Posted by Kenneth Anderson:
Wessel on Frank on Economists:
http://volokh.com/archives/archive_2009_08_16-2009_08_22.shtml#1250804241
A quick post script to my previous post on David Wessel's economics
column in today's WSJ concerning the stimulus. Wessel quotes Barney
Frank in passing:
Not for the first time, as an elected official, I envy economists.
Economists have available to them, in an analytical approach, the
counterfactual. Economists can explain that a given decision was
the best one that could be made, because they can show what would
have happened in the counterfactual situation. They can contrast
what happened to what would have happened. No one has ever gotten
reelected where the bumper sticker said, "It would have been worse
without me." You probably can get tenure with that. But you can't
win office.
I didn't include this in my discussion, as I found it a bit
tangential. However, when I saw that [1]Professor Mankiw had linked to
it, I decided to revisit it.
Leave aside as too ad hominem whether Congressman Frank's own
statements regarding his role in Fannie and Freddie have any element
of counterfactual. I understand that what some people, certainly in
his Congressional district, find clever, I find too clever by half,
but okay - that is really not my interest here, and please, not in the
comments.
Is it really true, as a general proposition, that politicians have no
recourse to counterfactuals? What about, for example, the famous claim
of "saved or created" four million jobs? As accounts of the
President's February 9, 2009 press conference had it:
Question: The American people have seen hundreds of billions of
dollars spent already, and still the economy continues to
free-fall. Beyond avoiding the national catastrophe that you've
warned about, once all the legs of your stool are in place, how can
the American people gauge whether or not your programs are working?
Can they � should they be looking at the metric of the stock
market, home foreclosures, unemployment? What metric should they
use? When? And how will they know if it's working, or whether or
not we need to go to a plan B?
Answer: I think my initial measure of success is creating or saving
4 million jobs. That's bottom line No. 1, because if people are
working, then they've got enough confidence to make purchases, to
make investments. Businesses start seeing that consumers are out
there with a little more confidence, and they start making
investments, which means they start hiring workers. So step No. 1,
job creation.
Jobs "created" is a factual. Jobs "saved," on the other hand, poses a
counterfactual. [2]Professor Mankiw has an excellent quick discussion
of why:
The expression "create or save," which has been used regularly by
the President and his economic team, is an act of political genius.
You can measure how many jobs are created between two points in
time. But there is no way to measure how many jobs are saved. Even
if things get much, much worse, the President can say that there
would have been 4 million fewer jobs without the stimulus.
An actual answer to the question "What metric?" could have taken
the form: "If the unemployment rate on [insert date] is below
[insert threshold], I will judge the plan to be a success." Given
the uncertainties inherent in the economy, however, no sensible
politician would hold himself to such a measurable standard. But
the President also wanted to avoid sounding like he was avoiding
accountability. So he gave us a non-measurable metric. A clear and
specific benchmark, without any way of ever knowing whether it has
been reached.
A completely honest (but perhaps politically ill-advised) response
to the question would have been, "Geez. I am only President of the
United States. I cannot be held responsible for everything that
what happens with the economy!" If he had said that, I would have
agreed with him.
---- Update: A regular reader of this blog (who deserves anonymity)
misinterpreted my meaning, so let me clarify: The 4 million job
number is a counterfactual policy simulation of what the stimulus
will do based on a particular model of the economy. As such, I have
no objection to someone citing it in a policy discussion. In fact,
macroeconomists use models to generate figures like this all the
time. I have even done it myself.
But as an answer to the question "how can the American people gauge
whether or not your programs are working?... What metric should
they use?", citing the 4 million job figure is a non sequitur, or
more likely a diversion. A metric has to be measurable, and the
actual number of jobs "created or saved" by the policy will never
be measurable from any data source.
The more I think about it, the more I think, contra Frank, that
politicians of all ideological stripes get elected on counterfactuals
all the time. Am I right about that - not about Barney Frank, please -
or not? Other examples of politicians offering counterfactuals? And
are counterfactual arguments always bad, while we're taking up the
abstract category? When and how, or not?
References
1.
http://gregmankiw.blogspot.com/2009/08/barney-frank-on-economics-profession.html
2. http://gregmankiw.blogspot.com/2009/02/create-or-save.html
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