At 04:16 PM 2/8/2004 -0600 Dan Minette wrote:
>> See http://tinyurl.com/2vn5n for a recent discussion by Brad
>> DeLong on the budget deficits.
>
>I read that, and the difference between Brad's and John's position on this
>topic illustrates why economics is not a science to me. John acknowledges
>that Brad is a respected economist. Brad states that the strong consensus
>opinion of economists is that the tax cuts are not good policy. Yet, John
>still differs with him.
Dan:
I think that you are slightly confused here. Consider the following key
passage from Brad's column:
As long as unemployment is high and capacity utilization low, a deficit is
a good thing, but over the long term, as N. Gregory Mankiw, current chair
of Bush's Council of Economic Advisers (CEA), put it: the fact that budget
deficits slow economic growth is "the most basic lesson about budget
deficits." This lesson "follows directly from their effects on... supply
and demand.... When the government... [runs] a budget deficit, the interest
rate rises, and investment falls. Because investment is important for
long-run economic growth, government budget deficits reduce the economy's
growth rate."
I agree entirely with the above passage.
To the extent that Brad DeLong and I disagree for the moment stems in part
from the fact that it is an election, and as one of Clinton's advisors, he
has a vested interst in electing John Kerry. I, of course, make no bones
about the fact that I want to re-elect President Bush. In both cases, our
desires in the current situation stem from reasons largely outside the
province of economic.
In other words, you are confusing in part the difference between positive
and normative economics. Positive Economics has produced measurable
scientific results in the study of the outcomes of economic decisions. In
terms of Normative Economics, there is naturally still some disagreement
about what ought to be done. Life is full of tradeoffs, and reasonable
people will always disagree about what the proper tradeoffs should be -
particularly around an election.
Brad DeLong has his political/normative hat on in this article. What he
doesn't tell you in this article is that a lot of respected Economists
would certainly advise *against* a balanced budget over the last few years,
when the economy was faced with recession, war, and the need for a major
domestic initiative at the same time.
Still, Brad DeLong has made a number of arguments recently that
unemployment is in fact quite high right now, and moreover, I think that
there is consensus that capacity utilization is low (i.e. output is well
below potential.) There thus seems to be a case for short-term budget
deficits at the moment.
What Brad DeLong also doesn't tell you in this article - and again, it is a
political piece, not a journal article - is that the budget surpluses of
the 1990's literally came out of nowhere. President Clinton long-term
budget forecasts were similarly gloomy throughout most of his Presidency
until suddenly they were not. It is one of the weaknesses of modern-day
Economics that we have great difficulty projecting budget deficits into the
future. I am sure that physics is not a science that is completely devoid
of measurement difficulties.
Nevertheless, my point remains that our tendency right now is to exaggerate
our differences, due to the current political climate, even though we
remain broadly in agreement - especially on positivist grounds.
I have been very forthright about the fact that one of the reasons I most
hope that President Bush is re-elected is because it would prove to be the
ultimate natural experiment for what has come to be called "supply-side"
economics. The next four years look very likely to bring nominal
Republican control of Congress and solid economic growth. (Indeed, if
recent productivity numbers hold up, the economic growth could be quite
stunning over the next four years.) I am the first person to say that
if President Bush cannot balance the budget with a Republican Congress and
solid economic growth over his second term, then it serves to reason that
much of the current Republican economic formula will be discredited.
>None of this is meant to insult anyone; John has a right to his opinion
>because economics is not science. But, as his lambasting of me points out,
>good technique and bad technique are considered quite different in the two
>fields. In physics, doing first order correlation calculations is
>considered good technique.
All this says is that good techniques differ among the two fields. Not
that economics lacks good techniques. In this case, however, your
correlations lacked any underpinning in theory. Moreover, I made a strong
case that your data was strongly affected by outliers - namely Clinton
happening to be President for the technology-driver super growth of the
late 1990's. In other words, you analysis lacked both theory and a robust
sample size.
I think that those kinds of arguments would sink the physics work of any
amateur physicist.
JDG
_______________________________________________________
John D. Giorgis - [EMAIL PROTECTED]
"The liberty we prize is not America's gift to the world,
it is God's gift to humanity." - George W. Bush 1/29/03
_______________________________________________
http://www.mccmedia.com/mailman/listinfo/brin-l
