Arnold Kling

Economists as Heretics

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Keynesians and Monetarists... Recession Dating...

In this essay, I argue that Congress treats economists the way the Inquisition treated heretics.


Why do the Inquisitors have it in for economists? Ultimately, politicians tell the people what we want to hear. They think that we want to hear that we are too feeble and victimized to cope with global competition. They think we want to hear that we are looking forward to years of dependency on government support for our health care and retirement needs.

On outsourcing, I write,

Each year, tens of millions of Americans change employers, tens of millions more change jobs within a company, and tens of millions more take courses in order to further their careers. Now, in an election year, politicians are claiming that:

  • it is possible to identify a slice of the labor force that would have stable jobs if it were not for recent shifts in international trade; and

  • bureaucrats in Washington can come up with a way to protect that segment of the work force, so that they do not have to adapt to a dynamic economy.

And the Inquisitors want to say that it is the economics profession that is not being realistic!

On entitlements, I write

Even if President Kerry or Edwards turned the rich people in the country upside down, emptying their pockets of all their financial assets, homes, cars, and everything else, that still could not cover the tab that Congress has run up on our behalf.

See also George Will's column, in which he writes,

According to Laurence J. Kotlikoff of Boston University, the present value of the gap between promised outlays and projected revenues is $51 trillion -- more than four times the nation's annual GDP. Today the household wealth of Americans -- the value of their houses, 401(k)s, cars, refrigerators, toasters, socks, everything -- is about $42 trillion.

See also this satirical story about Congress repealing economic laws.

For Discussion. Given that most of the long-term deficit is due to Medicare, has either political party come up with a credible solution?


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COMMENTS (16 to date)
Mcwop writes:

The simple answer is to the discussion point is no.

Secondarily, the Social Security Surplus is also a hazard. The government uses that surplus to hide the actual size of the deficit, and it allows Congress to more easily spend beyond their means on the general budget. As the SSI surplus begins to dry up, and the medicare drug benefit kicks in, the general budget is going to be in serious need of cash.

Mcwop writes:

I should expand on the discussion point. The answer is no, and the fact is that Congress has done the opposite by expanding Medicare with a drug benefit (and both sides of the aisle are responsible).

Boonton writes:
Secondarily, the Social Security Surplus is also a hazard. The government uses that surplus to hide the actual size of the deficit, and it allows Congress to more easily spend beyond their means on the general budget. As the SSI surplus begins to dry up, and the medicare drug benefit kicks in, the general budget is going to be in serious need of cash.

I agree the answer is no, however I wonder if mcwop has any actual evidence for this? No doubt the SSI surplus is used to make the actual deficit appear smaller, but is there any evidence the 'real' deficit would have been smaller if the SSI surplus had not been available?

Eric Krieg writes:

Is it me, or are the projected SS/ Medicare shortfalls simply all over the map? I have seen numbers from a low of 4.7 billion to a high of George Will's 51 billion.

What is the time frame? 51 billion over how many years?

Rob writes:

Question:

Do the 75 year forecasts of Medicare liabilities assume the sort of increases in productivity that have shrunk the agricultural sector and are shrinking the manufacturing sector? If not, aren't the long-term projections too pessimistic?

Mcwop writes:

Boonton writes:

No doubt the SSI surplus is used to make the actual deficit appear smaller, but is there any evidence the 'real' deficit would have been smaller if the SSI surplus had not been available?

No there is not, and I did not mean to imply it would be smaller. The only difference is that Congress would have to go to the market to borrow more, and this may force their hand at dealing with the problem. It simply puts things on the table.

Boonton writes:

Aye, but if we assume the market is at least mostly rational it shouldn't matter. The bond market should 'know' that the gov't may only be borrowing $300B in year X but they are incurring $200B in 'hidden' liabilities. The market should then adjust its interest rate accordingly.

The projections have been all over the map (BTW, they are in Trillions, not Billions of $). This is the nature of such things since you are summing together 40-75 years worth of predictions.

Boonton writes:

Also, mcwop, is the SSI surplus doesn't cause gov't spending to increase then it is undeniably positive. It would serve the function of either decreasing the gov't's borrowing or causing the gov't to pay off a portion of its debt today. That would ease the burden years from now of having to borrow again.

Mcwop writes:
Also, mcwop, is the SSI surplus doesn't cause gov't spending to increase then it is undeniably positive.

It certainly gives them a nice current cashflow to work with to the tune of $150+ billion, which is easy to spend. Anyhow, we will find out how it effects spending in 2014 when the SSI surplus starts to dissapear.

The bond market right now is not focused on the hidden liabilities, but what Greenspan is going to do and current supply of bonds issued.

Based on your posts it sounds as if you beleive the overall Federal budget is 'A' Ok.

steve hickox writes:

I know this isn't about this article and I know your comments make me think you are all very erudite in your economic thinking. But I need an answer. As I understand it World population will start dropping sometime this century. Let's assume per capita productivity continues to rise while population falls. Let's also assume that GDP falls; productivity gains are more than offset by population declines. The total economic pie shrinks although per capita consumption is rising. These seem like realistic assumptions to me. What will be the economic effect of such a scenario? Thank you.

Boonton writes:

I would imagine, on average, we would all get richer even though overall GDP growth of the world would be negative. That's a scenero where productivity grows slower than population falls. That may not pan out for the whole world, IMO, since underdeveloped countries can experience massive productivity gains if they were able to get on the right track.

Boonton writes:
It certainly gives them a nice current cashflow to work with to the tune of $150+ billion, which is easy to spend. Anyhow, we will find out how it effects spending in 2014 when the SSI surplus starts to dissapear.

Perhaps but then Congress doesn't have to work with cashflow. The Treasury Dept. will borrow whatever isn't raised via taxes. The bulk of spending is on automatic pilot. My pet theory is that spending is unrelated to taxes. It's probably more related to the underlying economy with a weak economy causing more gov't spending.

How can this happen? IMO a weak economy generates the excuse for more spending...the 'emergancy'. During the Clinton years, the economy was strong and money was flowing into the Treasury Dept. But there was no 'emergancy' so spending did not increase to any serious degree because the gov't stalemated. They couldn't agree on where to spend the money so the default was to just let it accumulate in Treasury & reduce the national debt.

9/11 & the slowdown created the perfect storm of fiscal irresponsibility. You have two 'emergancies' that were used to justify massive tax cuts and spending increases. The SSI surplus, IMO, has little to do with it. In that case the SSI surplus is real because it does caust gov't borrowing to be lower today than what it otherwise would have been. Hence it is useful in ensuring SSI's viability past 2014. By not borrowing $100B today, the gov't can more easily borrow $100B tomorrow (even more with interest).

Based on your posts it sounds as if you beleive the overall Federal budget is 'A' Ok.

On the contrary, we've locked in long run fiscal diaster while blowing a shot at long run fiscal sanity. Bush's attitude appears to be like a dieter who realizes the slice of cake has blown the diet so he might as well eat the whole thing.

Scott M. Harris writes:

About the only line I can quote from Shakespeare is the following:

Men at some time are masters of their fates: The fault, dear Brutus, is not in our stars, But in ourselves that we are underlings.

Can anyone imagine politicians going after physicists this way? What are economists doing, or not doing, that allows politicians to attack them this way? What are economists doing wrong?

If, as Friedman would have it, economics is positive science, Greg Mankiw was wrong to make his clearly normative statement about outsourcing. On the other hand, if economics is more than what Friedman would have it, economists have done a truly miserable job at educating (indoctrinating?) the public. (Politicians would not attack the economics profession if economic science were held in high esteem by the public.)

As for economics being an objective science, how can Neoclassical economics, which is founded on Carl Menger’s subjective theory of consumption, claim to be objective? How can a discipline founded on preferences (and expectations?) be value free? Is the sole criterion for objectivity the ability to predict better than other theories predict?

Scott M. Harris writes:

Is economic science the study of how we choose to allocate scarce resources among competing ends or is it the study of how we discover, test, and apply knowledge useful in living good lives? More to the point, does economic science concern self-interest or enlightened self-interest?

Lawrance George Lux writes:

Politicians berate Economists because the latter prove the former's behavior is statistically unviable and impossible. Take the current Bush stimulus package of Tax Cuts and heavy National Security spending: it simply pays major Corporate sponsors, and shows little impact on the economy. Mark Shields correctly pointed out tonight on CNN that the Economy is still losing Jobs, as the 21000 Jobs gained were mainly in the Public Sector. Current statistical data has again scaled down 2003 growth estimates.

A sane individual, Economist or not, understands We must continue to deal with Economic policy throughout the future, without the huge Government spending of today as stimulus. The Governments of tomorrow cannot spend even half of current Government expenditures, and Tax revenues must increase dramatically. This is fact, and cannot be undone by claims of productivity increases which are mainly illusionary. lgl

Scott M. Harris writes:
The Governments of tomorrow cannot spend even half of current Government expenditures, and Tax revenues must increase dramatically.

I'm not convinced that either the debt or budget deficit figures today, as a percentage of GNP, are all that out of line with post WWII experience. As a classical liberal progressive, someone who is classically liberal in means and progressive (ever more inclusive) in ends, I abhor Bush’s compassionate conservatism. In Toffler terms, compassionate conservatism is “second wave” thinking. It is seeks to maintain the current state-of-the-world as opposed to conserving the classical liberal progressive process that made this country great. The mantra of compassionate conservatism has covered the worst sort of political expediency, e.g., support for the opponents of deregulation at the FCC and support for antidumping tariffs in the steel industry. On the other hand, Bush has been very clever in buying long term structural change in education (standards) and health care (universal medical savings accounts) by agreeing to fund second wave Democrat programs. It is a mixed record. FWIW, I much prefer brother Jeb, who would probably be President today had Chiles not stolen the 1994 Florida gubernatorial election. Jeb is much more straightforward than his brother. In 1998, he put his political career on the line by making his first act as governor the Bush Brogan A+ program, which was the first statewide school choice program in the nation. Many political advisors warned him that if he lost Bush Brogan, he was toast. Nevertheless, he took proceeded. Recent academic studies have shown that the Bush Brogan program has succeeded in scaring the worst public schools into reforming themselves.

I digress. The politicians attack on free trade are based on the prevailing concept of “social justice.” Hayek called “social” a “weasel word” that sucked the meaning out of the word it preceded much like the way a weasel sucks the yolk out of an egg.

Moral philosopher John Rawls provides a means of judging theories about how we ought (owe it to ourselves) to live. Rawls asks us to imagine what theories we would choose if we were ignorant of the circumstances of our birth. For this imagined original position of ignorance to produce a complete theory of justice, we must consider what rules we would want to guide intelligent life if we were completely ignorant of the circumstances of our birth, which includes ignorance of what species we will be and into what era we will be born. Under these conditions we would want intelligent beings to satisfy their needs efficiently as this minimizes killing and suffering. We would also want intelligent beings to devote themselves to helping other life survive and thrive (with preference given to other intelligent life). In short, we would want intelligent life to pursue Schweitzer’s normative end of reverence for life.

When you hear “social justice” think “tribal justice.” “Social justice” is unjust to our future selves, members of other societies, future generations, and other species. It hinders increasing excellence in means, the substitution of an inexhaustible resource, useful knowledge, for non-knowledge resources. It is Luddite.

Again, does economics concern self-interest or enlightened self-interest? If the latter, economists must come to terms with the inexhaustibility of knowledge, the fact that using knowledge does not deplete it. They must change their concept of excellence in means from the 130 year old marginalist concept of efficiency to the managerial combination of efficiency and effectiveness. They must consider ultimate ends.

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