Seriously- remember the episode of Friends where Monica’s rich boyfriend (played by Jon Favreau…the actor, not Obama’s cute speechwriter, in case that wasn’t clear) decides that he wants to be an Ultimate Fighting Champion? That show taught us that nerdy white guys are not so good at the fighting, but that their attempts are hi-larious. Therefore, I would like to propose that economists settle their differences in the octagon rather than by flaming each other on the Internet a la Hilary Duff and Lindsay Lohan when they were fighting over Aaron Carter.
Case in point: This article by Steve Landsburg, in which he mounts an impressively snide ad hominem attack on Paul Krugman. (In general, if one pulls a press photo of one’s adversary to put next to the quote that one proceeds to belittle, it’s a good sign that the argument is trending in the ad hominem direction. Just saying.) The whole article is worth reading, since there is some substance to the argument and counterargument, but it took me a while to realize that since I was distracted by the following:
But Krugman, as is his wont lately, appears committed to the following flat-out dishonest rhetorical agenda:
* Identify an adversary who is concerned about the cost of some program Krugman likes.
* Label that adversary a “deficit hawk”.
* Belittle (perhaps reasonably) excessive concern about the deficit while ignoring legitimate concerns about the costs of spending and taxation, which is not at all the same thing.
* Omit any attempt at an honest reckoning of costs and benefits.
* Pretend you’ve said something relevant.
In short: Keep on pummelling that straw man.
It really isn’t surprising to me that the general public sees the economics profession as consisting of a bunch of old dudes arguing amongst themselves, and I feel like we (I mean we as in economists, not we as in old white dudes) can do better. So let me try:
First, consider the quote by Paul Krugman that sparked this, erm, spirited debate:
In America, many self-described deficit hawks are hypocrites, pure and simple. They’re eager to slash benefits for those in need but their concerns about red ink vanish when it comes to tax breaks for the wealthy. Thus, Senator Ben Nelson, who sanctimoniously declared that we can’t afford $77 billion in aid to the unemployed, was instrumental in passing the first Bush tax cut, which cost a cool $1.3 trillion.
Now, Krugman is a self-identified liberal, so it’s not shocking that he is more sympathetic to issues such as social insurance than people who identify themselves as conservatives. Liberal versus conservative is (or, rather, should be) a matter of values, which are inherently subjective and personal, and it’s quite possible for liberals and conservatives to take in and process identical information and yet come up with different policy prescriptions as a result of differences in values. These prescriptive differences don’t necessarily make anyone “wrong”, per se. Therefore, it is mainly relevant to consider whether Krugman made an actual analytical error, and Landsburg seems to think that that answer is yes:
Where to begin?
First, no economist—let me repeat that—NO economist, not even Paul Krugman on the days when he’s being an economist—would count a tax cut as a cost for purposes of policy analysis. A cost is something that consumes resources, not something that changes the ownership of resources. My Principles of Economics students all understand this; so, presumably, does the Nobel-prize winning author of a prominent Principles textbook.
Ugh. Can’t we just all get along here, or at the very least refrain from playing the Nobel card at every opportunity? I sound like a broken record here with my “you’re both wrong and not wrong, and kind of an ass in your discourse” stance. But here goes:
There is an important distinction between “cost to the government” and “cost to the economy.” Granted, Krugman doesn’t explicitly make this distinction, but in my view it is implied, since he is using “cost” in a general-interest publication in the way that most people would use the word. The tax cut does cost the government $1.3 trillion in this sense, since $1.3 trillion (minus the taxes on whatever marginal business activity the tax cuts create) flows out of the government’s coffers. What Landsburg seems to be arguing is that the $1.3 trillion is just a shift of resources from the government to the people, which is not wrong of course, but it’s also not at odds with what Krugman is saying. The $1.3 trillion tax cut could even be a net benefit to the economy overall, since it relieves some deadweight loss (i.e. economic black hole) created by the taxes in the first place.
By Landsburg’s definition, almost nothing that the general public thinks of as “costs” count as costs, since entities usually pay costs as payments to other parties, and this is in fact just a transfer of resources. From what I can tell, what he is referring to as a cost in a policy sense is what economic principles texts would call deadweight loss, since it is deadweight loss that accounts for shrinkage in economic activity (usually due to regulation such as taxes and subsidies) as opposed to transfers from one party to another.
It is in fact true that, under certain assumptions, unemployment benefits cause deadweight loss and tax cuts relieve it. On those grounds, it is potentially consistent that people would favor cutting both aid to the unemployed and taxes, since both policy changes are thought to lead to increased economic activity. However, this issue is to some extent separate from the budget-balancing issue, and Krugman is arguing that it is hypocritical to be for one form of deficit reduction (cutting benefits) and against another (increasing or maintaining the status quo on taxes). In order for his argument to be valid, he would have to be ignoring the differing effects of the policies on deadweight loss.
To summarize on an intellectual level: If all people claim to care about is size of the deficit, then they are being hypocritical in advocating one method of reducing the deficit and eschewing another. If all people care about is economic efficiency, then they are by definition internally consistent if they advocate both benefits and tax cuts. The reality of the situation is that most reasonable people put some weight on both deficit reduction and economic efficiency, so people are not automatically hypocritical or consistent just because they are simultaneously in favor of cuts in unemployment aid and taxes. But that conclusion doesn’t make for a very entertaining article…which brings me to my next summary…
To summarize on a philosophical level: If you want the world to better understand the points that you are trying to make, please focus on the issues at hand rather than on attacking the people involved. If you just want to argue amongst yourselves, I again suggest the following, at the risk of trending into ad hominem territory based on my earlier rubric:
(In case you aren’t familiar, Krugman is the one being kicked in the gut. I figured that that was appropriate for this particular scenario.) At least the UFC octagon setup would lend some credence to the whole “economists do it with models” thing: