Economics as a Professional Vocation: Bulls--- Detection as a Student Learning Goal
Hoisted from the Archives: Economics as a Professional Vocation: The very sharp Binyamin Applebaum had an interesting rant....
Binyamin Applebaum: @BCAPPELBAUM ON TWITTER: "I am not sure there is a defensible case for the discipline of macroeconomics if they can’t at least agree on the ground rules for evaluating tax policy. What does it mean to produce the signatures of 100 economists in favor of a given proposition when another 100 will sign their names to the opposite statement? How does Harvard, for example, justify granting tenure to people who purport to work in the same discipline and publicly condemn each other as charlatans? How are ordinary people, let alone members of Congress, supposed to figure out which tenured professors are the serious economists?...
I would say, first, that journalists (and others) are supposed to use their eyes and their brains. They can take a look at the Nine Unprofessional Republican Economists who placed their letter in the Wall Street Journal... [on a] Saturday containing:
A conventional approach to economic modeling suggests that such an increase in the capital stock would raise the level of GDP in the long run by just over 4%. If achieved over a decade, the associated increase in the annual rate of GDP growth would be about 0.4% per year...
And note that by [the next] Wednesday they were saying:
Our letter addresses the impact of corporate tax reform on GDP; we did not offer claims about the speed of adjustment to a long-run result...
That degree of—four days later—"who are you going to believe: us or your lying eyes?" is a definite tell. Similarly, they can take a look at the Hundred Unprofessional Republican Economists who placed their letter in Business Insider...
One thing Binyamin could do is to not play "he said/she said" a la: "What does it mean to produce the signatures of 100 economists in favor of a given proposition when another 100 will sign their names to the opposite statement?" when he could be doing some of the heavy lifting of intellectual garbage collection and bulls--- detection.
One thing we in the academy can do is to explicitly make bulls--- deduction an explicit student learning goal. For example:
We ask students to do practice problems using the Solow growth model on paper, and then to reproduce the analysis and draw the graphs on the exam. But the problem is that after the final exam students are very unlikely to ever be asked to do anything similar again. If Intermediate Macroeconomics is to be useful—if its learning goals are to be worth anything—it is because it will put in the back of your brain stuff so that when they in the future read things like:
[Such a tax cut would be likely to] increase... the capital stock... raise the level of GDP in the long run by just over 4%. If achieved over a decade, the associated increase in the annual rate of GDP growth would be about 0.4% per year.... [In] the House and Senate bills... the increase in capital accumulation would be less, and the gain in the long-run level of GDP would be just over 3%, or 0.3% per year for a decade...
by the four Stanford professors and the five other economists http://delong.typepad.com/2017-11-26-nine-unprofessional-republican-economists.pdf, they will rapidly think:
Wait a minute! They say this policy change enriches America by increasing investment and making the economy more capital intensive. But policies that work by raising the capital-output ratio do not have anything like their full effect in a decade! Let me dig out my notes... halving the gap to the BGP K/Y ratio takes 0.72/[(1-α)(n+g+δ)] years—call it 20 years. So the first ten years are not the whole effect but rather a bit more than a quarter of it...
And the hard question—the one that I have no belief I have solved—is: what kind of exam will induce what kind of learning that will make Intermediate Macroeconomics a useful part of students' intellectual panoplies in the future? Suggestions and advice more than welcome...
Estimating the Long Run Growth Effects of Tax Cuts: An Example: Does this belong in the next edition of Martha Olney's and my Macroeconomics textbook?...
Box 4.4.7: Speed of Convergence and Estimating the Effects of Policy Changes: An Alternative: It is worth noting an alternative calculation of the likely effects of the Trump administration's economic policies, carried out by four Stanford economists and five others.
Even more alarming than the reversal-of-sign of the effect, is the estimate of the growth rate: a jump of + 0.3 percentage points per year. It comes from the nine economists' observation that:
increase... [would] raise the level of GDP in the long run by just over 4%. If achieved over a decade, the associated increase in the annual rate of GDP growth would be about 0.4% per year.... [In] the House and Senate bills... the increase in capital accumulation would be less, and the gain in the long-run level of GDP would be just over 3%, or 0.3% per year for a decade...
But the nine economists know just as well as you do that only 28 percent of the total gain accrues in the first decades, not all of it.
When challenged by former U.S. Treasury Secretary Lawrence Summers and former Council of Economic Advisers Chair Jason Furman https://www.washingtonpost.com/news/wonk/wp/2017/11/28/lawrence-summers-dear-colleagues-please-explain-your-letter-to-steven-mnuchin/?utm_term=.9d690352f4b3:
Since you are explicitly talking about 10-year growth rates in your letter, would it not be better to... show that the effect in the 10th year is less than one-third of the long-run effect, translating into an annual growth rate of less than 0.1 percentage point?...
The nine economists denied that they had made claims about the speed of adjustment to the post policy change balanced growth path and so offered a prediction that real GDP growth would be boosted by not 0.1% (or -0.1%) but rather 0.3% points per year over the next decade https://www.washingtonpost.com/news/wonk/wp/2017/11/29/economists-respond-to-summers-furman-over-mnuchin-letter/?utm_term=.8d4d8991717a:
First point you raised: Our letter addresses the impact of corporate tax reform on GDP; we did not offer claims about the speed of adjustment to a long-run result...
We believe that Stanford (and Harvard, and Columbia, and Princeton, and the American Action Forum, and the Lindsey Group) have a serious problem here...
