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.


sweetsuzee said...

Whatever happened to unbiased journalism? It is obvious where this writer is coming from and I find it appalling. I'm not an economist; I'm not an attorney; but, I have read the entire ACA long before it was voted on. It is replete with taxes that are not hidden. My many friends who have had their hours cut back to 29.wk do not agree. My many friends who have already been hit with padded restaurant bills where an additional 3 - 5% was added to cover ACA do not agree although that just works against the wait staff. And for those who were assured that there would be NO taxes for individuals making less than 200k or couples at 250k, just wait until you go to sell your home if it has appreciated as most have. In other words, seniors who have lived in their homes for many years in hopes of cashing in for retirement years are in for a big shock. Who pays the owed fees when the SCOTUS determines that the POTUS had no constitutional authority to delay portions of the ACA which are mandated by the written law? The worker? The employer? How about both? In closing I will add, before anyone squalks, that I have been a registered democrat my entire life. However, I'm not part of the "ME, ME" society.


I not-all-thatrespectfully suggest that any scientist/science that involves questions related to system boundaries and/or system inputs will at minimum demonstrate why basic thermodynamics do not dominate the discussion. Instead, as economists among others are wont to do, assuming so without any inquiry seems the norm... implying that there's little science involved.

The Dismal Political Economist said...

About the only criticism that one could have with Mr. Buchanan’s commentary here is that it treats what is basically a nonsensical interview with a polemicist as a serious enough work that merits attention. It does not.

Anyone who is a frequent reader of the WSJ’s Saturday interviews knows that the entire series is not a set of serious interviews. In most cases the editorial comments of the interviewer dwarf the comments of the interviewee, and the only purpose of the entire exercise is to promote the antediluvian views of the WSJ editors. Rigor, scientific methods, consistency and logic are not required in the WSJ opinion pieces, and therefore deserve the lack of respect and dismissal they almost always get.

By responding to Mr. Mulligan’s ego driven self congratulatory remarks Mr. Buchanan elevates them to a status they simply do not deserve.

And one final comment. Has anyone ever done a ‘look back’ at the forecasts and predictions of the CBO and come away with any confidence in their ability to provide accurate forecasts? This is not to denigrate the CBO, they do the best they can, but the awful truth is that economics is not sufficiently scientific enough to accurately and consistently quantify the impacts of policy and forecast future economic conditions.

The CBO is given credibility by one side or the other only when those flawed (again, not their fault) forecasts and analysis coincide with the prejudices of those who are promoting their own prejudices and politics.

Bob Hockett said...

Thanks, Neil,

For some reason I never remember the name of the syndrome per which some people persistently project onto others what are in fact their own most conspicuous traits. It seems to me, however, that the pseudoscientist X is definitely a sufferer.

Here is what seems to me the 'money quote' in his WSJ interview:

'But are we saying we were working too much before? Is that the new argument? I mean make up your mind. We've been complaining for six years now that there's not enough work being done. . . Now all of a sudden we wake up and say we're glad that people are working less?'

This is X waxing indignant over the Dems' putatively changing their value story in response to the CBO report, making supposedly good news of what previously would have had to be admitted as bad news by the Dems' valuational lights.

But now note that it is actually X who has changed the value story. Nobody EVER complained, post-2008, that there was 'not enough work being done.' The complaint was that there was not enough work being OFFERED - i.e., that involuntary unemployment was unusually high. And the Dems' promise about the ACA was that it would not raise that rate even higher - it would not increase involuntary unemployment.

Nothing in the CBO report, so far as I'm aware, undercuts that promise or predicts any harm in respect of what we care about - involuntary unemployment. Indeed, if anything, the report implies that involuntary unemployment might actually be lowered by the ACA, precisely in virtue of more jobs' becoming available as some who worked only for access to health insurance rather than income now find new means of accessing insurance.

So is he insane or is he merely dishonest? Either way, X had best take a Mulligan. :)

Thanks again for a great post,

Neil H. Buchanan said...

Needless to say, I agree with Bob Hockett's comment. I had thought of this as a major case of projection by Mulligan, too.

I share TDPE's concern about inadvertently elevating unworthy subjects by engaging with them, which is why I did not identify the particular transgressor, but simply used him as an avatar of what's wrong with modern economics. I'm not saying, "See, Mulligan's an egomaniac, as the lickspittles on the WSJ op-ed page demonstrate through their absurd interviews." I'm saying that his interview provides an especially useful window into a very powerful, very pervasive way of thinking, which we ignore at our peril. He's merely useful for being so clumsy about it.

David Ricardo said...

This statement

"He's merely useful for being so clumsy about it."

made my day. Thanks!!

Mr. Buchanan is correct in that the breed of economists he is talking about are a very serious threat to rational, intelligent economic analyis which we do ignore at our peril. The suffering they have already inflicted on the U. S. populace is tremendous, with more to come if their views are adopted as policy.

There is an old joke about the former Soviet Union, which used to have a May Day parade with all the soldiers and tanks marching in Moscow. In one section was a group of men and women in suits with brief cases.

When the Premier complained that this was supposed to be a parade of weapons he was told "Those are the economists, you would be amazed at how much damage they can do to a country".

Surely Mulligan and his ilk were marching that day.

Shag from Brookline said...

Perhaps at some point Mulligan will take a "mulligan."

The efforts or Republicans to tarnish ACA include referring to the ACA as Obamacare. Over time, perhaps Republicans will stop referring to Obamacare and will revert to the Affordable Care Act, or ACA, as Obamacare as a success would extol Democrats, as did Social Security and Medicare.

Jimmyd said...

Oddly, although I have found some of your other commentary on this blog fatuous, not this post. IMO this topic needs to be elevated more, not less. Perhaps I am biased because like you I am a /former/ professional economists but for the most part I agree that much of what passes for economics these days is simply arrogance ("chest pounding") disguised as thinking.

On of the real--though untalked about--tragedies of the last fifty years has been the decision of the Nobel committee to create a prize in economics. Alfred Nobel himself declined to create a prize in economics and I think this omission was not coincidental. Creating this prize with its long-winded an awkward name "The Prize in Economics in honor of Alfred Nobel" (IIRC) has simply gone to the head of the profession and now they honestly and sincerely believe that what they do is as important to the world Peace or Medicine.

So are most economists arrogant twats? Yes. But let's not overlook the fact that they get a lot of support for this behavior---sometimes from the most unlikely of quarters.

David Ricardo said...

I think the biggest indictment of the economics profession is the propensity for economists, myself included, to analyze and comment in bi-variate terms when we all know it is a multi-variate world.

A is statistically correlated to B, therefore A causes B, B causes A etc., whatever. The failure to explain that the world is highly complex and that simple correlation/regression doesn't work is one of the great failures of the profession.

Neil H. Buchanan said...

I won't let Jimmyd's gushing praise turn my head. Even a stopped clock is non-fatuous twice a day.

egarber said...

As a matter of economics, there is a core story being lost in all this.

First off, as the ACA establishes financial security for working families, overall demand will increase. As medical bankruptcies diminish, and as families feel more confident that basic needs are covered, general spending on products will drive growth -- and create jobs the way it's supposed to happen.

And critically, that trend, coupled with new labor leverage stemming from choice empowerment (the CBO's finding), will put upward pressure on wages. I think this could also be a big reason companies won't drop coverage (opting for the penalty) -- i.e., they need to make employment attractive for folks who will now have more choices.

So in the end, this is about driving growth and empowering labor. Hard for me to see how any of this is a bad thing as an economic dynamic.

Neil H. Buchanan said...

David Ricardo's second comment (re bivariate thinking by economists in a multivariate world) is quite true, and it is perfectly complemented by egarber's comment. Even if egarber's various predictions do not all turn out to be true (although I think that his predictions are sound), he demonstrates the multivariate considerations that should (but generally don't) come into play in the political discussion of the ACA.

Bill Walton said...
This comment has been removed by the author.
Bill Walton said...

And critically, that trend, coupled with new labor leverage stemming from choice empowerment (the CBO's finding), will put upward pressure on wages. I think this could also be a big reason companies won't drop coverage (opting for the penalty) -- i.e., they need to make employment attractive for folks who will now have more choices. Buy Fifa 14 Coins
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