Friday, January 14, 2011

Confusion

Paul Krugman sees our current political/economic predicamentcurrent political/economic predicament as a battle of alternative moralities. In Krugman's world, there are good guys and bad guys; your policy prescriptions are driven by who you label good and bad. What I see is a lot of confusion. People are confused about alternative economic policies and their effects, and some of the people who are making decisions about those policies, or advocating for them, deliberately sow that confusion.

Here's an example. I'm running for political office, and I offer you a free lunch. The free lunch is that I am going to cut your taxes. I don't mention the fact that this means that you, or somebody else, is going to have to give up something. Maybe I make some vague promises about cutting spending, and make it sound like this spending will cost you nothing. Maybe I make you believe that it will be some set of nameless poor people who will bear the brunt. You don't fancy yourself a poor person, so this looks great. Maybe you don't even understand the connection between government spending and taxes, or the idea that a government deficit represents deferred taxation. Certainly I'm not going to help you understand that. Maybe you don't understand that it's not even feasible to balance the federal budget by reducing services to poor people, or that the places to look for waste in the federal government are in the Pentagon and the Department of Homeland Security.

Here's another example. Suppose that I am convinced the government needs to be larger. I think the government should provide more goods and services, and I would like the rich to be poorer and the poor richer. This is a going to be a tough sell, as it's clear I have to make someone worse off, and we can't create goods and services out of thin air. But maybe I can market this as a free lunch. Vast numbers of college graduates have been educated in the free lunch of Keynesian economics. This is great. I can easily argue that we are currently in very dire straits, and that Keynes justified an expansion of government in such circumstances. I may or may not actually believe this, but so what? I can harness the wide belief in Keynesian economics to get where I want.

You know who is peddling each of these ideas. I don't think either approach enlightens anyone about the effects of government fiscal policies, or the tradeoffs we face.

23 comments:

  1. Maybe he's talking about self identified liberals and conservatives, and you're talking about independents?

    SM

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  2. Maybe this is just the nature of political argument. It's to your advantage to claim the moral high ground. We could look at this as simply a conflict over how to allocate the pie (though of course we know that the size of the pie is not fixed). I can't get any traction by just claiming someone else's piece of pie. I have to claim that he/she has no right to it.

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  3. I think that you are being a little unfair to Paul, Steve.

    I have been saying for years that it is not Paul's fault that his policy adversaries just happen to always be evil tools of big pharma or big oil or big Wealth of Nations or whatever.

    Paul can't help it if he is always on the side of the angels against people who are purely evil or bought off by evil interests. He's got to call 'em like he sees 'em.

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  4. Yes, yes. You know I care about giving Paul a fair shake.

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  5. "We could look at this as simply a conflict over how to allocate the pie..."

    Underlying your claim that we should (there's that word again) "allocate the pie" or even "not allocate the pie" are the same value judgments ("morality") made by everyone else. I realize they are all arbitrary, subjective, etc - but my goal is to convince as many people as possible that my value judgments are better than yours. Human nature i guess.

    I wonder if you think you're above the fray, calling balls and strikes?

    SM

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  6. PS. I think Krugman has answered this before by saying he believes in some sort of Rawlsian ethics...

    SM

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  7. SM,

    I didn't say anything about what people should be doing. What I'm groping for here is something positive. I'm trying to explain behavior. All this talk about morality is a smoke screen. It's pretty simple. People are fighting over scarce resources.

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  8. "Who should be rich and who should be poor? In a free society, that isn't something we want the government to decide. Ultimately, once we fix the market failures, we have to let the market decide who gets what."

    How is that "just explaining behavior" or making normative judgments?

    It seems you and Krugman disagree on the ethics of the whole thing...and while he admits it, you pretend it isn't so.

    SM

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  9. SM:

    Krugman frames policy as a transfer of resources between bad guys and good guys.

    Williamson frames policy as something which affects allocations. (He focues on the positive implications of policy rather than normative implications of policy)

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  10. DL -

    I'll have to disagree that Williamson is objectively framing discussions of "allocations" when he says things like this:

    "Who should be rich and who should be poor? In a free society, that isn't something we want the government to decide. Ultimately, once we fix the market failures, we have to let the market decide who gets what."

    He has chosen a side in this...again, i'm not sure why he pretends to just call balls and strikes...you can PRETEND that this statement is an abdication of morality ("let the chips fall where they may") - but making a conscious choice to do so is actually a normative judgment in and of itself.

    SM

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  11. SM,

    Sorry, didn't realize that you were still playing gotcha on a previous post, and not discussing this one in particular. The point is that people are being presented with false choices. When politicians do it, maybe that's just the behavior we expect, but we should expose them, and try to keep them honest. Now, Krugman is a different story. He has a political agenda, but he is masquerading as an economist who is just giving you his take on what "sound" economics tells us we should do. Now there's the matter of what the actual choices are that we face. As I said in other posts, the effects of redistribution depend very much on how you do it. Providing public education in an efficient way likely increases the size of the pie while reallocating the pie in a different way, but if we taxed the rich to provide perfect unemployment insurance (you're paid as much for being unemployed as for working) then we would reduce the size of the pie. In any case, you're correct to say that at some stage of the game we have to make some choices as a society. We choose the system (we might say, the "mechanism," in the language of economic theory) and then we let it run. But if you think that incentives don't have much to do with how you set up the mechanism (as I think is the case - you seem to think that occupational choice is purely about what you enjoy doing), then you're off base, and you haven't studied mechanism design.

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  12. SM,

    Here's a homework exercise. You get to run a "firm." The firm consists of a group of people, and the purpose of the firm is to produce brain surgery services. You are stuck with the people in this firm. You can't fire them, but they can leave if they choose. You also have to provide everything for this group of people, including their skills and education, health services, food and shelter. Suppose that the people in the firm don't interact with the outside world, except by providing brain surgery services. You have to decide who is trained in what occupations, and what goods and services will be provided and to whom. Obviously you are going to need some doctors (doing other things than brain surgery), teachers, farmers, accountants, etc. Your job is on the line. There is a board of directors, and they care about the bottom line: the revenue that comes in from selling brain surgery services. If they don't like what you are doing, they can replace you, and you get to be just another person in the firm. You can't monitor people perfectly, i.e. you can't be in more than one place at one time, and it's hard to monitor work effort. Also, the people in the firm can potentially trade among themselves, though you can try to police this (that's another thing, you can have a police force). How do you solve the problem?

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  13. Argument tu quoque: https://secure.wikimedia.org/wikipedia/en/wiki/Tu_quoque

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  14. vimothy,

    Thanks. This line of argument is of course not new to me. I had never heard the term though.

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  15. Stephen, I'm curious as to whether or not you believe Krugman's audience, and I suppose to an equal extent congress' audience (the voter) are capable of understanding anything other than a battle of good versus evil.

    When policy is distorted into a screenplay for a major motion picture, why should anyone be surprised that "good" is chosen over "evil" from both propositions?

    How would you suggest pandering to the voter? If you care to get re-elected even if things go sour, you must ensure they understand that you're following the moral path.

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  16. Good vs. evil is certainly more exciting for the average person than your typical boring policy analysis. It's certainly hard to compete for attention with the entertainment industry. We can't be too cynical though. Maybe I'm naive, but I think people will go for straightforward honesty without the flash.

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  17. I find it funny for you to assume that Krugman is masquerading as an economist. Maybe he assumes the world is broken up into roughly 4 groups. For simplicity, we'll assume there is one "right" framework, all others are wrong. One group of people includes Krugman - where he truly believes his "framework" is correct after thorough analysis, and it also happens to line up with his views on morality. There is a second group of people who share his belief in this "framework" - but not for the "right" reason - only because it lines up with their morality. The other two groups includes the group that believes in what krugman thinks is a "wrong" framework, but they do so for analytical reasons (as he mentions, Friedman et al); also, the group which believes in a "wrong" framework - not because of their analysis, but because it fits their "morality."

    Now, why do you assume he is pushing courses of action based on his political agenda? I'm sure he'll readily admit to you that taking all the jobless and paying them build concentration camps and bombs is an effective form of stimulus. Does he think the government should do this? Probably not. I think he makes it pretty clear when he is giving his "economic" opinion and when he is giving his "moral" opinion.

    Now, if you find problems with his analysis of ideas (that also align with his "political agenda") - go ahead and point them out.

    All of that said, underlying all of these discussions are OUR OWN POLITICAL AGENDA. One person may think about "how we grow the pie" - another may think its more important how the "pie is shared." For example, you are concerned with the "pie being smaller" if we had "perfect" unemployment insurance. But that is your PREFERENCE - many people may be content with a society that does not grow as fast as long as every person is equal. Others are not....to varying degrees.

    So, if we want to do "objective" economic analysis, fine, whenever you are ready. But leave ALL normative judgments out. I am still looking for your first blog entry that accomplishes this, especially if you're going to critique others. (I realize trying to undermine your argument by pointing our your hypocrisy does not undermine your argument - which would be a logical fallacy. I was merely pointing out your hypocrisy. Although pointing out Krugman's intersection of analysis/ethics is literally the same thing on your part...)

    I just don't think its going to get very far in any common discussion though...if all arguments devolve into abstract philosophical debates, such as "should we use a utilitarian or a deontological ethics to determine the course of action?" Not that i think these aren't good debates to have...but i think each person has to decide them for themselves. I think the gross majority of us don't think we should stand around in some sort of nihilistic state...so normative we go...

    SM

    ReplyDelete
  18. I find it funny for you to assume that Krugman is masquerading as an economist. Maybe he assumes the world is broken up into roughly 4 groups. For simplicity, we'll assume there is one "right" framework, all others are wrong. One group of people includes Krugman - where he truly believes his "framework" is correct after thorough analysis, and it also happens to line up with his views on morality. There is a second group of people who share his belief in this "framework" - but not for the "right" reason - only because it lines up with their morality. The other two groups includes the group that believes in what krugman thinks is a "wrong" framework, but they do so for analytical reasons (as he mentions, Friedman et al); also, the group which believes in a "wrong" framework - not because of their analysis, but because it fits their "morality."

    Now, why do you assume he is pushing courses of action based on his political agenda? I'm sure he'll readily admit to you that taking all the jobless and paying them build concentration camps and bombs is an effective form of stimulus. Does he think the government should do this? Probably not. I think he makes it pretty clear when he is giving his "economic" opinion and when he is giving his "moral" opinion.

    Now, if you find problems with his analysis of ideas (that also align with his "political agenda") - go ahead and point them out.

    All of that said, underlying all of these discussions are OUR OWN POLITICAL AGENDA. One person may think about "how we grow the pie" - another may think its more important how the "pie is shared." For example, you are concerned with the "pie being smaller" if we had "perfect" unemployment insurance. But that is your PREFERENCE - many people may be content with a society that does not grow as fast as long as every person is equal. Others are not....to varying degrees.

    So, if we want to do "objective" economic analysis, fine, whenever you are ready. But leave ALL normative judgments out. I am still looking for your first blog entry that accomplishes this, especially if you're going to critique others. (I realize trying to undermine your argument by pointing our your hypocrisy does not undermine your argument - which would be a logical fallacy. I was merely pointing out your hypocrisy. Although pointing out Krugman's intersection of analysis/ethics is literally the same thing on your part...)

    I just don't think its going to get very far in any common discussion though...if all arguments devolve into abstract philosophical debates, such as "should we use a utilitarian or a deontological ethics to determine the course of action?" Not that i think these aren't good debates to have...but i think each person has to decide them for themselves. I think the gross majority of us don't think we should stand around in some sort of nihilistic state...so normative we go...

    SM

    ReplyDelete
  19. I find it funny for you to assume that Krugman is masquerading as an economist. Maybe he assumes the world is broken up into roughly 4 groups. For simplicity, we'll assume there is one "right" framework, all others are wrong. One group of people includes Krugman - where he truly believes his "framework" is correct after thorough analysis, and it also happens to line up with his views on morality. There is a second group of people who share his belief in this "framework" - but not for the "right" reason - only because it lines up with their morality. The other two groups includes the group that believes in what krugman thinks is a "wrong" framework, but they do so for analytical reasons (as he mentions, Friedman et al); also, the group which believes in a "wrong" framework - not because of their analysis, but because it fits their "morality."

    Now, why do you assume he is pushing courses of action based on his political agenda? I'm sure he'll readily admit to you that taking all the jobless and paying them build concentration camps and bombs is an effective form of stimulus. Does he think the government should do this? Probably not. I think he makes it pretty clear when he is giving his "economic" opinion and when he is giving his "moral" opinion.

    Now, if you find problems with his analysis of ideas (that also align with his "political agenda") - go ahead and point them out.

    ...continued...

    ReplyDelete
  20. ...continued....

    All of that said, underlying all of these discussions are OUR OWN POLITICAL AGENDA. One person may think about "how we grow the pie" - another may think its more important how the "pie is shared." For example, you are concerned with the "pie being smaller" if we had "perfect" unemployment insurance. But that is your PREFERENCE - many people may be content with a society that does not grow as fast as long as every person is equal. Others are not....to varying degrees.

    So, if we want to do "objective" economic analysis, fine, whenever you are ready. But leave ALL normative judgments out. I am still looking for your first blog entry that accomplishes this, especially if you're going to critique others. (I realize trying to undermine your argument by pointing our your hypocrisy does not undermine your argument - which would be a logical fallacy. I was merely pointing out your hypocrisy. Although pointing out Krugman's intersection of analysis/ethics is literally the same thing on your part...)

    I just don't think its going to get very far in any common discussion though...if all arguments devolve into abstract philosophical debates, such as "should we use a utilitarian or a deontological ethics to determine the course of action?" Not that i think these aren't good debates to have...but i think each person has to decide them for themselves. I think the gross majority of us don't think we should stand around in some sort of nihilistic state...so normative we go...

    SM

    ReplyDelete
  21. PS. In your firm, i ask the people what they want to do, we work together to figure it out as best we can, and if the board of directors doesn't like it, we vote a new board in.

    SM

    ReplyDelete
  22. "In your firm, i ask the people what they want to do, we work together to figure it out as best we can, and if the board of directors doesn't like it, we vote a new board in."

    1. I need more details. Do you actually think that just asking everyone what they want to do will allow you to allocate people across occupations appropriately? How are they supposed to judge what they want to do? How do you know they're not gaming the system? You're going to trust everyone?
    2. You're changing the setup. You don't get to fire the board of directors. That's like God. It's given.

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  23. Semco. In Brazil.

    I'm not god, i'm "Ricardo Semler." I know it seems like this arrangement can't work, but it does. I'll let the people vote and determine if someone is "gaming the system," judge each other, etc.

    I think we're at a fundamental disagreement. Do you agree with the statement that "the goal of an economy is the maximization of growth and therefore profit"?

    Here's my hypothetical to you: you have two people under you. Bob is great at brain surgery but hates it, and instead wants to be an engineer, yet is only slightly above average at engineering. Helen is great at engineering but hates it, and instead wants to be a brain surgeon, but is only slightly better than average at it. You need two jobs done in your company: engineer and brain surgeon. Which do you assign to which task?

    SM

    ReplyDelete