Thursday, March 27, 2014

The Aw-Shucks Version of Conservative Economists' Dishonesty

-- Posted by Neil H. Buchanan

Did you know that economic scientists occasionally must force themselves to be more than just scientists, and instead to base their arguments on political philosophy?  Gasp!  That is the "dirty little secret" that conservative economist Greg Mankiw revealed in his column in last Sunday's New York Times Business Section.  Of course, framing the non-revelation in that way was very much designed to reassure people that economists are scientists in the first place, patiently offering "our understanding of how the world works", but who face the "necessity" of stepping outside of their scientific comfort zone -- because, you know, economic policies might actually harm some people.

Mankiw's writing is often difficult to take seriously, and this column appeared to be yet another example of why orthodox economists should not reveal in public how truly narrow they are.  He has, after all, spent the last year or so explicitly "defending the one percent," using a version of "just deserts" philosophy that simply assumes that rich people are rich because they are more productive than the rest of us.  (Why assume such a thing?  Why not?  Orthodox economic models are based on that assumption, too.  No need to question the orthodoxy, after all.)  As prominent as he is, his arguments are usually so flimsy that they do not merit even a moment's attention.

The column this past Sunday was different for three reasons.  First, as I noted at the top of this post, it was such a good example of orthodox economists' self-important pose as Scientists.  Economists like to pat themselves on the back for their "rigor" and "seriousness," to separate themselves from mere sociologists, political scientists, and so on.  The intensity of their commitment to proclaiming economics a science is matched only by the weakness of their claim to being actual scientists, as the balance of Mankiw's column so amply demonstrates.

Second, I could not help but laugh at the thinly veiled swipe at Paul Krugman that Mankiw delivers in the middle of the column.  Having admitted that "economic science is still a primitive body of knowledge," where "unintended consequences are the norm," he argues that economists should take a "big dose of humility."  And "if an economist is always confident in his judgments, or if he demonizes those who reach opposite conclusions, you know that he is not to be trusted."

Reportedly, the Times has a policy forbidding columnists from calling each other out by name.  (Probably a good policy, overall.)  Here, therefore, Mankiw is simply blowing a dog whistle for his conservative readers, all of whom have decided that Krugman is just a big meanie.  Supposedly, Krugman "demonizes" people with whom he disagrees, by pointing out that their policy prescriptions have been spectacularly wrong for years, while Krugman's have been notably and repeatedly proved right.  But that is just so rude for Krugman to say that people are being harmed by policies that are demonstrably wrong.  And, ya know, Krugman has been wrong, too!  (OK, not on any of the big issues since at least 2007, but you can bet he's been wrong.)  Of course, Krugman has readily admitted error, and refused to admit error where there was none.  But, per Mankiw, we should not trust someone who says things that turn out to be correct, and who points out when others have said things that were incorrect.

Krugman can defend himself just fine, but I found it amusing that Mankiw would feel the need to feed his base by saying oh-so-subtly that people like Krugman should be ignored because they are not humble enough.

I would not have devoted today's post to this topic, however, were it not for the third problem with Mankiw's column.  That is, he provides a wonderful case study in how conservative economists manipulate "the baseline problem" in making their policy arguments.  Conservative economists (and, to be clear, many liberal economists who buy into the basic framework of modern economics) take for granted the body of laws that allow a modern economy to function.  When criticizing a policy as "inefficient," the unstated assumption is that the other laws and policies are the baseline from which we can measure deviations from efficiency.

A stunningly clear example of this style of bad reasoning came up a few weeks ago, when a government report predicted that the Affordable Care Act would reduce labor supply in the future.  As I discussed in one of several posts on that subject, a prominent conservative economist became quite angry when people argued that reduced labor supply might be a good thing.  He had spent all that time trying to show that the ACA was inefficient, and people were not standing up to salute.

This was not, moreover, an example of the classic "efficiency versus equity debate," where soft-hearted people supposedly decide to allow the economy to operate below efficient levels, in the name of being "fair."  My point was that there is nothing about the pre-ACA labor supply that should be privileged in policy debate, such that deviations from it should be used to label the ACA an inefficient policy.  The laws of contract, collective bargaining, employment discrimination, antitrust, corporate governance, and so on all contribute to people's labor supply decisions.  Why should we assume that those laws, as currently constituted, should be the basis on which to determine whether the current economy is more efficient than an economy that would exist under some other combination of those and other laws?

Mankiw's column highlights this point by claiming that the "humility" that economists should adopt before offering policy advice requires them to respect the possibility that they can be wrong, so that they should strongly presume that "when people have voluntarily agreed upon an economic arrangement to their mutual benefit, that arrangement should be respected."  See?  The point is that we should not disturb the "free" choices that people have made in private contracts, because anything that we might do as a matter of policy could be wrong.

Those choices, however, are inextricably based on the existing web of laws and policies.  Therefore, it is meaningless to say that we should modestly step back, hoping at least to "do no harm" by not injecting the government into private decisions best left to the preferences of free men.  The government -- even a stripped-down "night watchman" state -- has made countless policy choices that restrict and define the choices that people make.  It cannot be otherwise.

Mankiw's two examples are especially (if inadvertently) helpful.  He counsels against increasing the minimum wage, because doing so "would disrupt some deals that workers and employers have made voluntarily."  Not being able to miss out on the chance to join his conservative brethren in attacking the ACA, he then says that "[t]he Affordable Care Act has disrupted many insurance arrangements that were acceptable to both the insurance company and the insured; these policies were canceled because they deviated from lawmakers’ notion of the ideal."

On both of these subjects, the very idea that there is a "no government" -- or even a "less government" -- baseline is simply absurd.  Even if we leave aside the rather notable omission of the effects that the policy choices might have on people who are not parties to the private deals that have been made (for example, children who live in poverty, because their parents are not offered jobs in private deals that pay a living wage), it is simply not logical to conclude that we must leave the current labor market or the current health insurance market alone.

The point is not that I have a better baseline, or that anyone does.  The unstated claim underlying Mankiw's supposed modesty is about as immodest as one can imagine: "We should assume that the laws governing economic activity in the absence of this policy were going to result in economic activity that can meaningfully be called efficient."

If anything, the labor market and health care markets happen to be among the best examples to explicate the idea that the underlying laws are entirely contingent.  Do we have "at will" employment, or not?  Do we say that unpaid overtime was merely a "voluntary" renegotiation of terms, or was it a violation of the original contract (or maybe outright theft)?  Should health insurance be subsidized?  Should it even be something that is negotiated by employers, rather than by individuals?

None of these questions can be answered as a matter of "doing no harm."  They are entirely contingent on what one counts as harm in the first place.  If we saw two people making a transaction, knowing that one of them was going to pay for the transaction with stolen money, there would be no reason to respect that private transaction.  Different sets of laws, however, will lead to different conclusions about what even constitutes stolen money.

Respecting a transaction, because it is the transaction that people would make under the current set of laws, is not modest.  It simply assumes away the problem, and removes the possibility of questioning laws that undergird the privileges of the people whom conservative economists defend.

5 comments:

David Ricardo said...

The longstanding argument by those who favored child labor and were opposed to child labor laws was that government had no right to interfere in the bargain, freely made, between a worker and an employer, even if the worker was a 10 year old child and the employer was a factory, farm or mine.

That Greg is using the current derivative of that argument to make the case for conservative economic policies places him securely in the camp of those who would have prohibited regulation of child labor and left children free to work 12 hour days, six days a week in dangerous occupations as such was the case in the 19th and early 20th centuries. For that alone he loses whatever claim to legitimacy, decency or compassion his position may make.

Paul Scott said...

I read the article. It was, to me, 100% about "don't trust economists because it is very complex and predictions can be wrong."

I think that is exactly the message the right wants and needs to deliver right now. Their models have failed completely. Models of folks on the left, including importantly Krugman and Yellen, have not been perfect, but they have been pretty close.

This is the economists version of journalistic false equivalence and since the right wing has completely and totally failed in a way that I cannot remember happening in my educated lifetime, it is probably best for them if they can lump everyone into the same boat. You see the same thing happening when bloviators get up before Congress or the press and say "No one could have predicted this..."

Bob Hockett said...

Bravo, Neil - imho, one of your best ever. Astonishing, isn't it, that even after centuries of thoughtful political economy we're still having to remind some 'economic scientists' that the baseline of entitlements that determine what counts as cognizable 'harm' and against which we measure (Paretian-inflected) 'efficiency,' inasmuch as 'we' as a polity determine it, is effectively endogenous? What prevents these people from seeing that that which is 'given' is that which WE give?

Neil H. Buchanan said...

My sincere thanks to all three of the commenters above. Great comments, all.

David Ricardo's point is important on its own terms, of course, and it also is another example of the baseline problem. That is, even if were to allow for the hiring of child labor, the idea that the employers are otherwise operating on a no-government playing field is fatuous. (What is the law of "nuisance" under which the firms operate? Do employees own any of their own inventions that they develop while on the job? You get the idea.) But the larger moral point is correct: Mankiw's argument has no principled limit to prevent its use to justify child labor (or, for that matter, selling one's children).

Great point by Paul Scott. This is indeed another type of false equivalence. "Yes, we've been proved wrong, but no one was right" is the new mantra on the right. Another example of this was in the aftermath of the (second) Iraq war: "OK, there were no WMD's, but EVERYONE thought there were." Except, of course, that not everyone did. Even the editorial board at Business Week came out against the invasion in 2003, for chrissakes! But right-wing apologists still claim that everyone was wrong, to cover their own arses.

And Bob, I know that you know the answer to your rhetorical question, but I'll answer it anyway: "Because it's inconvenient to admit otherwise." They have a faith-based agenda, of sorts, and they cannot allow inconvenient things like logic to get in the way.

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