Ideology and Macroeconomics

Scott Sumner writes,

I am amazed by how many proponents of fiscal policy don’t understand that it’s symmetrical. Fiscal policy doesn’t mean more government; it means more government during recessions and less government during booms, with no overall change in the average level of government. Anyone who doesn’t even get to that level of understanding, who doesn’t think in terms of policy regimes, is simply not part of the serious conversation.

I agree with the first two sentences, but not with the last.

Yes, in theory, there should be economists who, as they argued for more stimulus in 2009, should at the same time have been arguing for entitlement reform or other reductions in future spending. Other things equal, the bigger debt that we have accumulated over the past five years would make a non-ideological macroeconomist want to propose tighter fiscal policy somewhere down the road.

But “nonideological” and macroeconomics are nearly oxymorons. Name a prominent economist who believes that fiscal expansion is important during recessions and who also is to the right of the median economist on issues like school choice or taxing the rich or the usefulness of regulation. Or try to name a prominent economist who is to the left of the median economist on those issues and who does not believe that fiscal expansion is important.

I know that I was more to the left generally 30 years ago, and I was a confirmed Keynesian. I am more to the right today, and I am a skeptic of Keynesianism.

I do not think that being on the left (right) on other issues necessarily causes you to be a supporter (skeptic) of Keynesianism. However, I do think that people try to avoid affiliative dissonance and cognitive dissonance.

Cognitive dissonance is an issue because if your general view is that market failures are small and difficult for government to correct, then it is hard to fit Keynesianism in with that belief. If your general view is that market failures are significant and require government intervention, then it is hard to fit the skepticism toward Keynesianism in with that belief.

Affiliative dissonance is my own expression. It just means that if the people with whom you feel an affinity on issues W, X, and Y take a position on issue Z with which you disagree, that makes you uncomfortable. Other things equal, this will make it easier to get you to change your mind on issue Z.

We know from Daniel Kahneman (and others) that we are good at rationalizing opinions that may be arrived at on the basis of intuition. I am not saying that therefore we will never find truth in macroeconomics. What I am saying is that if you close your ears every time you detect someone’s ideology embedded in what they say about macroeconomics, then you will not hear anything.

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14 Responses to Ideology and Macroeconomics

  1. George says:

    One problem with the continuing debate about the nature of market failure is that there is never a discussion of the possibility of regulatory failure, at least by Keynesians. Libertarians tend to overestimate the power of true free markets to control fraud and other abuses, but the left never, never seems to recognize corruption in government, or regulatory overreach, or the destruction of economic activity through overbearing government policies.

    In that sense there is an asymmetrical conversation, (among others).

    • Lord says:

      .. says the right that kneel before finance and see nothing wrong with giving Wall Street blank checks, least regulation get in the way

  2. Scott Sumner says:

    Arnold, I completely agree, but I don’t think that conflicts with my statement. A Keynesian may favor bigger government, but that’s true regardless of whether we use fiscal or monetary policy for stabilization purposes. Big government is not Keynesian economics, as we’ve recently seen in Europe.

  3. Lord says:

    “then it is hard to fit the skepticism toward Keynesianism in with that belief.”

    I don’t think so. One can recognize the many advantages and uses of fiscal policy and its ability to stem the vicious cycle, ameliorate the worst, reduce the greatest losses, support private deleveraging, adopt a long term perspective, undertake future public investment when it is cheap, and buy time for adaptation, while still remaining skeptical of how effective it can be at establishing the next virtuous cycle and become self sustaining.

  4. Zac says:

    Hi Arnold,

    You deployed your theory of PSST, to predict that New York City’s recover from last year’s hurriance would be much slower than expected, due to the complexity in it’s economy.

    http://econlog.econlib.org/archives/2012/10/the_outlook_for_1.html

    Do you know if these predictions have been born out?

    Thanks,

    Zac

    • Arnold Kling says:

      no, because I over-estimated the extent of the damage. I over-reacted to the initial pictures.

  5. Joe says:

    Mark Thoma gives two examples featuring a prominent economist.. . Paul Krugman http://economistsview.typepad.com/economistsview/2013/10/ideology-and-macroeconomics.html Thoma concludes, ” Krugman has been arguing (more than once) that there is little evidence that expansionary fiscal policy in recessions is permanent…. Oh, and since we are talking about unwillingness to reverse policy for ideological reasons, are conservatives arguing that the tax cuts they call for in recessions ought to be reversed when the economy improves? Why aren’t those who are so worried about reversing policy in good times only talking about the spending side of the equation? Could it be — gasp — that their ideology, there belief that government is too big, is the reason?”
    I’d be interested in your comments, Arnold and Scott.

    • Arnold Kling says:

      Krugman and Thoma can cite those past posts as theoretical arguments. However, in the great bulk of their writing, they have opposed any attempt, present or future, to tighten up fiscal policy. In other words, what they claim to support in theory they do not support in practice.

      In any case, I was focused more on the correlation between ideology and macroeconomic theory, which I think very much holds in their case.

      • Daniel Kuehn says:

        My recollection is that Krugman gets regularly mocked for complaining about Bush’s profligacy by libertarians and conservatives. The line usually goes that he was against deficits when a Republican was in office (conveniently forgetting that there was also not a depression then) but changes his tune with a Democrat.

        How does that not count as supporting past attempts to tighten fiscal policy?

      • Daniel Kuehn says:

        Entitlement reform is tough to categorize people on because what you’re talking about there is the appropriate baseline level of government spending, not lowering government spending during the boom. People can disagree on where the baseline should be and still agree that policy should be counter-cyclical.

        Romer is an example of a Keynesian that has come out for reducing long-term debt and doing entitlement form (me too, although I’m small potatoes). Presumably some Keynesians are more skeptical.

  6. Consider the type of real science which can predict what will happen and so guide policy. It is not primarily up to the reader to find the evidence which supports and contradicts the proposed theory. In real science, the theorist examines all of that, especially the contradictory evidence.

    The late particle physicist Richard Feynman was a plain-spoken genius. This speech considers why we continue to not know the truth about many things, hundreds of years after people discovered how to do good science. An enjoyable must-read.

    Cargo Cult Science
    1974 by Richard P. Feynman – Commencement speech at The California Institute of Technology

    === ===
    [edited]   Details that could throw doubt on your interpretation must be given, if you know them. You must do the best you can to explain them, if you know anything at all wrong or possibly wrong.

    If you make a theory, for example, and advertise it, or put it out, then you must also put down all the facts that disagree with it, as well as those that agree with it.

    There is also a more subtle problem. When you have put a lot of ideas together to make an elaborate theory, you want to make sure, when explaining what it fits, that those things it fits are not just the things that gave you the idea for the theory, but that the finished theory makes something else come out right, in addition.
    === ===

    Prediction is everything, and it must work more than once. Explaining everything after the fact is merely making up complicated stories.

    Feynman says that real science is a method for discovering facts about our world, and it requires bending over backwards not to fool others, and especially not to fool oneself. He notes it is particularly easy to fool oneself, and so requires the greatest dilligence and openness to criticism and disproof to avoid being that fool.

    The complicated theorizing of New (and old) Keynesianism is a lot of story telling combined with math models which have not been shown by experience to predict anything. Then, these stories are presented, without being tested against the known supporting and contradictory evidence. It isn’t science, and it is not reliable. Yet, it is used to promote and justify massive experiments on the lives of the peasants. These experiments just happen to deliver massive resources to politicians for distribution to their friends and themselves.

    EasyOpinions

  7. theyenguy says:

    I agree with “I am amazed by how many proponents of fiscal policy don’t understand that it’s symmetrical. Fiscal policy doesn’t mean more government; it means more government during recessions and less government during booms”

    But I disagree with “with no overall change in the average level of government” as the world is entering the end times, that is the last days of human government, before Christ comes to establish the Kingdom of God on earth, where the saints will rule and reign with Him for a thousand years.

    The economic and political paradigm of liberalism stands at its zenith, as the Banker Regime has established a Washington US Dollar Hegemonic Empire, greatly rewarding investment choice providing a moral hazard based prosperity, based upon schemes of credit and carry trade investing.

    Thus, the world is at an epic inflection point.

    Jesus Christ, operating in the Economy of God, as revealed by the Apostle Paul in Ephesians 1:10, that is operating in the administration of all things economic and political, is pivoting the world into the economic and political paradigm of authoritarianism, where the Beast Regime will establish the Ten Toed Kingdom of regional governance and totalitarian collectivism, where diktat provides “the new normal” of austerity, based upon schemes of debt servitude and unified regional fiscal policy governance.

    Jordan Shilton of WSWS writes Irish Government Unveils New Austerity Budget. The Fine Gael Labour coalition has outlined new austerity measures, including €1.6 billion in spending cuts aimed at the most vulnerable. And The Irish Independent reports Ireland’s Health Minister Reilly To Cut 1,000 Jobs In Bid For €666m Savings. And Bloomberg reports Euro Capitals Tighten Fiscal Leash as EU Starts Austerity.

    Out of a soon coming Financial Armageddon, that is a credit bust and financial system breakdown, presented in Revelation 13:3-4, authoritarianism’s new sovereigns, that being regional nannycrats, as well as Europe’s Sovereign, described in Revelation 13:5-10, and his partner, the Eurozone’s Seignior, Revelation 13:11-18, will rise to power, establishing regional sovereignty and providing diktat money to replace fiat money.

    Diktat money is defined as the compliance required, as well as the trust that is engendered, the debt servitude that is enforced, and the austerity schemes that are experienced, such as heavy losses on large bank deposits via bailins, levying additional taxes, privatizations, capital controls, import curbs of branded items, budget cuts in social programs such as Head Start, sale of a country’s central bank’s gold reserves, fiscal policy councils, such as those reported on by the IMF, Case studies of fiscal councils and The functions and impact of fiscal councils, for Eurozone wide fiscal governance, and statist public private partnerships, which oversee regional economic commerce, trade, and the factors of production, as well as in the Eurozone, a fiscal union, where sovereign regional leaders, as well as sovereign regional sovereign bodies, such as the ECB, invoke all kinds of mandates for regional security, stability, and sustainability.

    These leaders, that is nannycrats include, Jeroen Dijsselbloem, President of the Eurogroup meeting of euro-zone finance ministers, Olli Rehn, Vice President of the European Commission responsible for economic and monetary affairs, Michel Barnier, EU Commissioner responsible for internal market and services, Klaus Regling, Managing Director of the European Stability Mechanism, Werner Hoyer, President of the European Investment Bank, who in the WSJ op-edited credit for the Eurozone’s economic recovery, as well as Jorg Asmussen, Member of Executive Board of the ECB, Viviane Reding, European Commissioner for Justice, Fundamental Rights and Citizenship.

    And diktat money is seen in countries with high current account deficit, such as in India, where import duties have been declared on the import of gold, and the import of gold coins banned; and such as in Indonesia, where curbs are placed on the import of luxury cars and some branded goods.

  8. I am amazed by how many proponents of monetary policy (e.g. Sumner) don’t understand that fiscal policy is not necessarily symmetrical. Fiscal policy does not necessarily mean more government during recessions and less government during booms, as Sumner suggests. For example cutting taxes with a view to encouraging households to spend more is fiscal policy, and that by definition means more government. Anyone who doesn’t even get to that level of understanding, who doesn’t think in terms of policy regimes, is simply not part of the serious conversation.

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