September 2010: Clueless economists, nasty campaigns, and other observations

A tip of the baseball cap to the late, great New York newspaper columnist Jimmy Cannon for borrowing his signature phrase: nobody asked me, but…

ECONOMICS HAS BEEN CALLED THE DISMAL SCIENCE—BUT SHOULD THIS LARGELY ACADEMIC DISCIPLINE BE CONSIDERED A DISMAL PSEUDO-SCIENCE? Exhibit A is the failure of the neo-Keynesian economists on the Obama team to accurately predict the impact on the economy of the $900-billion federal stimulus plan. As the since-departed Christine Romer, head of the President’s Council of Economic Advisers, admitted in her stunning farewell comments at the National Press Club on Sept. 1, she and her colleagues not only underestimated the extent of the Great Recession but also, in retrospect, couldn’t adequately explain why the huge spending package didn’t hold unemployment under 8%, as Romer had promised.

Harvard professor Greg Mankiw analyzed the performance of the president’s economic team (Romer, Larry Summers, Peter Orszag, etc.) for the Washington Post, and focused on the reasons for the disconnect between theory and practice:

Logically, there are two possibilities: (a) The economy was sicker than they appreciated; or (b) the policies they put in place have not had their intended effect. There is no way to know for sure which is the case, but the Obama team is adamant that the answer is A rather than B. Obama’s advisers seem unwilling to doubt the efficacy of their policies — even though they were more interventionist and more redistributionist than was probably wise.

Scientific theories are adopted when they can predict, or explain, outcomes that are replicable. Economic theory has fallen far short of that standard over the past several years. Okun’s Law, which postulates a correlation between output and unemployment, didn’t work: it appears that, as a result, the stimulus spending didn’t produce the results predicted by the models employed by Obama’s economists.

Jim Manzi, a senior fellow at the Manhattan Institute, notes in the City Journal (“What Social Science Does—and Doesn’t—Know“) that two groups of Nobel laureates in economics disagreed about the potential benefits of the stimulus before it was enacted. Manzi adds:

…we have no reliable way to measure counterfactuals—that is, to know what would have happened had we not executed some policy—because so many other factors influence the outcome. This seemingly narrow problem is central to our continuing inability to transform social sciences into actual sciences. Unlike physics or biology, the social sciences have not demonstrated the capacity to produce a substantial body of useful, nonobvious, and reliable predictive rules about what they study—that is, human social behavior, including the impact of proposed government programs.

So what does this mean in policy terms? How about greater humility on the part of professional economist? For that matter, less certainty by all involved in the debate would be refreshing, which would include the editorial board of the Wall Street Journal as well as New York Times columnist Paul Krugman, who remains a Keynesian true believer and continues to call for massive government spending.

It’s not science, after all.

WHY HAS CAMPAIGN 2010 BEEN SO NASTY? Start with high stakes (the Senate and House in play), add an ample stream of cash for attack ads, factor in the role of political consultants who advise that going negative is a winning strategy, and finish with a culture that has abandoned the notion of personal shame—and you have the recipe for negative campaigning.

Why do I include the lack of shame as a factor? Simple: it is the candidate who approves the ads and endorses, or rejects, the nastiness. If they feel no innate sense of shame, or face no social ostracism for pursuing the low road, then negative campaigning will continue to grow. As long as “the ends justify the means” remains the prevailing philosophy, and candidates embrace that ethos, the downward spiral will continue.

IS POLITICAL COMPROMISE A GOOD THING? Nearly half of Americans surveyed “say they most admire political leaders who stick to their positions without compromising,” according to the Pew Research/National Journal Congressional Connection poll. Some 42% favor those pols willing to compromise. Not surprisingly, those who embrace Tea Party positions are less likely to support compromise (with 71% skeptical of accommodation), although many liberal-left Democrats dislike compromise as well, judging from their criticism of President Obama over his health care and financial reform bills for not going far enough.

This does not bode well for “working across the aisle” when the new Congress arrives in 2011. Tea Party-backed candidates and liberal Democrats are unlikely to bend on their positions, especially if they know their constituencies don’t like compromise.

THIS MONTH’S WORDS OF WISDOM COME FROM THAT NOTED COMIC PHILOSOPHER GROUCHO MARX: “Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies.”

Copyright © 2010 Jefferson Flanders
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