Krugman’s blog, 4/25 and 4/26/15

There were three posts on Saturday and two yesterday.  Saturday’s first post was “Wingnut Welfare and Work Incentives:”

Wingnut welfare is an important, underrated feature of the modern U.S. political scene. I don’t know who came up with the term, but anyone who follows right-wing careers knows whereof I speak: the lavishly-funded ecosystem of billionaire-financed think tanks, media outlets, and so on provides a comfortable cushion for politicians and pundits who tell such people what they want to hear. Lose an election, make economic forecasts that turn out laughably wrong, whatever — no matter, there’s always a fallback job available.

Obviously this reality has important incentive effects. It encourages conservatives to espouse ever-cruder positions, because they don’t need to be taken seriously outside their closed universe. But it also, I’ve been noticing, makes them remarkably lazy.

Thus, Matt O’Brien marvels at Stephen Moore’s latest, with its “cherry-picking and unsupported assertions.” What O’Brien doesn’t note is that these assertions aren’t new; Moore and others have made them many times before, and they’ve been thoroughly debunked many times, for example here and here. No, revenues didn’t experience miraculous growth under Reagan; if you adjust, as you obviously should, for inflation and population growth, they grew less in the Reagan years than they did under Ford/Carter, and much less than under Clinton. Yes, the share of taxes paid by the rich rose — but only because of soaring inequality, which raised the share of the wealthy in income. And so on.

What’s remarkable, then, is that Moore doesn’t even try to come up with new distortions. He just rolls out the old debunked stuff, ignoring the criticisms. There are many adjectives you could apply to this work, but the one that stands out for me is just plain lazy.

But then again, why not? The audience for this kind of thing doesn’t want actual insight, it just wants affirmation of what it wants to hear, and it doesn’t care how embarrassingly you screw up as long as you’re ideologically on the right side. Someone like Moore effectively faces a 100 percent marginal tax rate on intellectual effort — no matter how much or how little time he puts in getting facts and numbers right, it will make no difference at all to his career. And the Heritage Foundation gets what it pays for.

The second post on Saturday was “Remembrance of Death Spirals Past:”

Urban Institute

Kenneth Thomas has a nice post about how those pooh-poohing the achievements of the Affordable Care Act are moving the goalposts. The latest, as he points out, is this absurdity:

If we predict that something good will happen as a result of a new law, and that good thing happens, it doesn’t count as proof that the law was good.

But the question isn’t just whether the law is good; it is who has some credibility. So far, enrollment is growing more or less in line with the projections of supporters, once you allow for the refusal of half the state to expand Medicaid, while costs are coming in below projections. So the supporters are looking pretty good on the prediction front.

Meanwhile, what were the opponents saying? Right-wing “experts” were predicting a death spiral in which only a small number of sick people would sign up, and premiums would soar. This didn’t happen.

So, of course, conservatives have ditched the people who got this so completely wrong, and started listening to those who got it right. OK, I know, sick joke.

Saturday’s last post was “Choose Your Heterodoxy (Wonkish):”

I’m pretty sure Roger Farmer is subtweeting me here, when he says

There are still a number of self-professed Keynesian bloggers out there who see the world through the lens of 1950s theory.

And it’s true! In fact, quite a lot of what I use is 1930s economic theory, via Hicks. And I should be deeply ashamed. I am, however, not the worst offender. After all, there are plenty of physicists who still use Newtonian dynamics, which means that they’re seeing the world through the lens of 17th-century theory. Fools!

OK, Farmer wants us to think in terms of models with

an infinite dimensional continuum of locally stable rational expectations equilibria

or maybe

a continuum of attracting points, each of which is an equilibrium.

But why, exactly? Saying that it’s “modern” is no answer; so, for a while, was real business cycle theory, which proved to be a huge wrong turn.

In part, I think, Farmer is trying to explain an empirical regularityhe thinks he sees, but nobody else does — a complete absence of any tendency of the unemployment rate to come down when it’s historically high. I’m with John Cochrane here: you must be kidding.

But let me not try to figure out what Farmer wants, and instead ask what the rest of us should want.

Clearly, models with rational expectations, markets continuously in equilibrium, and unique equilibria don’t cut it. But which pieces of such models would you want to modify or replace? Farmer wants to preserve rational expectations and continuous equilibrium, while introducing multiple equilibria. That strikes me as a bizarre choice. Why not appeal to behavioral economics, behavioral finance in particular, to make sense of bubbles? Why not appeal to the clear evidence of price and wage stickiness — perhaps grounded in bounded rationality — to make sense of market disequilibrium?

The 1950s theory Farmer derides actually follows more or less that agenda, albeit informally. Wage stickiness is just assumed, but loosely justified in terms of psychology; New Keynesian models, with explicit modeling of price setting and menu costs, make this a bit less ad hoc but not much. Demand for goods and assets is based on plausible descriptions of behavior, with allowance for possible deviations from rational expectations. Obviously you want to go deeper than this if you can; but has this approach been proved useless as compared with more modern theory?

Surely the answer is a resounding no. As I’ve written many times, economists who knew their Hicks have actually done extremely well at predicting the effects of monetary and fiscal policy since the 2008 crisis, whereas those who sneered at this old-fashioned stuff have been wrong about almost everything.

I’m all for new ideas, indeed for radical heterodoxy, if it solves some problem. Attacking ideas that seem to work pretty well simply because they’ve been around for a while, not so much.

Yesterday’s first post was “This Is Not A Trade Agreement:”

OK, Greg Mankiw has me puzzled. Has he really read nothing about TPP? Is he completely unaware of the nature of the argument?

Personally, I’m a lukewarm opponent of the deal, but I don’t see it as the end of the Republic and can even see some reasons (mainly strategic) to support it. One thing that should be totally obvious, however, is that it’s off-point and insulting to offer an off-the-shelf lecture on how trade is good because of comparative advantage, and protectionists are dumb. For this is not a trade agreement. It’s about intellectual property and dispute settlement; the big beneficiaries are likely to be pharma companies and firms that want to sue governments.

Those are the issues that need to be argued. David Ricardo is irrelevant.

Yesterday’s second post was “We Weren’t Soldiers (Personal and Trivial):”

I’m going belatedly through files my father left, and discovered a folder of stuff about myself — report cards and all that. Plus this:

Yes, that’s my draft lottery number — the number which, or so everyone thought, determined whether I was going to Vietnam when my college deferment ended. Like everyone in my class, I waited in terror to see whether I was likely to be called; 295 meant that I was safe.

As it turned out, I needn’t have worried: in the end, nobody from my class was called. But it seemed like a life-defining moment at the time.

No moral to this story, just a reminder of how much history we’ve gone through.



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