Why Do Good Economists Go Bad?

David K LevineI really liked Jeff Madrick’s book, Seven Bad Ideas. Its subtitle was, “How Mainstream Economists Have Damaged America and the World.” It was written at the perfect level for me. And overall, it was widely praised. But some economists had a problem with the book because, they claimed, no actual economists believed these ridiculous ideas. The most vocal critic was Brad DeLong. And I’m sympathetic to this argument. The truth is that most economists don’t believe in things like Say’s Law, which says that supply creates its own demand. But there is a more important level where DeLong was totally wrong: which ideas of economists have poisoned policy decisions over the last few years?

When it comes to the nexus between economics and policy, the question is not what the consensus of economists is. The question is whether politicians can find mainstream economists who are willing to tell them what they want to hear. And they are. It isn’t necessary, as it is with climate change, to set up special think tanks designed only to muddy the water. As I’ve noted in the past, no less respectable an economists than Greg Mankiw is always willing to finesse his arguments for the greater good of his conservative policy preferences.

Monday morning, Brad DeLong himself wrote, Time for a Rant!: Why Oh Why Cannot We Have Better Economists? It is regarding an article by just such an economist, David K Levine. He is the John H Biggs Distinguished Professor of Economics at Washington University in St Louis. Pretty impressive. Yet what he has to say on the subject of monetary stimulus is a fallacy known to economists two centuries ago. As best as I can tell, Levine is doing what I see a lot with libertarians: creating simplistic models of the economy that have never been right and then drawing broad conclusions from them.

In his paper, Levine creates a model economy with four people who barter with each other. Then he disrupts the economy. Then he says that adding money into the economy would not fix the disruption. To me it’s just bizarre. How do you create a model based upon barter to prove that monetary policy doesn’t work? Regardless, DeLong changes the model slightly and shows that — What a surprise! — monetary policy actually does work. It is amazing to me that economists do this all the time: decide that something that seems obvious really isn’t, and claim to prove it with some trick. One doesn’t see climate scientists saying, “There can’t be global warming because the earth has to give off as much energy as it receives!”

DeLong ended his rant by asking a question:

Now can anybody tell me why DKL — and all the rest — are still making the freshman-level mistake of trying to analyze monetary business-cycle downturns in a barter framework, 186 years after John Stuart Mill got it right?

I think we all know why this is. Economics is poisoned by political ideology. And it’s kind of funny, because in my experience, economists are the most pretentious of the soft scientists. But I think these things are related. Economists tend to live in their ideological bubbles even while thinking that they are just looking at the facts. And that’s why economics is so dangerous. Sure, Brad DeLong beat up Levine very badly. But I doubt it will matter to Levine. And it certainly won’t matter to Rand Paul, who will find Levine’s fallacy very useful in pushing his hard money policies.

Obama: Communist Dictator and Charleston Nuker

Virginia Ellisor: Simulated PictureWhy is the Congress rolling over and letting this communist dictator destroy my country! Y’all know what he is and I know what he is. I want him out of the White House, he’s not a citizen. He could’ve been removed a long time ago. Larry Klayman’s the one who got the judge to say that the executive amnesty is illegal.

Everything he does is illegal. He’s trying to destroy the United States. The Congress knows this! What kind of games is the Congress of the United States playing with the citizens of the United States? Y’all need to work for us and not for the lobbyists that pay your salaries. Get on board! Let’s stop all this and save America. What’s going on, Mr Santorum? Where do we go from here? Ted [Cruz] told me I’ve got to wait now til the next election. I don’t think the country will be around for the next election. Obama tried to blow up a nuke in Charleston a few months ago.

And the three admirals and generals — he has totally destroyed our military. He’s fired all the generals and all the admirals that said they wouldn’t fire on the American people if he asked them to do so if he wanted to take their guns away from them. This man is communist dictator — we need him out of that White House now. And the Congress of the United States is the only one… We’ve lost our Congress. We’ve lost our executive…

—Virginia Ellisor
Question at a Rick Santorum talk in South Carolina

Medicaid Expansion Saves States’ Money

Free ClinicJesse Cross-Call at the Center on Budget and Policy Priorities wrote an interesting article, Medicaid Expansion States Are Saving Money. It summarizes a couple of research papers that show that in the five states studied, the state governments themselves saved money. For example, it is estimated in the 2014-2015 fiscal year, Arkansas will save $89 million. That comes to $30 for every man, woman, and child in the state. Or looked at another way, it is about a quarter percent of the state’s budget. So it isn’t an insubstantial amount of money. And remember: this is in addition to all the people who, you know, get health insurance. And it will also stimulate the local economy.

There are two ways that the states save money. The first is that Medicaid pays for procedures that the state would normally have to pay for. Consider a crazy person who has to be hospitalized. Before, the state would have to pay for that treatment. But mental health is paid for with Obamacare. So the state doesn’t have to pay. Very simple. The second way that the states save money is by having tax receipts increased. The extra medical care that is consumed because more people have insurance leads to more tax revenues.

Scott WalkerHooray! Of course, we are left with the same frustrating status: 22 states have not accepted the Medicaid Expansion. This is free money that their citizens are being denied. What’s more, it is money that their citizens are already paying to the federal government, regardless of what the states do. And now we know that these states are also losing out by having to pay for care they don’t need to, and keeping their economies artificially depressed. And all for what? So they can stand up for the principle that they really, really don’t like President Obama? I expect better from kindergarten children.

The states that prefer to have hissy fits are exactly the states you would think: the deep south and the plains states where the population is diffuse but the neo-Nazi and Klan membership is strong. All of this makes me think that their irrational behavior regarding the Medicaid expansion may not be so much about their hatred of Obama and more about their hatred of “those people” and the thought that they might actually get help they need and deserve. The outliers in the pattern are Wisconsin and Maine: two states where the people keep voting in governors who are determined to destroy the people of the state. What is it going to take for those people to wake up?

Paul LePageI wonder how long these states will hold out. This ought to go on at least while Obama is president. But after that, it is going to be increasingly hard to maintain that Obamacare is the penultimate step to Stalinism as they see all the other states getting their people insured, their economies stimulated, and their government costs lowered. Of course, once this does happen, we will be left with the same old thing we are always be left with: complete denial. The conservatives will never admit that they spent years athwart progress yelling “stop” — while all around them people died. It will be the same old thing: new conservatives will say, “Of course it was wrong to be against this free market healthcare law, but this new law?! Never!”

The question is whether America as a whole will continue to act like the voters of Wisconsin and Maine. Enjoying your “right to work” Wisconsin? It’s coming for you too Maine. And while we wait, working poor people will die because of lack of insurance. If you voted for Walker or LePage, well, you’re hopeless. If you didn’t vote, I don’t know what you are doing reading this; you should be out doing penance — feeding the poor, curing the sick, shipping me piles of cash. As for the rest of you, well, I feel your pain.

No “Record” Closings of Seattle Restaurants

SeattleSometimes, I feel like beating my head against the wall. Early this month, Seattle published an article by Sara Jones, Why Are So Many Seattle Restaurants Closing Lately? The article starts by discussing five restaurants that have closed or are closing. None of them are closing because Seattle raised its minimum wage. Then the article spends six paragraphs — about a third of the article — discussing “concerns” that local restaurant owners have about the rising minimum wage. It also quotes a hack from the Washington Restaurant Association. And then the article ends with two paragraphs about how great the Seattle restaurant scene is.

The article itself disproves any notion that Seattle is seeing a mass exodus of restaurants because of the minimum wage. In fact, the article disproves the notion that Seattle is seeing any mass exodus of restaurants for any reason at all. Jones reported, “In Seattle, with approximately 2,300 restaurants, that translates to approximately 400 closures or sells expected — ‘in a good year,’ [CEO of Washington Restaurant Association Anthony] Anton says.” Okay, so that’s 33 per month. And this article is about five restaurants closing in the period from February through May — four months. There should be 133 restaurants closing during that time. Color me unimpressed.

DJW at Lawyers, Guns, & Money covered the story, Are Seattle Restaurants Closing in “Record Numbers”? (Spoiler: No). He made a brilliant observation. Jones ended the article with a blitz of news about restaurant openings. DJW:

Those keeping score at home will note that the article identifies more restaurants opening than closing.

I figure that the history of the Seattle article was as follows. Anthony Anton, president and CEO of Washington Restaurant Association, sent a press release to the magazine. And editor gave it to Jones. She went out looking for this mass exodus of restaurants closing. She didn’t find such a thing. But she did get some nice interviews with some restaurants that were leaving. So she wrote her article. It should have just been in the style section, “Some Restaurants Leaving Seattle as Others Arrive.” But instead, she created an article with what is a non sequitur about the minimum wage in the middle of the otherwise banal story.

Of course the “news” that Seattle restaurant owners are fleeing the city is big news in right wing media. They already knew it was going to happen. And regardless of whether it has happened or ever will happen, they will always know that it did. The Tea Party News Network reported, Seattle Restaurants Closing in Record Number as $15 Minimum Wage Approaches. It gets the facts all wrong. There is nothing to indicate that record numbers of restaurants are closing and it incorrectly states that the minimum wage is going up to $15 on 1 April (it is actually going up to $11). And then the article goes on incorrectly paraphrasing Seattle and deceptively quoting it.

But the worst of it is the tone that the author knows economics, unlike those ignorant people who want to raise the minimum wage. The article starts, “$15 per hour, hell, why not $50 or $100?” This is a common claim of conservatives. But unless they are going to argue for no minimum wage, it makes no sense. In retort: $1 per hour, hell, why not $50 or $100? It makes no sense. These are actually reasons why modest jumps in the minimum wage don’t just cause inflation: namely because they simply create a more equitable partitioning of profits. Raise the minimum wage too high and prices will have to go up.

Such nuance is anathema to conservatives when talking about the minimum wage. It drives me crazy. To them, “It’s simple supply and demand.” But it isn’t. The people getting the raises are also the people eating at the restaurants. The minimum wage doesn’t just increase the cost to the business, it also increases the demand for the business. But these are the same people who claim that if you raise the minimum wage by 10%, “The prices will just go up by 10%.” No they won’t!

To summarize: Seattle published an article about how more restaurants are opening than closing in that great city. The right wing ran with it claiming that the slowly rising minimum wage is causing restaurants to close. But it doesn’t matter. The people reading those right wing articles already knew that what is not happen was happening. Nothing is going to change that. If this minimum wage hike works out really well and the Seattle economy booms, in five years you will hear conservatives say, “Seattle proved that raising the minimum wage destroys jobs!” Facts don’t matter. And I just want to bang my head against the wall.

Morning Music: Love Comes in Spurts

Blank GenerationWe have quite a treat this morning — at least for me! There is some actual live video of Richard Hell and the Voidoids from the late 1970s. They were an amazing, crazy band. Richard Hell started the band after Television threw them out of that band. And in their way, the band was as good as any in the New York punk scene. What I like about them is that they always seem like they are about to come apart, but they are solid.

This video is of “Love Comes In Spurts” — probably the best rock song title of all time. It includes a typically great guitar solo by Robert Quine. He looks distinctly out of place. But it is remarkable to think that he was already pushing forty at that time. Also on guitar is the under-rated Ivan Julian. There is also a nice clip of the band doing Blank Generation.

Populist William Jennings Bryan

[I’m a little behind today because of other pressing work. So I’m going to rerun my birthday post from last year. It isn’t just the time thing. I think that William Jennings Bryan is wrongly vilified today. People ought to know the truth about him: he was a hero of the people. And it was a lot more sensible to be a creationist in 1925 than it is today. -FM]

William Jennings BryanOn this day in 1860, the populist icon William Jennings Bryan was born. It’s sad that today he is almost entirely remembered for his anti-evolution views in the Scopes Trial. Because he was a lot more than that. And I mean that in a good and a bad way. But I think he stands as the ultimate example of populism. If you look at what actual Americans think about political issues, you will find that they are somewhat conservative on social issues and somewhat liberal on economic issues. That’s what Bryan was, except without the “somewhat.”

What boggles my mind is that the modern day everyman archetype is Sarah Palin: socially and economically conservative. But that’s not populist at all! What is populist about thinking that you should get less money and billionaires should get more? What obviously as gone on is a very successful marketing campaign. I’m with Thomas Frank in What’s the Matter With Kansas? The conservative movement has convinced large swaths of America to vote against their best interest in the name of a bizarre kind of identity politics.

I should be clear where I stand: I would give up pretty much all of the socially liberal policies for strong economically liberal policies. Make same-sex marriage illegal in exchange for a $15 inflation adjusted minimum wage? No problem! Make abortion illegal in exchange for a wealth tax and an end to the payroll tax cap? No problem, other than the fact that I’m a man and I don’t have the right to negotiate away a right that belongs to women. But you get the idea: I place a far higher premium on economic issue than I do social issues.

As a result of this, I’m pretty happy where Bryan came down politically. What’s more, let’s face it: he was a smart guy and times have changed. But regardless, this is all Maslow “hierarchy of needs” stuff. People need jobs. And check out what he has to say about the gold standard in 1896. “You shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.” There are plenty of conservatives today who want to do just that. And there are plenty of “populists” who would cheer them on.

Here is the end of the speech, via NPR:

Happy birthday William Jennings Bryan!