Friday, June 01, 2012

Miles Kimball, the Supply-Side Liberal

Miles Kimball attempting, with some success, not to look at the camera...

Those of you who think I know anything about macroeconomics should realize that about 75% of what I think and say on the topic comes from a guy named Miles Kimball, who is my committee chair here at Michigan (the rest mostly comes from Bob Barsky, Rudi Bachmann, and Mike Elsby, with a dash of Brad DeLong's blog; also, there are a few amateurish musings like this that come from no one in particular). Now, you can get your macro directly from the man himself. Miles Kimball has a blog!

This is good news. Not only is Miles one of the smartest economists I know, but he is also one of the least politicized. This may sound odd, since he makes his political views public knowledge, and very explicitly lets them inform his policy positions. What I mean when I say Miles is "not politicized" is that he does not allow his politics to interfere with his assessment of the facts. Rather than seeing the evidence through a politically colored lens, like so many economists, he follows a two-step process: first he gauges the evidence and draws conclusions in a dispassionate manner, and then he uses his moral compass to decide what ought to be done given those facts. Never does he allow himself to see the policy world as a battle between competing teams of "good guys" and "bad guys". Of course, that's the way a scientist is supposed to think. What makes Miles uncommon is that he believes, reflexively and implictly, that a macroeconomist is a scientist.

Miles also refuses to oversimplify his arguments for rhetorical purposes. Some economists believe that when there is a consensus among economists on some policy, it's legitimate to use too-simple-to-be-quite-right arguments when justifying that policy to the lay public - for example, that it's OK to tell a Ricardian comparative-advantage story when pushing for free trade in the popular press, even if the model that actually convinced economists to support free trade was something much more advanced like a Heckscher-Ohlin or Krugman model. Not so Miles Kimball. I have never heard him simplify an argument past the point where he believes it himself. This can make his writings a little harder to read, but you can be sure that nothing has been dumbed down for the benefit of the plebes.

Here are three posts to get you started in your travels through Miles-land:

1. Print Money and Buy Assets! This was Miles' most famous line when he taught my second-year macro field course. The normal term for this is "quantitative easing", which is what many people (including Milton Friedman) think the Fed should do when its normal monetary policy bumps up against the Zero Lower Nominal Interest Rate Bound (e.g. right now). In this epic post, Miles explains the rationale behind QE. If you are intrigued by the ideas of Scott Sumner and David Beckworth, you should read this post, which provides pretty much the best simple primer on QE that I've seen in the blogosphere.

2. How to make sure people spend their stimulus checks. Miles has an interesting idea about how to do fiscal stimulus. Instead of handing out cash or spending on infrastructure projects, he thinks we should have the government offer to lend money to people in the form of "Federal Lines of Credit". This, he says, will get us the biggest possible bang for our stimulus buck, since it guarantees that any money handed out by the government will actually be spent; if people don't take the loans the government offers them (which for them is equivalent as sticking a stimulus check in the bank), the government's deficit doesn't go up. I think this is a very interesting idea. I am not sure I completely buy it, since I think there's something to the idea of the "balance-sheet recession" (i.e. that it's a good idea to transfer household debts to the government, even if the money is not spent). But this probably just means that there's something I haven't thought of, and that Miles has thought of.

3. Taxes bad, redistribution good. Many people are familiar with the fact that people work about the same  amount whether taxes are low (as in the 2000s) or high (as in the 1960s). Miles agrees with this, but points out that high taxes hurt people in a different way, by making them feel so poor that they have to work more, and thus depriving them of leisure. For this reason, he thinks income taxes are bad, all other things being equal; he's a "supply-sider" in the sense of thinking that taxes matter. But he weighs this against his "liberalism", meaning that he supports some amount of income redistribution. Miles believes that policy should strike a balance between the economic distortions of taxes and the moral imperative of redistribution. Hence, he's a "supply-side liberal".

Anyway, if you have an interest in macro, bookmark Miles' blog. As for me, I had better get back to finishing up my dissertation, or the author of said blog will (quite justifiably) feed me to the sharks...


  1. evidently you cant leave comments on his blog. WUWT

  2. taxes hurt people in a different way, by making them feel so poor that they have to work more, and thus depriving them of leisure. For this reason, he thinks income taxes are bad

    This of course is completely at odds with the standard right wing argument - which is the core of the whole current Republican party - that increasing taxes reduces work effort and reducing taxes will increase work effort. If the Republican platform is really "more leisure for the rich" then they should just say so and let the democratic process proceed on an informed basis.

  3. Anonymous4:24 PM

    Amateur question: what is the mechanism by which Kimball thinks lowering the interest rates on non-Treasury assets will stimulate the economy? The Fed buying a class of assets will raise the price of that asset, which I would think would be a boon to the balance sheets of those entities which hold that asset, but what effect does the interest rate have? He states "All interest rates matter for the economy, so lowering almost any interest rate will stimulate the economy. And all interest rates affect all other interest rates, so lowering any interest rate tends to lower all other interest rates, at least a little bit." Does it have something to do with lowering the interest rate of instruments consumers are likely to interact with, like mortgages?

  4. Second link... Same as the first.

    (Not that a little searching won't find it. I think I found the right link.)

  5. My thoughts on those posts...

    1. Can lowering interest rates stimulate the economy if it doesn't result in people who otherwise would not have been able to get loans getting them?

    2. Is he assuming that there are people who can't today get credit cards with $2000 lines of credit? And he's assuming people currently maxed out on their credit cards who would be able to use another $2000 in credit no bank will give them are going to pay it back eventually?

    3. "Many people are familiar with the fact that people work about the same amount whether taxes are low (as in the 2000s) or high (as in the 1960s). Miles agrees with this, but points out that high taxes hurt people in a different way, by making them feel so poor that they have to work more, and thus depriving them of leisure."

    Was that worse in the 60s than today? I mean, I didn't live through the 60s, but I find that difficult to imagine. It isn't taxes that drive that feeling, it's debt and inequality. And lots of things that aren't apparently about inequality really are. For the lower middle class it has become impossible to afford health care because doctors' wages have risen faster than theirs. I'm paying a lot to live in a desireable neighborhood because lots of people where I live have good paying jobs, and there are more who'd like to live here, so the cost is whatever the cost has to be to make it unaffordable to enough of them that the market clears. And I'm considering moving to a more expensive neighborhood where the schools are better, partly because lower income people can't afford to live there so they can keep their money to themselves and also fewer of the kids at school will have troubles in their home life that they might bring to school. And the further up the income scale you go, the more consumption is about buying status/power/recognition/other positional goods, and no amount of tax cuts will result in any more of these to go around, but inequality actually gets worse the further up the income scale you go, so many of today's Wall Street millionaires don't see themselves as rich because it isn't easy to afford to send your kids to the very most prestigious private schools and live in the sort of neighborhood your peers live in while having a vacation home in the sort of place your peers vacation and do everything else that is expected of you if you are to live like anyone who is anybody in your profession lives. And the perverse thing about all this is that it's easy to say, well if I had $x more to work with, then I could live a little easier and live more like this other guy, and so you might look at your taxes and think of the life you might live if you didn't have to pay them, but they're not the problem, you feel you have to work more because you're trying to catch up to the guy in front of you, and the tax rate doesn't affect your ability to do that.