Mankiw to the President-Elect

by on November 8, 2008 at 7:26 pm in Economics | Permalink

Greg Mankiw’s memo to the president-elect is excellent. 

Devon Steven Phillips November 8, 2008 at 7:33 pm

Will the President-Elect read this?

mrshl November 8, 2008 at 7:51 pm

I’d appreciate someone pointing me to a convincing argument in favor of the McCain plan vis-a-vis adverse selection. I’m not sold on Obama’s plan, but McCain’s entire plan, including his enthusiastic endorsement of a race to the bottom among insurers didn’t sound all that great to me. A tax credit would help ease the imbalance between employer-sponsored care and self-employed individuals who must buy their own. But I wasn’t a big fan of McCain’s deregulation strategy.

matt wilbert November 8, 2008 at 8:06 pm

The discussion of the budget constraint is unpersuasive–the examples are bad.

Social Security is a minimal problem, regardless of how much people seem to enjoy belaboring it, nor is there any reason a proper health care system has to cost more than what we spend now, and in any case reform is necessary to deal with Medicare and Medicaid which are actual fiscal problems.

And while Obama should certainly listen to his economic advisors–what is the point of having them otherwise–learning about the McCain health care plan is not a good example of why. McCain didn’t figure out a reasonable way to pay for it, and while it might be sensible economically, it would be disastrous in its practical effect on people’s health coverage. This might be a good example of listening to your economic advisors and then not taking their advice for good reason.

The other two points are fine.

gloucester12000 November 8, 2008 at 8:16 pm

All these Libertarians worship markets. Yet in the market of ideas (as election season represent an imperfect one), they get thumped (unless of course Ron Paul is President-elect). Why is that? As they keep being rejected by American people (and pretty much people every where else as well), should not they take that to be that their ideas are bogus as market deemed them to be inferior. Libertarians need a host like Republican Party to smuggle their ideas so they could be implemented since they can’t win in market of ideas. Sometimes this relationship between host and guest is symbiotic but mostly it is parasitic.

jorod November 8, 2008 at 8:21 pm

Bill Clinton was the most laissez faire President we ever had. He did nothing, he did not interfere with the markets. And the markets still went overboard into tech stocks. Yet the markets recovered. Now we have the markets heavily into real estate. Will the President/Government not interfere and let things improve themselves? That is the major question.

I think McCain’s doubling of the standard deduction retroactive to 2008 would provide an economic boost in the spring and increase disposable income every payroll period. The tax credits for health care benefits would benefit people in the lower income tax brackets while the higher brackets may pay more.

sammy November 8, 2008 at 8:59 pm

Wow, another economist mentioned on this blog warning of a leftist government takeover by President Obama.

A number of observations on Mankiw:

1.) I don’t care where he stands, I don’t care if he’s a liberal or a conservative, a microeconomist or a macroeconomist. I just feel like he, along with a lot of other economists, are genuine liars. The only economists I admire are those that study history, Gregory Clark for example. They may cause less harm to society at large.
1.) He wrote a terrible principles of economics book for undergraduates
2.) He was a terrible economist for the Bush administration, certainly without the mental agility of previous leading economic advisors like those under JFK.
3.) He might’ve been better off as a lawyer from Harvard Law School as he probably would not be associated so negatively with the Bush administration. (So, by advising Obama to listen to his economists, is Mankiw implying Bush never listened to his wise policy advice? And so your hands are clean, as Greenspans’s hands are clean, and Bernanke’s too).

Now, about his advice:
Economics is not a science. Stop acting like it’s one, and stop offering advice like you know what you’re talking about. He talks about the imbalance between government spending and tax revenue in reference to social security without mentioning the disasterous tax cuts W. Bush enacted while Mankiw himself was his economic policy advisor (got hypocrisy?). Everything he says has a tinge of political ideology to it. He’s basically saying, We know you’re going to go Left, but please don’t go too far as it might make some Right-Wing economists look bad if your policies actually end up working. And he’s saying this with a straight-face without admitting that the fundamental facets of conservative economics as practiced since the Reagon administration has proved disasterous for the country culminating in the current situation.

By the way, I do not predict any great economic recovery under Obama as he seems to have embraced the so-called “Chicago” school of economics.

I don’t care if Mankiw works for Harvard. Harvard has graduated some of the worst white-collared offenders in business history. Read AHEAD OF THE CURVE if you’re interested in this topic. I no longer have any respect for economists, especially when considering the fact that, in all probability, none of them ever had to come home to their families and tell them that they had just gotten laid off. Any economists know what it feels like to live on minimum wage? Any economists have trouble getting health insurance for their children?

So, while douchebag economists like Mankiw at Harvard and T.C. at GMU are busy drawing neat little diagrams of Xs and curves and various budget constraints, there are real people out there who have to make a choice between food or medicine or maybe even suicide. I’VE BEEN THERE! I take care of a father with emphysema without a job. I make $13 dollars an hour and every morning I wake up scared to death of being laid off. FDR did what he did because he knew people were going hungry, not because he felt that economists had some kind of moral obligation to come up with prescriptive policy measures.

I’m also an economics major at a university made up mostly of kids from blue-collared families, and I’m in my senior year.
Last summer I read Nassim Taleb’s FOOLED BY RANDOMNESS and THE BLACK SWAN, and things kind of made sense to me. The mumbling economist before me, who loved to pause thoughtfully like he was in his own chocolate factory during his lectures, drawing meaningless diagrams and explaining models and talking about financial innovations, and equating MR to MC (check out the book WHY MOST THINGS FAIL, especially the part where it says most firms just implement a simple cost-plus markup pricing strategy, rather than the theoretical nonsense contained in micro textbooks), it all made sense to me. Like NNT said, it was pure snakeoil.

Forgive me if I go off topic, and forgive me if I’m not even a tenth smarter than some of the people who comment on this respectable economist’s blog, but this is how I feel. And Mankiw has no business advising President Obama while people lose their jobs left and right.

Bernard Yomtov November 8, 2008 at 9:07 pm

Pay attention to the government’s budget constraint.

This makes sense, but coming from a Bush advisor it is quite droll. Sorry to be snarky, but staunchly Republican economists have a long way to go to regain credibility on fiscal issues.

Acton. November 8, 2008 at 10:00 pm

sammy sounds like a would-be fan of Mr Mugabe.

Enda November 8, 2008 at 10:26 pm

It’s amazing how often people read Nicholas Nassim Taleb’s books critiquing the use of Gaussian estimation methods, and consequently believe economists’ opinions on international trade are useless. “If economists can’t predict a random walk accurately, surely they can’t advise on TFP growth!” Fooled by randomness, indeed.

Sammy, you may also be interested to know a whole range of macroeconomic models assume firms price at a fraction over cost. Most menu cost models work under this assumption, and most New-Keynesian models use menu costs. Perhaps the most prominent New-Keynesian’s name is… Greg Mankiw.

gloucester12000 November 8, 2008 at 10:48 pm

Economics is not a science. Economists like to pretend (hence all this math and modelings that gives the field patina of science) that they can predict based on theory de-jure as hard science is able to but they have not been able to predict much of anything yet (dot com bubble, housing bubble). They can’t even agree causes and solutions of past events such as Great Depression (for evidence Krugman’s blog vs this blog’s post on that topic). It’s a pseudo-science with some useful heuristics like alchamey as opposed to chemistry.
So, we should not take the economists’s opinion all that seriously. Let them doddle. It keeps them occupied and employed.

AZ November 8, 2008 at 11:04 pm

I can’t take it!!! Call it “expressive commenting” if you want.

@sammy:

I’m sorry your economics profs suck. Number 1, they should have told you the standard micro model is a simplification – hence the term “model” – and that’s it’s the easiest model to deal with mathematically. Number 2, I would like to ask how you know that cost-plus markup is NOT a marginal cost pricing rule? Marginal cost in the traditional model refers to opportunity cost, which includes things like sitting down and figuring out if 13.06 is the profit maximizing price or 13.09 is. Then again, if you are selling a large quantity of items this calculation could be important – I recall a story about Rockefeller who reduced the number of drops of solder to seal a barrel by one and saved his company a lot of money. I was sure that there were some models with cost-plus markup pricing, although not sure who wrote them. Enda (previous commenter) suggests an area to look into.

And save your sob story for Oprah – not all of us had silver spoons. Some of us worked daily labor/daily pay in addition to our jobs that paid only about 1.5x minimum wage. And I wouldn’t have gotten laid off at my near minimum wage jobs unless the entire place went under – but that’s because I was PHENOMENAL at my job (strong mind and a strong back), and those managers understood that by having me there they could have one less person there and save a few $$$/hour.

@gloucester

I see no prices in this market for ideas, only votes. Markets without prices … well, they aren’t really markets, are they? I assure there are certain things I can predict, only at a more micro, and controlled, level. That’s the whole point of experimental economics. You think an evolutionary biologist can predict exactly how a species will evolve? Is that not “science”? That’s what kind of predictions you are talking about when trying to predict the macroeconomy. Here, I’m not a macroeconomist, but let me predict something for you at the macro level: Enact policies at the macro level which give people the incentive to not be productive and watch the whole economy suffer. Comparing the macroeconomy predictions to those of a chemist, who mixes a few items in a CONTROLLED environment, is not even a remotely accurate comparison.

gloucester12000 November 8, 2008 at 11:32 pm

Re: “I see no prices in this market for ideas, only votes.”
There is a price in market in the form of performance of economy which determines if people will have a job or not. Hence, high voter participation in bad economic time. Having wrong ideas mean people will lose jobs, houses, etc. So price is there and it’s very high. If Libertarian ideas (i.e. Austrian economic school) are as salubrious as promised then you should be able to convince voters of that as their livelihood depend on it. Also, free market without government intervention does not lead to competition but to monopoly.

“Economics isn’t a pseudo-science, it’s a soft-science”
Either something follows scientific methods and therefore it is a science or else it’s not. By this standard, economics is not science just as AI (I’m a CS graduate student) is not a science unlike algorithm. Economics fall somewhere between science and pure B.S. of lots of liberal arts majors.

DanC November 8, 2008 at 11:39 pm

What is wrong with Mankiw? Doesn’t he know that Obama is the second coming you will repeat the miracle of the loaves and fishes. Really, Oprah told me so.

Massimo GIANNINI November 9, 2008 at 1:07 am

I believe it’s time to listen to international economists as well. It’s time to be at least bipartisan with Europe and to have a multilateral approach. It’s true, “economic isolationism is not in the national interest”. On the other hand U.S. is borrowing money from abroad…On environment and renewable energy if U.S. starts to deliver on what President Elect promised there is an opportunity to change world and international relations. Embracing some European ideas could make the difference. Investing in alternative energy instead of defense and wars could bring peace in some areas and higher returns in all respects for U.S. investments, domestically and internationally. President elect will have to listen less to lobbies and businesses and more to peoples, particularly Europeans.

Phil November 9, 2008 at 1:32 am

Taleb makes excellent points about the misuse of quantitative data.

However, he occasionally goes off the deep end with the “black swan” analogy. It was thought all swans were white in Europe. There was obersvational data which confirmed a physical attribute of a particular type of bird.

Calling 9-11 a “black swan” isn’t the same. It was an event caused by humans, with malevolent intent. Not the same. Moreover, thee was a fictional book written about planes being used as weapons. Therefore it was imaginable.

Finding the ceolocanth was a black swan.

Taleb is a gifted man, no doubt, but his zeal for rejecting quantitative methods sounds a bit at times like an alcoholic turned temperance advocate.

Give the guy like at least a week or so.. November 9, 2008 at 5:16 am

“His election is greeted by Wall Street with the worst post-election week EVER.” How does this put him off to a bad start? Did you really expect the market to rebound in the middle of everything that’s going on just because of election results?

“His choice for chief of staff? A guy quoted as saying Republicans can go *** themselves-so much for reaching across the aisle. Oh yeah and he FORBADE Fox News from asking questions at his royal highness’ debutante press conference.” That’s exactly the kind of person you need to protect the interests of the president. Abrasive, a bit harsh sometimes, so the Republicans better butch up and quit whinging about their feelings. When Fox News proves itself to be anything but the propaganda arm of the GOP maybe they can get the same respect as objective journalists.

“After two years of running for president and talking confidently about 2016 as the year he completes his second term, he apparently doesn’t have a “short-list” for cabinet positions”. How would you know? Gee sorry Superheater, apparently he didn’t get the memo that everything needs to be run by you so its apparent that he’s working to your specified timetable. In case you failed to notice, the man just ran a pretty impressive campaign, showing incredible organization..I don’t think second-guessing this guy’s ability to plan ahead is really in order.

“Away from the teleprompter, he makes his predecessor look like a Toastmasters champion, unable to get more than a few words out without inserting an “uh”..Seriously..his predecessor’s name is now a standard for malapropism..Bushisms anyone? And you probably never heard an “uh” from him because his foots in his mouth before he can get to it. I’ll give the new guy the benefit of say, a month before I start calling out his press corps style, apparently its irresistable troll fodder for you though.

Andrew November 9, 2008 at 7:09 am

Yahbut, Odo, when deciding matters of fact, some of us don’t care about allegiances. Or, we at least separate them.

If a liberal said “The Bush administration was a debacle because Bush pushed so hard for small, limited, and rule of law government and he was constantly slashing programs and vetoing spending increases” the fallacy is easier to see through.

Andrew November 9, 2008 at 7:17 am

Besides, most of these same people would call me a conservative. They are either idiots or evil. Well, maybe they are both. They clearly don’t care about rigor.

The labels either mean things, or they are just proxies for “Red State/Blue State” in which they are only useful for demagoguery.

Some people really can’t tell the difference.

Anonymous November 9, 2008 at 12:01 pm

Who is the frequent commentator on this blog who has decided that all cries of inequality, unfairness, or deliberate obfuscation have something to do with “getting a pony?” It’s starting to grate.

Uh, this a pretty commonly used phrase on econ-related blogs, so it’s unlikely it is the same person.

But … now we know someone who didn’t get a pony!

Just kidding.

the buggy professor November 9, 2008 at 12:46 pm

(I) The major drawback of Mankiw’s fairly commonsense to-do list for Obama’s presidency is its anemic, even insipid guide to combatting the existing economic crisis that the new administration will be inheriting from George W. Bush’s era: a 40% or so increase in national debt (despite or in part because of the tax cuts favoring the affluent and rich), a financial meltdown with a credit-crunch still marking the banking system, rising unemployment — which threatens to reach 8 or 9% (higher than the 7.8% of the 1990-91 period, but if we’re lucky not the 10.0+ of the 1981 recession); and key bankrupt industries, especially in vehicles.

A fine mess, no? Not to mention the mess in Iraq and Afghanistan.

….

(II) To get down to cases now. Other than a passing bland reference to the social-security net — Mankiw thinks an improvement might be in order — he has nothing to say, oddly, about such matters as:

* How to get the banks to start lending, with those that have already taking government hand-outs (financed by you and me) giving bonuses and paying dividends or buying out other banks, but not increasing their lending. (An administration does have to be careful about the dividend matter: any company can, in trouble, not pay dividends for a while; it’s even legal. But an Obama presidency has to win over the private investing community, or at least not alienate it.)

* How to spend government money, increasing of course the short-term countercyclical deficits — in contrast to the large structural deficits left to us by the Reagan, Bush-Sr, and Bush-Jr administrations (oddly, the tax raises of the Clinton era did not prevent a federal surplus for three years at the end of the 1990s) — to get the most out of a multiplier effect. Yes, concept, I daresay, that is heresy in libertarian circles, who seem to think that Keynesian economics in whatever version is a throwback to the early Pleistocene era of economic theory. This, mind you, even though Robert Lucas — a giant in the new new classical economics that supposedly uncovered the caveman nature of Keynesian economists — was quoted recently as saying that “in a foxhole, we’re all Keynesians”. Click here

* The key problem is: despite the efforts of the Bush-Jr fiscal stimuli to the economy in its recessionary and post-recessionary periods earlier in this decade — namely, tax cuts that favored the affluent and rich — there was little multiplier effects because, possibly owing to Barro’s resuscitated Ricardian equivalence-theory, very little consumption actually increased in that period. (Remember, too, even if 2001 to 2003 seems part of ancient history, those tax-cuts advocated by Martin Feldstein, as Bush Jr’s major unofficial economic adviser, were supposed to be countercyclical and hence temporary. Oh sure!)

……

(III.) So — to give us more multiplier-bang for the buck, will direct government spending on

1) public works, which we desperately need anyway to deal with our transportation systems, utilities (electricity especially), ports, sewer systems, and the like, be desirable. Most assuredly, no? . It gets money into local businesses quickly, and there is already a huge backlog of projects that are unfunded.
And 2) direct spending that will help local and state governments, which are unable to resort to deficit spending? Probably inevitable, and mainly desirable up to a point.

And 3) direct spending that guarantees loans or outright subsidies to hard-hit industries like autos? Harder to say how desirable, but probably inevitable — but with stringent conditions on bonuses and on the need to come up with gas-saving vehicles and alternative energy-driven engines.

And 4) increasing and extending unemployment insurance. (About 40% of the much deeper and longer recession in California in the early 1990s — a result of the end of defense spending and the real-estate fall-out — was blunted by a reduced tax flow out of California to Washington D.C. and a large inflow of unemployment insurance funds.)

And, finally, 5) accelerating the relief to home-owners and mortgage-bankruptcy — a big big problem as Alex’s posts have noted here, with a tremendous negative multiplier effect, for both household wealth and consumption and the banks that have to deal with costly foreclosures. Not only inevitable but desirable to the hilt.

†¦…

(IV) No point in arguing the merits of Keynesian views about the economy. I add only, for the benefit of libertarians here, that Hayek once said that Keynes was the only one clear genius in any field he had ever met (Hayek was not just in Vienna, but London and Chicago remember). Click here

And the key point about Keynes work isn’t per se in its policy guides for dealing with big recessions, which Wicksell and other Swedish economists had worked out on their own independently — where, he argued, a sub-optimal equilibrium will occur that can be persistent and devastating (in Europe, it helped bring to power fascist dictatorships almost everywhere except in Britain, Scandinavia, the lowland countries, and Switzerland, with France tottering even before its defeat by the Nazis in 1940). It’s in his conviction, borne out by recent work in behavior economics and social psychology, that the financial system is pervaded by unpredictability and even uncertainties, where animal spirits and not rationality prevail. In short, the more complex our modern financial systems became — and the more our complicated production systems and household consumption depended on credit-availability for their life-blood — the more such uncertainties and excesses, on both the up- and down-swings in the stock and bond markets, had become as well.

All of which threw more doubt on the self-adjusting mechanisms of unregulated capitalist markets.

….

In this respect, remember: Keynes wasn’t just a Hayek-genius, he was also, as Milton Friedman frequently admitted, the founder of modern monetarism and the analysis of monetary and financial effects on the real economy. All this, despite the very different views Friedman and Keynes had about the self-adjusting abilities of the capitalist market-system to deal with these pervasive uncertainties and unpredictable psychologically driven animal spirits.

†¦†¦

Michael Gordon, AKA, the buggy professor

happyjuggler0 November 9, 2008 at 2:32 pm

It grates on me that so many people think Bush was a small government conservative.

Give Me A Break November 9, 2008 at 10:32 pm

“His election is greeted by Wall Street with the worst post-election week EVER.” How does this put him off to a bad start? Did you really expect the market to rebound in the middle of everything that’s going on just because of election results?”

Apparently you don’t understand markets-they react to cetainty of information about the future. Even though I don’t like Obama, the mere fact that he was elected should have removed considerable uncertainty.

“His choice for chief of staff? A guy quoted as saying Republicans can go *** themselves-so much for reaching across the aisle. Oh yeah and he FORBADE Fox News from asking questions at his royal highness’ debutante press conference.” That’s exactly the kind of person you need to protect the interests of the president. Abrasive, a bit harsh sometimes, so the Republicans better butch up and quit whinging about their feelings. When Fox News proves itself to be anything but the propaganda arm of the GOP maybe they can get the same respect as objective journalists.

Give me a break. ABC has George Stephanopolous, a political operative. Chris Matthews (another political opeative) talked about his job being ensuring the success of the Obama presidency. Which one of the dolts talk about getting “tingly feelngs”? None of the “big 3″ are anything but free advertising for the left, biased, devoid of credibility and objectivity.

“After two years of running for president and talking confidently about 2016 as the year he completes his second term, he apparently doesn’t have a “short-list” for cabinet positions”. How would you know? Gee sorry Superheater, apparently he didn’t get the memo that everything needs to be run by you so its apparent that he’s working to your specified timetable. In case you failed to notice, the man just ran a pretty impressive campaign, showing incredible organization..I don’t think second-guessing this guy’s ability to plan ahead is really in order.

The operative here is “you don’t think”. That’s obvious. The campaign is over. Its one thing to get votes, another to have consider “then what” and he should have SOME IDEA of who he wanted. How would I know? I’m a simple manager and I have a succession chart for my staff and think about staffing.

“Away from the teleprompter, he makes his predecessor look like a Toastmasters champion, unable to get more than a few words out without inserting an “uh”..Seriously..his predecessor’s name is now a standard for malapropism..Bushisms anyone? And you probably never heard an “uh” from him because his foots in his mouth before he can get to it. I’ll give the new guy the benefit of say, a month before I start calling out his press corps style, apparently its irresistable troll fodder for you though.

Except nobody’s drooling over Bush’s oratory. I implicitly made the point Bush was a lousy orator. We all know Bush was lousy with words. But this isn’t the first time Obama’s stuttered over his words. Lets see if Letterman has the guts to run clips of Obama uh, uh, uh. The problem is you stupid kool-aid drinkers can’t see through your idiotic hero-worship. If there was video of Obama clubbing baby seals, you’d be chanting “hope and change”. One thing about Bush- I bet all the keys are left on the keyboard on January 20, unlike 2001.

What the hell was the deal with Nancy Reagan joke -it was stupid and classless. This is as good as it gets-what the hell is going to be like when some crisis keeps him up for 10 days straight and the pressure of the office is squeezing like a vise?

indiana jim November 10, 2008 at 8:59 am

Alex,

Thank you for posting this and for NOT pandering to the Left!

Peter November 11, 2008 at 9:10 am

Mankiw’s “memo” is pure balderdash. Reading it, it tells me that he’s upset that the Republicans lost on Nov 4, and now he wants Obama to turn into a Republican just for him. What a whiny jerk.

critic November 12, 2008 at 7:27 am

It is amazing how much of the comment and criticism on this website which comes from the left is intolerant, simplistic and foul-mouthed.

liangliang June 19, 2010 at 1:11 am

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