Krugman’s blog, 6/11/17 and 6/12/17

Prof. Krugman may have taken some time off from his column, but he’s been busy on his blog.  There was one post on Sunday, and two yesterday.  Sunday’s post was “They Don’t Need No Information:”

I’m as riveted by Trump/Russia as everyone else. But meanwhile Trumpcare — which really has very little to do with Trump, except that he’ll sign it — appears to be marching on despite the terrible CBO score on the House version and the near-certainty that if the Senate passes anything it will be barely if at all better.

This tells you a lot about the values of the modern GOP, which will happily trade off health care for ~20 million people for tax cuts that deliver almost half their benefits to people with incomes over $1 million — fewer than 800,000 tax units.

But aside from the priorities, think about the process. The AHCA was deliberately rushed through before CBO could weigh in; the Senate GOP is working completely in secret, with no hearings, and anything it passes will surely also try to preempt the CBO.

You might think that this in part reflects conservative analyses that reach a different conclusion. But there aren’t any such analyses. Remember, OMB works for Trump; it has offered nothing. Even the Heritage Foundation, which used to be the go-to source for conservative creative accounting, hasn’t produced some implausible account of how the magic of markets will make it all work.

This is new. You might say that just as the GOP has decided to shrug off conventional concerns about ethics, it has also decided to shrug off conventional concerns about whether policies actually, you know, work.

To be sure, Republicans gave up evidence-based policymaking a long time ago. Back when Paul Ryan was pretending to be a serious policy wonk, he always started from the answer, then invented some assumptions and magic asterisks to justify that answer. Heritage has been a hack operation for many years.

But they used to at least pretend; people like Ryan weren’t actual policy experts, but they played them on TV, and gullible centrists were happy to help them maintain that pretense. Now they’re not even bothering to fake it.

And it’s hard to say with any assurance that they’ll pay a political price. After all, Obamacare was in fact the product of hard thinking — and it did a tremendous amount of good in places like, say, West Virginia, where Medicaid expansion (mainly) cut the number of uninsured by half. And in reward for this achievement, the good people of WV went Trump by 40 points.

Maybe massive losses in the midterms will convince Republicans that thinking about policy consequences is a good idea. Or maybe there will be more Kansas-type situations where even Republicans are so horrified by policy disaster that they change course. But even if these things happen eventually, what we’re seeing now is horrifying.

The first post yesterday was “We’re Not Even In Kansas Any More:”

Will the end of the Kansas tax-cut experiment — hey, that’s what Brownback himself called it, although he refused to accept the crystal-clear results of that experiment — mark a turning point in U.S. politics? Michael Tomasky thinks it might: not because it refuted supply-side fantasies, which have been refuted by experience and events again and again, but because Republicans themselves (sans Brownback) decided that enough was enough, and returned to fiscal sanity.

But I have my doubts. When I look at events in Washington, it seems to be that Republicans have moved on in ways that may eventually cause us to think about the Kansas experience almost fondly, as a relic of a better time when conservatives at least pretended to have intellectual justifications for their policies and proved, in practice, to care at least a bit about results.

For there was an idea, a theory, behind the Kansas tax cuts: the claim that cutting taxes on the wealthy would produce explosive economic growth. It was a foolish theory, belied by decades of experience: remember the economic collapse that was supposed to follow the Clinton tax hikes, or the boom that was supposed to follow the Bush tax cuts? And it was a theory that always survived mainly because of the Upton Sinclair principle that it’s difficult to get a man to understand something when his salary depends on his not understanding it.

But still, it was a theory, and eventually the theory’s failure was too much even for Republican legislators.

Now consider the AHCA, aka Trumpcare. What’s the theory of the case behind this legislation?

When Obamacare was enacted, Republicans had some claims, almost a theory, about why it was a terrible idea. It would, they claimed, fail to improve coverage. It would be a massive “job-killer”. It would cost far more than predicted, and blow up the budget deficit.

In reality, the percentage of Americans under 65 without insurance fell from 18 percent in 2010, the year Obamacare was enacted, to 10 percent in 2016 (and less than 8 percent in Medicaid expansion states). Unemployment was 9.9 percent when the ACA was passed, 6.6 when it went into full effect, 4.8 by January 2017. Costs have come in well below expectations.

There have been some disappointments: fewer people than expected signing up for the exchanges, although this has been offset by the surprising durability of employment-based coverage and stronger than expected Medicaid. But the point is that none of the things Republicans cited as their reason for opposing the bill have come true.

So what’s the theory behind their proposed replacement? Where’s their analysis showing that it will be better? There’s no hint of anything on either topic. You might have expected some kind of appeal to the magic of the market, some claim that radical deregulation will produce wonderful results. It would have been silly, but at least would have shown some respect for the basic idea of analyzing policies and evaluating them by results.

But what we’re getting instead is a raw exercise of political power: the GOP is trying to take away health care from millions and hand the savings to the wealthy simply because it can, without even a fig leaf of intellectual justification.

The point is that what we’re seeing now is so bad, so cynical, that it makes the Kansas experiment looks like a model of idealism and honesty by comparison.

I don’t think we’re in Kansas anymore. We’re now in someplace much, much worse.

Yesterday’s second post was “Macroeconomics: The Simple and the Fancy:”

Noah Smith has a nice summation of his critique of macroeconomics, which mainly comes down, as I read it, as an appeal for researchers to stay close to the ground. That’s definitely good advice for young researchers.

But what about economists trying to provide useful advice, directly or indirectly, to policy makers, who need to make decisions based on educated guesses about the whole system? Smith says, “go slow, allow central bankers to use judgment and simple models in the meantime.” That would be better than a lot of what academic macroeconomists do in practice, which is to castigate central bankers and other policymakers for not using elaborate models that don’t work. But is there really no role for smart academics to help out in this process? And if so, what does this say about the utility of what the profession does?

The thing is, those simple models have done pretty darn well since 2008 — and central bankers who used them, like Bernanke, did a lot better than central bankers like Trichet who based their judgements on something else. So surely at least part of the training of macroeconomists should prepare them to be helpful in applying simple models, maybe even in making those simple models better.

Reading Smith, I found myself remembering an old line from Robert Solow in defense of “fancy” economic theorizing:

In economics I like a man to have mastered the fancy theory before I trust him with simple theory … because high-powered economics seems to be such an excellent school for the skillful use of low-powered economics.

OK, can anyone make that case about modern macroeconomics? With a straight face? In practice, it has often seemed that expertise in high-powered macroeconomics — mainly meaning DSGE — positively incapacitates its possessors from the use of low-powered macroeconomics, largely IS-LM and its derivatives.

I don’t want to make a crude functional argument here: research that advances knowledge doesn’t have to provide an immediate practical payoff. But the experience since 2008 has strongly suggested that the research program that dominated macro for the previous generation actually impaired the ability of economists to provide useful advice in the moment. Mastering the fancy stuff made economists useless at the simple stuff.

A more modest program would, in part, help diminish this harm. But it would also be really helpful if macroeconomists relearned the idea that simple aggregate models can, in fact, be useful.

 

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