Relevant and even prescient commentary on news, politics and the economy.

Fo/u/r/ive Notes

For Mother’s Day, as it were, xkcd presents The Lawrence H. Summers Memorial History of Math and Science.

Buce at Underbelly does this, probably saving me the trouble of a post. (Consider this a SlothBear moment.)

The problem I want Drek the Uninteresting—or anyone else who knows the research—to address: if we assume that mercury in the vaccine wasn’t the cause of the rise in autism, what are the causes that have been identified?

Maligning Tony Kushner by the Trustees of CUNY while he is on the cover of the current issue of his alma mater’s alumni magazine probably was not a good idea.

Update: The one I left out earlier: the Second Quarter Kauffman Economic Bloggers Survey is out (warning: PDF). I’m especially thrilled by Mark Thoma’s victory (p. 12), though surprised that the margin was so small. Suggestions that the 35% who voted for the second-best option were desperately attempting to deny incompetence are, of course, beyond the pale.

Coming Soon from Major Economists Near You

Ken Houghton is talkin’ about his generation.

Pete Davis, Mark Thoma (who at least has the decency to phrase it in the form of a question), N. Gregory Mankiw, and Brad DeLong explain why there should not be any penalties against providers of West Virginia water (h/t Bitch).

Because fungible is fungible, even if it isn’t.

At least Garth Brazelton at Reviving Economics gets it right, leaving hope that when we’re all dead, the next generation will know how to teach economics so that they’re not looked at as if they’re insane.

Mankiw quotes CBO on medical Spending

hby Spencer

On Monday Greg Mankiw quoted a CBO study on health care spending.

An Ounce of Prevention
…is expensive, says CBO:the evidence suggests that for most preventive services,expanded utilization leads to higher, not lower, medical spending overall.

That was the end of his quote from the study. He did not quote the part of the study that followed.

Of course, just because a preventive service adds to total spending does not mean that it is a bad investment. Experts have concluded that a large fraction of preventive care adds to spending but should be deemed “cost-effective,” meaning that it provides clinical benefits that justify those added costs.

And some people wonder why he quit allowing comments at his blog.

Those Who Think the "Left of Center" is Too Tough on N. Gregory Mankiw

should read Sensible Centrist J. Bradford DeLong on the difference in forecasting between the current Administration and the CEA under N. Gregory Mankiw.

Romer/Bernstein/Kreuger et al., 2008-9 edition:

As I understand matters, last December the median private-sector forecast had the unemployment rate topping out at 9% in the second half of 2009. The incoming Obama administration simply adopted that forecast. At the time I thought that was a mistake: (I thought that was a mistake: I thought they should have made a bifurcated forecast with a “good case” 80th-percentile scenario and a “bad case” 20th-percentile scenario; they should then have stressed that in the bad case we would need a large stimulus indeed to prevent high unemployment, and that in the good case we could restrain inflation via monetary policy.)

Mankiw et al., 2003 edition:

it would make it extremely difficult for things to happen like what happened to the Mankiw CEA over the winter of 2003-2004, when high politics appears to have reached down into the forecast, changed the table for payroll employment (and only payroll employment: the rest of the forecast is not out of line with contemporary professional forecasts), and produced an estimate for December 2004 (a) inconsistent with the rest of the forecast, and (b) high by 2.3 million in its estimate of payroll employment–all because Karl Rove and company thought it important to avoid headlines like “Bush administration forecasts 2004 payroll employment to be less than when Bush took office.” (link from original)

The positive-spin version is that Mankiw plays politics better than the Obama Team.

UPDATE: Kauffman Foundation invitee Mark Thoma adds to the fun.

I Remember When Mankiw was still a Neo-Keynesian

Cassander, writing at Steve Keen’s Debtwatch,* puts the hammer to those arguing that the death of the patient had nothing to do with the doctor:

What a load of bollocks.

The “principles of economics” that [N. Gregory] Mankiw champions, and the “More economic research (and teaching)” that [Doug] McTaggart et al are calling for, are the major reason why economists in general were oblivious to this crisis until well after it had broken out.

If they meant “Principles of Hyman Minsky’s Financial Instability Hypothesis”, or “More Post Keynesian and Evolutionary economic research”, there might be some validity to their claims. But what they really mean is “principles of neoclassical economics” and “More neoclassical economic research (and teaching)”—precisely the stuff that led to this crisis in the first place. [emphases in original]

Go Read the Whole Thing: a worthy spew of bile from one of the blogs that I’ve been reading a lot recently, in part so I don’t feel guilty not having written the same thing.

*Cassander is, I believe, Keen’s nom-de-blog for non-personal posts. But I could be wrong.

Maybe Songsmith isn’t Completely Useless after all

After the first round, I was convinced that Microsoft’s songsmith was at best, a way to produce mash-ups for the tonally impaired.

Kieran Healy has convinced me otherwise, with this piece: capitalism in action, set to music:

I believe this is what we meant when we talked about “creative destruction,” back in the days when economists weren’t just trying to eviscerate the safety net to “balance” the budget (and whose previous efforts worked so well we should certainly have faith in their current proclamations).

Game, Set, and Match

DeLong body-slams Mankiw.

Especially like this:

Mankiw: The CEA website should also post a notice about CEA internships, as we had during my tenure as CEA chair, so students can find out how to apply.

DeLong: “Let me, for one, state that I am very glad that Christie Romer has been too busy since her confirmation a week ago Wednesday night to set up procedures for hiring interns. When setting up and posting procedures on the hiring of interns is the most valuable first use of a CEA chair’s time, there is indeed cause for alarm: it would be a sign that the president is like George W. Bush, who would rather not have had any economic advice at all.”

I note for the record that the CBO sent out their Summer Internship application notice on January 27th.

Crowding Out and the Perils of Oversimplified Models

Tom Bozzo

tips the hat to Ken and SvN for a pointer to a nice paper from the Journal of Money, Credit and Banking called “The Deficit Gamble,” by Laurence Ball, Douglas Elmendorf (now CBO director), and N. Gregory Mankiw. Ball, Elmendorf, and Mankiw showed that the government can “with a high probability” run a deficit in the present and roll the resulting debt over indefinitely. In the states of the world where this so-called “Ponzi gamble” (*) works, the result is Pareto-improving; if the gamble fails, then at least some generations are better-off. The authors note that this does not imply that deficits are necessarily “good policy.” (**)

The details of how this works also bear a bit on the “freshwater” versus “saltwater” debate over the stimulus package and “crowding out” of private sector investment. One possibility is that there can be crowding out even in the sense that Fama describes and that may nevertheless be welfare-enhancing. Under risk aversion, a reduction in the variance of consumption can compensate for a reduction in the mean, as in substituting (safe) government debt for risky but higher-return private capital investments. But, more realistically, the portfolio choice is among private investments with a variety of risk/reward features. Ball, Elmendorf, and Mankiw show that under such circumstances, increasing holdings of safe government debt should lead to a portfolio shift towards higher-risk, higher-(mean)-return capital. This formalizes a sort-of “safety nets are good for entrepreneurs” argument. The central issue, though, is that it’s not just the quantity of capital that matters, but also its composition.

In fact, in some respects the Ball, Elmendorf, and Mankiw model may be too pessimistic as to the likelihood of the deficit-spending gamble paying off. As is fairly common in macro modeling (***), the government spending financed by the deficit is assumed to be unproductive. Of course deficit-financed stimuli can be arranged as airdrops of nondurable consumption goods. The actual stimulus package we’re fighting over, however, would direct a good chunk of money on public-sector investments (not necessarily “public goods”). So some of the “crowding out” is a substitution of public for private investment. We can fight over the relative marginal products of various public and private capital investments, but in general those will be positive. I leave knock-on portfolio effects to others, but I’ll assert without proof that the net effect shouldn’t be to increase the probability that the debt rollover would fail.


(*) The term “Ponzi” may be too loaded; the “gamble” involves a series of intergenerational transfers that are not inherently unsustainable in contrast to a “scheme” a la Madoff.

(**) Basic prudence is not revoked. Borrowing “too much” money, for instance, would affect the probability of successfully rolling over the debt.

(***) I recently flipped through the main graduate macro text of my formative years, Blanchard and Fisher’s Lectures on Macroeconomics, and you have to get pretty far along (p. 591 of my edition) to read that “in the equilibrium context some components of government spending may operate as a current input into production.” Wow, what a concept!

This is why Krugman Makes the Big Bucks

The Quote of the 21st Century:

And you’ve got Greg Mankiw — well, I don’t know what Greg actually believes, he just seems to be approvingly linking to anyone opposed to stimulus, regardless of the quality of their argument.

Either that, or it’s a description of everything that is wrong with the field of Economics today.

Not that it can’t be both.

UPDATE: As usual, Mark Thoma was there first, and includes Mankiw’s disingenous response and Thoma’s spot-on analysis of the accompanying loss of reputational capital that response requires:

Declaring that you might post things that support your agenda without any comment at all, even when you have questions about how the conclusion was derived, is a license to mislead.

The Best and the Brightest Meme — Eight Years Too Late?

Ken Houghton

CR beat me to commenting on this Mankiw whine post, partially because I couldn’t think of anything reasonable to say about it. (CR could. That’s why he gets the big bucks.)

But now that CR has done the heavy lifting, let’s look at the other aspect: Mankiw’s standard:

Based a standard ranking of economists’ academic accomplishments as of October 2008…[emphasis mine]

    11. Larry Summers
    21. Greg Mankiw
    35. Ben Bernanke
    99. Eddie Lazear
    132. Glenn Hubbard
    249. Harvey Rosen
    391. Christy Romer*
    653. Austan Goolsbee

[emphases Mankiw’s; Bush administration officials]

Leaving aside whether the ranking used makes sense, we ask the next question: What does this have to do the performance of the individual in a government role?

So I realised we’ve been thinking about the Obama Administration in exactly the wrong way.

Several people are referencing the late David Halberstam’s The Best and the Brightest, a biography of the Kennedy Administration’s well-educated pedigree and their policy missteps. Krugman used it as a cautionary phrase in the exact post about which Mankiw whimpered. As John McCain once wrote:

The term “best and brightest” has become an insult, not an accolade, thanks largely to Halberstam’s magnificent, scabrous epic about the policymaking blunders that swept the United States into Vietnam. This classic work is part of the Vietnam canon, but it is not really about Vietnam; it is very much a Washington book, focused on the surety of the hawks stateside rather than the misery and warfare in Indochina. [italics mine]

But look at (most of*) Obama’s picks:

    Orszag – Currently at the OMB. Prior experience at CEA, and then as a Special Assistant to the President during the Clinton Administration.
    Summers – veteran of the Clinton Administration
    Geithner – veteran of the Clinton Administration
    Paul Volcker – veteran of the Carter and Reagan AdministrationsModule Water Slide best, named Chair of the Federal Reserve by Carter.
    Melody Barnes – Eight years as Chief Counsel to Senator Kennedy on the Senate Judiciary Committee
    Heather Higginbottom – Eight years as legislative director for Senator Kerry

The list goes on, but what is notable is that—with the exceptions of the Advisors Goolsbee and C. Romer—all have extensive government policy experience.

Let’s look at the Bush people:

    Mankiw – columnist for Fortune, textbook author. As Bruce Bartlett noted in 2003, “Mankiw endorsed the election of George W. Bush because, unlike Al Gore, he would cut taxes, reform Social Security and antitrust policy, and try to implement school choice.” Spent one year as a CEA staff member—twenty years prior to being named CEA Chair.
    Lazear – No policy-making experience prior to being named to the CEA.
    Hubbard – No policy-making experience prior to being named Chair of the CEA.
    Harvey S. Rosen – Deputy Assistant Secretary (Tax Analysis), Department of the Treasury, 1989-91, then no government experience again until named to the CEA in 2003. (Fairness note: the interim is largely a Democratic Administration. No indication what he did from 1991 to 1993, save possibly returning to Princeton to teach). Note that he officially did exactly that in 2005, though he had warned that might happen.

Comparing the actual policy experience of the two Administrations, references to Halberstam’s work are much more applicable to the Bush Administration than the incoming Obama Administration.

Despite having a relative disadvantage in looking for people with policy-making experience (eight years with a Democrat in the executive branch over the past 28 years v. Bush’s twelve of the previous twenty), the Bush Administration’s combined highlights list has less total experience in policy-making than Summers alone.

Knowing how to make sausage is a Comparative Advantage when one is working in a sausage-making environment. Otherwise, you just end up with a “hack.”

*Mankiw uses Greg and Ben and Eddie as well, so I assume the use of “Christy” is not meant to pejorative. Firedoglake’s mileage may vary.
**Goolsbee is the notable exception, and he is in a Senior Advisory role, specifically the Economic Recovery Advisory Board, where he will be working with Paul Volcker.