Paul Ryan is a Republican United States Congressman representing Wisconsin’s 1st congressional district. Over the past two years, he has become a leading voice among the Republicans on the subject of fiscal policy (government taxation and spending). Yesterday, superblogger Andrew Sullivan echoed economist Paul Krugman by accusing Ryan of being a fraud, writing:
I have to say that Paul Krugman made a very strong case that the young GOPer is still drinking supply-side Kool-Aid.
…I remain pretty much persuaded by Krugman’s broad critique, however. Cutting taxes at this point in American history, in the face of this much debt, strikes me as loony.
From my vantage point, it is Sullivan who is drinking Krugman’s hyper-partisan left-wing Kool-Aid. I understand that Sullivan is angry about Republicans who propose tax cuts without recognizing the need for substantial spending cuts and tax increases to put America’s fiscal house in order (and on that account I agree with him). But that’s not what Ryan is doing. Ryan developed his plan for across-the-board reductions in government spending as a way to ease the US debt burden without having to employ extremely high tax rates. Ryan further contends that we can climb out from under the debt through economic growth if we stimulate the economy with carefully-targeted tax cuts. There is a legitimate debate to be had about whether we could bolster economic growth and help claw our way out of the current recession with tax cuts, just as there is a continuing debate about the need for additional stimulus in the form of increased government expenditures (some in the form of aid to the states, which Congress is considering this week). While I am probably closer to Sullivan than to Ryan on the subject of whether or not we need tax cuts right now, it inefficient, ignorant, and just plain rude to label anyone who favors tax cuts as “loony”–we are, after all, still reeling from the effects of one of the largest recessions in history. It may be silly to think that we can tax-cut our way out of a recession, but from the standpoint of economic theory it’s no sillier than thinking we can government-spend our way out of a recession, which has been the policy of the Obama Administration and the Democrat-controlled Congress for the past two years.
Furthermore, Paul Krugman’s attacks on Ryan are at least somewhat spurious. Krugman alleges that Ryan was being disingenuous by having the Congressional Budget Office (CBO) only score the part of Ryan’s “Roadmap” involving spending cuts, while ignoring Ryan’s proposed tax cuts, which would understandably eat away at much of the savings that Ryan’s spending reductions would create. The only problem with this line of attack is that the CBO doesn’t, as part of its operations, score tax cuts. As Megan McArdle, the business and economics editor for the Atlantic, points out in an excellent blog post entitled “Krugman is Wrong on Ryan and the CBO”, scoring tax cuts is the responsibility of the Joint Committee on Taxation (JCT). And Ryan did ask the JCT to score his tax cut proposals, although the JCT turned him down–possibly due to its heavy workload scoring the tax provisions of healthcare reform.
As an aside, I should say that I agree with a few of Krugman’s criticisms of Ryan’s plan, notably that Ryan fails to specify precisely what programs he would cut to achieve some of his spending reductions, and that other spending reductions rely on cuts in politically-sensitive Medicare, which are unlikely to ever be enacted.
The Ryan plan is a fraud that makes no useful contribution to the debate over America’s fiscal future.
This, of course, is just partisan vitriol. Ryan’s plan makes several useful contributions to the debate, even if it is not the most realistic or workable plan that has ever been proposed. Paul Ryan may not be the fiscal prophet that some on the right wish him to be, but he certainly doesn’t fit Paul Krugman’s caricature of a scammer, charlatan, or “flimflam man”.
In a week relatively devoid of memorable quips (post a counterexample in the comments if you think I’m wrong), this week’s Remark of the Week goes to George Loewenstein and Peter Ubel, writing in the New York Times:
As policymakers use it to devise programs, it’s becoming clear that behavioral economics is being asked to solve problems it wasn’t meant to address. Indeed, it seems in some cases that behavioral economics is being used as a political expedient, allowing policymakers to avoid painful but more effective solutions rooted in traditional economics.
The op-ed is filled with interesting (if perhaps overstated) examples, so read the whole thing.
Ultimately, changing relative prices is much more likely to meaningfully impact behavior deemed socially undesirable. So, making healthier foods cheaper is much more important than labeling unhealthy food.
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Loewenstein and Ubel’s op-ed is mostly aimed at warning people that behavioral solutions are no panacea.…Yet, it strikes me that if they are right, their argument is really quite damning for the behavioral economics revolution. Essentially, they assert that traditional economic analysis has ultimately much more relevance for the analysis of major social problems and for finding solutions to them. Behavioral economics can complement this but cannot be a viable alternative. Within political science and other social sciences the insights of behavioral economics are sometimes interpreted as undermining the very foundations of classical economic analysis and warranting an entirely different approach to social problems. At the very least, the op-ed is a useful reminder that careful scrutiny of effect sizes matters greatly.
Although Loewenstein and Ubel may not have intended it as such, their op-ed provides even more evidence that mainstream economics offers useful and robust solutions to many pressing policy issues, and that challengers such as behavioral economics serve up “corrections” to the mainstream models that are limited in practical use. While there are some insights to be gathered from behavioral economics (especially when combined with experimental methods, such as John List‘s tests of prospect theory), as a movement it is unlikely to do much to revolutionize economics because it does not posit critiques of mainstream methods that are both novel and useful, especially concerning policy applications.
We have now just enshrined, as soon as I sign this bill, the core principle that everybody should have some basic security when it comes to their health care.
Reuters has a good fact sheet on the provisions of the health care bill. Even more interesting are the predictions made by some of the leading lights of the economics blogosphere.
Bryan Caplan predicts that the health reform package will essentially not work, as families and firms game the system.
In contrast, Tyler Cowen predicts that the law, while working, will lead to a series of unintended consequences.
Discussing the money pledged at the Copenhagen climate change summit last month, Gates wrote,
“I am concerned that some of this money will come from reducing other categories of foreign aid, especially health…If just 1 percent of the $100 billion goal came from vaccine funding, then 700,000 more children could die from preventable diseases.”
Also,
Taking the focus away from health aid could be bad for the environment in the long run, said Gates, “because improvements in health, including voluntary family planning, lead people to have smaller families, which in turn reduces the strain on the environment.”
We were talking with the salesman (from whom we have bought every cellphone we’ve ever owned) about the pricing of Blackberrys and he pointed out that Jody’s Storm was half the price of my Tour, even though the Storm is the fancier model with a touch screen and the whole iPhone feel to it. He said “it might seem strange that the newer, fancier phone is cheaper” but before he could say anything, I quickly said “well I’m sure the Tour is in demand from business users who don’t want to learn the touch screen and want the latest of the more ‘traditional’ BB, while the Storm is for people like Jody who might get an iPhone or Droid instead.” He said “yup.”
I quickly replied: “it’s just like staying over a Saturday night for plane tickets – segmenting your market by price elasticity.” He gave me that sad, shake of the head that economists often get from people when we go geek.
Sounds like a great deal then? Not so fast, says leading macroeconomist Greg Mankiw. Mankiw and Jim Capretta note that the Baucus plan structures subsidies to purchase insurance in such a way as to impose an effective tax on middle-income families. Under the Baucus plan, all individuals without health insurance would be required to purchase health insurance or pay a fine. The subsidies are designed to alleviate the financial strain of this requirement on the poor, but the subsidies phase out as family income increases. This creates a marginal tax on income, which Capretta calculates could reach 30% for families with incomes equal to twice the poverty line. Add that to existing income taxes, and the result is a strong disincentive towards higher income-earning for middle-class workers.
Do the benefits of covering millions of uninsured Americans at a reasonable price outweigh the costs of imposing a large tax burden on middle-income families? Decide for yourself, but let’s hope that the members of the Senate are being so measured in their deliberations.
1. Greg Mankiw points to a CBO report regarding the impact on the deficit of the healthcare reform bill currently working its way through the House of Representatives.
Scott Adams, cartoonist and humorist best known as the creator of Dilbert, commissioned a survey of economists’ attitudes on current US political issues. The results came in just before the election (also see this CNN piece about the survey and Tyler Cowen’s quick summary and comment), and they don’t surprise me, but I am more interested in Adams’ continued small revelations about what he really believes (as opposed to irony or devil’s advocacy, tools he uses frequently). Here’s his personal view, also written shortly before the election:
I should pause here and confess my personal biases, since the messenger is part of the story. On social issues, I lean Libertarian, minus the crazy stuff.
Moneywise, I can’t support a candidate who promises to tax the bejeezus out of my bracket, give the windfall to a bunch of clowns with a 14 percent approval rating (Congress), and hope they spend it wisely.
Unfortunately, the alternative to the guy who promises to pillage my wallet is a lukewarm cadaver. I’m in trouble either way.
I wonder if Adams is pleased with the outcome of the election…
Cowen’s comment illustrates why, although I am somewhat skeptical of many claims associated with anthropogenic climate change and very skeptical of the specific predictions of most climate modelers, I favor moderate but immediate action to reduce carbon emissions and to prepare fail-safe measures for climate-related natural disasters. Provided, of course, that we can listen to economists as well as climate scientists and design policies with cost-benefit analysis in mind. On this subject, see William Nordhaus’ excellent book A Question of Balance: Weighing the Options on Global Warmingand Freeman Dyson’s comments in his essay/review of that book.
Happy Labor Day to all my readers, and on this US holiday the thoughts and prayers of myself and my relatives go out to the residents of the Gulf Coast who have been separated from their homes, friends, and families by the hurricane-related evacuation.
Obama is an historic opportunity for the Dems of FDR proportions, a chance to remake the political landscape for a generation or more. And people like Krugman and his proxy Hillary, who want only political war, narrow short term score settling, are the alternative. If the Dems don’t nominate Obama, and go for Hillary…they will have shown themselves to be as corrupt, opportunistic, hypocritical, and small minded as the Republicans.
I say this as a life long Democrat who in 40 years of voting has only voted once for a Republican (who was running against Phil Gramm for congress)… [emphasis added]
[In contrast to Krugman, Gintis] is however, an insightful and fair-minded thinker who has repeatedly demonstrated that he doesn’t care about developing good rhetorical points for political debates, but rather about studying social problems such as poverty and poor schooling so that these problems can actually be ameliorated.
“And when rational individuals face a miserable set of choices…they cannot do better than pick the best of a bad lot. We will not solve social problems if we pretend that they are caused only–or mostly–by the mad, the stupid, and the morally degenerate. But nor should we shrug our shoulders and declare that all is for the best in the best of all possible worlds. I hope that this book will show that although people tend to make smart choices, it is possible to offer them better ones.”
Tim Hartford, from his insightful and engaging new book The Logic of Life: The Rational Economics of an Irrational World. Hartford, a Financial Times columnist and editor and formerly an economist for the World Bank and Royal Dutch/Shell, draws on recent and important research from economics, psychology, sociology, and history to explain the social-scientific logic behind problems ranging from gambling and annoying coworkers to racism and political instability. As they say, read the whole thing.
At Marginal Revolution, Tyler Cowen is hosting an online book forum about The Logic of Life. Cowen gave the book as favorable review, as did Nobel Prize winners Gary Becker and Tom Schelling.
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Note: posting will continue to be light due to a combination of a heavy workload and some ill health the past two weeks that put me behind on said work (don’t worry, it’s not anywhere near as bad as the bizarre and debilitating intestinal infection I had a year ago). There may be a few more short or pre-written pieces like this, but mostly I’ll be busy. Have a nice week everyone!
Many people are holding out the hope that the government can somehow substitute for the pharmas, bolstered by the ludicrous claim that the government really discovers all the drugs. This is arrant nonsense; government-funded research discovers targets that might someday turn into drugs, if the Big Pharma chemists can: find a molecule synthesis can be economically mass produced; keep the molecule from killing rats, mice, dogs, or humans; get the molecule into a form that does not have to be directly injected into the bloodstream; tweak the molecule so that the liver doesn’t immediately chew it into pieces that no longer affect your target; and shepherd the entire thing through years of clinical trials. That’s just off the top of my head; research chemists will undoubtedly have more.
Weekly claims for unemployment benefits have fallen dramatically. Some analysts believe that this does not provide useful information, as the holiday season distorts the number of unemployment applicants. However, the jobless claim figures have historically tracked overall unemployment very well, despite the seasonal sampling problems. Developments in employment/unemployment numbers are being followed closely, as total US unemployment rose to the (historically low but recently high) rate of 5% after last month.
By the way, I think the answer to the title questions is “yes”. In my mind, there is a better than 50% chance that the United States will not experience a recession in 2008, and will at worst experience a mild recession some time over the next 3 years. I won’t go so far as to predict “no recession”, especially because I’m not sure how the economy will actually respond to the Fed’s new stimulus. (Recall that Tyler Cowen once wrote, “All propositions about real interest rates are wrong”.)
Let’s say that the government subsidized the price of bananas, you bought so many bananas, put them on your roof, and then the roof collapsed. Is that government failure or market failure?
John McCain confirmed today that he still holds the position that made many (including myself) pay close attention in the Republican Presidential Primary eight years ago: opposition to US federal farm subsidies.
During an interview on Fox News Sunday, Chris Wallace asked about McCain’s low poll numbers in Iowa. Senator McCain admitted difficulties in that state, explaining his poor appeal,
I don’t support ethanol subsidies. I don’t support farm subsidies; I think they should be phased out.”
It’s good to know that McCain hasn’t abandoned one of his signature issues despite its unpopularity. It’s even better that one of the major candidates (other than long-shot Ron Paul) accepts the basic economic fact that farm subsidies enrich agribusiness and other non-poor farmers, harm citizens through higher taxes and higher food prices, and cripple farmers in poor countries who would could earn a living by selling agricultural products for the US market if they could compete fairly.
Here is more from that same interview, mainly about McCain’s response to an attack mailing by Mitt Romney:
People strike back at what they perceive to be injustices. Having a lot of money is not an injustice. To repeat an idea from my review: people hated the Robber Barons because they were robbers and barons, not because they were rich. The labor movement was strong when it was perceived that firms were making superprofits that could be more equitably shared with the workers. Gender inequality and racial discrimination are opposed because they are unfair, not because they lead to an unequal division of wealth.
–Professor Emeritus of Economics at the University of Massachusetts Herbert Gintis, regarding his (negative) review of Paul Krugman’s The Conscience of a Liberal, and his view that American “liberals” are unproductively obsessed with the concept of economic inequality.
Unfamiliar observers should note that Gintis is about as far to the “left” politically as it is possible to be in the US without being a full-fledged Marxist (he would probably consider himself a Marxian-inspired heterodox economist). He is however, an insightful and fair-minded thinker who has repeatedly demonstrated that he doesn’t care about developing good rhetorical points for political debates, but rather about studying social problems such as poverty and poor schooling so that these problems can actually be ameliorated.
Here are some thoughts from The Economist‘s Free Exchange Blog about strikes and negotiation.
While you’re waiting for your favorite TV shows or plays to resume (or if you’re stuck in traffic in Paris and have an iPhone or laptop), please enjoy this video of Billy Joel and his band performing the song “Allentown” in 1998 (before he started to lose his voice).
Political junkies may remember Mankiw as the economic adviser to President George W. Bush who made some politically incorrect (but economically justified) statements about outsourcing. Economics and public policy junkies may remember him for his contributions to modern growth theory and his cameos in the recent popular-scientific-history book Knowledge and the Wealth of Nations.A year-old ranking calculated that “Mankiw, Romer, & Weil” (as the paper linked above is known) is the 65th most-cited peer-reviewed article in contemporary economics.
Now if only I could figure out why he agreed to be an economics adviser to Mitt Romney…
On the somewhat ominous date of the 5th of November, George W. Bush will award the Medal of Freedom to Becker, retired Republican Congressional leader Henry Hyde, Cuban dissident Oscar Elias Biscet, Human Genome Project director Francis Collins, C-SPAN founder Brian Lamb, President of Liberia Ellen Johnson Sirleaf, civil rights leader Benjamin Hooks, and To Kill a Mockingbird author Harper Lee.
Becker is one of the most-cited living economists, and he teaches the (in)famous University of Chicago graduate Price Theory class, (which he took over upon the retirement of his Ph.D. adviser and colleague Milton Friedman). Over his prolific career, Becker was responsible (virtually singlehandedly) for creating four new subfields of his discipline: the economics of discrimination, the economics of human capital, the economics of marriage and families, and the economics of crime. It is often said that more dissertation topics have been inspired by Becker’s footnotes than from the main text of any other economist, barring the founders such as Marshall, Keynes, and Samuelson.
Becker currently teaches graduate economics courses at the University of Chicago, while working part-time as a Senior Fellow for the Hoover Institution at Stanford. He also writes weekly point-counterpoint essays with law professor and US 7th Circuit Appellate Judge Richard Posner, posted on the Becker-Posner Blog.
UPDATE: Here is Becker receiving the medal from President Bush (photo by Eric Draper from www.whitehouse.gov)
Myerson is the Glen A. Lloyd Distinguished Service Professor and Director of Graduate Studies at the University of Chicago Department of Economics. He is one of the most cited theoretical microeconomists of his generation, and it is impossible to research the subfields of game theory, auction theory, social choice, or mechanism design without tripping over what seems like scores of important articles and results written by Myerson.
The University of Chicago community is very happy for Professor Myerson, and will probably hold a celebration honoring him in the near future. Myerson becomes the sixth and youngest (at 56 years old) Economics Nobel winner on the faculty of the University of Chicago, joining James Heckman, Robert Lucas, Robert Fogel, Gary Becker, and Ronald Coase.
