Mark Thoma’s spending cuts

by on February 4, 2013 at 2:33 pm in Economics, Political Science, Uncategorized | Permalink

Here is a Mark Thoma comment on my recent column, here is the introduction:

I’m all for more cuts to defense too, but it’s only fair to note that some cuts have been made there already.

Also, why are only spending cuts mentioned when the discussion is the budget? Please don’t tell me that if it’s not spending cuts, i.e. if it’s a tax increase, it doesn’t count for budget discussions (and Keynesian economics, which is part of his discussion, does not make this distinction). Thus, note also that the American Taxpayer Relief Act (ATRA) added another half trillion in deficit reduction. Together, the $1.5 trillion in appropriations cuts, plus the $.5 trillion in tax increases in the ATRA, plus the $300 billion in interest savings amount to around a bit over $2.3 trillion in deficit reduction…

Not once in Mark’s post does the word “baseline” appear.  In fact I covered the defense “appropriations cuts” in my piece, noting that relative to baseline, even with the sequester (much less without) defense spending is roughly constant in real terms.  Mark simply doesn’t recognize I made that point but instead portrays me as oblivious to the issue.  (Additional comments from Angus here).  I don’t see that as much evidence for our fiscal rectitude.

Or let’s look at the bigger picture of the back and forth.  Take Mark’s sentence: “Also, why are only spending cuts mentioned when the discussion is the budget?”, after which he refers to tax increases.  My very last column I called for tax increases, a bit now and more later.  Mark covered that column.  What was Mark’s reaction then?  He complained that I didn’t also call for rectification of the content of government spending decisions and income shares, in both cases toward greater egalitarianism.

I see Mark as falling into a bad habit here, namely he encounters a specific argument which makes him uncomfortable and then looks around for reasons to reject or downgrade the source of that argument, rather than focusing on the argument itself.

Mark also accuses me of being ideological.  That’s in the eye of the beholder.  In this week’s column I called for cuts in farm subsidies (or abolition), Medicare, and defense, and switching out of any possible cuts in infrastructure or support for basic research.  That’s pretty close to the consensus of economists.  Elsewhere I’ve called (repeatedly) for significant increases in science funding and the fixing of LaGuardia airport, among other infrastructure projects.  In the column I argue that there are both demand-side and supply-side reasons for drawing the distinctions I do between which parts of spending should be boosted and which should be cut.  I argue that Keynesian economics is valid if applied correctly.  Ryan Avent, not a member of the Tea Party, says he has “some sympathy” for my views on the sequester.  I don’t doubt that I am to the libertarian side of Mark, but if he finds that all too ideological, and worthy of a calling out, I think he is skating at a margin where he will find it very difficult to learn from the people who disagree with him.

Jan February 4, 2013 at 3:15 pm

Good post.

anon February 4, 2013 at 3:19 pm

well at least Thoma spelled your name right. Baker can’t read or spell.

jeff February 4, 2013 at 11:50 pm

+1 the number of people that misspell tyler’s last name is mind boggling.

Brian Moore February 4, 2013 at 3:54 pm

The fundamental weirdness is that in addition to lacking the word “baseline” it also lacks the concept “how much defense spending do we need?” No one knows the exact answer, but I think it’s reasonable to say that we, when we have no serious major state enemies, and are winding down 2 wars, might require less than we did when we were preparing to fight the Soviet Union. Yet we have more. The Pentagon isn’t like Medicare; there’s no fundamental reason it has to increase with population. As you point out, if the status quo is “constantly increasing military spending,” then you can look quite austere by reducing the rate. If you only need 100$ of defense spending to defend yourself, and you manage to only grow from 200$ to 210$ instead of 220, well, good job, but you’ve still got work to do. We don’t determine if a cut is good or bad by arbitrarily comparing them to other cuts.

Philip February 4, 2013 at 5:44 pm

Brian, fair enough, but let’s try to at least consider the reasons why it might be higher rather than just assuming that it should be lower. Off the top of my head: 1) Pax Americana is expensive to upkeep, and clearly in excess of what we’d need to “just” protect our homeland, but moving away from this equilibrium into a much more multipolar world will have consequences that are very hard to predict and are potentially very scary, especially in the long run. 2) We are richer, our soldiers expect to be compensated accordingly. This is a big, and very politically powerful, driver of defense costs. How many people really speak up on behalf of cutting veterans’ benefits, military healthcare expenditures, etc.? 3) There’s been a sub-nuclear arms race that’s continued to go on. We are winning for now, but we want to be very sure we keep winning, and that’s very expensive. Some of that R&D also has (or is likely to have) nice spillover effects to other kinds of socially productive technology.

Now, I’m on Tyler’s side here, and I think shrinkage of our military budget is acceptable. But the debate can’t be won just by saying that we spend more now than before; really, we have to argue about the above issues. #1 is especially tricky and probably the most important.

dead serious February 4, 2013 at 7:24 pm

“But the debate can’t be won just by saying that we spend more now than before…”

Just curious why this debate tactic is acceptable for health care expenditures, but not “defense” spending.

Brian Moore February 4, 2013 at 8:28 pm

Yeah, I’m fine with talking about specific points, because the weight of evidence seems drastically tilted towards the “spend less” crowd — and indeed is why I chose to be in that crowd! I agree that your points justify spending a large amount of our budget on defense, even if I would debate the phrasing/weight of 1 (surely we can outsource some more of it to our also-rich allies, say 10-25%?) and 3 (we’re not just winning, we’re beating everyone else put together, and lots of those “elses” are our allies We’ll still be winning even if we make huge, actual cuts (i.e. not “slowing the rate of growth”). I don’t see any reason we can’t return to the defense budget of 1997. I would definitely agree we could use a reallocation of lots of defense spending. Perhaps we need fewer subs and more counter-terrorism stuff.

Ape Man February 4, 2013 at 11:32 pm

Money spent on “defense” is not a good metric to go by. Percentage of GDP is more reliable. In GDP terms, Defense spending had not gone up and real conventional capabilities have declined substantially by most standard military metrics (number of ships, planes, and troops/tanks).

I agree that the US cannot continue to spend what it does on “defense” given that demographic changes are going to demand increasing shares of GDP be spent on health care. Shares of GDP is a zero sum game and so those other sectors of GDP have to be cut regardless of whether health is public or private.

That said, it bugs me that people who advocate for “defense” cuts don’t seem to recognize that there is real cost to cutting the defense budget. The logic that we spend multiples of all are major competitors combined makes for a good sound byte but does not represent a very realistic view of the world. The benefits/need for American’s current high defense budget are as follows.

1.One way of looking at the “defense” budget is that it is the price America pays for maintaining some critical domestic manufacturing capabilities. It is scary how much of our manufacturing base is dependent on defense. If the defense budget shrinks, will that manufacturing base turn to consumer stuff or will it go over seas as a lot of other American manufacturing has?

2. American’s current unheard of superiority has meant that America have suffered far fewer causalities then in comparable adventures in the past . If America’s “defense” advantage is reduced to more “normal” levels, it is likely that its casualties rate in adventures will go back up to more “normal” levels as well. It would be nice to think that America would ask less of of a less well funded military or only focus on the things that the military is well funded to do. But the experience of the UK and France (not to mention America’s own history) strongly suggests that this will not be the case. The end result of defense cuts in doing to mean more deaths in future adventures. Saying “we don’t need to go on those adventures” is not likely to change America propensity to do so.

3. America’s traditional allies have cut their military budget to unheard of levels in the belief that America will always be there. America’s declining power vs the rest of the world is likely to put upward pressure on other military budgets or declining influence in American’s traditional sphere. These things could be destabilizing.

There are two other factors that are not really benefits but mean that America gets a lot less “defense” per dollar than other nations do.

1. America’s are paid more then almost any comparable nations. This affects not just the wage and benefits bill for the troops, it also effects the price of equipment since stuff that normally would be made overseas as a cost saving measure often has to be made in the US for “defense” applications.

2. Even given the constraints noted above, America’s military is losing its ability acquire equipment in a realistic and timely manner. Their management of acquisition is abysmal and their spec requirements is increasingly losing touch with reality.

Bottom line: America’s defense budget is not really about defense and it is going to have to shrink because of demographics. But to think that there will not be real negative effects from shrinking the budget is wishful thinking.

DocMerlin February 5, 2013 at 4:15 am

The cuts will come regardless… they can come now in a controlled fashion or they can come later due to acute fiscal problems.

dan1111 February 5, 2013 at 4:20 am

Why is defense spending as a percentage of GDP the right metric? One of Brian Moore’s original points was that there is no natural need for spending to increase with the population, because defense needs aren’t tied to the country’s population. The same argument could be made for GDP: there is no reason to think that military needs increase linearly as the size of the economy increases. In this case, I think the absolute numbers make a better comparison.

You do have some good points about reasons for defense spending. As for #3, I think it would be a good thing if the countries that are currently relying on us increased their military budgets in response to U.S. cuts. However, I don’t think that would happen. I think the political views of our allies in Europe would keep them from building up their forces under almost any circumstances. Absent U.S. hegemony, they would simply be contentedly unprepared, with a naive idealism about international relations keeping them from seeing it as unpreparedness.

john personna February 5, 2013 at 9:33 am

A dangerous thought would be that US “defense” spending should rise with world GDP.

Brian Moore February 5, 2013 at 11:32 am

“Saying “we don’t need to go on those adventures” is not likely to change America propensity to do so.”

Nope, but cutting their budget might. I’m certainly first in line to claim that Americans obviously do seem to have a bull-headed desire to go on these adventures, but I would admit that if the secretary of defense had said “we don’t have the resources to invade Iraq without substantial casualties” then even Bush probably wouldn’t have. What do you think is stopping us from anything more than “kinetic military action” in Libya, stern words on Syria, and drones in Mali? It’s not our restraint. It’s our military budget. Yes, if there were a mandatory military action (Russia invades!) then cutting the pentagon might result in higher casualties. But it is not unrealistic to believe that cutting the budget would prevent future voluntary military actions, and therefore reduce overall casualties. Our military is incredibly adept at deterring people from killing Americans, and it’s hard to imagine that a budget that spent more on subs, aircraft carriers or air superiority craft would have helped prevent their one major failure. In fact, it is very easy to believe that if hypothetical past Pentagon cuts had prevented us from interfering in the Middle East in previous decades (particularly the, I imagine, expensive, bases in Saudi Arabia) it might have resulted in that one failure not occurring.

Ape Man February 5, 2013 at 1:23 pm

Dan111,

Defense spending as a percentage of GDP is not a perfect metric for reasons that you spell out. But the problem with using defense spending in real terms is that it counts rising real wages of solders and the people who make military equipment as being an increase in “defense” when in fact just indicates that real wages of the nation have gone up. This is especially problematic for the US military because real military wages relative to civilian wages are far higher than they were even in the 70s. Part of this is because of the draft going away. But the draft was a real cost that does not show up when you are comparing military spending of today to yesteryear.

Brain Moore,

I wish you were right. I hope you are right. But you don’t seem to be taking history into account. Spanish American war did not happen because America had a large standing army. Neither did the war of 1812 or Mexican American war. After the disaster that was Vietnam you would have thought that America would have lost appetite for foreign adventure for a long time to come. But the generation that fought in Vietnam was the generation that elected the current war on terror crop of politicians. The military was drawn down sharpy after the first gulf war, but that did not deter us from invading Iraq (arguably, the occupation of Iraq would have gone better if we had an army that was still the size that it was in the first gulf war especially given that we chose to fight two wars at once. Some generals made this very argument to try to show that we did not have enough troops before we went in). Your examples are premature and in the case of Libya could be used against you.

In Libya’s case we had just come out Iraq we were still in Afghanistan and we still got sucked into performing the lion share of the airstrikes and support. The fact that we failed to put boots on the ground does not encourage me much. As for Syria and Mail, don’t count your chickens before they are hatched. I am old enough to remember how hard America tried not get involved in the Balkans and how long that conflict dragged out before we did.

As DocMerlin says, the cuts are going to come regardless so hopefully your are right. But it would require America being governing by reason and logic for the first time in its history.

WILLITTS February 4, 2013 at 4:08 pm

Thoma is calling someone else an ideologue?

His blog drips socialist pus.

Guest February 4, 2013 at 8:07 pm

Indeed. It’s quite ironic. But that’s part of the humor I find Thoma’s critique. He’s such an ardent partisan Democrat and unabashed social democrat. Where’s the self-awareness in making such criticisms of others?

TMC February 4, 2013 at 8:30 pm

Self-awareness is not a liberal value.

Devin M February 5, 2013 at 3:09 pm

The runaway success of Portlandia (particularly among liberal urbanites) is a striking rebuttal to your assertion that liberals lack self-awareness :-)

celestus February 4, 2013 at 4:49 pm

“I’m all for more cuts to defense too, but it’s only fair to note that some cuts have been made there already. Also, why are only spending cuts mentioned when the discussion is the budget?”

I’m stunned that Thoma managed to put those two sentences next to each other. Is it also “fair to note” that some tax increases on the 1%, particularly on capital, have been made already? I suppose that if he believes the middle class should pay pre-Reagan federal tax rates as well his gotcha makes sense, but I very much doubt that.

MD February 4, 2013 at 9:37 pm

He would probably say it would be “fair to note” that there have been taxes increases, since he said that: “Together, the $1.5 trillion in appropriations cuts, plus the $.5 trillion in tax increases in the ATRA …”

Andrew' February 4, 2013 at 5:05 pm

Why is the discussion the budget?

Jacob AG February 5, 2013 at 12:30 am

because it matters?

Andrew' February 5, 2013 at 2:27 am

Does it?

Andrew' February 5, 2013 at 3:23 am

The discussion about the military should not be “we must cut military because we have no money.” That would be foolish. Fortunately, the discussion can be “we can cut military because we have no threats.” And maybe the discussion should be that way with everything else- the spending is wrongly constituted.

As for Keynesianism, maybe the discussion should be “we just had 12 years of constant stimulus” did it work?

DocMerlin February 5, 2013 at 4:17 am

“The discussion about the military should not be “we must cut military because we have no money.” ”
If we don’t cut things now… that will, in fact, be the discussion.

dan1111 February 5, 2013 at 4:50 am

You are attacking a straw man. Who is arguing for military cuts without actually addressing what military spending needs we have?

Andrew' February 5, 2013 at 5:35 am

Everyone who is only now pushing spending cuts for the military because the government is broke. Or those who were simply checking the military spending cut box previously simply because they are politically on the other side of the aisle from the pro-military.

Andrew' February 5, 2013 at 5:37 am

In other words, if you were for military cuts, you would have been for them in 2000, 2001, 2002, etc. You’d have been against all manner of surges. You’d be against drones and their bases. You’d be against the current purchases of homeland guns and ammo.

Those aren’t the things people are talking about. What they are talking about is how in this government cash crunch they feel that the military is crowding out entitlements. So, no. It’s not a strawman.

dan1111 February 5, 2013 at 6:34 am

@Andrew’, your original comment appeared aimed at people who are arguing on the basis of budget and ignoring all other considerations. That is what I considered to be a straw man argument.

Doug February 4, 2013 at 5:07 pm

Tax increases aren’t about narrowing the deficit. There’s two broad sources of status in our society. The first is money. The second is power, prestige, influence, intellectual achievement, and fame. Since status is a zero-sum game reducing the status of one group will increase the status of the other. Men and women like Mark Thoma, Paul Krugman, Brad DeLong, Elizabeth Warren, Valeria Jarrett and Ezra Klein are quite heavily loaded on the latter, but rather lacking on the former.

It’s quite natural for them to use their power, prestige and influence to push tax increases, especially as a so-called solution to a budget crisis. Increased tax rates will lower the purchasing power of pre-tax income, decreasing the status of money relative to power, prestige and influence. Thus benefitting them.

To the typical leftist the fact that a vulgar low-bred glorified stock clerk like Stevie Cohen holds higher status, through virtue of his enormous wealth, than Paul Krugman, one of the greatest thinkers to ever live, is insane, disgusting and fundamentally unjust. The only way to ameliorate, if not rectify, these type of situations is to attack the moneyed classes, a chief tactic of which is raising income, particularly investment income, tax rates.

The moneyed classes represent the worst of our society. Greedy, myopic, self-interested, vulgar, usurious, provincial charlatans. Meanwhile their counterparts represent the very best of our society, selfless, erudite, caring, big-picture focused, scholars and statesmen. The left will not be happy until Greenwich submits broken, bent and bowed to their divinely chosen masters in DC. DC will not rest, using every tool at its disposal, until this happens.

Thor February 4, 2013 at 6:46 pm

“It’s quite natural for them to use their power, prestige and influence to push tax increases, especially as a so-called solution to a budget crisis. Increased tax rates will lower the purchasing power of pre-tax income, decreasing the status of money relative to power, prestige and influence. Thus benefitting them.”

It’s worse than that. There’s no need to attribute any self-interest to them. They really believe that, when applied properly, socialism will work.

MD February 4, 2013 at 9:41 pm

Jesus fucking Christ, Thoma isn’t a goddamned socialist. The only way you could think he is a socialist is if you have no idea what a socialist actually believes. That would be like calling Cowen an anarchist, or Friedman a fascist. You can say it, but that doesn’t make it true.

Doug February 4, 2013 at 10:00 pm

Mark Thoma supports a massive expansion of government’s share of economic activity (as measured by percent of GDP), both relative to current levels as well as the post-war average. Socialism is the belief that the state should coordinate economic activity.

In terms of political labels when we call someone a proponent of X ideology, it almost always means in the relative sense. E.g. I’m sure you would agree with the assertion that Rush Limbaugh is a “conservative” even though compared to Prince Metternich or Benjamin Disraeli he’d be a stark raving mad leftist. The relative frame of reference is that Rush is conservative for the time and place that he lives in. Hence calling Rush Limbaugh a conservative is accurate, even though he is far from being on in the absolute sense.

Just the same, Mark Thoma may not support the full, or even the majority, takeover of the economy by the state (though I’m not sure if such an option was in the realm of political possibility that he wouldn’t). However he is very much a socialist in the sense that a marginal increase in the influence in Mark Thoma would move our nation as it currently exists in the marginal direction of absolute socialism.

Willitts February 5, 2013 at 1:42 am

The only thing that separates people like Thoma from calling themselves socialists is the stigma attached to it. socialists in the US don’t even call themselves socialists anymore – they are “progressives.”

If it were up to him, there would be far more government control over the means of production, and far more redistribution of wealth. When government controls the means of production, it hardly matters whether it owns it.

There is no political symmetry in this nation. Libertarians aren’t anarchists. Conservatives aren’t fascists. Liberals ARE socialists.

All these third way economists think that they can control the demon once they unleash it. They might believe in some market principles, but once they’ve got the political institutions they want, there will be an inexorable movement toward totalitarianism. A central planner is only efficient when it is omniscient, omnipotent, and benevolent. This inevitably leads to secret police, dictatorship, and paternalism.

My family didn’t flee socialism for a century so that we could “enjoy” it here.

momama February 5, 2013 at 4:40 am

Is any and all discussion of stuff like “are there legitimate constraints on the market’s winner-takes-all tendencies?” or “is it reasonable to expect that people – in return for their being fostered by the general society through the first twenty years of their lives and inheriting the infrastructure (legal, physical and economic) that allow them to make a living – do something to contribute to ensuring the continuation of these possibilities for other people?” really the start of a slippery slope that inevitably and according to some iron law of history and physics-like causal determination ends in dictatorship and the abolition of all freedom?

Jan February 5, 2013 at 6:31 am

To call someone who supports a marginally larger state role in the economy a socialist is ridiculous. If you think all progressives are actually socialists, you might as well call them all Marxists. This kind of talk is unsettling, because of what the word “socialism” signals to so many people. It reeks of McCarthyism.

Sweden’s folkhemmet model of government in the the last few decades was called the middle way, that is a middle way between pure capitalism and pure socialism. It wasn’t the Soviet Union and it wasn’t the U.S. At its highest, public spending got up almost 70% of GDP there. Guess what, still not socialism. It seems like they did a pretty good job “controlling the demon” once they unleashed it–in fact they reversed course based on experience (but note: state still has a much larger role there than in the U.S.). Have you heard some good stories about the Swedish secret police, or the reemergence of their king? It seems like lots of the people “enjoy” it just fine.

msgkings February 5, 2013 at 12:15 pm

@momama

According to many on this blog, unfortunately, yes. Moderate positions don’t fit too well here.

momama February 5, 2013 at 4:40 am

Doug, a few questions for you:

1. Do you have any empirical indications supporting this hyperbole?

2. If status is a two-sided, zero-sum game where the two sides are locked in a battle to the death, and you are against the prestige/intellect team, would it be fair to say you are not happy until DC submits broken, bent and bowed to their market chosen masters in Greenwich?

I am not defending the US political class, or its commentariat, by the way. Just wondering.

Doug February 5, 2013 at 2:44 pm

“1. Do you have any empirical indications supporting this hyperbole?”

Every conflict in human history comes down to tribalism. One merely needs to look for the tribal characteristics that separate David Koch from Maureen Dowd. Natural divisions to look at include income and education. Each one’s relation to political affiliation is quite weak in isolation. But income adjusted by education is one of the strongest predictors of political affiliation. People who earn much more than their education suggests, plumbers, car dealers, contractors, small business owners are heavily conservative. In contrast those who earn much less than their high education justifies, academics, journalists, civil rights lawyers, public health workers, teachers, are heavily liberal.

The second piece of evidence to consider is that virtually all “public-opinion generating” institutions are heavily leftist. Less than 5% of the professors at top universities vote Republican. A similar metric holds true for journalists. The vast majority of think tanks and NGO workers are democrat. Even at the lower level nearly all primary and secondary teachers in the US vote democrat. To the extent that right-wing versions of these institutions exist they’re pathetic, isolated, weird, unimportant laughing stocks: Bob Jones University, Fox News, and the Heritage Foundation.

“2. If status is a two-sided, zero-sum game where the two sides are locked in a battle to the death, and you are against the prestige/intellect team, would it be fair to say you are not happy until DC submits broken, bent and bowed to their market chosen masters in Greenwich?”

Greenwich has been getting beat into submission by DC since at least the administration of FDR. My tribe has been so thoroughly beaten and rendered into submission that any resistance, let alone victory, is hopeless. The world of 2013 looks far more like the world envisioned by Jane Addams, Samuel Gompers, John Dewey and Eugene Debs then it does of that envisioned by JP Morgan, Andrew Mellon and Grover Cleveland.

The influence class wins every battle by default. It owns and controls every organ of public opinion thoroughly and completely. In popular democracy that gives you far superior power. This explains the paradox of the public perpetually being evenly split between the left and the right positions, but the left positions through the scope of 20th century history always coming out on top. To the extent that the moneyed classes get any pathetic result from the political process its by continuously throwing cash at lobbyists to get some trivial decision in their favor.

The so-called political opposition, the Republican party and the various conservative movements, is a pathetic sham filled with useful idiots who provide a veneer of balance to the system. In reality looking over their actual policy victories in the preceding century any historian would conclude that they have little more actual power than the sham-opposition Democratic Party in Soviet Poland.

My preference would be for the Republican party to dissolve completely. Let the progressives have complete and uncontested control over the government. Anything they want they’ll get eventually anyway. But they’ll get it faster and they’ll get it without opposition. Let the country embrace their insane ideas without strawmen morons on the other side to cajole and blame when things inevitably crash and burn. After a few decades of uncontested progressive Democratic control trying to blame every problem on the Bush legacy or obstructionist Republicans in congress might start to sound a little hollow and unconvincing…

momama February 6, 2013 at 4:41 am

“To the extent that the moneyed classes get any pathetic result from the political process its by continuously throwing cash at lobbyists to get some trivial decision in their favor.”

And here I thought that the rich were getting richer. Oh wait, they did (if you believe the Congressional Budget Office, of course):

http://www.cbo.gov/sites/default/files/cbofiles/new/homepage_graphic_large.png

By all means, believing that the rich are too poor and the poor are too rich is a legitimate political sentiment. But I continue to be amazed by the fact that people who are interested in economics are so hung up on what pundits vote rather than who controls the functions of the economy. It may be swearing in church to say this on this blog, but I think the marxists were right that owning means of production gives power, and more power than holding a university chair and teaching semiotics to a miniscule class of children of their own peers. Whether they were right on other matters, well…

mark February 5, 2013 at 10:20 am

This is brilliant

Matt February 4, 2013 at 6:00 pm

You refute the ideological claim with position statements that might put you on the “maverick” side of the GOP, instead of the orthodox/ideological side. No one ever accused you of being an ideological Republican. You’re an ideological libertarian economist. I find your blog interesting, which is why I read it. But like all economists — though VERY few admit it — the policies you promote through your writing are almost all ideological. The dirty secret economists don’t like to share is that almost all economic analysis as it pertains to government policy rests on a large, highly debatable set of assumptions and ideological beliefs about both behavior and measures of welfare. Change your assumptions or encode different ideological beliefs in your welfare function and voila, you can call the exact opposite set of recommendations the clear choice based on sound evidence and analysis.

John Pertz February 4, 2013 at 10:26 pm

I think that is an incorrect and overly simplified view of economics. We do have unbelievable evidence that markets coordinate disparate wants and desires better than other forms of social organization. We also have strong evidence that said coordination leads to higher inequality and much higher median income for a given society. Cowen should feel EXTRAORDINARILY confident in that evidence based belief.

As a market oriented person I am fully aware that freer markets lead to more inequality, but also greater median wealth. I am obsessed with median wealth statistics. Gini co effecients, while concerning, are not the be all end all for me.

Therapsid February 4, 2013 at 11:19 pm

The idea that wants and desires should be coordinated to benefit utility or some other hedonic metric is itself a political commitment. There’s no escaping ideology.

Matt February 5, 2013 at 1:32 am

You’re first point is correct, but your second point does not follow. The structure of your argument is the same as an epistemology that says that: since (1) absolute truth is unknowable; then (2) all truth claims are relative and no statement is more true (or false) than any other.

Any framework that says humans are better off if they consider themselves better off, and that societies can be evaluated using various aggregations of this measurement, relies on non-neutral philosophical assumptions. But those assumption are more neutral than a framework that says that humans are better off if Bob Johnson, Joe Stiglitz, or Sandra Bullock think they are.

dan1111 February 5, 2013 at 5:00 am

Does any somewhat informed person not realize that different political views rest on different underlying assumptions about how the world works?

How can this be a “dirty secret” when all the economists I know of with a public platform are constantly arguing about the underlying assumptions?

How is your description of economics different from any other field? In every field, there are knowns and unknowns. The things that are known are never talked about, because there is a consensus about them. Thus the debate always tends to move to the unknown: whatever the frontier of knowledge in that field happens to be. It is therefore fallacious to say “Economists never agree on anything they talk about; thus economists don’t know anything.”

SK February 4, 2013 at 6:13 pm

I work for Army on the research side (where, from your column, I gather you’d rather not see cuts, but whatever — the sequester is a blunt instrument) and, yeah, there’s cuts relative to baseline but the overall budget is growing. That said I think you’re missing the opportunity to point out the real malfeasance here. THe sequester cuts have everyone running around with hair on fire — people are going to be furloughed, contracts cut, etc. — and one thinks, man, how is it possible we’re going to get killed so badly this spring when budgets are going _up_? But of course the answre is that in the FY so far — even now to some extent — we’ve spent as if the cuts aren’t coming. “Everyone knows” the austerity won’t really happen, so go ahead and spend to the baseline! Which itself is a pretty good reason to see the cuts happen.

That said, wow, the sequester is a blunt instrument. Soldier health care costs are ballooning and of course right now that’s to be expected, and funded. Materiel has been expended or degraded that ought to be replenished. Other areas — many well documented ones! — need a good cut. But the sequester enforces a dumb, cut-down-all-the-grass thing. I agree with the column it might be the best option, but, it’s a terrible best option.

Bill February 4, 2013 at 6:32 pm

Thoma’s point is that your piece began with the assumption that additional cuts are necessary now, and therefore…. That is, the discussion started with the assumption of the need to cut. Whereas he cited what he believed was an error of omission by not talking about earlier reductions and tax increases.

To me, both miss the point: if we have waste or misallocated resources in Defense now, we should cut it now and either redeploy in other areas (such as infrastructure), or simply reduce spending. Neither of you, though, discuss moving projects forward (spend now for what you will have to purchase later, and not purchase it later; or spend now for that which should have been spent earlier, but was not: eg., your airport construction example). Nor is there any discussion about spending which increases future productivity or employment, and the costs of not taking those paths now when there is a shortage of aggregate demand and interest rates are phenomenally low versus simply spending for the sake of spending.

All in all, though, I think Thoma’s criticism is misplaced, and sympathise with you as my wife tells me that I make errors of omission all the time.

mark February 5, 2013 at 10:30 am

I think I am in line with this comment. To me, 1) all projects that are positive NPV should be funded, assuming a full and accurate projection of the benefits and costs involved (and not just a simplistic short term fiscal multiplier analysis). 2) They should be funded and executed as efficiently as possible and waste of money is bad. 3) How should you fund them best? A) transfer money from productive actors who generate surplus above their near term consumption needs, after calculating the effect of changing incentives in regard to future productivity; B) print money if after assessing both the short and long term consequences, you determine it is not harmfully inflationary; C) borrow, after calculating the entire cost of that (i.e., will I create / add to a structural deficit because the sum of tax revenues captured from the new activity will be lower than the amount borrowed) or D) transfer the money from unproductive and inefficient actors and uses, taking into account how that will impact those actors. It would be nice if we could have a non-emotional discussion of decisions along those lines instead of dogmatic ideological approaches that demand the exclusion of most of the relevant options.

Guest February 4, 2013 at 7:57 pm

Well, yes. Being ideological is in the eye of the beholder. But at least he didn’t accuse you of being a blind partisan….or partisan at all. THAT would have been funny….considering the source. Rabid partisanship is a far more cancerous grip that quickly pollutes and blinds the smartest and most genuine of people in terms of focus and judgement. You can’t be a firm partisan and pretend to have integrity. There’s just too much you have to overlook and rationalize.

TMC February 4, 2013 at 8:38 pm

“there’s cuts relative to baseline but the overall budget is growing.”

I see this as being characterized as spending cuts or austerity quite often. This is deceitful.
I used to date 3 women a month before I was married, now only two. Therefore I am faithful to my wife.

Andrew' February 5, 2013 at 2:56 am

True, and yet assume animal spirits and expectations are both correct. We’ve figured out yet another way to do things exactly wrong.

TMC February 4, 2013 at 8:45 pm

Also, “note also that the American Taxpayer Relief Act (ATRA) added another half trillion in deficit reduction.”

How does something called the American Taxpayer Relief Act generate MORE revenue?
Words no longer have any meaning.

Andrew' February 5, 2013 at 2:43 am

Government is like a marketing firm in many ways. If we believed every ad we heard word-for-word it would have very funny results.

Claudia February 4, 2013 at 9:00 pm

Not sure why, but your post reminded me of a podcast of yours about referees and journal submissions. I believe a key point was if referees keep ‘misunderstanding’ your work then it’s likely that YOU are not being clear. I am sympathetic with your frustration, but what did you expect? You were writing in the NYTimes and you pulled some cheap shots. Of course, 95% of what you wrote was on high ground, but you threw in just enough to piss off the other side: bond vigilantes, co-opting Keynes, etc. But setting all that aside, I think there is a useful kernel in Thoma’s critique. What’s your vision here? Seems that the sequester was a poor frame for your argument, since you were not arguing for across the board cuts. Or are you? Why not take it up a level and tell us what would be a desirable path for govt spending and taxes? There is no simple (or even complicated) formula, so why give that pretense? Most people, even the readers of the NYTimes, don’t have budget baselines in their head…so explain one case to them. I think the military is an interesting one, because we are coming off two wars…surely that should affect the baseline. And being upfront about what the spending is, not a lump of GDP, would help. Even in the military, I suspect much of this is the wage bill…which if cut would affect the private economy too. Military families and defense contractors buy stuff too. I am not saying that’s argument to grow spending…many are skilled enough to be re-employed quickly…but we should be upfront about the transition costs. You had a lot of interesting things to say about how to pick programs to cut, but there was not much of a roadmap and I think that rightly makes people nervous. I don’t get the sense you think govt should be x% of GDP which is less than the current y%, but I could see how that might come across in your writing. Or ignore this comment…the more frequent advice I get about referees is ignore them until you find some that are willing to take your work seriously.

derek February 4, 2013 at 10:15 pm

In the last little while I have seen Tyler say things which hint that he is questioning the wisdom of current policy or even beginning to challenge the orthodoxy of economic thought.

The last one was striking; why are we manipulating the yield curve so borrowing can maintain employment of folks that as a group have less than 4% unemployment? The same can be asked about raising taxes.

I’m heartened by this. Slowly, incrementally, like a creaking behemoth, thought in the US is coming around that the current fiscal and monetary stance is not working, and in fact is impoverishing working people, all the while enriching those who by anyone’s measure are least deserving of government help.

Andrew' February 5, 2013 at 2:45 am

“least deserving of government help”

In theory, I might wonder if help might have the most impact where people are most productive. In reality, government doesn’t help.

Rich Berger February 5, 2013 at 6:58 am

I agree, but I wish it were happening more quickly. The damage that will need to be repaired is accumulating.

Jeff February 4, 2013 at 9:48 pm

Why do you care what Mark Thoma thinks? Surely you cannot be so naive as to think that any argument you make will sway him.

David Jinkins February 4, 2013 at 10:41 pm

Is that really Tyler posting? Uncharacteristically defensive.

Ape Man February 4, 2013 at 10:54 pm

To be fair, when Tyler is not defensive he is accused of being cryptic and to dismissive of other peoples views.

That said, I prefer the so called “cryptic” Tyler myself. If they claim they can’t get it, it is usually because they don’t want to think about what they believe anyway or don’t know enough to follow the argument even if it was presented in more detail. Occasionally I am in the latter category (although if it bugs me enough I will research to find out) and I am more often in the former category then I would like to admit.

John V February 4, 2013 at 11:09 pm

Well, I think even the cool, calm and cerebral Tyler Cowen can get frustrated once in a while. :-)

Jacob AG February 5, 2013 at 12:33 am

+1 to all 3 comments in this thread

John V February 4, 2013 at 11:12 pm

Read the comments at Thoma’s blog. I struggled to find a post that even addressed the article. It’s just the same old vapid shadow boxing against the bogey libertarian….liberally defined…or mangled. I think. Unsure. Very vicious. Very sad.

Andrew' February 5, 2013 at 2:46 am

When is the last time TC has posted something even moderately, but unquestionably libertarian? I’ve been hanging out here almost 5 years.

DocMerlin February 5, 2013 at 4:21 am

Last? When was the first?
I’m not kidding, and this isn’t rhetorical. Can someone provide me a link, because suddenly I can’t think of a single instance.

Andrew' February 5, 2013 at 5:39 am

They never understand. And they get their panties in a wad at being called socialist when they really do think TC is an anarchist.

mark February 5, 2013 at 10:37 am

Agree. I used to read that blog because it is a kind of clearinghouse for links to others’ analysis but eventually I got tired of the progressive droning. The commenters there are even worse: extremely simple-minded left populists.

I am not an academic so I am curious – how is Mark Thoma’s academic output valued by his peers? It seems his major output is to re-post other people’s work on his blog and otherwise, I am under the impression he has not made much of a contribution to the discipline.

Rich Berger February 5, 2013 at 11:05 am

I stop by there from time to time for laughs. I really enjoy cut & paste Anne, who loves lengthy excerpts from the wisdom of Paul Krugman. He’s like a god there.

mark February 6, 2013 at 11:28 am

Yes, “anne” is very distinctive. I love the cut and pastes of unformatted data that go on for dozens of lines. I always thought she must be the webmaster or Thoma’s assistant or something like that. She is always on that blog. What other explanation could there be?

Brian Donohue February 6, 2013 at 12:41 pm

You may disagree, but the lefties who hang out here, by and large, are not idiots, which I think is a nice plus for this site.

I mean, my heart is with the crazy libertarians, but a libertarian echo chamber would get old real fast.

8 February 5, 2013 at 12:42 am

There is no more we, there are at least two sides with wholly opposite ideas. Let the two sides separate, one can live in a low tax state with government spending very low; one can live in a high tax state with government spending very high. They can peacefully exist side by side. It is the best solution, much better than making everyone miserable for the sake of phony unity.

NAME REDACTED February 5, 2013 at 4:22 am

I agree. Lets set Texas secede.

Andrew' February 5, 2013 at 5:40 am

Or…try federalism.

Jacob AG February 5, 2013 at 2:14 am

“I see Mark as falling into a bad habit here, namely he encounters a specific argument which makes him uncomfortable and then looks around for reasons to reject or downgrade the source of that argument, rather than focusing on the argument itself.”

…a.k.a. “mood affiliation” (©Tyler Cowen)

(…just kidding about the ©, Tyler would never copyright something like the term “mood affiliation.” But as far as I know, he coined the term: http://marginalrevolution.com/marginalrevolution/2011/03/the-fallacy-of-mood-affiliation.html and it would have been appropriate to use here)

Merijn Knibbe February 5, 2013 at 4:39 am

Some discussion of this problem and the need for well defined metrics (which are readily available) on the Real-World economics blog: http://rwer.wordpress.com/2013/02/04/econ-troversy-no-1-cowen-vs-baker-read-discuss-and-vote-2/#comment-30190

Brian Donohue February 5, 2013 at 1:54 pm

Ah, Dean Baker. Here’s an excerpt:

“In other words, even if we cut $100 billion from the government Department of Waste, Fraud, and Abuse, which does nothing but write reports and throw them in the garbage, it would still slow growth and raise unemployment.”

In other words, maybe maximizing growth and minimizing unemployment in the near-term isn’t the best policy.

Not when you’re a monomaniac though. Baker goes on:

“The problem facing the economy right now is demand, demand, and demand. If you reduce demand, you hurt the economy.”

Translation: C’mon consumers and businesses, unbuckle your anti-social wallets. It’s your patriotic duty. What could possibly go wrong? (More ominously): And if you don’t, we’re gonna let rip with waves of government spending. Cuz governments aren’t households, so there’s no downside, and it’s what the economy needs. Ask anyone.

I am saddened that economics is not a real science, so Keynes will forever by spared his Lysenko comeuppance.

mark February 6, 2013 at 11:28 am

And please stop awarding contracts to the low bidder. To stimulate growth, governments should award contracts to the highest bidder.

Mike Huben February 5, 2013 at 7:29 am

“Mark also accuses me of being ideological. That’s in the eye of the beholder.”

Oh, horror! Mark Thoma said the emperor has no clothes! Obviously, that’s in the eye of the beholder because all the sycophants praise the sublime couture of the emperor.

Comments on this entry are closed.

Previous post:

Next post: