Actually, not so. We control for both the rate of inflation and the rate of unemployment. So the effect of recessions is already in our model.

JG

Posted at August 15, 2008 11:32 PM in response to A Last Word: What is to be Done?

Tom is right, I'm an optimist.

But I think we are talking at cross purposes here. That is, when I say that Keynesian economics is the only surviving kind, I'm reading the tea leaves of policy action.

Tom on the other hand is talking about political rhetoric: about the "frame of understanding." Of course, he's right about the complete failure of liberals, so far, to wrest back control of the "frame of understanding." That's what my book is about!

There is a complete disjuncture between the principles according to which policy is actually conducted, and the frame of understanding.

If I thought that liberals had a coherent strategy for recapturing the frame of understanding, I wouldn't have bothered writing the book.

My point is that the conservative frame of understanding bears no relation to the actual conduct of policy by anyone.

Monetarism? Supply-side economics? Free trade? Balanced budgets? Yes, that's the rhetorical frame. But find me a single conservative in government who actually takes any of it seriously.

Just take one example: free trade. Tom writes that "elite policymakers remain strongly attached to free trade." Excuse me, but this just is not so. Elite policymakers remain strongly attached to the rhetoric of free trade. But do they practice it? Of course not. Bilateral trade agreements are shot full of client-oriented protectionism, thinly disguised as "intellectual property rights" and similarly.

(This, by the way, is not a partisan point. A very prominent economist pointed out to me, not long ago, that in 1993 Clinton named Mickey Kantor as Special Trade Representative. Who was Mickey Kantor? Well, he was Clinton's campaign chair. This was not an accident.)

I could go through this for each topic, but ... well, it's in the book.

So, why am I optimistic? Because, in my view, to align rhetoric with reality is a strong strategy, at least some of the time.

JG

Posted at August 15, 2008 11:06 PM in response to Why Progressives Keep Losing

By the way, to defend the honor of my home university, Phil Gramm never taught for us. He was at A&M. And Armey was at the University of North Texas, I believe. JG

Posted at August 15, 2008 4:31 PM in response to The World We Live In

Something went wrong. I meant to say: "my review of Gramm's Ph.D. dissertation." But click the period, the link is there. JG

Posted at August 15, 2008 4:29 PM in response to The World We Live In

On that note, I link to my review of .

JG

Posted at August 15, 2008 4:26 PM in response to The World We Live In

They're full, alas, for this semester. JG

Posted at August 15, 2008 4:01 PM in response to The World We Live In

Robert Mundell, with whom I agree rarely, once said,
"Never take an unweighted sample of economists' opinion."

That said, the calculations I report from UTIP's work have not been challenged, and in many cases they've passed through referees to publication in reputable journals. That's true for the "Beltway Bubble" article, which appeared in a mainstream Berkeley electronic publication, "The Economist's Voice."

Our methods are conventional, based on theoretical work by a Chicago (!) economist (Henri Theil) and standard data sources.

JG

Posted at August 15, 2008 4:00 PM in response to The World We Live In

Agreed.

"Wealth, as Mr. Hobbes says, is power."

That's the only short line in the entire Wealth of Nations. Also one of the best.

However, much of the drivel written on inequality leading to efficiency is just about wages, and the distribution of wages is relatively easy to measure.

JG

Posted at August 15, 2008 3:33 PM in response to The World We Live In

I'm always happy to give friends a chance to flank me on the left. So long as it doesn't happen too often.

Tom Palley offers a sweeping critique of conservative economics, an intellectual hotch-potch of monetarism, supply-siderism, and Hayekian privatize-everythingism.

In The Predator State, so do I. That is a major part of the book.

We also agree that highbrow academic economists -- let's call them the Chicago School with many hangers-on -- acted as the intellectual well-spring of the conservative political movement. Many of them remain highly prestigious to this day. I have, so far as I know, almost no friends or even acquaintances in this group.

But I insist on a distinction between (some of) Reagan's policy intellectuals and those surrounding Bush and Cheney. The distinction involves good faith. I'm persuaded, based on long interaction, that (some of) the policy-oriented intellectuals who got involved in the Reagan years did so out of conviction. They thought that their policies would work, producing sustained prosperity at stable prices, where those of the liberal Keynesians had failed.

And while their argument was (in my view, then and now) wrong, it was not (in my view) intellectually dishonest. That fact made dialog in those days not only possible, but quite bracing. And it formed the basis for continuing association, which I'm not ashamed of.

Let me cite two specific examples that I don't mention in my book. They are obscure, but they are relevant.

One involves Robert Auerbach, a close friend and (for the last decade or so) a colleague at the LBJ School. Bob was a Ph.D. student of Friedman's, and when we first met on the staff of the Banking Committee, he was an ardent, by-the-numbers monetarist. His convictions were entirely honest, based on theory and econometric technique as he'd learned it. They were so strongly held as to be non-partisan: Bob and I both worked for Henry Reuss, but he went on to work briefly in the Reagan Treasury with the arch-monetarist Beryl Sprinkel.

But in the later 1980s, when the economic relationships underpinning monetarism collapsed, Bob abandoned the theory. This is the mark of an honest scholar. Eventually he left a professorship at UC-Riverside, and returned to Washington to work for Henry B. Gonzalez. His new book, Deception and Abuse (UT Press), is an excellent account of the Greenspan years at the Fed.

A second example, even more obscure, concerns Martha Seger, a supply-side economist who was named to the Federal Reserve Board in 1984. At the time, the Democrats on the Senate Banking Committee were in a vengeful mood, and with my active help they held up her nomination for some days, with as many unpleasant questions as I could devise. I'm not proud of that episode, which was difficult for Dr. Seger in part because she was suffering from a broken arm.

Seger was eventually confirmed, and then what? She turned out (so far as I followed her career at all) to be an active and fairly effective advocate of consumer interests on the Board, much more attuned to what was happening to ordinary people than most of her colleagues. I took an occasion, much later, to apologize for the rough treatment we'd given her.

I could name several other cases.

This is not a defense of the Reagan social agenda nor of the Volcker tight-money regime, which I devoted four years of my life to battling. It by no means speaks to major-league predators in Reagan's stables, including James Watt (Interior) and Anne Gorsuch (EPA).

But Bush and Cheney are worse. Their administration had no foundation in public purpose. Predation under this government has been pervasive. One cannot say that economists joining up did it for any purpose other than to advance their careers -- or perhaps to try out some ideas that they had developed, basically on their own, in academic life.

And some conservatives of the Reagan era have played a useful and honest role in pointing this out. Doing so cost one of them (Bruce Bartlett) his job. It's not so easy, to be an apostate on the other side.

So where Tom Palley draws up a mass indictment, I continue to believe that disagreement is one thing, but dishonesty, careerism and corruption are quite another.

That said, I do want to get away from this aspect of the argument. In view of the record, it's easy to bash the conservatives. The Predator State, however, is directed at *liberals.* Our problem has been greatly complicated by a liberal willingness to accept the fundamental framework of the Reagan world-view.

The larger purpose of the book is to call attention to this, and to suggest a different framework. If we bear in mind exactly where "our" ideas come from, we have a better chance of thinking clearly about their flaws. And about what the implications of thinking differently really are.

I'll write more on this in my next post.

JG (fils)

Posted at August 14, 2008 1:07 PM in response to The Intellectual Perpetrators of the Corporate Predator State

Yes, of course my little proof is sophistry.

The point about assuming the slope is negative all the way to zero is exactly on target. But it was Sowell's sloppy writing that permitted me to make that assumption.

Clearly, the slope must turn positive at a very low rate of tax. Let's say we agree that it's probably positive at five percent. Well then, how about ten? And if ten, how about fifteen? That's still pretty low. But it also happens to be the current long-term rate.

If Sowell had said, "A reduction in capital gains tax rates perceived as temporary usually produces a temporary surge in tax revenues, as investors liquidate their holdings to take advantage of the tax holiday. Of course, this comes at the expense of revenue later, because the gains, once taxed, cannot be taxed again..." then he would have had a point.

But it wouldn't have been a strong point in favor of low capital gains tax rates, and certainly not worth berating Barack Obama about.

Since Sowell is clearly not a stupid *man,* one is entitled to infer that he is playing his readers for fools.

JG

Posted at August 14, 2008 10:24 AM in response to The Absent Presence