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When Noah Smith says Maybe There’s No Such Thing as a Business Cycle I think he has a point.
modern macroeconomic theories all assume that recessions are temporary — that they don’t permanently damage the economy’s productive potential. If that assumption is wrong, then most modern macroeconomic theories are barking up the wrong tree.
Perhaps unexpectedly, I agree 100%. I’ve been saying as much for years. However, this does not follow:
It might mean that government needs to engineer a boom to undo the effect of a slump.
I mean, perhaps, sure. It might mean that. But does the government know how to ‘engineer a boom’? Maybe it doesn’t. What is the evidence that it does? Why aren’t we doing it all the time?
Here’s a different thing it might mean: it might instead mean the government needs to stop engaging in and reverse the harmful policies that harm the economy in the first place, whatever they are. That requires, of course, first a recognition that government policies can harm the economy; then, a willingness to identify and call out policies that do so (even if one likes them); and then the political and bureaucratic will to undo them.
That’s why this article by Smith was so encouraging to me, because it indicated that maybe he was ready to follow me down that ro…uh oh er wait what’s this? Smith quoting Roger Farmer:
Keynesian economics is not about the wiggles. It is about permanent long-run shifts in the equilibrium unemployment rate caused by changes in the animal spirits of participants in the asset markets.
So, the economy doesn’t get permanently damaged due to bad government policies, but becasue of…’animal spirits’?
Sigh. Show of hands, how many fields with rational, scientific aspirations regularly invoke ‘animal spirits’ to explain phenomena?
Just the one eh?
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Postlibertarian, always worth a read, says he was wrong about Obamacare because he “fully expected that by now the law’s utter failure would be readily apparent” by now, and it’s not. This seems premature.
The sharp-eyed reader will have probably noted that I hate Obamacare with a practically-psychotic flaming passion. And yet I never, never, never thought it would ‘fail’ (what does this even mean?), or that ‘the law’s interventions would be backfiring on a huge scale’ (backfiring vs. what expectations/standards?). That’s just not the type of badness I expected and expect and see in the law. For the most part I expect(ed) and expect Obamacare to function, for much of the middle class, like a large income-tax increase. And it is, and will; this has not been disproven by events, by any stretch of the imagination.
Second, it’s worth noting that what was called ‘Obamacare’ hasn’t even really been implemented yet. Some of its mandatey type provisions only finally kicked in this year (if then?). Some of its provisions are fake dead-letters, put in there solely for CBO scoring, that will never ever be implemented. Declaring oneself ‘wrong’ in anticipating bad effects before the mechanisms that are believed to produce those bad effects have even been implemented yet makes no sense.
Please also note the timescale on which some of those provisions operate is measured in decades, not months or even years. For example, the ‘Cadillac plan’ tax affects few plans now but, over time, will come to affect 50% or more of plans; in other words, it is a stealth mechanism of (for good or ill) phasing out the incentive for employer-provided insurance for most. For another example, the fact that the CBO scoring was a crock of you-know-what, and that the price-tag is going to be double or more what was bandied about, will show up only later as increased deficits and related government borrowing, with whatever attendant effects (calls for income-tax hikes?) that might cause. Similarly, if I’m right (I might not be, but if I am) that the ‘risk corridors’ – which aren’t funded at all – are a giant unmeasured liability, this will show up in yearly one-off large requests for funding of corridor payouts, to be funded who-knows-how (more borrowing, presumably).
Fast forward and perhaps in 15 or 20 years it will be possible to look back and say: ah yes, we are in this bad situation in large part due to Obamacare. But meanwhile, the fact that, standing here in 2014, things look basically kinda-sorta semi-ok’ish (and your XLV Obamacare-hedge position is doing swell) proves nothing. It is true that if one expected Disaster And Armageddon By 2014 they have been proven wrong, but that is no vindication of Obamacare. Again, the biggest most-rabid Obamacare critic in the world (me) did not even expect that. It’s just not that kind of badness. And Did It Cause Armageddon is a pathetically low bar to set in the first place.
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Arnold Kling has a Constitutional theory:
Instead, the Supreme Court would say that from a common-law perspective, the subsidies on the Federal exchange are what people have come to expect.
David Henderson responds, understandably:
My question is “which people?”
Oh but that’s easily answered. The answer is Smart People. Smart People will tell us what any given policy ought (regardless of the text of law) to be. We’ll just wait to be informed by Smart People.
So what Kling is proposing is nothing new, it’s just Yglesiocracy. (Which he has revealed an affinity for before.)
Now, how you feel about this might quite naturally depend on whether you think of yourself as a Smart Person. However, if you’re not a Smart Person, no one gives a rat’s ass how you feel anyway, so shut up.
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Arnold Kling feels sorry for Gruber.
I am not a fan of Congressional committees that pillory ordinary citizens.
Oh come on now. Whatever else Jonathan Gruber is, he is not an ‘ordinary citizen’.
- Jonathan Gruber is a protege of – and in grad school played tennis with – Larry Summers, the blowhard former Treasury Secretary and one-time trial-ballooned (and, evidently, still aspires to be) chairman of the Federal Reserve. Obviously for ordinary citizens it’s par for the course to be mentored by and socialize with future Cabinet members and potential Fed Board members, right?
- Gruber got an early foray into policy when he spent time at Treasury (presumably drawing upon his connection to Summers who was, at the time, Deputy Secretary). This looks to have become Gruber’s springboard to his forming the (admittedly, shrewd) idea that he could rake in the dough by making some stupid-ass health care ‘model’ and shopping it around to various governments (while insisting upon passage of the very laws that would make that ‘model’ relevant, and the bloated contracts to F9 it rubber-stamped).
- As a result he became the go-to guy for ‘microsimulation modeling’ (LOL) – i.e., oversimplified Gosplan-style central-planning black box models – whenever some state or another decided they wanted to make their healthcare setup more fascist. (Why is he the go-to- guy? Because his field (if one can call it that), ‘healthcare economics’, is apparently so backward and retarded that apparently few others in it have the chops to make the sort of glorified-spreadsheet he did (and which, from the sound of it, any mid level mortgage/prepayment/ABS econometric modeler at a bank or rating agency could easily spit out) even though the rewards for doing so are apparently something on the order of $300-400k for a one-year contract where often all you have to deliver at the end is some written ‘documentation’ and, presumably, a report with a grid of numbers in it that, for all anyone knows, could be entirely made-up because LOL who is really ever gonna check?)
- This means that this ‘ordinary citizen’, a tenured MIT professor, has been paid millions of dollars in rents extracted from taxpayers by the sort of moronic bureaucrat drones who fling money at whoever seems impressively credentialed (and, has the right connections) due to having money to burn on ‘healthcare reform’.
- These contracts and rents were only necessary in the first place – or, I should really say, only of any conceivable use at all – because of the passage of a law that Gruber, the ‘ordinary citizen’ (who went to several White House meetings – you know, as one does), actively campaigned and strategized for successful passage.
- This ‘ordinary citizen’ was also the first (only?) speed-dial of basically every single lazy-ass Vox-style ‘healthcare journalist’ who needed to be spoonfed some carefully-chosen quote or number about Obamacare (which would put Obamacare, and its necessity, in a positive light of course). This meant he was regularly puffed up as the ‘architect’ of and a key advisor on the law yet simultaneously some sort of independent number-crunching guru expert on all things ‘healthcare economics’. He was referenced and quoted so much to the point where if you do a search of virtually any Obamacare article written 2010-14 you could pretty much make a drinking game out of Spot The Gruber. But hey, that’s also true of all other ordinary citizens too so.
- In no small part due to his efforts, and embarrassing propaganda (writing a comic book for God’s sake!), and strategizing, and (inevitably) phony numbers, and his aura of ‘expertise’, a multitrillion-dollar law was passed and imposed upon 300+ million Americans, a majority of whom were opposed to it.
Show of hands: how many of you other ordinary citizens hobnob with Cabinet officials, visit the White House repeatedly, are regularly asked by MSM propagandists sympathetic to your POV for pull quotes and talking-points, and just generally have the power and influence to help foist fraudulent multi-trillion-dollar laws that intrude into the personal lives of your fellow Americans against the will of a majority of them, while enriching yourselves in the process?
Oh, what’s that you say? All of you? Golly I stand corrected then.
Sorry Arnold, I love you man but Gruber opens himself up to scrutiny and criticism when he cashes that public rent-seeking check and knowingly foists fraud upon the public. He opens himself up to scrutiny and criticism when he takes off his ‘academic’ hat and puts on his ‘policy’/strategizing/’I would rather have the law’ hat. He opens himself up to scrutiny and criticism when his machinations are instrumental in intrusively rearranging the lives of millions of people. If, out of misplaced politeness or some sort of made-up ‘don’t criticize the PhD’ Marquess of Queensberry rules I’m not aware of, the arrogant Gruber-type technocrats of the world are somehow considered off-limits and sacrosanct, then we may as well just give up now. Seriously, let’s just pack it all in. If that’s the way things are then I should certainly stop blogging, and in fact you should too Arnold Kling. (Which would be a tragedy; in all seriousness, please don’t.)
And let’s not just leave aside that he insulted his fellow Americans’ intelligence among his fellow technocrat guild members, and passed it off as being ‘glib’ and ‘trying to look smart’.
The poor dear. LEAVE GRUBER ALONE.
No: Jonathan Gruber should not be spoken or thought of as a poor ‘ordinary citizen’ who should be, aww, left alone. Jonathan Gruber is a transparent liar who profited handsomely from helping to fraudulently impose health fascism on the United States. His behavior merits less your sympathy than it does tar & feathers. He should be thought, and spoken of, in the same terms normally reserved for – say – war profiteers.
UPDATE 12/12 – RELATED: Gruber model errs in Colorado as Vermont prepares to rely on data
…modeling done for Colorado’s health exchange by Jonathan Gruber Associates has proven wildly erroneous.
Gruber predicted Medicaid enrollment in Colorado would grow from 440,000 enrollees in 2011 to 710,000 enrollees in 2016.
Actual 2014 data reported by the Colorado Department of Health Care Policy and Financing shows the number of people enrolled in the state’s Medicaid program has grown to more than 1.1 million — a miscalculation of about 400,000 enrollees.
a miscalculation of 400,000 people is a costly error since each Medicaid enrollee costs taxpayers about $2,000. Gruber’s Medicaid enrollment error means Colorado’s cost estimates for Medicaid expansion are presently off by about $800 million.
Again, this is why I say, I could’ve whipped up a five-line spreadsheet just as good as – with error bars no worse than – ‘GMSIM’. If only I’d known $300-400k contracts were on the table for doing so!
“His models can’t be relied on for policy. They’re not ready for prime time,” Linda Gorman, director of the Health Care Policy Center at the Independence Institute in Colorado, told Vermont Watchdog.
OH. Now they tell us!
See, and you thought I was just being my usual half-cocked jerk self shooting my mouth off about Gruber and his (LOL) ‘model’. Maybe but the thing is, when I assert that Gruber’s model is ass, here’s evidence.
You’re a fraud Jonathan Gruber. A fucking fraud.
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Dr. Gruber the MIT Professor who is a transparent liar is reported to have said in yesterday’s hearing that “no one has ever questioned the quality” of his modeling, his ostensible ‘GMSIM’ model whose F9’ing he farms out at $400k a pop, using underpaid graduate students to pull all-nighters doing the grunt-work, graduate students he can underpay (compared to other consulting LLCs) in part only because they anticipate non-monetary compensation from him such as his signing their thesis or being on their dissertation committee or at least writing them a glowing letter of recommendation and letting them list him as a ‘reference’ on their CV for when they go out and hit the job market at the annual AEA conference. In other words, exploit in a corrupt way so as to enrich himself while engaging in the politically craven rent-seeking that became his golden-ticket. (Yes I’m reading between the lines, inferring a few things, augmented with some personal knowledge and hunches about how this world works, but I’m sure in broad strokes I’m basically correct here.)
Well hold up there Dr. Gruber. “No one”? I’m questioning it, Dr. Gruber. Iiiiii ammmmmmm. What about me. You forgot meeeeeeee
I think your model is shlock. Hacky wannabe-Soviet central-planning, poor-man’s-SimCity shlock. I think it’s it’s a mishmosh of impossibly oversimplified linear econometrics drawing upon the elementary-school mathematical level required of a ‘Healthcare Economist'[sic]. Who for some reason is paid $400k per contract. For absolute shlock.
I mean, fine, I’m sure the little representative demand curves in the model do all slope downward. Whoop dee doo.
Now, maybe I’m wrong. If I’m wrong let me know. I could be wrong. Maybe ‘GMSIM’ is a fantastic model. Maybe it’s the cat’s meow. Maybe I can be rebutted here. Maybe I’m talking out of my butt and Dr. Gruber is not a gigantic rent-seeking fraud.
But the thing is, no one can say that, because Dr. Gruber keeps the model secret and proprietary. It hasn’t been audited. No one knows what’s in it. Certainly not our ‘data-driven’, ‘explainer’ journalistic corps who became so enamored of Dr. Gruber, circa 2010-12, for talking on the phone with them a lot. They have no idea what’s in his model. They’ve never seen it. They aren’t even the slightest bit interested in learning about it in any detail. Let alone getting, like oh I dunno, some second opinions about the model. From, perhaps, other academics? You know there are other academics right? (But of course if Gruber doesn’t share the model with anyone, then it’s unclear what other academics could have to say – negative, or positive – about ‘GMSIM’.)
Anyway, instead, our Fourth Estate was content to let him dictate to them the numbers that his (alleged) model (allegedly) spit out and then write down those numbers and conduit them to the public. You know, #journalism.
In other words, let me know if anyone does any actual journalism that would, or even could, in principle, invalidate my criticisms of Dr. Gruber above. To my knowledge it hasn’t happened yet though.
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“why should people who don’t care about how they’re living, why should they be able to take advantage of all the people who do care?”
Answer: because that’s ‘fair’ and ‘compassionate’, and because we’ve written it into our law (colloquially, ‘Obamacare’). That’s basically the entirety of what Obamacare is about in fact. Some people taking advantage of others.
In context however what he’s asking about is why he shouldn’t be able to order his employees to take intrusive health surveys and report their health details to HR bureaucrats at his company, under threat of having their pay docked significantly if they don’t. (It isn’t put quite in these terms but that’s what he’s doing.)
My response to that is: hey CEO David Cote, while your statement might be making a fair point as a matter of general principle (which principle would have obviated the fascist health policy such as the Obamacare you paradoxically support), who the hell asked you?
What on earth qualifies Dr. David Cote to sit in judgment over whether the people who happen to be on his payroll do or don’t ‘care about how they’re living’ or are ‘tak[ing] advantage of’ people who (supposedly) do?
Why is it that in times like this we as a nation turn our lonely eyes to…David Cote (?) to determine who ‘care[s] about how they’re living’ and who doesn’t? What, because he’s the dang CEO of Honeywell? Is it, perchance, his 1970s-vintage degree in business administration that anoints him with this authority and expertise? What then?
This is the sort of perverse outcome that will become the norm of our daily life under the health care fascism the oh so ‘progressives’ among us craved sight-unseen. Some random a-hole opines on your health and whether you ‘care about’ ‘how you’re living’, based on his having navigated his way to becoming a commissa^H^H^H^H^H^H^H^H CEO of something or other, and if you happen to be under him in the national fascist hierarchy you’re suddenly not merely his employee – exchanging your productive labor to him for a paycheck – but completely beholden to his highly fascinating and wide-ranging thoughts on all manner of intrusive personal inquiries into your life and lifestyle.
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Kudos are due Mark Thoma I suppose for writing one of those ‘what I got wrong’ pieces, but if he means for the things he got wrong and ‘didn’t understand’ to be taken literally, then I am just baffled.
Examples. On creating inflation and/or ‘demand':
But the Fed doesn’t create money directly, it increases bank reserves and it’s possible for those reserves to get stuck in bank vaults or in deposits held at the Fed. When that happens, the money supply doesn’t increase – balances held within the Federal Reserve System are not part of the money supply – and the desired increase in demand doesn’t occur.
The lesson for me is that if you want the inflation rate to increase, demand has to increase. That requires more than simply creating a bunch of reserves that sit idle in banks.
He saying he didn’t understand the basic mechanism of Fed operations. Either that, or he’s saying he didn’t understand that the Fed increasing bank reserves would not automatically translate or ‘velocitize’ itself into whatever measure of ‘money’ he thinks induces, and expected to induce, the ‘demand’ he thought was the recession cure. (Sorry, I have to put all these things in quotes because I’m working with his terms and assumptions, not mine.)
Anyway, I could’ve told him that, just from common-sense. And I’m not (technically) an economist.
On fiscal stimulus vs. ‘austerity':
Prior to the recession, I never would have dreamed that Congress would all but turn its back on the unemployed, let alone turn to austerity, but that’s exactly what happened.
He didn’t understand and ‘never would have dreamed’ that Congressional representatives of hundreds of millions of people who disagree with him about how much money to spend, and on what, would actually represent their constituents and vote in ways that Mark Thoma did not agree with.
All right, this ‘lesson learned’ is more of a passive-aggressive swipe on his part than anything one can possibly take literally. (“I never would have dreamed people who disagreed with me could be so stupid as to disagree with me”, said the professor.)
On growth potential:
Prior to the Great Recession, many economists – myself included – believed that monetary and fiscal policy would have no impact on the full employment or natural level of output in the long-run. Policy could change the severity and duration of a recession; these actions were thought to be completely independent of our long-run productive potential.
They were? Why golly, it’s almost as if government policy has an effect on the economy or something. ‘Many economists’ didn’t know this??
Of course, he’s probably using this point to make yet another passive-aggressive swipe at his ideological opponents (for not investing in enough ‘infrastructure’, etc.), not to point out the stifling effect of something like Obamacare. But still. ‘No impact’, ‘completely independent’, he says.
When teaching monetary and fiscal policy in a classroom setting, the policies are generic. If demand falls, policymakers should cut interest rates, increase government spending, and/or cut taxes and the problem is solved instantly. Exactly what the money is spent on and whose taxes are cut is left unspecified. But in real world applications, it’s much more complicated, something I didn’t fully understand when the recession hit.
The economist ‘didn’t fully understand’ that it actually matters what you spend money on. He thought an undifferentiated blob of ‘increase government spending, and/or cut taxes’ would make the problem ‘solved instantly’, that it sufficed to put that forth as a policy prescription.
Look, I know that all sounds like a stupid straw-man, but it isn’t me saying it, it’s him in his mea culpa ‘what I got wrong’ piece. Am I supposed to believe him or not?
Well, I kinda don’t, to be honest, I don’t think he’s that dumb. Clearly this piece is more like a stealth humblebrag (“Apologies dear readers, I didn’t quite fully realize how important/appropriate/correct all the policies I’m currently pushing were back then, just goes to show, we should listen to me now all the harder”) than a genuine what-I-got-wrong. But still, it’s pretty funny to read & try to take it literally: if I took this article at face value I’d have to come away thinking Mark Thoma knew almost no economics before 2008. And but I don’t.