Noah Smith on the Cyclicalists vs. Structuralists

     It's funny as I just wrote two posts on this same issue and now I see Noah wrote one two. Great minds think alike? I'd love to be able to put my mind in Noah's category.

      http://diaryofarepublicanhater.blogspot.com/2012/05/david-brooks-preaches-structuralism.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29

      http://diaryofarepublicanhater.blogspot.com/2012/05/raghu-rajans-and-his-many-enemies.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29

    Noah actually suggests that we cyclicalists are at this point losing, that basically just because we have facts and logic on our side doesn't help, or in any case isn't helping. This post of Noah's in some way is reminiscent to a post Tyler Cowen wrote and Sumner responded to recently about the idea that monetary policy-Sumner's bread and butter-is now suffering from the law of diminishing terms as well.

     http://noahpinionblog.blogspot.com/2012/05/cyclicalists-should-start-talking-about.html

     The name of the post is "Cyclicalists should start talking about structural issues too." Now the very title makes me want to rebel. If we talk about structural issues too then who will talk about our real cylicalist needs? Still Noah makes some points that you can't argue with:

     "Krugman has convinced a huge chunk of the populace that there is something seriously wrong with macroeconomics. That is good. But he seems not to have made much headway in garnering intellectual support for more active countercyclical policy. As an illustration of this, consider the recent push for "structural" explanations of our current high unemployment rate. Raghuram Rajan, David Brooks, and Tyler Cowen are all confidently asserting that our problems are structural, not cyclical. This point of view is seconded by Greg Mankiw and John Cochrane and echoes recent comments by Jim Bullard."

    So it's the "hearts and minds" of the academics that Krugman has to win. The general public is convinced but the academics remain structuralist. He argues for spending some time-he doesn't mean give up on cyclical issues but spend some time on structural-on structuralist issues for two reasons:

     "The first reason is that many policymakers and members of the public currently think that there is a tradeoff between cyclical policy and structural policy. In general, contra Tyler Cowen, this is not true. If you think that deregulation is what we need to grow more in the long run, then you should realize that there is no tradeoff between deregulation and quantitative easing, or deregulation and stimulus. Ditto for free trade. Ditto for corporate tax cuts (as long as income taxes are raised to keep revenue the same). Ditto for policies to improve education. Ditto for policies to improve labor search and matching. In the case of the government investment that Tyler Cowen says we need more of, good structural policy also makes good countercylical policy! In fact, the only "structuralist" policies - if you can call them that and keep a straight face - that conflict with countercyclical policy are austerity and hard money."

     "Krugman and some of the cyclicalists have focused the vast majority of their attention on cyclical issues. But this reinforces the (mistaken, misleading) claim of the structuralists that there is a tradeoff between the short term and the long term. One more Krugman blog post is not going to convince anyone to support stimulus, QE, etc. But one more Krugman blog post dedicated to discussing long-term issues will do a lot to convince readers that there is no policy trade-off. In other words, the marginal value of Krugman devoting more time to cyclical issues is negative."

     "The second reason for cyclicalists to discuss structural policy is political. The people advocating "structuralist" policies are, right now, mostly conservatives. Their ideas about long-term growth policy are basically more tax cuts and more deregulation. Only occasionally, if ever, do these "structuralists" call for repairs to our disintegrating infrastructure, or increased spending on research, or ending the dollar's reserve currency status. And the conservative "structuralists" have ideas about education, health care, and occasionally immigration that strongly diverge from what liberal "cyclicalists" would be promoting if they bothered to talk about structural policy more often."

     "In other words, while liberals throw all their energy into a losing rearguard action against austerity, conservatives are winning the future."

      "This is why I call for a balance between discussions of cyclical policy and discussions of structural policy. Yes, it would still be good if we got more QE. Yes, European-style austerity is a real danger. But continuing to hammer home these points with logic and reason is yielding diminishing returns. Logic and reason are good things to have, but by themselves they do not win arguments. If I have a choice between proving I'm right and winning, I'll pick winning every time..."

     See what I mean? It's hard to argue a lot of this but especially that winning is better than being right. Still that doesn't mean we should adopt the Ryan budget tomorrow if we think it's a political winner.  Some for example felt like Clinton and the New Democrats gave up too much in the 90s to win.

     But I'm with Noah, I want to win but like Trotsky said "the ends flow from the means."

      The most persuasive point of Noah for me at least is the idea that structural issues have been largely ceded to the conservatives. That is true.  As I suggested in my post about David Brooks there are legitimate structural issues. What Brooks said that is true is that the post 2008 Crisis economy was hardly idyllic.



       There is a call for liberal structural reforms-in terms of education especially education directed at technology and science. Of course this wont require spending cuts but spending increases.