Thursday, February 13, 2014

The Fury of the Health Care Haters, the Dishonesty of (Some) Economists, and the Return of the Baseline Problem

-- Posted by Neil H. Buchanan

My new Verdict column today returns to the controversy regarding Republicans' claims that a Congressional Budget Office (CBO) report had proved that "Obamacare will kill 2.5 million jobs!"  I discussed the matter briefly last week, in my Friday post here on Dorf on Law, which I thought would be the end of my writing on the subject, given that the controversy had so quickly gone from tragedy to farce.

I decided to revisit the issue, however, because (1) the CBO on Monday issued a fantastic blog post, in "frequently asked question" form, that deserved to be discussed and  highlighted, and (2) I was fascinated by an article on the op-ed page of The Wall Street Journal, which profiled the economist who claims to be the man who "exposed" the job losses that Obama's health care law will supposedly inflict on the nation.  I use that article to expose the muddled thinking of the people who claim to be the "economic scientists" in the debate over health care reform.  I will continue that discussion here.

In my Verdict column, I do not identify the economist in question by name, and I will not do so here.  This is not to be coy.  The linked column names him, and there is nothing special about his circumstances that argues in favor of anonymity.  I do think, however, that it is important to view this guy as merely the most outspoken version of the brand of economist that came to dominate that field over the past generation or so.  This particular economist seems unusually obsessed with Obama hatred, or at least he is more willing to be intemperate in public about it, but the arguments on which he relies are perfect examples of the more general pretensions of a field that has been hijacked by his band of fellow travelers.  Therefore, I will simply call him X.

As I discuss in my column, the WSJ article makes clear that X is genuinely angry.  He is also, however, quite proud of himself.  He claims that the increase in the estimates of reduced aggregate labor supply, included in the CBO's latest report, are his doing.  Although the obsequious columnist says that X "declines to take too much credit," he quotes X as follow: "I'm not an expert in that town, Washington, ... but I showed them my work and I know they listened, carefully."

For all we know, that is true.  X is the author of many papers in which he tries to claim that there are large effects on work effort caused by the "implicit taxes" inherent in government benefit programs and their phaseouts.  He has even claimed, at book length, that the Great Recession was caused by too-generous safety-net programs, which encouraged people to withdraw from the labor force, because "when you pay people for being low income you are going to have more low-income people."  (One of the hallmarks of the conservative brand of economics that dominates the professional journals is that there can be no involuntary unemployment, because markets "clear" and thus job reductions must come from the supply side.)

As I say, X might be right that his work affected the computations that the CBO just published.  CBO tries to be evenhanded and to survey the field, such that its work is often lacking in judgment by virtue of being carefully "balanced" in the sense of reflecting the state of play in the big economics departments and journals.  X is a major player at one of the top departments, and surely CBO decided to include his estimates in its overall assessment.

The problem for X and his compatriots is that CBO will not overstate the results of its analyses.  This is not the place to get into a discussion of how work like X's systematically overstates the effects that X wants to highlight, because that is the type of debate that takes place on the economics blogs (and, to some extent, in the professional economics journals that still allow some dissent).  But what clearly exercises X, as I discuss in my column, is not the economics, but that the people with whom he disagrees politically do not accept his view about the importance of his findings.

The CBO report, as I note in my column, does not (and cannot) even say whether the aggregate reduction in hours is going to happen because 2.5 million fewer total people will choose to hold jobs in 2024, or rather that every worker will choose to supply (on a back-of-the-envelope calculation) 40 fewer minutes of work per week in 2024 (yes, you read that right: that's less than a one hour reduction per worker per week, on average), or somewhere in between.  The CBO staff uses studies like X's, which rely on educated guesses and assumptions about the aggregate labor responsiveness to incentives, and estimates what looks like a big number.  How to interpret that number is not a matter of economics, because the policy differences are based in large part on deciding whether the particular form of the predicted labor supply reductions represents something good or bad for society.

And that is where X really goes off the rails.  As I note in my column, he is incensed by what he views as a shift in the argument from liberals.  Liberals have attacked work like his for the past six years, because such work (very much by design) simply assumes that the weakness of the economy since the Great Recession cannot be Keynesian in nature -- that is, that unemployment cannot have increased because of a lack of demand by employers.  Now, he thinks that he has caught them in an inconsistency, because liberals have responded to the CBO's report by saying that labor supply reductions can be a good thing (allowing people to choose part time work, to retire earlier, and so on).  Which is it, liberals?!

There is, of course, no inconsistency.  As I discuss in my column, long-term forecasts assume that there is adequate demand for all of the workers who choose to supply their labor (in the amounts that they want to supply it).  Beyond that, however, economists like X are so blinded by their belief that macroeconomics is all about labor supply that they tie themselves in knots when they even try to think about labor demand.  For them, of course, labor demand is merely the other line on the supply-and-demand graph that shows how the labor market (like all markets) quickly and efficiently reaches equilibrium.  From that perspective, talking about labor demand as if it is somehow independently important is simply confusing.

As X puts it, a job "is a transaction between buyers and sellers. When a transaction doesn't happen, it doesn't happen. We know that it doesn't matter on which side of the market you put the disincentives, the results are the same."  In other words, X tries to change the subject by imagining that his detractors care about whether the "implicit tax" is imposed on the employer (demander) or the worker (supplier), and he insists that the difference does not matter.  Even that logic is not without its real-world problems, but it is simply not the point here.

After the WSJ article came out, a colleague expressed the hope that someone would use some "real economics" to refute X's arguments.  The problem, however, is that X's arguments are not really about economics.  He (and far too many of the people who share his credentials) is a polemicist, talking like an economist but going far beyond even the contestable claims that their work can support.

The word play can be remarkably transparent.  For example, X was asked how he ended up conducting such "unconventional" research: "'Unconventional?' he asks with more than a little disbelief. 'It's not unconventional at all. The critique I get is that it's not complicated enough.'"  Of course, the question was not about being complicated, but about being conventional, which is quite different in this context.  (To be fair, that X conflates conventional with complicated is more than a bit of an occupational hazard, especially for economists of X's training.)

More pointedly, responding to the supposed "shift" in liberals' views on the Affordable Care Act's effects on the labor market, X waxes patriotic: "I'm unhappy with that, to be honest, as an American, as an economist. Those kind of conclusions are tarnishing the field of economics, which is a great, maybe the greatest, field."  For God, for country, and for economics.  Content is nothing, because it is all about chest-pounding.

Finally, consider the simply dishonest rendering of the CBO's predictions (and X's anger with liberals' responses): "Why didn't they say, no, we didn't mean the labor market's going to get bigger. We mean it's going to get smaller in a good way."  As the CBO has emphasized, its prediction is that the growth in labor hours supplied will be slower than otherwise, not that the labor supply will be smaller than it is now.  For those who think that X's wording is fair ("smaller" merely meaning "lower than it would otherwise be"), consider the howls from conservative economists when the CBO describes federal "spending reductions" by comparing future spending against the trend (based on a growing population and economy).  Here, moreover,  X explicitly contrasts "getting bigger" with "getting smaller."

Ultimately, what infuriates economists like X is that they want to be able to choose their "baseline," and to describe deviations from that baseline as inefficient, muddle-headed, non-economistic, politically craven acts by the benighted.  As I note in my column, X's deeper complaint is that liberals are not accepting his assumption that the pre-ACA labor supply is the "right" labor supply.  For them to then describe the post-ACA labor supply as "smaller in a good way" is, to people like X, horrifying.  X played by his normal rules -- showing the policy A leads to change in behavior B -- which should have won the game for him.  "See?  Obamacare created incentives that reduced labor supply.  I claim to be a scientific economist, so I'm not allowed to say that that's 'bad.'  But that's bad."

Or, to put it differently, this is what happens when the world takes economists at their word that they are scientists and not politicians or philosophers.  One orthodox economist once put it this way: "Deciding whether that is good or bad is above my pay grade."  Such modesty is touching, but too often disingenuous.  X calls his field "maybe the greatest," but academic economics can lay any claim to being a science only by being truly silent and agnostic about baselines and the goodness or badness of policy changes.

I have written often that I do not think that economics can even make that claim of scientific neutrality, but I understand those who believe otherwise (or who at least hope that it is possible).  What we see from this latest imbroglio, however, is that at least some economists want to be able to have it both ways.  X may or may not be right about the incentive effects of various ACA-related policy changes (although I suspect that he has deliberately biased the technical results), but even if he is, it is not self-evident that the result is bad.  And considering the possibility that it is good is not an assault on everything that is virtuous and right in America.