Friday, June 05, 2015

Economic arguments as stalking horses

On Twitter, Russ Roberts said something I tend to agree with:
Just a curious coincidence that economists who like stimulus want bigger government and those who oppose it prefer smaller. 
In fact, he said something very similar back in 2011:
The evidence for the Keynesian worldview is very mixed. Most economists come down in favor or against it because of their prior ideological beliefs. Krugman is a Keynesian because he wants bigger government. I’m an anti-Keynesian because I want smaller government. Both of us can find evidence for our worldviews[.]
Now, Roberts doesn't actually know Krugman's motives - he's necessarily making a guess. But he definitely does know his own! Basically, he's saying that he adopts an anti-Keynesian stance not because be thinks stimulus actually fails to fight recessions, but because he wants to shrink the size of the government in the long term. 

Furthermore, he strongly implies that he will selectively display evidence against the effectiveness of stimulus as a stabilizer, in order to ward off the long-term expansion of government. That's motivated reasoning.

I have long believed that stuff like this happens in economics arguments all the time. It's probably not (usually) an intentional subterfuge, but more of an unconscious bias. An economist is presented with the proposition that countercyclical fiscal policy (stimulus in recessions, austerity in booms) increases overall efficiency. He is generally against increasing the size of the government. So when he sees that countercyclical fiscal policy will (temporarily) increase the size of the government in a boom, it triggers warning sirens in his subconscious. "What? Increase the size of government? Never!", says his subconscious. And so that motivates him to argue against the proposition that countercyclical policy is effective at stabilizing booms and recessions. 

So Russ Roberts is being honest and introspective, which is good. Introspection is difficult and often unflattering, so not enough people engage in it.

In fact, this is similar to the first part of Paul Romer's "mathiness" argument. Romer argues that some economists make their modeling choices for reasons related to academic politics - for example, he says that researchers who want to believe in a world without market power will construct growth theories that make silly assumptions just to avoid putting market power in the equation. 

This effect is a lot stronger if there's no skin in the game. As Matt Yglesias pointed out back in 2011, you see Republican politicians - who probably want to shrink the government - doing Keynesian policies fairly often. Bush enacted stimulus in 2008, and probably Reagan in the early 80s. 

Another example would be the fact that nearly everyone on Wall Street was eager to tell you back in 2012 that QE would cause a big rise in inflation. But when you looked at TIPS spreads, it was clear that the marginal investor wasn't putting his money where his mouth was.

This is consistent with the finding that partisan belief gaps go away when you pay people to get things right. A bet really is a tax on bullshit (although not the optimal tax). Or, as Nassim Taleb so memorably put it, macrobullshitting is reduced by having skin in the game. The cynical side of me says that Romer's "mathiness" manifests mainly in fields where the data is not good enough to exert discipline on theory.

So when you read econ arguments, always be a little wary of the motivations of the arguers.

P.S. - This is unrelated to the main point of my blog post, but an alternative, non-Keynesian theory of stimulus is that it boosts output because it expands the government, in the ways that need expanding (public investment).


Paul Krugman responds to Russ Roberts.

Adam Ozimek responds to Roberts, defending Paul Krugman, and the econ profession, from Roberts' cynical allegations. The two have an interesting (but brief) twitter debate about how evidence should interact with ideology.

Roberts writes an additional tweet that I like:
Conceding the reality of self-deception isn't cynical. It's realistic. Leads to humility and caution.
I agree, but just because some nonzero degree of self-deception is inevitable doesn't mean it's benign. Instead of just accepting it, I say people should try to fight against it. And if you realize that you yourself engage in a considerable degree of self-deception, I say you should focus on reducing it, rather than focusing on demonstrating that your rhetorical opponents are equally self-deceptive.


  1. Anonymous10:35 AM

    I've been screaming about this for some time...

    Krugman is not a Keynesian, he is a Monetarist, precisely bc if you present him with this choice:

    1. Large unfunded tax cuts for those who pay income tax


    2. Monetary

    Krugman will choose 2.

    Farmer is clearly the true heir to Keynes.

    - morgan

    1. Anonymous3:00 PM

      So Krugman has responded and we see clearly I am right:

      "Now, this could be a case for using monetary rather than fiscal policy — and that actually is the policy I advocate in response to garden-variety slumps. But when the slump pushes rates down to zero, and that’s still not enough, any simple model I can think of says that fiscal expansion can be a useful supplement, while fiscal austerity makes a bad situation worse."


      "If I were, shouldn’t I be advocating permanent expansion rather than temporary measures? Shouldn’t I be for stimulus all the time, not only when we’re at the zero lower bound? "

      Ladies and Gentlemen, I ASK YOU, if you want to do TEMPORARY Fiscal stimulus, what is more assuredly TEMPORARY:

      "Large unfunded tax cuts for those who pay income tax"


      "Hey let's temporarily increase govt spending!"

      And the final coup de grace,crushing the life from Smugman' last ditch argument....

      IF YOU WANT fiscal to pass, there's no reason to pretend there are "shovel ready jobs" - no you just make giant income tax cuts.

      Krugman is a Monetarist Liberal who wants bigger govt. and saw ZLB as a way to achieve it.

      - morgan

    2. I've been screaming about this for some time...

      We see clearly that your mental distress has been acute for some time. Still, you're entitled to your opinions--advocates for progressive policy will have their heads put on pikes, etc--and we cherish that.

    3. Bill Ellis10:52 PM

      The false , narrow choices you present mean that either you do not understand Keynes or Krugman ...or that you are intentionally trying to create a false impression of what Keynesianism is... and what Krugman believes.

      Given a situation, a Keynesian could choose to use any combination tax cuts, monetary policy and/ or fiscal policy. It is perfectly reasonable to want tax cuts concentrated on the low income end where they will be spent, while advocating tax increases on stagnant capital to redistribute it to those who will spend it...and that redistribution could be in the form of say....buying health insurance for poor people ( effectively increasing their income.)

    4. Anonymous3:19 AM

      "a Keynesian could choose to use any combination tax cuts, monetary policy and/ or fiscal policy."


      In hypo we are speaking of Krugman where he has only two choices:

      "Large unfunded tax cuts for those who pay income tax"


      "Hey let's temporarily increase govt spending!"

      Changing terms of hypo, simply obscures what it clearly exposes. Note: Krugman TRIES to hide this by never specifically considering the choice of two narrow options.

      Look, Sumner and countless other Monetarists all rank like this:

      1. Monetary
      2. Fiscal tax cuts
      3. Fiscal spending

      A Keynesian then does this:

      1. Any kind of Fiscal
      2. Monetary

      Political realities count of course IRL, but in a hypo, we replace those and just answer directly.

      My point is Krugman if you gave him only these two choices as ZLB, he would say "screw that, do Monetary"

      Therefore, given a very clear definition he's not a Keynesian. His MO is NOT, Fiscal Stimulus! It is Govt Spending!

      We can go further and admit, the Krugman doesn't for a second believe that Govt Spending will decrease after the fact. None of us would take that bet if a gun was pointed at us, and Krugman was hooked to fMRI.

      And we shouldn't be nice about not getting down to these brass tacks.

    5. "Krugman doesn't for a second believe that Govt Spending will decrease after the fact."

      Actually, Krugman has written specifically on this point -- about how when you look at the historical record, "temporary government stimulus" usually IS temporary, and arguably discontinued sooner than it should have been. So those who WOULD take that bet (gun pointed at us or not) would probably win.

    6. Anonymous12:54 PM

      sorry hudebnik -

      The same logic will not treat Obamacare as "Fiscal Stimulus"

      It will not treat $500B in annual pay raises for F, S, & L public sector employees since 1998 without any productivity gains (weighted for inflation) as "Fiscal Stimulus" - look it up, it should be $1.25T, it's now $1.8T.

      Look at Food Stamps - hey wait, unemployment is back down to 5.5%.

      So cancel that junk -

      We are awash in Government Spending as "FIscal Stimulus"

      And you STILL don't have the n*ts to say, "yeah, Krugman would choose Monetary over massive temporary cuts in income tax for the top 20%.

      Just let it go man.


    7. Anonymous6:53 PM

      "I've been screaming about this for some time..."

      "Just let it go man."

      glibertarians never are the best at irony. You are awash in confirmation bias, clown.

  2. Motivated arguments demonstrate a lack of personal integrity.

    but an alternative, non-Keynesian theory of stimulus is that it boosts output because it expands the government, in the ways that need expanding (public investment).

    There is a middle ground between a Keynesianism which advocates spending money without concern for what it is spent on and the recognition that there are some public investments with large pay-offs. That middle ground is a belief in stimulating the economy in times of recession by pouring money into public investments at times when those investments are cheapest.

    1. Under NGDP targeting, those investments might be cheap, but there's an equal probability they might not be.

    2. I don't believe in NGDP targeting. I do however believe that during recessions, steel, labor, construction machinery, engineering services and money are all cheaper than during booms.

      The Feds should have done QE by committing to buy new issues of state and local bonds issued to pay for infrastructure rather than by buying long Treasuries.

  3. Anonymous11:03 AM

    Russ misses the leftist point a little. Liberals don't tend to want larger government for the sake of it. They tend to want to achieve certain social outcomes whilst also believing that the market alone will not deliver them. I think it's an important distinction whether changing the size of government is a means or an end, and I think it ought to affect this analysis.

    1. Anonymous2:57 PM

      Right. Exactly.

      I do not agree the debate is symmetrical. The economic right consider the 'size' of government to be a basic variable that one wants to make small.

      For Krugman, and most leftists, this is not the case. The 'size' of government is not a thing, it is purely an observed variable. What is important is that things like social welfare and free healthcare is provided, and government only comes into the equation as the most likely provider. Larger government, as pertains to stuff like larger prisons, mass survelliance, intrusions into religious and sexual liberties, military expansion... leftists *don't* want that.

      The debate isn't between people who want small government and people who want big government. It's actually between people who want small government, and people who want to deal with things on a case-by-case basis and don't think the size of government matters.

  4. It is everyone's flaw to project their own failings onto others, so while he thinks motivated reasoning is sufficient justification, he imputes this on the opposition, but that is not the motivation. Those who favor stimulus would be happy if government printed money and gave it to everyone which wouldn't expand government at all, only the money supply, yet even that is an anathema to them. So I must conclude it isn't because they are against a larger government, but because they believe, falsely btw, that it threatens their power, privilege, and wealth.

    1. Or, I will believe them once they oppose raising interest rates to fight inflation. Somehow larger government isn't a problem to them then or monetary policy ineffective.

  5. MaxUtil12:24 PM

    Now THAT is how you do a takedown. "The commentator is very serious and brave when he openly admits that he cherry picks data to reinforce his priors."

    Noah sometimes lapses into name calling, nice to see him return to form.

  6. The discussions about Fiscal Stimulus too often revolve around 'Faith' based or 'Opinion' based research. Faith based decision is good if it helps you get through the day. Opinion based decision making is good if you are getting paid. Unfortunately, neither really are much help in resolving arguments. Research based on data and logic is harder, but perhaps can shed some light on the issues.

    There is ample theory to show that growth in GDP is positively correlated with both growth in Government expenditure and growth in  Investment. There is also ample evidence available in the public domain to support this contention. See, for example, Eurostat data from 2003 to 2013 which provides ten years of data for 33 advanced economies operating under a wide range of economic conditions. Straight linear regression on this ecologic data shows positive coefficients for both Government Expenditures and Investment with a power value p for both less than 10^(-8).

    Perhaps it would be better to frame the debate on Fiscal Stimulus in terms of whether it is worth borrowing to increase GDP in a recession. The data seems less conclusive on this issue, but is likely to be more fruitful than more contrafactual arguments on whether or not Fiscal Stimulus increases GDP

    1. Anonymous10:31 AM

      Your grasp of statistics is shockingly poor.

  7. I think the 'mathiness' argument is little more narrow than you are implying---at least I take to be implying formal semantics by using or implying formal terms, but using them with a non-formal meaning.
    For example, if you were to use the phrase "we know" (speaking about economists) with out any caveats, the mathematical meaning implied would be that *all* economists know, without exception (I believe this is a phrase used by Lucas that Romer specifically mentions). *forall* and *exists* seem like the biggest offenders.
    With that slight difference in perspective on 'mathiness', I would think that Macro would be vulnerable because know in macro really wants the mostly ridiculous simplifying assumptions of those mathematical models front and center, i.e. Forall markets where the vendor cannot change prices...

  8. Basically, he's saying that he adopts an anti-Keynesian stance not because be thinks stimulus actually fails to fight recessions, but because he wants to shrink the size of the government in the long term.

    Why does he want to shrink the government though? It's because he doesn't trust the government's allocation decisions. But what's stimulus? Just another allocation decision by the government.

    If the government is good at fighting recessions... then it's good at allocating resources. And if the government is good at allocating resources... then why would anybody want to shrink it?

    Might want to read the parable of the talents again.

    Would crucifying liberals stimulate the economy? Sure. But it would also massively violate Quiggin's Implied Rule of Economics (QIRE).

    Pay attention. Violating QIRE is the cause of recessions/depressions. Stop violating QIRE and there will never be any need to stimulate the economy.

    1. Anonymous5:24 PM

      Every time I see a Xerographica jumble of words, I'm always curious if he's the same way in real life, or if he's much more functional.

    2. I have a friend who knows him in real life and says that he is marginally less out-there, but largely the same!

    3. Jumble of words? I inefficiently allocate words? Are you accusing me of violating Quiggin's Implied Rule of Economics?

      QIRE = Society's resources (ie "words") should be put to more, rather than less, valuable uses

      QIRE = Society's resources (ie "sounds") should be put to more, rather than less, valuable uses.

      My gf was loudly chewing and I was unable to concentrate. I was like, "Hey! Would you mind not violating QIRE?!"

      She ignored me... as usual. So I started playing this song... Peacock Tail by Boards of Canada.

      Oh shit. It's so beautiful.

      Beautiful = very efficient allocation of resources

      Would you agree that Peacock Tail is so beautiful? Or do you think it's a jumble of sounds? Do you want to argue that Boards of Canada violate QIRE?

      For me, Peacock Tail is heaven. But the rest of life... not so much. There's a big disparity.

      You know where BoC are from? Scotland. You know who else was from Scotland? Adam Smith. Adam Smith allocated words like BoC allocates sounds.

      The Wealth of Nations = Peacock Tail

      Unfortunately, I'm not from Scotland. I'm from California. This is my excuse for jumbling words.

      Does Noah Smith jumble words? Well... he's written quite a few blog entries. But I sure don't see heaven in them. He wants the government to do a lot... but there's no assurance that the government will put society's resources to their most valuable uses.

      Either Noah's hiding a huge assumption... or he's hiding a huge answer. But why would he hide a huge answer?

      Here's Adam Smith's answer...

      "It is thus that the private interests and passions of individuals naturally dispose them to turn their stocks towards the employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society."

      Oh shit! So beautiful!

      Hey Noah Smith! What about the government? Is there ever a faulty distribution? If so, then how is it altered? By voting? We should trust people's words? Even Paul Samuelson realized that we can't trust people's words.

      After 911... what was the demand for war? Do you know? If so, how? If not, then why don't you care that you don't know?

      The world will be a lot closer to heaven when enough people understand the problem with not knowing the demand for war.

  9. Anonymous1:16 PM

    I find Russ Robert's anti-Keynesian worldview very annoying. Whenever he has a Keynesian guest on Econtalk (which is a great show) and they make a point about the benefits of more public spending / larger government his response is always the same:

    "Yeah I just don't agree with that... It's an empirical question ... I've see the studies and I don't trust their conclusions and/or methodologies ... Have you tasted this red herring? ... The world is complicated so lets do nothing because 'first do no harm' ... this could just be my bias talking."

    Yes. It is usually his bias talking. He uses his admission of bias as a disclaimer to avoid actually defending his world view with evidence.

  10. Anonymous3:48 PM

    So he likes smaller government and thus opposes everything that tries to expand the government. This is either a horrible, cherry-picked, fundamentally dishonest presentation of personal preferences as scientific conclusions, or...

    Or it's a completely reasonable and scientific approach to research. Maybe his priors are that the government usually allocates resources in an inefficient or corrupt way (or simply that only individuals can know how to allocate resources in the way that helps them best), and that the costs of market constraints are unpredictable and almost always higher than they appear. These priors could be mostly scientific in the sense that he's seen lots of research and examples that support them (and both conclusions are almost certain accurate under the right conditions) and they've only become dogmatic beliefs in response to that evidence. Perhaps he also doesn't share "liberal" priors, such as that rational decision making and perfect information are both extremely difficult to maintain, that those difficulties increases for people with less education, less-technical jobs, longer commutes, tighter finances, etc, and that it is better for society to level the decision-making playing field by taking away options that only the most-privileged would be able to accurately assess. He might disagree with those conclusions because he doesn't think it's ok to remove potentially valuable options from some people simply because other people can't take advantage of them. This is less scientific, but it goes back to a moral judgment, really - should we strive to improve GDP, which raises all boats that survive the waves? Should we try to keep as many boats afloat as possible? Does the world need to be Pareto-efficient or just ever-improving? How much responsibility does one person bear for the outcomes experienced by another?

    Basically, you can actually agree with all the "priors" I listed, and yet think that protecting the weak from themselves is a fundamentally oppressive and arrogant action. Or, you can agree with those statements, but also believe that one person's incredible success doesn't balance out the heartbreak and struggles of another person (let alone hundreds of other persons). If Pareto efficiency or aggregate success are your measures, then smaller government isn't a bias, it's a scientific conclusion. If you instead weight above-average amounts of suffering more heavily than you weight above-average success, and you view the economy's value on a per-person instead of a per-dollar basis, then you are likely to come to equally scientific conclusions in favor of larger government. This is all without cherry-picking the science itself, only the conclusions you are drawing from it.

    1. Anonymous5:59 PM

      Im pretty sure everybody with a iq over 110 intuits that pareto efficieny is optimal. But some with IQs over 110 also know their own personal optimal play is to deny what they know to be true. Everyone sells something. The smart guys with weaker hands sell che t-shirts.


    2. Anonymous8:18 PM

      You're pretty sure of a lot of dumb shit, and you spend a lot of time blathering about it.

    3. Now now, children...

    4. "Or it's a completely reasonable and scientific approach to research. Maybe his priors are that the government usually allocates resources in an inefficient or corrupt way (or simply that only individuals can know how to allocate resources in the way that helps them best)"

      Yes the private market did a wonderful job of allocation with the epic housing bubble and financial crisis. It would have destroyed the economy if not for the government bailing it out. You're brainwashed sycophants. Your "science" is anything but.

    5. Anti-government rightwingers claim their policies deliver general prosperity or "pareto efficiency" but it's just a ploy to get votes. It's not true.

      We've had 40 years of rightwing economic policies and we see the results. Stagnating growth and wages.Larger boom, bust cycles. Increasing inequality and booming profits.

      They're getting the results they want. It's not general prosperity.

    6. with a iq over 110 intuits that pareto efficieny is optimal

      That just moves the discussion to what your measure of utility is.

      I think economists will generally use: Sum over all people current year income.

      If you switch to: Sum over all people sum for all years present value of ln(each future year's consumption for that individual)

      I believe that you will get very different suggested policies.

    7. Anonymous12:39 PM

      "We've had 40 years of rightwing economic policies and we see the results. Stagnating growth and wages.Larger boom, bust cycles. Increasing inequality and booming profits.

      They're getting the results they want. It's not general prosperity."

      I'm not sure if you read the rest of my post past the part you quoted, but this was basically my point. It's not unscientific to claim that unregulated markets lead to economic growth, or that Pareto optimal solutions are the only moral option. The second claim is perhaps a-scientific: it's a moral judgment that says "what's mine is mine" trumps any concern for the "common good" or even for Rawlsian fairness. The first claim is true, though perhaps misleading in the sense that we know of plenty of specific circumstances where cooperation is far better than competition and government is fundamentally a way to optimize cooperation. What's true about the claim, though, is that regulations distort markets, which means that they have to be really carefully chosen and analyzed to have the desired effect and even then the side effects can be difficult to anticipate.

      A fundamental difference, in my mind, between the "liberal" mindset and the "conservative" one is over the value of "natural" outcomes. In other words - if we don't like how an unregulated system distributes resources (and basically no one does), are we willing to make changes to it and to keep making changes to it to correct the new problems we create, or are we so terrified of creating a new problem that we just let the old ones continue?

      The other fundamental difference is the one I mention in my first post: "big government" types think that everyone is better off when everyone is able to make choices based on preferences instead of necessities. On the other hand, "small government" types think that raising the average level of happiness and protecting everyone's freedom of action is best for everyone.

      So the question is, which is a better measure of government success: average wealth, or median wealth? And I think the answer is that you have to look at both. If you focus only on the average, then you end up calling it a success when the 3 richest people in the country each gain $10 billion and the other 300 million people each lose $50. If you focus only on the median, though, then the only logical conclusion is a complete leveling of wealth - anything less than that and your outcome would always be improved by taking money from the richest and giving it to the poorest. Certainly we could use more of that today, but if you are taking $2 from a household with above-average wealth for every penny you give a household with below-average wealth, that is not success.

  11. This comment has been removed by the author.

  12. Perhaps if Robert Lucas abstracted the consumption function as a large wooden badger...

  13. Anonymous7:09 PM

    So when presented with evidence that'll refute his world view he just refuses to listen? Okay then..

  14. Roberts is clearly wrong. Keynesian economics in a liquidity trap is about temporary boost to Government spending alah infrastructure .

    In good times it is more stringent than classical economics

  15. Pseudonymous9:26 PM

    Referring to Roberts as an economist is already pushing it, so try not to tar us all with the same brush, Noah.

  16. The accusation is more accurately "ulterior motive" (the connection between effects is not hidden) and the picture is really of a Trojan horse (rabbit), but I nitpick... :-).

  17. Question from a non-economist: "Skin in the game," which consists exclusively or predominantly in direct financial interest rather than civic concern--is that economics or psychology?

  18. Republicans love military Keynesianism and the surveillance/police state, all except Rand Paul sort of. That's big government.

    1. The also like prefer to ration out credit at the macro level so that labor markets are loose and wages are stagnant and profits are high. That's big government putting its finger on the scales.

  19. Really the effect of "smaller" government and deregulation of the financial sector necessitated the big government bailouts of the banks. Otherwise they would have been wiped from the planet. Maybe next time.

  20. Metatone11:09 AM

    This has means and ends all mixed up.
    Economics is not some kind of neutral optimisation.
    It's a choice about society. There is no "optimality" that doesn't involve choices about what society looks like, "optimally." Pareto optimal (as Quiggin has noted) is basically a defence of a status quo. That might be the right thing, but it's not actually morally neutral.

    1. The free market allocation of resources is only efficient under certain assumptions (largely equal endowments) as far as the basic models are concerned.

      Also isn't Pareto optimal decisions a largely incoherent outside a plethora of unrealistic assumptions?

    2. Anonymous10:33 AM

      You clearly don't understand the welfare theorems.

  21. Anonymous3:11 PM

    Russ Roberts is *not* being honest and introspective. He's using Orwellian language that ignores that the US not only has the world's largest military, but the largest military *by far*. And does Russ Roberts vigorously oppose Homeland Security budgets? If not, then he's some part dupe, some part fraud, and some part predator/hustler trying to pull a fast one. How much of which, I can't say. He's certainly not arguing in Good Faith - at least not any kind of intelligent, analytical Good Faith (i.e. Good Faith).

    And you, Noah - how did that get past your Crap Detector that, as public commentator, you're supposed keep well-tuned? I don't mean you should berate yourself - that's just more reactionary thinking. No, really, how did it get past? It happens to all of us one time or another, but one is supposed to wonder how the zombie's dress & speech allowed it to pass the guards. And then to take steps.

    1. Anonymous11:59 AM

      Good point. A lot of conservatives that like small government and rules to dictate monetary policy like big defence expenditure. You are getting closer to the heart of their mentality and motivations here.

  22. Now, Roberts doesn't actually know Krugman's motives - he's necessarily making a guess. But he definitely does know his own!

    I think you essentially retracted the claim that Roberts knows his own motivation as you continued to write your piece. Krugman acknowledges everyone including himself has prejudices, but even with prejudices it is possible to apply a scientific approach to the best of ones ability.

    If Roberts is being "honest and introspective" then why isn't he making crystal clear WHY he wants smaller government? IOW, it may be easier for 'a conservative' to say I'm for small government, and stop there instead of rummaging around in his/her subconscious for the motives behind such a position.

  23. But "fiscal stimulus in the form of investments in projects with NPV>0 when discounted at the government borrowing rate DECREASES the size of government relative to GDP [and even more if some of the inputs to the project have opportunity costs less than the price paid for them (=are not fully employed)].

  24. But "fiscal stimulus in the form of investments in projects with NPV>0 when discounted at the government borrowing rate DECREASES the size of government relative to GDP [and even more if some of the inputs to the project have opportunity costs less than the price paid for them (=are not fully employed)].

  25. Really, a fundamental point is that liberals have much less incentive to not accept, or deny, the evidence and logic. And the reason is that they're by and large utilitarian, and therefore very pragmatic. They don't favor government as a point of ideology, in of itself. It's a means, not the end. Those who control the Republican Party, by contrast, oppose government (except in a few cases like to defend property rights, at least of the rich) in of itself, as a part of their ideology.

    So to liberals, if a predominantly market method is best, in a particular case, to maximize total societal welfare, they are not opposed to it, and in fact would favor it (usually, and at least those who control the Democratic Party). So, liberals naturally look to the evidence, logic, science, and let it guide them. They don't really care if it says more or less government; whatever maximizes total societal utility they will tend to support (although, in fact, economic and physical science strongly shows that a strong government role is best for maximizing total societal utils).

    And a big thing is most voters are by and large utilitarian, and so Democrats don't have the incentive to deny science or economics because, as with the right, it makes their policies look bad to voters, who have the ultimate power in a democracy.

    The Republican Party, however, has a very specific, and economically libertarian and plutocratic ideology. So science can, and does, very much show it to be very harmful to the vast majority. But with their ideology, they don't care, and don't want to change in response. But we have a democracy, so they have a strong incentive to deny the science – and make us less of a democracy as much as they can; voter suppression, extreme gerrymandering; Supreme Court Justices stopping vote counting to install W., and striking down laws they don't like ideologically despite the clear intention and constitutionality of the law,…

  26. Right, but the best way to read an econ argument by pundits is to ask: Assuming this is the best evidence they can muster in light of their motivation or confirmation bias, is the argument persuasive?

    A good economist should always be able to muster arguments for both sides of a debate, because randomized controlled trials and decent, convincing, policy experiments are rare.

    A good rule of thumb for econ policy debates is to take the best arguments on both sides, and split the difference.

    btw, one thing Krugman amazingly does not seem to appreciate is the concept of revealed preferences. Even if he's right and austerity slows growth, people may be willing to sacrifice some things to avoid a bigger government.

  27. I agree, but just because some nonzero degree of self-deception is inevitable doesn't mean it's benign. Instead of just accepting it, I say people should try to fight against it.

    I propose a philosophical movement dedicated to fighting self deception and searching for objective truth as core goals. I propose that we call it "the Enlightenment".

  28. Anonymous4:55 PM

    This is a good discussion. There are different kinds of self-deception also. There's selfish self-deception and unselfish self-deception.

    Admitting that the desire for smaller government drives a person's argument over economics is fine. The next step, however, is to admit that there are more important things in this world that shaping it to your desire. I don't know what the proper size of government is, and nobody really does. It's purely subjective.

    The idea that austerity is contractionary at the ZLB and stimulus is expansionary is a pretty well-established fact. If a person wants to use a crisis to advocate their preferences, the really should work to realize how it affects other people besides themselves and their immediate acquaintances.

    If it harms other people to shrink the government at this time, then this needs to be acknowledged by the person arguing for austerity. They need to acknowledge the social implications outside of their own experience and explain why shrinking the government at this time would help more people than it hurts. Otherwise it is just very self absorbed thinking.

  29. Anonymous4:16 AM

    This Roberts guy doesn't understand basic macro. Fiscal policy is about TEMPORARILY increasing the size of the government during a balance sheet recession and reducing it again once the storm is over. It is totally unrelated to the issue of how big the size of the government should be in the LONG RUN.

    You could very well be for a small state and massive fiscal policy. The fact that there aren't much right-wing Keynesians says more about right-wingers than Keynesianism.

  30. Typo:
    "when he sees that countercyclical fiscal policy will (temporarily) increase the size of the government in a boom, it triggers warning sirens in his subconscious."

    Did you mean "increase the size of government in a SLUMP"? As I understand it, increasing the size of government in a boom is NOT a typical Keynesian prescription.

  31. Joe T.11:55 AM

    "I’m an anti-Keynesian because I want smaller government." "Krugman is a Keynesian because he wants bigger government."

    I'm an anti-Arithmetician because I want smaller numbers. Keep them to single digits, that's what I like. 5+8=9. Those Arithmetic guys, they just want bigger numbers.

    A tilt on one side can incorrectly appear to be a tilt on the other side.

  32. It isn't that pro/anti-stimulus positions are phony or with hidden motives, it's that pro/anti-stimulus positions are nearly impossible to separate from large/small government positions. A believer in government efficiency will foresee a big multiplier on temporarily higher public spending during recession or at the ZLB. A skeptic in government efficiency will foresee misallocation of resources and a worse outcome over the long run.

    For Ds one can apply the test of whether they support unfunded tax cuts during recession. This sets them against calculations about whether spending cuts will be made inevitable, so only really committed Keynesians will pass. Doesn't work for Rs obviously.

    Apparently by "nearly everyone on Wall Street" who were allegedly "eager to tell you back in 2012 that QE would cause a big rise in inflation", Noah means Jim Rogers, Peter Schiff and Marc Faber. As I recall every single major research house consistently predicted low inflation from 2008 on. The famous Asness et al letter to Bernanke was late 2010, represented a stubborn dissident minority, and was not at all predicting inflation but worrying about the risk of long-term unanchoring of expectations (the same risk Bernanke would cite arguing against a higher than 2% inflation target).

  33. On the "mathiness" topic, I'm a bit put off by Noah's method, which seems to me:

    1) Highlight Romer's coining of the term (I like it too)

    2) Point out the problem that Romer's definition of the term is somewhat vague and his examples of it seem to be a grab-bag with no obvious definite quality in common with each other (I agree)

    3) Proceed to use the term "mathiness" while even further muddling its meaning. (I tend to complain a lot about them, but I'm quite sure "silly assumptions" have nothing to do with Romer's definition.)

  34. Economic policy is typically made with a goal in mind. Promote growth. Reduce unemployment. Help your friends get rich. &c. Politicians and economists hold different values. They support policies that promote their values.

    Politics is the process of making compromises in policy that accommodate incompatible values. Many liberal or progressive economists assume that all economists share their values of low unemployment and less inequality. They don't. Many economists who hope to become extremely wealthy support higher unemployment, cheap labor and rules that favor investors and finance over the great unwashed. Of course they are going to support policies that reflect their values and not those of liberals or progressives.

    Economists who are disappointed that others don't share their policy may need to spend more time discussing values if they hope to convert others. Whether or not a policy might support society as a whole will not gain acceptance if more people or more powerful and influential people value other outcomes however suboptimal they may be to progressive economists and the working poor.

    jonny bakho

  35. "researchers who want to believe in a world without market power "

    this blows my mind. Why on earth would anybody wish to believe that. It's on a par with wanting to deny the sky is blue.

  36. Anonymous9:15 AM

    Well Noah, it's nice to see that you've finally come around. In a post long ago, I noted that Tyler Cowen was essentially a paid mouthpiece of the Kochs and his opinions and "analysis" should be viewed through that filter. Your response was precious. Something to the effect of not wanting to look behind the statement to motives. When's someone's livelihood depends on parroting the party line and concocting justifications for their overlords, maybe a more jaundiced eye is needed. We typically have is an arena where some people are explicitly not paid to get it right. Welcome to reality. You might need shades for a while.

  37. Noah, you did a pretty horrible job summarizing Russ Roberts here. But then some of the more partisan posters took it to another level.
    His argument is that he thinks his logic is sound and empirically supported, but so do his opponents. He also notices how a desire for expanding government coincides so strongly with a belief that stimulus is effective, as well as the inverse. With the correlation so strong, yet the confidence of each side so high, the only logical conclusion is that there is a lot of motivated reasoning. Of course, most people with just assume, "Hurr Durr, that is just because my side is right and the other side is a bunch of idiots!"
    Krugman is also for greater regulation in general, a larger welfare state, and plenty of other things that aren't based on utilitarian economic calculations. And he just so happens to recommend stimulus for each countries problems.

    Roberts is not a Republican, and is very much against the size/scope of DHS and the US military.

    The most precious nonsense, though, came from the posters who argued that small government types just have a knee-jerk reaction and that big government types just follow the logic. Roberts, for example, often brings up Bastiat's "seen and unseen", the socialist calculation problem, public choice, and regulatory capture as reasons he favors smaller government. One could argue with each and every one of these, and even dismiss them as motivated reasoning. But only a self-indulgent group in a circle-jerk would say those are just knee-jerk reactions.