Friday, October 10, 2008

A Frank Response from a Local Economics Professor

Don Boudreaux, the chair of the economics department at George Mason University, in my local Northern Virgina, responded to a request from a campaign volunteer for Sen. Obama. The volunteer requested that the Senator be able to come to the school to talk about his economic plan in order to inform students. This is what the professor wrote in reply and then posted it on his blog:

Dear Mr. _______:

Thanks for your note asking if GMU Econ is interested in inviting Barack Obama to campus in order for him to outline his "economic plan."

I can't go along with your suggestion. First, and most practically, such an invitation would really have to come from either the Office of the Provost or the Office of the President -- not from the Chairman of the Department of Economics.

Second, and most importantly, I have negative willingness to be part of an effort to give any politician a platform to speak about economics. Very few of them have any knowledge of the subject, and even fewer of them are courageous enough to speak about it honestly.

Listening to politicians, regardless of party, discuss economics makes me sick both to my head and to my stomach. And the only people who are not similarly affected, I fear, are persons whose knowledge of economics is sufficiently scant -- or whose ethics are sufficiently perverted -- to protect their senses from being insulted by what issues forth from the mouths of politicians speaking on economic topics.

So as an economist, I am no more interested in having Sen. Obama (or Sen. McCain) come to GMU's campus to lecture us on "how to manage the economy" than I would be, say, to have O.J. Simpson come to GMU's campus to lecture us on how to manage one's marriage.

Don Boudreaux
Professor and Chairman
Department of Economics
George Mason University

I can't say I disagree with the sentiment. Listening to debates and stump speeches on the broad topic makes me want to throw something at the TV. Though formal education isn't synonymous to knowledge, isn't it comforting that out of those men and women who are trying to deal with our housing crisis, 80 percent of them have no background in economics, finance, or business? The scary thing is that we use the political process, populated by those with little knowledge on the subject, electing those with little knowledge on the subject, to determine such policies. This is analogous to using the voting booth to determine what the proper procedure for surgeons is when performing a quadruple bypass surgery.



Well, that is a pretty strongly worded letter - about as strongly worded as your own feelings on the subject. If one were to read only this post, it would appear that economists everywhere were fed up with (and vaguely angry about) politicians purporting to know economics, but failing. However, as with every story, there is a flip side.

I'd like to start with the possible notion that - EJB, close your eyes - economics may not be a science. Barbara Bergmann, an economics professor from the University of Maryland and American University has penned this article (link is to the abstract but below that is another link to the article itself) in which she claims that new methods of empirical study are necessary in the economics field because economists are simply "making it up." The late nobel-prize winning physicist (and all-around genius) Richard Feynman might agree with Professor Bergmann. Further reading here and here.

My point would be, I suppose, that if economics is merely a "social science," then it wouldn't be fair to lambaste the candidates for failing to keep up with the cutting-edge notions of economics (just as it would be unfair to blame them for not surrounding themselves with sociologists, psychologists, criminologists and other pseudo-sciences.)

My second point, however, is that, whether it seems like it or not, these candidates have actually done a good job in surrounding themselves with top-quality economic advisers (most of whom are economics professors). For instance, Obama's economic brain-trust includes: Austan Goolsbee (Professor of Economics at UChicago), Jeffrey Liebman (Professor of Economics and Public Policy at Harvard) and David Cutler (Professor of Economics at Harvard). These are all leading figures in the field and their teaching credentials are rock-solid.

McCain, meanwhile, has surrounded himself with former Reagan advisers like Jack Kemp (former US Representative and strong supporter of supply-side economics) and Phil Gramm (former US Senator and PhD in economics from Georgia).

I suggest that what makes Professor Boudreaux and EJB so irrationally infuriated by the economic policies of Mr. Obama and Mr. McCain might be that they simply subscribe to a different school of economic thought. I dare not delve into the pseudo-science of sociology, but it is simply my educated guess. I must profess that I know next to nothing about economics and its various internal philosophies. I am slightly educated in the law and economics movement, whose main advocate is Seventh Circuit Judge Richard Posner. Thus I may be playing out of my league and I whole-heartedly expect EJB to put me in my place in his follow-up post.



First off, your line "economics may not be a science" and then your talk about the problems with empirical methods - It is true that economics is not a hard science in the sense chemistry and physics are. So in some respect on this point, I agree. But there are many generally agree upon principles that cross schools of thought that somehow don't make it into politicians proposals.

The problem is that you are responding to an argument not made here. The point of the posted email has more to do with the line "Very few of them have any knowledge of the subject, and even fewer of them are courageous enough to speak about it honestly."

JSK gives his analysis of this line saying, "I suggest that what makes Professor Boudreaux and EJB so irrationally infuriated by the economic policies of Mr. Obama and Mr. McCain might be that they simply subscribe to a different school of economic thought." He chalks this up to disgust driven by disagreement over legitimate academic debate.

It is true that both I and Boudreaux draw many of our positions from different schools of thought then many of the economists you just listed. I am somewhat familiar with Goolsbee (for those of you interested, he was also on APDA). If this were just a debate over schools of thought, I would not be frustrated. In reality, that is not what this is about, as your comment alleges, "then it wouldn't be fair to lambaste the candidates for failing to keep up with the cutting-edge notions of economics." Most politicians stated economic views don't even line up with the grander theory behind their advisers, never mind "cutting edge." They don't even correctly argue for the ideas that have been around for decades that show up in the intro level text book of any econ 101 class.

I will give a couple recent examples. First are the stimulus checks. When being passed in Congress, last spring, many of the Democrats argued that we had to "pay" for the stimulus checks by raising taxes. Likewise, Obama's plan to give another $1,000 "stimulus check" to each household will be payed for by more taxes. Neither of these ideas are grounded in any school of macroeconomic thought, even the ones his advisers represent. Textbook Keynesian theory, traditionally the school that the American left has associated with, including many of Obama's advisers, states that the whole point of government stimulus is to take deficits. In doing so, the government finances further consumption, and therefore increases aggregate demand. If taxes are raised to pay for them, that defeats the whole purpose, as every dollar of new "stimulus" is countered by a dollar taken away through taxation; the effect is null. Rather, these kinds of ideas do not have their motives based in macroeconomic policy as advertised; it will not increase employment or increase output growth. It has more to do with a long held desire to socially engineer through wealth redistribution. By claiming it to be macroeconomic policy, it becomes a convenient political opportunity. I can assure you, that none of Obama's economic advisers can honestly tell you that handing out checks paid for by an equivalent increase in taxes will have any macroeconomic benefit. In fact, despite many politicians blaming our current economic woes on government deficits, according to Keynesian thought, in the short run this deficit spending should have actually increased growth over the past 8 years.

Second is the "gas tax holiday" promoted by both Sen. McCain and Sen. Clinton. The idea is absurd, because in the short run the supply of gasoline is relatively fixed (you just cant build a new refinery overnight), therefore, any increase in demand from the lower price by removing the tax will simply result in a price increase back to the level it was with the tax imposed (or at least in the short run) and now the tax savings will just go to the producer, not the consumer. This is why Clinton, when asked could not name one economist who thought this was a good idea (even her own advisers). I'll even entertain you with a Harvard economist, Gregory Mankiw, who stated, "What you learn in Economics 101 is that if producers can’t produce much more, when you cut the tax on that good the tax is kept . . . by the suppliers and is not passed on to consumers."

Like Boudreaux's line said, few understand economics, and the ones who do don't speak truthfully out of a desire for political gain. The result is that we have politicians claiming to "fix" the economy and "create" jobs. This only reinforces the popular notion of the messiah-like powers that politicians supposedly have over the economy. Much of this is because politicians give up all integrity in order to gain power and therefore know they really make no sense. However, some of this is that they truly don't understand a lot of this as evidenced by the recent comments of Sen. Tester, asking Bernanke to tell him what was going on giving his usual line, I'm just a dirt farmer, or a House Financial Service Committee member saying, "You mean the dollar isn't backed by gold anymore?" As spoken about in my recent post, I truly believe some politicians really think our whole mess is just "greed."

It is true that I don't expect our leaders to be experts in every field. However, at the same time they should not be claiming to have the mighty power of controlling, micromanaging and "fixing" the economy just as it would be absurd for a political candidate to claim they know the secrets of cold fusion, how to magically cure all psychological ills in the nation, or debate over the technicalities of complex surgical operations.