Intellectual Dishonesty from Matt Yglesias

Matt Yglesias has a reply to Amar Bhide’s article in the Wall Street Journal titled, “Amar Bhide, WSJ Edit Page, Embrace Regular Recurrence of Massive Recessions”.

The problem is that Amar Bhide does not advocate doing nothing. Perhaps Yglesias didn’t read to the entire article, but for those who did they will find the following paragraphs,

The alternative isn’t, as the stimulus scaremongers suggest, to turn our backs to the downturn. We do have mechanisms in place to deal with economic distress. Public aid for the indigent has been modernized and expanded to provide a range of unemployment and income-maintenance schemes. Bankruptcy courts and laws give individuals another chance and facilitate the orderly reorganization or liquidation of troubled businesses. The FDIC has been dealing with bank failures for more than 70 years, and the Federal Reserve has been empowered to provide liquidity in the face of financial panics for even longer.

These mechanisms are not perfect or to everyone’s taste — liberals and conservatives obviously disagree about their scope and generosity — but they have been forged through a much more deliberate, open process than the stimulus bill or TARP. Legislators, the executive branch, judges, competing interest groups and the press have all had their say in their initial design and evolution. As a result there may be occasional mistakes and fraud but not widespread favoritism.

If the current crisis is indeed unprecedented, why not increase the funding and resources to battle-tested measures? When earthquakes or tsunamis strike, we rush in more doctors and supplies. We don’t use untested medical procedures or set up new relief agencies on the fly.

Increasing unemployment insurance, bankruptcy judges, and the FDIC’s capital and staff would certainly cost money, but these targeted expenditures would be much smaller than grandiose measures to revive overall confidence. And while the cautious approach might lead to a slower recovery, we wouldn’t jeopardize the venturesome, pluralistic foundations of our long-run prosperity.

So when Yglesias writes,

Thus we get Amar Bhide writing things about how “The depressions and panics of the 19th century ended without any fiscal stimulus to speak of” so there’s no reason to waste our time with “John Maynard Keynes’s speculative conjecture about human nature.”

It is not at all honest. Back in the late 19th century and early 20th century we did not have an FDIC, unemployment insurance, and a Federal Reserve to pump liquidity into the economy. Some might argue that the Federal Reserve was partly repsonsible for the Great Depression, but I don’t think the Federal Reserve is making those mistakes this time around. Further, federal government expenditures don’t fluctuate much with the business cycle. Taxes do, but the government generally runs a deficit. It acts in some capacity as an automatic stabilizer. It wouldn’t be too much of a stretch to call these policies Keynesian.

To try and protray Bhide’s position as a “do nothing” approach is nothing short of dishonest. And Yglesias’ comment and accompanying footnote about how certain segments of the “right” are no insane is just outright insulting.

I mean it. How hard would it be for a conservative- or libertarian-inclined economist to just say “the idea of a fiscal stimulus makes some sense, insofar as it’s attempted my preference would be to work as much as possible through tax side measures lest a ‘temporary’ stimulus become a permanent expansion in the size of government”? That’s totally coherent. Instead we’re getting nutty resurrections of the Treasury View, people downplaying the catastrophic nature of the 19th century business cycle, Alan Reynolds, bizarre revisionism about the New Deal, etc.

Note the Bhide has made none of these “insane” arguments save noting that prior to the Great Depression when there was little in the way of government intervention even then the depressions and recessions of that era ended. One should also keep in mind that Bhide is taking a moderately longer of veiw than of Yglesias and his ilk. The U.S. is not only facing a bad recession, but also in not too many years the fiscal imbalances in Medicare and Social Security are going to start to come into play. Even with no stimulus the prediction is for budget deficits for the next few years of a trillion dollars per year. Then we have the tens of trillions due to the fiscal imbalance of Medicare and Social Security. Now add on the stimulus, TARP and possibly TARP 2.0. Eventually, unlike Krugman’s boneheaded view [1], foreign investors might decide to stop buying up U.S. government debt at the current interest rates. Hence is it really all that insane to say, “Uhhhmm, you do realize we have these other budgetary obligations that are extremely large, we need to get the most bang for our buck”? I don’t think so. At the very least reminding people of these issues is probably a good thing. I’ll pot once again this comment from the completely insane (not really) Edward Leamer,

It is more accurate and more intellectually healthy to think of ourselves as trading greater prosperity in the next year or two for less prosperity later on. Let’s proceed with handouts and bailouts that greatly reduce the severity of the current recession at the lowest possible future cost. But let’s top throwing cash at anything that doesn’t move, as if being hit with money would get it moving again.

If at least some cuation is not exercised then we might be trading quite a bit of future prosperity for only a modest increase today.

FILED UNDER: Economics and Business, Government, , , ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Dave Schuler says:

    Rather like the attempt to portray the state of the economy over the last dozen years as laissez-faire capitalism as compared to the idyllic regulatory state that some envision. We haven’t had laissez-faire capitalism here in the U. S. for a century or more.

    It’s reasonable to argue about what we should regulate and how and effective, ineffective, or acceptable ways in which the government should intervene in the economy. To say that we aren’t regulating now or haven’t been intervening in the economy is stretching the truth a mite.

  2. odograph says:

    If at least some cuation is not exercised then we might be trading quite a bit of future prosperity for only a modest increase today.

    I can take 1% less prosperity 20 years from now, for a few less families shooting themselves today.

    (Especially because I think GDP has diminishing returns for human happiness. It’s more important that people stay out of bankruptcy than that they make 2% more under full employment.)

  3. odograph says:

    Dave, both side play that game. During the Bush years many (including some commentators here) said “what, you don’t support the free market?”

  4. Steve Verdon says:

    …for a few less families shooting themselves today.

    What?

  5. odograph says:

    I really do take this with a grain of salt, but here it is:

    Murder-suicides jump as economy plummets

  6. Bithead says:

    (Especially because I think GDP has diminishing returns for human happiness. It’s more important that people stay out of bankruptcy than that they make 2% more under full employment.)

    Maybe you oughta be talking with the unions. THey don’t seem to share your view.

  7. A Giant Slor says:

    I agree with odograph. A tiny drop in GDP years from now is a small price to pay for millions of families avoiding bankruptcy now.

  8. Steve Verdon says:

    I agree with odograph. A tiny drop in GDP years from now is a small price to pay for millions of families avoiding bankruptcy now.

    But what constitutes tiny? And sometimes bankruptcy is the right choice. If you make unwsie decisions you should take the responsibility and deal with it, not expect not only your neighbors but people you’ve never met to foot the bill.

  9. odograph says:

    That’s the interesting question, Steve. Not only how many now but how much later. Personally I think manufactured things, wireless connections, will be cheaper in decades hence. Nature and wild foods will be more scarce. In that environment, GDP itself isn’t going to make life in the US better, by my lights.

    Developing nations still have the steep part of the GDP / happiness curve to climb, of course.

  10. nice strategy says:

    Think Yglesias was harsh? Check out this post from Lawyers, Guns, and Money: “the single dumbest independent clause you’ll read all day,” which does a much better job than Matt Y of pointing out the historical illiteracy contained in Amar Bhide’s statement. It is equally intellectually dishonest of our esteemed host to pretend that Bhide’s critics were doing anything more than jumping on his idiotic reference to the turbulent economic history of the 19th century in the service of a policy argument, especially one that advocates government restraint. The FDIC and other 20th century innovations have what exactly to do with the statement “the depressions and panics of the 19th century ended without any fiscal stimulus to speak of.” Is this evidence that stands in the service of no assertion? Or is it complete malarky written for an audience whose knowledge of 19th century history is thin?

    No doubt it is a little “gotcha” of Yglesias but in the grand scheme of things the WSJ op-ed page has a lot more intellectual dishonesty to answer for than Matt Yglesias, who is, after all, writing a blog and not a column that goes through editorial review.

  11. nice strategy says:

    Mr. Verdon would like us to believe that economy might be bad but not THAT bad. Several trillion dollars in lost capital? Not THAT bad. “It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring. I understand that once in a hundred years this is what you do.” — Allen Greenspan. Not THAT bad? Being on the verge of deflation? Let’s take our chances!!

    I’m not ascribing this to Mr. Verdon but I find the 1% doctrine mentality of many conservatives towards military/security policy and their current attitude toward economic security to be revealing. The very small but not 0% chance of a terrorist/WMD connection was used to justify wars that killed thousands of innocents and war crimes that will shame our nation for a generation. But the very likely but not 100% chance of continued economic dysfunction that will hurt nearly everyone in the world is not worth risking some potential future prosperity. Say what?

    Taking a longer view is all fine and good unless you are 65 years old. Perhaps the god of GDP is better served with less extreme policy measures — it’s hard to say. The thing is, in the long run everyone’s dead and being patient and hoping for the best just doesn’t wash with the majority of the country that doesn’t have the same economic security that most every member of the conservative economic establishment has (or most any member of the upper middle class, for that matter). If we fiddle and Rome rebuilds, great, but if it burns, we have done the economic equivalent of handing Al Qaeda a suitcase nuke. The hypocrisy is astonishing*. The 1% doctrine was nutty, but if was the 10% doctrine no one would doubt its reasonableness. Why this is not also the case with the spectre of economic catastrophe is beyond me.

    *again, I realize our host is only making half of that argument. I guess I just wish he’d take the possibility of economic deterioration from the point of view of someone whose life will actually deteriorate. Otherwise it all just seems like the elite are playing with people’s lives for the sake of their future profit margin. My opportunity cost of overzealous intervention should not be weighed against someone else’s opportunity cost of not doing enough when the best time to intervene effectively is now or soon (or actually a year ago…). To me this is a matter of patriotism. It isn’t about me. It isn’t about the professional classes. Not this time.

  12. Brett A. says:

    Why does everyone keeping saying “We owe tens of trillions of dollars for these liabilities of Social Security and Medicare” as if it is some ominous, crushing issue? We have decades to pay it, and it is only a problem if we decide to keep the current age limits as is.

  13. ap says:

    I can take 1% less prosperity 20 years from now, for a few less families shooting themselves today.

    (Especially because I think GDP has diminishing returns for human happiness. It’s more important that people stay out of bankruptcy than that they make 2% more under full employment.)

    dude, these two sentences do not jive…at all.

    ugh, every blog i read ends up quoting Matty Y. Why is that? that is an earnest question. i read his blog for awhile to try to understand and i found nothing insightful or novel. there are plenty of liberal bloggers. why him?

  14. odograph says:

    I didn’t think they had to jibe, numerically, ap. I know they are made-up numbers, more to describe my sentiment than any actual future economy.

    As you may remember, I’m in the Taleb “fooled by randomness” camp and don’t trust predictions anyway, especially economic predictions about the far future. The further you go into the future, the more you’re making it up.

  15. Steve Verdon says:

    nice strategy,

    Anyone who thinks Bhide was arguing for a return to the 19th century is a moronic dolt or a liar. I’ll let you tell us which catagory you fall into.

  16. Rick Almeida says:

    ugh, every blog i read ends up quoting Matty Y. Why is that?

    I wonder this myself, all the time. MY is neither particulatly interesting or insightful. I think much of the blogosphere has become every bit as nepotistic and incestual as the mainstream media.

    Oh, I wonder the same thing about McArdle, too. Ugh.

  17. ap says:

    I didn’t think they had to jibe, numerically, ap. I know they are made-up numbers, more to describe my sentiment than any actual future economy.

    did not mean numerically. meant your sentiment. marginal change in GDP in one case yielded a marginal increase in happiness. marginal change in GDP in your other case caused families to commit suicide. hence, don’t seem to jive.

  18. odograph says:

    Ah, ok. In my first post I said “Especially because I think GDP has diminishing returns for human happiness.”

    That’s the key bit. At the low end of national or personal wealth, income matters a great deal. Once you have enough, and are starting to trade various luxuries (even minor luxuries), less so.

    The potential inter-temporal trade-off here is that we might help the short-term poor, at the cost of later small luxuries.

  19. nicestrategy says:

    Steve:

    So what exactly what was Bhide bringing up the 19th century for? What was that piece of information doing in his article other than serving as stupid-bait for conservative ideologues who want to argue against the stimulus?

    I stand with the dolts like Yglesias and Dave Noon. At least I’m not a name-calling coward who is willing to give a free pass to yet another idiotic historical reference on the OpEd pages of the Journal.