14 Mistakes

Tyler Cowen has put together a list of common mistakes made by left wing economists. I'm not an economist, but I'm left wing and I comment on economics, so close enough. So I'm going to go through the list and note where I stand on each of his items. I'm not going to explain things or justify myself, I'm just going to stake out my position in a sentence or two. Here are Tyler's 14 mistakes:

1. Suggesting that money matters in politics far more than the peer-reviewed evidence indicates.

I think the peer-reviewed evidence is wrong. It simply isn't able to capture all the dynamics of money in politics.

2. Evaluating government spending on a program-by-program basis, rather than viewing the budget as a series of integrated accounts. Cross check with the phrase "Social Security," or for use to take many discretionary spending cuts off the table.

I'm not sure I really get this one.

3. A reluctance to incorporate sophisticated "public choice" theories into the analysis of favored programs.

Perhaps so. On the other hand, "sophisticated" public choice theories are often not nearly as sophisticated as their proponents think, and are too often abused in fairly transparent ways as a way to justify preexisting beliefs that government doesn't work.

4. Sins of omission: there are plenty of bad policies, such as occupational licensing, which fail to come under much attack from the left. Sometimes this is because the critique would run counter to the narrative of needing more government or needing more regulation.

Probably true. I'm not persuaded that occupational licensing is really all that big a deal, but sure: we lefties ought to criticize bad policies regardless of whether they help our cause or not. (Ditto for everyone else, by the way.)

5. Significantly overestimating the quality of the political economy of an America with more powerful labor unions and underestimating the history of labor unions as racist, corrupt, protectionist, and obstructions to positive change.

Actually, I think lefties are fairly willing to own up to past problems with labor unions. Hell, we spent the better part of the 60s and 70s rebelling against them. As for the quality of an America with more powerful unions, most left-leaning economists aren't really all that super friendly toward unions, I think. Without overestimating things, however, I do think we'd be better off on net with stronger private sector unions.

6. Overestimating the efficacy of fiscal policy, underestimating the power of monetary policy, and sometimes ignoring or neglecting how the two interact ("the monetary authority moves last").

Hmmm. Most of the lefty economists I read seem to understand this. But especially in a recession like our current one, fiscal policy can be reasonably powerful if monetary authorities (a) don't appear willing to do as much as they should, but (b) also aren't likely to actively oppose fiscal expansion.

7. Citing weak versions of structural unemployment theories and dismissing them with a single sentence or graph, while relying on stronger versions of structural theories in other, non-cyclical contexts.

No opinion on this one.

8. Lack of interest in discussing ethnicity and IQ as relevant for social policy, except in preferred contexts.

This is probably true, though there are obviously some pretty good reasons for it.

9. Overly optimistic views of the fiscal positions of state governments. Since the states don't have the same tax-raising powers that the feds do, and since state government spending is favored, there is a tendency to see these fiscal crises as not so severe, or as caused by mere obstructionists who will not raise taxes to the required levels.

In general, there might be something to this. Right now, however, state problems are largely caused by drops in revenue, not out-of-control spending, and many state problems are indeed caused by obstructionists who will not consider tax increases in any way, shape or form. However, it's possible that I'm biased in my views because I live in California.

10. A willingness to think that one has "done one's best" in the realm of policy, and to blame subsequent policy failures on Republican implementation, rather than admitting that a policy which cannot be implemented by both political parties is perhaps not a good policy in the first place.

This is unfair. Republicans can implement Democratic policies perfectly well. They simply choose not to. Asking liberals never to do anything that Republicans will try to sabotage is tantamount to asking liberals to never do anything.

11. Use of a strong moral argument for universal health care coverage, combined with a fairly practical, hard-headed approach to the scope of the mandate, and not realizing the tension between the two. Failure to indicate where the "bleeding heart" argument actually should stop and at what margins we should (and will) let non-elderly people die, if only stochastically.

Also unfair. This is mostly a marketing issue, not an economic one. In practice, the only way to build support for universal healthcare (or any other policy) is to talk up its good points, not its drawbacks. Insisting on some Diogenic level of honesty from liberals is really just a way of ensuring that liberals will never win public support for anything.

12. Implicitly constructing a two-stage moral theory, which first cordons off the sphere of the nation-state (public goods provision, etc.) and then pushing cosmopolitan questions off the agenda in the interests of expanding a social welfare state. (In fairness, many individuals on the right don't give cosmopolitan considerations even this much consideration, although right-oriented economists tend to be quite cosmopolitan.)

I guess I'd plead guilty to this. For better or worse, I'm more interested in the American welfare state than in other countries' welfare states.

13. What about countries? Classical liberals are increasingly facing up to the enduring successes of the Nordic nations. There is not always a similar reckoning with the successes of Chile and Hong Kong and Singapore; often this is a sin of omission. (Addendum: comment from Matt here.)

This is a good point, but probably a hopeless one. As near as I can tell, virtually no one is willing to take comparative political economy seriously. We all just cherry pick the stuff that helps make our case. (In defense of everyone doing this, however, country comparisons are really, really hard. In many cases, it's virtually impossible to honestly tease out any firm conclusions.)

14. Reluctance to admit how hard the climate change problem will be to solve, for fear of wrecking any emerging political consensus on taking action.

Actually, liberals spend a ton of time talking about how hard climate change is. Still, there's something to this. As hard as we say it is, it's probably even harder than that. (This, by the way, is why I support research into geoengineering. I hope we can do something about climate change, but I suspect that we can't. Geoengineering might turn out to be our only hope sometime in the future.)

Cashing Out

Matt Yglesias, who's a big fan of cashing out welfare benefits and thinks that "folk morality" gets in the way of implementing better policies, points us to a short piece in the Economist about a pilot program to help the homeless in London:

The Square Mile has more rough sleepers than any other London borough except Westminster: 338 were identified by Broadway, a charity, over the past year, most of whom had spent more than a year on the streets....Broadway tried a brave and novel approach: giving each homeless person hundreds of pounds to be spent as they wished....One asked for a new pair of trainers and a television; another for a caravan on a travellers’ site in Suffolk, which was duly bought for him. Of the 13 people who engaged with the scheme, 11 have moved off the streets. The outlay averaged £794 ($1,277) per person (on top of the project’s staff costs). None wanted their money spent on drink, drugs or bets.

Hold on a second. Am I reading this right? Broadway identified 338 long-term homeless, but only 13 actually engaged with them? Something doesn't add up here. It hardly seems credible that if you offered 338 people free money or stuff with no strings attached, only 13 would take you up on it. But if that is what happened, then the big result from the experiment isn't that 11 out of 13 people benefited in some way, it's that only 13 out of 338 were even willing to participate.

I don't know. Maybe Broadway identified 338 homeless people but only approached 13 of them? In any case, it hardly matters: it's one thing to surprise a handful of people with an offer of assistance and receive fairly modest requests. It would be quite another to set this up as a large-scale, ongoing program. Does anyone doubt for a second that once people figured out what was going on, the size of the requests would skyrocket quickly?

There's an enormous literature on the pros and cons of cash welfare vs. in-kind benefits (i.e., housing, food stamps, Medicaid, etc.), and this is hardly going to be settled in a few blog posts. But as with anything else in a democratic society, social welfare programs have to deal not just with the technocratic merits of one approach over another, but with the views of the taxpayers who are funding the programs. And taxpayers, like it or not, are wary about handing out large sums of money to people with no strings attached. For one thing, Broadway's experiment aside, a fair amount of no-strings cash would get spent on booze, drugs, and gambling, and taxpayers are understandably non-thrilled about their money being used that way. It may be that this is a small price to pay for the benefits of cashing out, but that's a case that has to be made, and it can't be made by simply dismissing concerns over morality. Moral concerns have a claim on our attention that's as legitimate as any other kind, after all.

Paul Krugman on what blogs he doesn't read:

Some have asked if there aren’t conservative sites I read regularly. Well, no. I will read anything I’ve been informed about that’s either interesting or revealing; but I don’t know of any economics or politics sites on that side that regularly provide analysis or information I need to take seriously. I know we’re supposed to pretend that both sides always have a point; but the truth is that most of the time they don’t.

OK, that's sort of extreme. But probably not that uncommon these days: I still read some conservative blogs, but I read a lot fewer than I used to. The problem is sort of a Catch-22: reading the loony tunes blogs isn't worthwhile except for entertainment value, so I mostly don't bother. Conversely, the more moderate types have interesting things to say, but they're so out of touch with mainstream conservatism that they often don't seem worthwhile engaging with either. I mean, what's the point in arguing over some technocratic point that's a million light years away from the views of actual, existing conservatism, which doesn't yet admit that cutting taxes reduces revenues or spewing carbon into the air heats the globe? It all has a very ivory tower feel to it.

I'll go on reading the non-insane conservatives, because (a) it's worth having my views challenged by smart people and (b) you never know: maybe someday the tea party version of conservatism will collapse and the moderates will regain a bit of power. That sure seems like a pipe dream right now, though.

There is no excuse for Republicans holding up Peter Diamond's nomination to the Federal Reserve. Likewise, there's no excuse for holding up Donald Berwick's nomination to head up Medicare. Or for turning the federal court system into a third-world travesty because it continues to have so many vacancies that it can barely function.

The whole thing is a disgrace, and Republicans should be ashamed of themselves for acting like small children over this. That is all.

As usual, Americans don't want to cut spending on programs they benefit from and don't want to raise taxes except on other people. Bloomberg reports on their latest poll, which pretty much reprises the results of every other recent poll taken on the subject:

Almost 8 in 10 people say Republicans and Democrats should reach a compromise on a plan to reduce the federal budget deficit to keep the government running, a Bloomberg National Poll shows. At the same time, lopsided margins oppose cuts to Medicare, education, environmental protection, medical research and community-renewal programs.

While Americans say it’s important to improve the government’s fiscal situation, among the few deficit-reducing moves they back are cutting foreign aid, pulling U.S. troops out of Afghanistan and Iraq, and repealing the Bush-era tax cuts for households earning more than $250,000 a year.

In the long term, this won't work. We'll need to raise taxes on everyone and rein in healthcare spending even more than PPACA has done. In the short term, though, it sounds pretty good to me. Getting out of Afghanistan and Iraq would save noticeable amounts of money, and so would killing the Bush tax cuts for the rich. It's a good start.

Jeff Currie of Goldman Sachs is pessimistic about world oil supplies. Ambrose Evans-Pritchard of the Telegraph reports:

Assumptions that OPEC has added 1.9m bpd over the last two years are wishful thinking. These new fields have been "largely offset" by attrition in old fields.

"We believe that OPEC spare capacity has already dropped below 2m bpd. The question therefore arises how much spare capacity is left to absorb potential supply disruptions in other countries," he said. If this picture is broadly correct, spare capacity is already close to the wafer-thin levels that led to wild price moves in mid-2008.

....Chris Skrebowski, editor of Petroleum Review, said the long-denied oil crunch is starting to bite. "We cling to the comfort blanket that spare capacity exists, but it is mostly fictional, or inoperable. If you take 2m bpd off the figure, the whole dynamic of global oil supply changes," he said.

World oil prices are largely driven by spare capacity these days. When it gets down to around a million barrels a day, where it seems to be now, prices can gyrate wildly based on very small supply shocks. Libya isn't a huge supplier of oil on the global market, but the loss of their production probably removes whatever small cushion we've been operating with. Even a very modest disruption in another OPEC country could send oil prices skyrocketing.

Then again, maybe not. Maybe demand in China will slow down a bit as authorities there try to cool down their economy slightly. You never know. But spare capacity is key, and right now there's hardly any left. For more, see here, here, and here.

Pension Spiking

Karen Tumulty writes in the Washington Post today that most public sector workers get fairly modest pensions:

What makes headlines, however, are the stories of workers who exploit the loopholes....Some public employees end up getting paid more in retirement than they did during their working years, thanks to pension-benefit formulas that encourage practices such as "spiking," the inflation of salary and overtime payments in the final years before retirement.

"I've never understood why public employees themselves haven't policed these abuses, because it hurts everyone when they come to light," said Alicia Munnell, the director of Boston College's Center for Retirement Research.

Last year, New York's then-Attorney General Andrew Cuomo — now the governor — investigated pension-padding and found cases where government employees who had never worked overtime in the early years of their career clocked more than 1,000 hours of it as their retirement neared. Cuomo said the abuse transcended "occupation, region or job title."

New York City Mayor Michael Bloomberg in January proposed banning the practice, but only for new employees. Unlike private employers, state and local governments are generally prohibited from changing the retirement benefits that they have already promised current workers.

Anyone who's serious about pension abuse should focus like a laser on spiking. Unions are wrong to defend it, and if Democratic politicians back them up on it, then they deserve all the public abuse that Republicans are able to hang on them. It's a bad practice and an indefensible one, and it ought to be an easy bipartisan target.

But I'm curious about the fact that "state and local governments are generally prohibited from changing the retirement benefits that they have already promised current workers." It certainly makes sense that basic benefit levels can't be changed once they've been agreed to and workers are counting on them, but can it really be the case that even something like spiking can't be changed when contracts are up for renegotiation? Or at least limited? Is this due to state law, or is it something mandated by the courts? I'll try to check into this.

In any case, surely states and local governments can crack down on this if they want to by simply not approving overtime for workers who are close to retirement? Or approving it only in limited amounts and with the approval of someone fairly high up the food chain? I'm not sure what would stop them from doing this. It's a collective action problem, to be sure, but not an impossible one to address.

This comes from Campus Progress and shows the spread of laws designed to make it harder for college students to vote. Why? Because college students tend to vote for Democrats. The group behind this push, you'll be unsurprised to learn, is funded by all the usual conservative suspects, including everyone's villain du jour, the Koch brothers.

The New 1099 Scam

Do you remember the great 1099 controversy? No matter. Details are here if you're interested, but all that matters is that (a) it raised tax collections on small businesses a bit to fund the healthcare reform act, (b) everybody hates it, and (c) there's a bipartisan consensus to get rid of it.

Fine. With Republicans in charge of the House, they can now write a bill to repeal it, which amounts to passing a tax cut. But guess what? For the first time in living memory, they're insisting that a tax reduction has to be paid for with higher revenue from somewhere else. In particular, they're taking aim at a provision of PPACA that says if you lose your job and get subsidized insurance via the exchange, but then you find a job six months later, you'll get hit with a hefty year-end bill for the months you didn't qualify for a subsidy. This is already bad enough, but at least the maximum payback is fairly modest. The Republican bill would make it much worse, upping the potential payback to multiple thousands of dollars. This is especially punitive for two reasons. First, because the incomes of the poor are highly volatile, which means they're highly likely to get hit with year-end bills. And second, because the total amount of money this raises is minuscule.

Jon Cohn and Ezra Klein have more details, but it's not the details that matter here, it's the principle. Republicans obviously don't believe that tax reductions require offsetting spending cuts, a stand they've made clear time and time again. Nor have they suddenly changed their minds about this. Rather, they're trying to use the 1099 fix as an excuse to undermine the effectiveness of healthcare reform. As Austin Frakt puts it, "ACA's subsidies are starting to function as a cash cow, paying for changes to the law."

Tea party Republicans, now that they're away from the campaign trail and have to face the real world, have discovered that they really don't have any leverage to either repeal or seriously defund PPACA. So now they're trying to find backdoor ways to chip away at it. This one is unusually shameless.

The Education Beat

In the Columbia Journalism Review today, LynNell Hancock writes about the way the media covers the education beat — often flitting from one silver bullet to the next, driven largely by the agendas of a familiar core of reformers with similar worldviews:

By far the most influential of all are the Big-Three venture philanthropies, The Bill & Melinda Gates Foundation, The Walton Family Foundation, and Eli Broad’s Broad Foundation, which often work in concert on issues like school choice and teacher effectiveness.

....An important story in the Winter 2011 edition of Dissent magazine by Joanne Barkan detailed their influence—amplified by the media—over urban school policy. In it, she quotes conservative education expert Frederick Hess, the nation’s most vocal critic of the media’s “gentle treatment” of the foundations. In the 2005 book, With the Best of Intentions: How Philanthropy Is Reshaping K-12 Education, he describes a credulous press that treats philanthropies like royalty.

What draws these venture philanthropists and Wall Street financiers to urban school reform, and to top-flight charter schools like Uncommon Schools and the Knowledge is Power Program (KIPP) network? One is the businesslike way the schools in those systems are run. They value standardized curricula and measures, incentives, as well as a young, flexible, nonunion teaching force. As a group, these reformers tend to believe that America’s growing child-poverty rate and shrinking social services are used as excuses by educators. Results in schools like those in the KIPP network, they say, prove that poverty does not have to be an obstacle. They see themselves as warriors against the status quo, with leverage. “It’s the most important cause in the nation, obviously,” the manager of hedge fund T2 Partners, Whitney Tilson, told The New York Times in December 2009. “And with the state providing so much of the money, outside contributions are insanely well leveraged.”

The whole thing is worth a read.