Friday, January 08, 2016

Big Government Fantasies of Conservative Economists

by Neil H. Buchanan

Do academics have pre-existing ideological policy agendas to which they fit their arguments, or do they follow logic wherever it leads and adopt whatever policy positions are warranted by evidence and reasoning?  If one believes, as I do, that academic writing ultimately has a profound impact on public policy, the answer to this question is rather important.

My impression throughout my academic career has been that my fellow professors are, in the main, honestly following the trail of evidentiary and theoretical crumbs to determine the best answers to the questions at hand.  This is why I have never been particularly surprised or worried about the unbalanced party affiliations of professors.  On his blog earlier this week, Paul Krugman runs through the numbers and makes some important observations about the right's claims of left-wing bias in the academy.  Among other things, he notes in particular that the hard-science people are actually more likely to be registered Democrats than are other academics.  Do muons have a well-known liberal bias?

Even so, there truly are some people making a living in academia who seem to be all too willing to ignore the implications of even their own theories in order to say things that fit the ideological agenda of conservative politicians.  For some of these guys (and it is almost all men), the explanation might be that they simply elevate other commitments (especially, in the case of a significant subset of economists, a gut-level belief in some form of libertarianism) above what they might otherwise know about the effects of various policies.  Or, as I have explored recently in discussions of self-styled moderates (not academics, but "real people") who have refused to leave a Republican Party that has taken a sharp turn to the right, it might be simply a matter of refusing to break a lifelong habit of identifying with one party over the other.  Even if academics are different from other people, tribal identities can still matter.

One particularly interesting character in this drama is an economist at NYU named Thomas Sargent.  Sargent was the co-winner (along with Christopher Sims) of the faux-Nobel in economics in 2011.  In two Dorf on Law posts shortly after that award was announced (here and here), I noted that Sargent had been one of the key architects of a theoretical movement in macroeconomics called "rational expectations" that swept the profession in the 1970's and 80's.  Proponents of that theory claimed that they had proven that the government can never improve economic outcomes, in the short run or the long run.  This led to the conclusion that government should not try to lean against the business cycle, which in turn meant that policies like anti-recessionary stimulus packages were pointless (and, for other reasons suggested by these same ideologues in academic garb, probably worse than nothing at all).

My 2011 posts (linked above) regarding the Sargent-Sims award noted that Sargent had made more recent comments that indirectly (and possibly inadvertently) led to the conclusion that the government can take actions that most definitely improve the economy.  I thus concluded that "if one was looking to see which side Sims and Sargent are on in the current policy divide, it is clear that they are with people like Krugman (and me)."

To his credit, Sargent has continued to stay mostly inside the academy, not pretending that his theorizing is relevant or useful for real-world policy debates.  This is in stark contrast to many of his compatriots on the academic right in economics.  Even so, it turns out that Sargent cannot stop himself from backsliding into some seriously dishonest political rhetoric.  Sargent recently co-authored a paper (available only through a paywall here) that was devoted mostly to trying to construct from historical evidence the effective debt limit that existed before Congress explicitly adopted a debt limit statute in 1939.  (I became aware of this paper when Bruce Bartlett emailed it to me a few weeks ago, based on our mutual interest in the debt ceiling.)  This is the kind of important, unsexy work that advances knowledge.

I have no particular comment on the bulk of that paper.  What I found striking, however, was the very end of the paper, which veered into naked ideology and political partisanship.  Sargent and his co-author really did not need to include any discussion of recent policy in that paper, given its subject matter, but they evidently could not resist.  They therefore began the final section of the paper with a bland-sounding endorsement of the Reagan administration's fiscal policy.  What was so good about it?  Without using the well-known politically loaded term, they lauded Reagan for "starving the beast": "What would get the attention of future Presidents and Congresses was not a binding debt limit, but a big government debt" (p. 44).  The authors then quote Bill Clinton's "the era of big government is over" speech to demonstrate that Reagan's tax cuts succeeded in foiling big government-loving Democrats.

We are then treated to the entertaining claim that "Democrats [in the Obama years] turned Reaganomics on its head."  How?  They decided "to play chicken more stubbornly in pursuit of their interests."  The paper's last sentence includes the claim that "an administration determined to raise net-of-government expenditures can use a growing government debt as a way to force its successors eventually to raise the present value of taxes enough to arrest further increases in the debt while also financing a permanently bigger government."

Get it?  Obama and the Democrats, "in pursuit of their interests," are forcing future Congresses and Presidents to raise taxes, because Obama et al. are hell-bent on increasing government spending and debt.  Most importantly, we are told that they want "a permanently bigger government."

This would be funny if it were not so serious.  President Obama allowed the short-run stimulus package that was enacted at the beginning of his first term to be too small, to expire completely (and too soon), and to be heavily loaded with tax cuts that were much less stimulative than equivalent amounts of spending would have been.  He then gleefully joined the deficit-bashing chorus in 2010 and tried to negotiate huge spending cuts with House Republicans in 2011 and thereafter, including terrible ideas like reductions in Social Security benefits.  Other than temporary workers hired for the 2010 U.S. Census, government employment declined, and the federal government allowed state and local governments to twist in the wind, resulting in massive layoffs of sub-federal government workers as well.

Meanwhile, although debt rose predictably in light of falling tax revenues and some increases in government support payments during the worst economic downturn in 75 years, the deficit has now returned to very low levels.  Even those who try to scare people by saying that deficits will rise again in the future have not claimed that those future deficits are Obama's doing, but rather that health care costs will rise too quickly.  Yet one of the most highly credentialed economists out there says that Obama was busily trying to put in place "a permanently bigger government."

Moreover, the paper does not even bother to explain how or why the nefarious upside-down-Reagan strategy that its authors attribute to Obama cannot be easily inverted again by a future President and Congress.  After all, even if one really believed, contrary to all evidence, that Obama had engaged in a budget-busting effort to expand the government, the game of chicken that Sargent describes can simply return to the status quo Reagan: "Everyone's scared of a debt crisis, and we're going to cut taxes to make it necessary to shrink government."  Nothing Obama did (or was imagined to do) changes the possibility that a determined starve-the-beast strategy can result in shrinking the government.

In other words, there is no content to these openly political claims that have bizarrely made their way into the very end of an economic history paper.  What this shows, once again, is that there are some purportedly objective economists who simply cannot let go of their biases.  This is hardly surprising, but I am still taken aback every time I see it.  And when it is this clumsy, it is almost charming.


CJColucci said...

I would emphasize even more a basic asymmetry in the size-of-government "debate," such as it is. There is a side that sees small government as a good in itself. I am aware of no side (OK, there's always someone somewhere, but Overton Window and all that) who sees big government as a good in itself. There are constituencies who profit from large government, like soldiers, arms makers, farmers, and public school teachers, whose pursuit of their individual interests may, collectively, result in bigger government, and people may too easily slip into thinking that a government rather than a market solution is the best way to deal with a particular problem, but who, exactly, favors big government as such?

Joe said...

What does "favors big government" mean?

The government we have today is much bigger than it was a century ago and includes, e.g., public schools that by law handle a much higher number of students by law required (and broadly have a right to free education) are required to go to school for ten to twelve years. People "favor" this. They think public education is a valuable thing, a public good (I'm not using this is a technical sense).

During the PPACA debate (veto!), we were also informed many would want either a public option or more so a sort of "Medicaid for all" system. Again, this would be "big government," a lot bigger than before. People argue, to me rather well, that health care doesn't really work well as a purely private matter and that it would be good, I would "favor," if the government overall ran things here.

One can go on. The first comment cited "constituencies" and people who "may too easily slip," but there are some general things, major things, that people think the government should be doing, and not just because they "slipped" into so thinking. The system in place now is to me fairly labeled at least quasi-socialist as is and there are people who think it should be bigger. After all, Bernie Sanders labels himself a socialist, and gets more than a trivial amount of support.

I'll say it -- I favor big government, which is honestly what we would have especially if more is done regarding education, health and regulation than we have now, because it provides a means to regulate society using the power of the people with various protections the alternative does not entail. And, at some point, if what we don't have isn't "big," the word loses a lot of meaning.

Shag from Brookline said...

CJ asserts: "There is a side that sees small government as a good in itself." This is in a sense a straw man, as it fails to address what ought to be the size of a good government. I can agree that no reasonable side thinks an oversized government results in good government. There is no magic formula but over the years of the immense growth of America it has been representative governance that has addressed the size of government. Perhaps CJ takes issue with the Administrative State and its contribution to the size of government; but the Administrative State came about bia representative government,; and the Administrative State can be undone by representative government under the Constitution. Whatever the size of the government, it should be as efficient as practicable. I favor Goldilocks government. What is CJ's idea of a "market solution" to the size of government?

Scott said...

Joe: CJ's point appears to be that there is not a side in the debate advocating for big government *for its own sake*, rather than as a side effect of trying to do something else worthwhile (single-payer health care, for example, or a more robust security state). On the other side, you have people like Grover Norquist saying "I don't want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub." This suggests that a smaller government is an *end in itself* for certain people on the right, not the side effect of trying to accomplish some other goal.

Anonymous said...

Schumacher famously wrote "small is beautiful" and CJ's point seems to be that no one has written a book that "big is beautiful". I think that claim is as disingenuous as Schumacher's original thesis. No one actually like smallness for its own sake either--the value is always somewhere else. Indeed, what we typically see is that those who favor "big government" do so when they want to force other people to believe as they do. Then once they get their way and change the policy/culture they then seek to entrench their political gains by dispersing power "small government" so as to throw stumbling block into the path of any future change. "Small government" supporters are really saying "my gains are already entrenched so I love it for its own sake" which should fool no one.

C.S. Lewis once summed this change/entrenchment mechanic by saying that the goal of every generation is to be as least influenced by former generations as possible and most influential to future generations as possible--a position heartily endorsed by Richard Rorty.

Shag from Brookline said...

Perhaps those who favor "small government" should identify a time in American history when such a favored "small government" existed to compare with what we have today. Some might favor the late 19th century's The Gilded Age or the 20th century's Roaring twenties. Are those favoring "small government" prepared to revert to those times - assuming America could revert? As the pre-presidency Ronald Reagan used to shill: "Progress is our most important product."