (March 10, 2007): Your One-Stop Shop for All Your 70th Anniversary Leftist Sectarian Polemic Blogging Needs:

In anticipation of the 70th anniversary of the bloody Stalinist suppression of the Partido Obrero de Unificación Marxista in the Barcelona May Days, we are--thanks to Jacob Levy--proud to bring you the latest in sectarian Marxist polemics blogging. First, we have Eric Hobsbawm declaring that George Orwell was a Traitor to Humanity by telling the truth about what he saw in Spain:

Eric Hobsbawm: Writers supported [the Republican cause in] Spain... Hemingway, Malraux, Bernanos and virtually all the notable contemporary young British poets - Auden, Spender, Day Lewis, MacNeice - did. Spain was the experience that was central to their lives between 1936 and 1939.... [P]olemics about the civil war [within the Left]... have never ceased since 1939. This was not so while the war was still continuing, although such incidents as the banning of the dissident Marxist Poum party and the murder of its leader Andrés Nin caused some international protest. Plainly a number of foreign volunteers... were shocked by... the behaviour of the Russians and much else.... And yet, during the war, the doubters remained silent... They did not want to give aid to the enemies of the great cause.... The exception proves the rule: George Orwell's Homage to Catalonia.... Orwell himself admitted after his return from Spain that "a number of people have said to me with varying degrees of frankness that one must not tell the truth about what is happening in Spain and the part played by the Communist Party because to do so would prejudice public opinion against the Spanish government and so aid Franco."... [P]olemics... are legitimate... only if we separate out debate on real issues from the parti pris of political sectarianism, cold-war propaganda and pure ignorance.... A serious war conducted by a government requires structure, discipline and a degree of centralisation. What characterises social revolutions like that of [Spain in] 1936 is local initiative, spontaneity, independence of, or even resistance to, higher authority.... In short, what was and remains at issue in these debates is what divided Marx and Bakunin. Polemics about the dissident Marxist Poum are irrelevant.... The conflict between libertarian enthusiasm and disciplined organisation... remains real.... Wars, however flexible the chains of command, cannot be fought, or war economies run, in a libertarian fashion. The Spanish civil war could not have been waged, let alone won, along Orwellian lines.... Moral revulsion against Stalinism and the behaviour of its agents in Spain is justified.... [Y]et... not central to the problem of the civil war. Marx would have had to confront Bakunin even if all on the republican side had been angels.... [A]mong those who fought for the republic as soldiers, most found Marx more relevant than Bakunin...

Second, we have a reply by Stephen Schwartz, whose affection for Eric Hobsbawm is far smaller than mine:

Eric Hobsbawm's Stalinist Homage to Catalonia | Eric Hobsbawm... political and pseudo-intellectual legacy of Stalinism... banal but repellent rehash... long-discredited clichés... fundamental lie of Stalinist propaganda, which holds that the Republicans would have won the war if they had submitted to dictation from Moscow.... Hobsbawm... contemptible exercise in pseudo-history... CNT militants in the uprising at Casas Viejas, a rural hamlet in Andalusia, in 1933.... Jerome Mintz... exposed Hobsbawm as a mendacious tourist.... “[H]is account is based primarily on a preconceived evolutionary model of political development rather than on data gathered in field research.” Mintz correctly states, “The model scales labor movements in accord with their progress toward mass parties and central authority... [Hobsbawm] explains how anarchosyndicalists were presumed to act rather than what actually took place... his evolutionary model misled him on virtually every point.”... In Spain today Mintz’s work, based on extensive and serious research and interviews, enjoys high esteem.... The Stalinist view of [George] Orwell put forward by... [Hobsbawm] dismisses Homage to Catalonia because it was turned down by a Soviet-lining publisher.... For Hobsbawm, Orwell is not only illegitimate because his book did not sell well, but because he was “an awkward, marginal figure.”... As to the POUM... Hobsbawm.. refers with something approaching disdain to “the murder of its leader Andrés Nin [having] caused some international protest.... Andreu Nin (1892-1937) was not simply... leader of an anti-Stalinist party.... To kill Nin was not the same as it would have been to murder, say, the American Trotskyist Max Shachtman, but would have been more like liquidating John Dos Passos....

Hobsbawm informs us “Wars, however flexible the chains of command, cannot be fought, or war economies run, in a libertarian fashion. The Spanish civil war could not have been waged, let alone won, along Orwellian lines.” Once again, the Stalin-nostalgia betrays his ignorance of Spanish reality.... [T]he militia units generally fought better than the militarized units.... [T]he Stalinist-controlled International Brigades and the militarized Republican soldiery with whom they were coordinated were known for incompetence in battle, desertion, and, in the case of many of the foreigners, their reassignment to special groups ordered by the Russians to kill leftist dissidents, since the Spanish would not carry out such duties.... The Spanish knew so many things that Hobsbawm will never know – and above all, they know that while Orwell’s methods might not have guaranteed the victory of the Spanish Republic, those of Stalin and his admirers assured its defeat.