David R. Henderson  

What is Ray Lopez Missing?

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Lawson's Economic Freedom Bet... On Greece...

Regular Econlog commenter Ray Lopez writes, in response to Scott Sumner:

My first objection: aside from the "Open Letter" by the liberal leaning economists, that indeed predicted a 'double-dip recession' if sequestration happened, who else predicted a recession? Not the CBO (which uses a Keynesian model to forecast). Not Krugman (who merely thought the USA might follow the trajectory of the UK). Then who? What am I missing?

I think he's missing who is on the list of 350 economists who signed the open letter. Here are 6 prominent ones, alphabetically:
Dean Baker
Jared Bernstein
Lawrence Mishel
Peter Temin
Robin Wells
Justin Wolfers.

Like commenter Tracy W, I find that Ray Lopez's comment reminds me of the great scene in the movie The Life of Brian.


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COMMENTS (11 to date)
Cyril Morong writes:

the economist link is not working

Cyril Morong writes:

I meant the

list of 350 economists who signed the open letter.

David R. Henderson writes:

@Cyril Morong,
Thanks. It’s fixed.

Yaakov writes:

The argument is quite weak, since people who are listed as signing such letters often do not endorse what is stated in them. Take the Manifesto_of_the_Ninety-Three as an example. The signers were requested to endorse the manifesto urgently without requesting to see the text. It is therefore very possible that some or most of the signers of the open letter were asked to agree to a call to oppose the sequester, without seeing the text or did not give much thought about the text. If important, you would have to bring prominent economists who actually stated the warning in their words.

Kevin Erdmann writes:

From the letter:

At the end of the year, we face a congressionally-created "fiscal cliff," with automatic "sequestration" spending cuts everyone agrees should be stopped to prevent a double-dip recession. That threat has led to backroom negotiations, backed by a multimillion dollar public relations campaign, toward a "grand bargain" that would maintain tax give-aways for the rich; cut Social Security, Medicare, and Medicaid; and impose new, job-killing spending cuts.

So much recent discourse reminds me of the apparitions of the residents of Salem. I just can't fathom how people who call themselves economists could sign on to the idea that the rich are a powerful cabal, planning in secrecy, whose main source of income is tax cuts funded by benefit cuts and public policy designed to reduce employment.

Andrew_FL writes:

@Yaakov-So if I'm reading the defense you've offered right: they didn't really predict a double dip recession, they merely irresponsibly signed on to something they hadn't read.

You'd think economists would know not to do that!

Ray Lopez writes:

Hey my 15 seconds of fame on the internet!

Of the five economists listed by Henderson, I've heard of Temin (read his book on AT&T and I see from his other works he's mainly a historian of economics, like Peter Bernstein was, and that's great but he's not a theorist). The others I've heard mentioned but can't say who they are, but I see Wells is Krugman's Other (guilt by association?) and Justin Wolfers is an up-and-coming whippersnapper.

But in my defense (from the comments section of Sumner's post), I have (if you assume the internet name matches the real world name): Daniel P. Kuehn - https://danielpkuehn.wordpress.com/about/ - Daniel Kuehn is a doctoral candidate in American University’s Department of Economics

Like Walter White: I WIN.

Rich Berger writes:

[Comment removed for rudeness and irrelevance. Email the webmaster@econlib.org to request restoring your comment privileges. A valid email address is required to post comments on EconLog and EconTalk.--Econlib Ed.]

ThomasH writes:

I did not find a prediction of recession in response to the sequester in the letter. I did find an argument that the deficits that result from recession are not a good reason to decrease Federal (and neither ought decrease state and local) expenditures. Does Henderson disagree with that argument?

There are lots of good reasons to oppose many specific kinds of government expenditures (including tax expenditures) -- military spending, farm subsidies, special treatment of certain kinds of business income -- and many good reason to favor others -- research, EITC. Different people will have different views of what falls in each category (Medicaid? food stamps? education?) and whether on balance taxes and expenditures ought to be higher or lower.

What a recession does (because the Fed will have lowered real interest rates on government borrowing) is, given one's analysis of costs and benefits, increase expenditures on things with present costs and future benefits, which will increase deficits as defined to include investment spending.

As a second order effect, if the Fed is politically constrained in how much monetary stimulus it can engage in -- not a bad assumption, in my view, about the Fed in 208-2014 -- there might be an argument for "fiscal" policy that goes a bit beyond the deficit spending that would result from straight discounting of costs and benefits.

But in no case are deficits during a recession a good reason to reduce expenditures per se and that was the correct central point of the letter.

It is a shame that there was not a second letter arguing for looser constraints on the Fed or even better a firm commitment to NGDPL targeting, but that does not invalidate the point of the first letter.

David R. Henderson writes:

@ThomasH,
I did not find a prediction of recession in response to the sequester in the letter.

I did.
Here’s a sentence from the 7th paragraph:
At the end of the year, we face a congressionally-created "fiscal cliff," with automatic "sequestration" spending cuts everyone agrees should be stopped to prevent a double-dip recession.

Andrew_FL writes:

@ThomasH-

I did find an argument that the deficits that result from recession are not a good reason to decrease Federal (and neither ought decrease state and local) expenditures.

You found an argument that addressed something that had nothing to do with the reality of the fiscal situation in the US?

Deficits did not result from the recession: we were running deficits before the recession. The recession did not cause expenditures to spike: the amount of spending is always something Congress can change. Yes including so-called mandatory spending. To the extent that spending "automatically" increases in recession, the cause is Congress leaving spending on auto pilot. But there were plenty of discretionary spending increases of choice. The most that can really be said is that the recession made the deficits that already existed, and would have existed with the same spending level, worse than they would have been as a result of reduced revenue. Actually, one could say, deficits were worsened by proportional/super-proportional taxation. Because Congress also has the power to change the tax code at any time.

Deficits are a choice. Often a passive choice, but always a choice none the less. They aren't just endogenously "caused" by factors outside of Congress's control.

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