Using macroeconomic truths undeniably
How people use economic terms mainly as a political stance comes in all levels of expertise and income levels. And how to combine advocacy and justice, whether from the Koch brothers or Walmart and McDonald’s workers, is often blurred and has only soft edges based on personal context and daily exposure to whatever one thinks is just.
Via Noah Opinion:
Bryan Caplan has a great description of how most people think of macroeconomic issues in starkly political terms:
If you had to classify everyone with a position on the subject, you’d end up with a Pyramid of Macroeconomic Insight and Virtue that looks something like this:
Tier 1…Partisans…who loudly support…”their side”…See all the Democrats who supported Clinton’s austerity, and all the Republicans who supported Bush II’s profligacy.
Tier 2…Ideologues who are sure that “active government policy” will work well/poorly, even though they can’t even explain …
Tier 3…People who can parrot some basic textbook macroeconomics to support “their side,” but who can’t answer basic objections – or even accurately parrot the parts of the textbook that conflict with their views.
Tier 4…People who understand a few Undeniable Macroeconomic Truths. For Keynesians, these include: “Nominal wages are sticky,” “A lot of unemployment is involuntary,” and “Aggregate Demand matters.” For anti-Keynesians, these include: “The safety net discourages job search and sustains unrealistic worker expectations,” “99 weeks of unemployment insurance makes nominal wages stickier,” and “Regular government spending is wasteful, and stimulus spending is worse.”…
Tier 5…People who freely acknowledge the whole list of Undeniable Macroeconomic Truths[.]
I really like the first three tiers of the pyramid. It’s an accurate description of how most people in the world think about macroeconomic issues. We’re used to thinking in terms of “sides”, of morals and tribes instead of technocratic efficiency. Even Caplan doesn’t really question that the divide is all about redistribution, government intervention, social safety nets, rather than about technocratic questions of how to smooth out the business cycle.
Oh I commented over there. I will bring my comment here. I think that Caplan felt the need to find 3 right of center “truths” to Ballance the three left of center truths. My post immediately above notes the evidence against his first “anti-Keynesian” truth and, Like Noah, I note that his third Anti-Keynesian truth is either tautological (if wasteful means less than 100% perfectly efficient) or insane (if wasteful means less desireable to private spending then he is an anarchist).
You are, as always, polite. I am not.
On the safety net. I think the idea is that, aside from the direct benefits of helping the poor, there are indirect effects and the alleged truth is that these partially counter the benefits. There is quite strong evidence on the question of whether the safety net tends to create dependency by encouraging the inter generational transmission of the culture of poverty. The evidence is that the safety net does the opposite. One source of data was the gradual adoption of food stamps county by county over the 60s. The evidence is that food stamps reduce dependency
This is micro not macro (as you can tell from the reference to evidence) but it is a statistically significant result from a natural experiment.
It has been demonstrated that welfare reform killed people (note no hedging this is an overwhelmingly significant result of a true experiment) http://angrybearblog.strategydemo.com/2013/06/welfare-reform-kills.html
Finally it is clear that Medicaid (the largest safety net program by far) causes higher educational attainment which is, of course, associated with lower dependency
The recent evidence is quite strong that, in addition to the direct benefits, the safety net has indirect benefits tending to cause higher total GDP. The “truth” is a pure expression of some ideology. It might be right wing. It might be the faith that economics 101 has something to teach people which they didn’t guess already. My guess is that it is radical centrism and ballance. That Caplan felt the need to find three right of center truths which are controversial. He clearly forgot the meaning of “macroeconomic” when searching.
On “wasteful” there is another problem. The actual ARRA stimulus consisted of cutting government spending (especially government investment) a little not a lot (really a huge amount not a gigantic amount). The simple guess that marginal products are decreasing would imply that ARRA spending was more efficient than 2006 spending, because it was reducing the high rate of layoffs. I think that Caplan disdains as mere news the fact that in reality the recent stimulus spending was bringing spending part of the way up to normal not extra spending.
On what is wasteful, I think the logic is that in the real world government spending isn’t 100% optimally efficient (this is true. Also the words “government spending” can be replaced with any other words). If the statement is changed so it has meaning it becomes “government spending is wasteful so lower government spending would improve efficiency”. This is a logical statement for an anarchist to make, but must be rejected by libertarians and everyone else. I think this is achieving balance by assuming a straw leftist who thinks that government is perfect or something.
A side issue.
Tier 1 Cllinton’s austerity ? I assume this refers to Clinton’s 1993 tax increase which I supported (why oppose higher taxes on high incomes and a higher EITC?). Or is Clinton’s austerity the austerity from 95 on when Republicans had a majority in the congress which actually writes the budget ? I think there are partisans who also give the President credit and blame for everything. But they are confused about more than macro.
Thanks Robert. Send more comments my way more often!
Clinton signed away Glass-Steagall which hurt more people than ANY welfare reform he imparted, IMHO. (Dec. 24, 1999—FACT not confusion)