He always likes to say that 'there's no such thing as public opinion in economics.' Now if this were pointed out to him he might come back with 'I've also said many times that I do believe very much in the rationality of democracy'-which is true, he has often praised democracy. However, the key is that while he thinks public opinion has value in other things, on economic matters it doesn't matter as the public is too ignorant to understand economics.
All that matters, he always says, is the opinion of his fellow economists. So what are his 'peers'-I use this term as he claims to be a Rortian in philosophy-saying about the fiscal stimulus of 2009? Turns out their saying that the unemployment rate at the end of 2010 was lower than it otherwise would have been without ARRA.
http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_cw5O9LNJL1oz4Xi
This is a question I always ask Sumner and other Market Monetarists and they can never give me-any answer whatsoever. As Sumner boasts that 2013 proves there is no fiscal multiplier and austerity is fine as long as we have enough QE then would the growth rate been lower or the unemployment rate higher with say no sequester in 2013? They just flat out never answer this. Mark Sadowski in a comment actually tried to deflect it by saying that about 50 percent of these cuts were military-which is true but not actually the question.
In any case, these peers of Scott were willing to give us an answer and they do think that it had a real positive effect on the economy-it did lower unemployment. I guess Sumner's plan to influence the opinion of his fellow economists isn't working so well.
All that matters, he always says, is the opinion of his fellow economists. So what are his 'peers'-I use this term as he claims to be a Rortian in philosophy-saying about the fiscal stimulus of 2009? Turns out their saying that the unemployment rate at the end of 2010 was lower than it otherwise would have been without ARRA.
http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_cw5O9LNJL1oz4Xi
This is a question I always ask Sumner and other Market Monetarists and they can never give me-any answer whatsoever. As Sumner boasts that 2013 proves there is no fiscal multiplier and austerity is fine as long as we have enough QE then would the growth rate been lower or the unemployment rate higher with say no sequester in 2013? They just flat out never answer this. Mark Sadowski in a comment actually tried to deflect it by saying that about 50 percent of these cuts were military-which is true but not actually the question.
In any case, these peers of Scott were willing to give us an answer and they do think that it had a real positive effect on the economy-it did lower unemployment. I guess Sumner's plan to influence the opinion of his fellow economists isn't working so well.
"This is a question I always ask Sumner and other Market Monetarists and they can never give me-any answer whatsoever. As Sumner boasts that 2013 proves there is no fiscal multiplier and austerity is fine as long as we have enough QE then would the growth rate been lower or the unemployment rate higher with say no sequester in 2013? They just flat out never answer this. Mark Sadowski in a comment actually tried to deflect it by saying that about 50 percent of these cuts were military-which is true but not actually the question."
ReplyDeleteThe comment in question is here:
http://diaryofarepublicanhater.blogspot.com/2014/02/the-mark-sadowski-speaks-on-sumner-and.html?showComment=1392414141762#c4539033989535017092
First of all, whether or not one considers me to be a Market Monetarist, I gave a very clear response to that question within that very comment:
Mark A. Sadowski:
"Well, I do believe that QE3 offset not only the sequester, but also the end of the Payroll Tax Holiday and the end of the high income portion of the Bush Tax Cuts, which together had twice the budgetary impact as the sequester."
And just be ultraclear, year on year real GDP growth was as high or higher in 2013Q4 as was forecast privately and by the CBO in late 2012 without the tax increases and without the sequester, and by implication the unemployment rate would have been as high or higher without the tax increases and without the sequester. (Incidentally, the unemployment rate dropped by 1.2 points in the 12 months through December 2013 which is the largest drop in any calendar year since 1983, and only exceeded by the decrease that took place in 1950 on BLS records going back to 1948.)
Furthermore when you say I deflected rather than answered the question, you are lying (as usual). The question you asked was:
Mike Sax:
"I don't believe that QE3 wholly offset the sequester last year. However, and this is important, so if you respond to this Mark try to speak to this too, even if there were total offset-again I don't agree that there was this is for arguments sake-all those effected by the sequester-losing benefits and services they crucially depended on and the many workers who were furloughed still suffered."
The question thus was who would be affected by the sequester *if there were a total offset*. The answer was:
Mark A. Sadowski:
"Moreover almost exactly half of the noninterest spending cuts under the sequester are falling on the Defense Department, which I wholly support, and can only say they didn't go far enough. No doubt this will negatively impact the wages and salaries of civilian employees of the Defense Department as well the bloated profits of defense contracters. But since these wages, salaries and profits are based on a hugely wasteful use of taxpayer money all I can say is maybe it's high time for them to find another means of earning a living.
Evidently the fiscal fascists have never seen a government program that deserved to be cut."
Just as you Austerian loving MMers have never seen a fiscal contraction contraction you don't like.
DeleteI haven't lied about anything-the fact that part of the sequester was military cuts was besides the point. You've 'lied' right here-I like how you pick up all Sumner's mannerisms even his habit of claiming anything he doesn't like is a 'lie'-as most liberals support cuts to military spending. This doesn't mean that the way it was done in the sequester was smart. These are two distinct issues-the proper size of the military and stimulating the economy. It's possible to both support stimulus and believe the military can be slimmed down a peg. It's mostly liberals who criticize over militarization. So it's a deflection and you're 'lying'-in the way that you and Sumner use this word- that Keynesians oppose cutting military spending.
If by implication we would have had lower growth with less austerity last year, are we going to have less growth this year as the sequester has been cut back?
We ought to just keep going with more fiscal contraction as that will lead to more QE and more growth huh?
"And just be ultraclear, year on year real GDP growth was as high or higher in 2013Q4 as was forecast privately and by the CBO in late 2012 without the tax increases and without the sequester, and by implication the unemployment rate would have been as high or higher without the tax increases and without the sequester. (Incidentally, the unemployment rate dropped by 1.2 points in the 12 months through December 2013 which is the largest drop in any calendar year since 1983, and only exceeded by the decrease that took place in 1950 on BLS records going back to 1948.)"
Do you have a source for all this? I'd like to see the original CBO source for starters. As you've given it here it hasn't proven much of anything other than what I already knew that Market Monetarists have a very acute case of confirmation bias.
At the end of the day you and Sumner admit that we've had a disappointing recovery. So it's tough to square this with the idea that we're lucky we had lots of fiscal contraction over the last 3 years. As we've had a slow recovery it's clear we would have had a faster one with less fiscal contraction.
"Do you have a source for all this? I'd like to see the original CBO source for starters."
DeleteFirst some specifics.
A careful reading of the CBO’s estimates from November 2012 indicates that the fiscal consolidation (the 2% payroll tax increase, the high income tax increase and the sequester) should have subtracted 1.3% from year on year RGDP growth through 2013Q4. Prior to the beginning of 2013, the CBO’s forecast without any fiscal consolidation was for 2.3% year on year RGDP growth in 2013Q4. Thus the CBO forecast with fiscal consolidation was for 1.0% year on year RGDP growth in 2013Q4.
A similar thing applies to the major private forecasters. The effect of the fiscal consolidation (again, the 2% payroll tax increase, the high income tax increase and the sequester) according to Bank of America, IHS Global Insight, Moody’s, Goldman Sachs, Morgan Stanley, Macroeconomic Advisers and Credit Suisse ranged from 1.0% to 2.0% of GDP, with the average estimate being about 1.6%. The baseline forecast prior to the beginning of 2013 of these same seven private forecasters was for year on year RGDP growth of 2.0% to 3.5% in 2013Q4 with the average forecast being about 2.7%. Thus the average forecasted year on year RGDP growth in 2013Q4 adjusted for fiscal consolidation was about 1.1%.
In short, year on year RGDP growth in 2013Q4 ended up as high, or higher, than what was forecasted without fiscal consolidation.
Now, let's look at the CBO forecast.
The last forecast that the CBO makes for year on year growth by the fourth quarter of any following calendar year is in the August update to the annual budget and economic outlook. Here's the one they issued in August 2012:
Deletehttp://www.cbo.gov/sites/default/files/cbofiles/attachments/08-22-2012-Update_to_Outlook.pdf
Table 2.2 on page 37 summarizes the Baseline and Alternative forecasts. The Alternative forecast operated under assumptions that are close to a scenario without the two tax increases and without the sequester Its assumptions are described on page 25:
"To illustrate how some changes to current law would affect the economy over the next decade, CBO analyzed an alternative fiscal scenario that would maintain many policies that have been in place for several years. Specifically, that scenario incorporates the assumptions
that all expiring tax provisions (other than the payroll tax reduction) are extended indefinitely; the alternative minimum tax is indexed for inflation after 2011; Medicare’s payment rates for physicians’ services are held
constant at their current level; and the automatic spending
reductions required by the Budget Control Act of 2011 (Public Law 112-25) do not occur (although the original caps on discretionary appropriations remain in place)."
In, short, the only real difference is that the Alternative Scenario assumes that the Payroll Tax Holiday would not be extended. So we need to make an adjustment to account for that. To find the effect of the Payroll Tax Holdiay we need to turn to the CBO's November 2012 estimates of the effect of the various "fiscal cliff" provisions:
http://www.cbo.gov/sites/default/files/cbofiles/attachments/11-08-12-FiscalTightening.pdf
The effects of the various provisions then contemplated are summarized in Figure 1 on page 3. The Payroll Tax Holiday and the extension of Emergency Unemployment Compensation (EUC) together were estimated to add 0.7 points to real GDP growth. To separate out the Payroll Tax Holiday we need to know its budgetary cost relative to the total cost of the Payroll tax Holiday and extending EUC. Tabel 1 on page 7 says the total cost is $108 billion in fiscal year 2013. Footnote 15 on page 11 tells us that the budgetary impact of the Payroll Tax Holdiay alone is $86 billion in fiscal year 2013. Thus the Payroll Tax Holiday is about 80% of that provision. Note that the fact we are talking about calendar years when discussing economic effects and fiscal years when discussing budgetary effects makes no difference since we only need an estimate of their relative weights, and that is not affected by the time period.
Since 80% of 0.7 points is 0.56 points, this means the CBO's forecast of year on year real GDP growth in 2013Q4 without tax increases and without the sequester was 1.7 points plus 0.56 points or about 2.3%.
Now to estimate the combined effect of the tax increases and the sequester. A graph that helpfully summarizes the CBO's estimated effects in Figure 1 is the following one by Dylan Matthews of the Washington Post:
http://www.washingtonpost.com/blogs/ezra-klein/files/2012/11/cliff_components1.jpg
The effect of the high income tax increase was 0.1 points (actually it's probably a little larger since the actual tax increase included more households, but let's keep things simple). The effect of the Payroll Tax Holiday we've already estimated at 0.56 points. The only thing left is the sequester. The combined effect of the Defense and nondefense cuts was 0.8 points. But since this only went into effect on March 1, a rough adjustment of its estimated effect would be to multiply it by 5/6ths yielding approximately 0.67 points. Summing these three components together yields an estimated effect of the two tax increases and the sequester of about 1.3%.
Anything else?
Mark is this your first day? I mean when have you ever known me to have nothing else? You think I'm going to bow down to you and Sumner and Market Monetarism? Not going to happen.
DeleteFor one thing, most of Sumner's peers agree with me. So no I'm not ready to concede anything. I still don't buy that had we not had a sequester last year we would have had lower growth.
"I haven't lied about anything-the fact that part of the sequester was military cuts was besides the point."
ReplyDeleteIt is precisely *to* the point. In fact you *specifically* mentioned the federal workers who were furloughed.
"It's possible to both support stimulus and believe the military can be slimmed down a peg."
But only if you favor reducing the number of people employed in the Defense Department and by defense contractors. This speaks specifically to your point that someone would be affected by the sequester even if there was a complete monetary offset of fiscal policy.
"If by implication we would have had lower growth with less austerity last year, are we going to have less growth this year as the sequester has been cut back?"
Since last year's prediction was that fiscal policy would have no effect, the prediction for this year is that fiscal policy will still have no effect.
"So it's tough to square this with the idea that we're lucky we had lots of fiscal contraction over the last 3 years. As we've had a slow recovery it's clear we would have had a faster one with less fiscal contraction."
The speed of nominal GDP growth in the four major currency areas at or near the zero lower bound has corresponded almost perfectly to the degree of monetary stimulus, and has been completely independent of the degree of fiscal consolidation (in fact, if anything, the correlation with the degree of fiscal consolidation has been inverted). The logical conclusion is that if we want faster growth in nominal demand we need better monetary policy. Fiscal policy is utterly irrelevant.
"But only if you favor reducing the number of people employed in the Defense Department and by defense contractors. This speaks specifically to your point that someone would be affected by the sequester even if there was a complete monetary offset of fiscal policy."
ReplyDeleteExactly. So even if I did concede complete monetary offset-which I'm most certainly not doing-there would still be plenty of good reasons to oppose the sequester.
To be sure, in the case of the military cuts, I'd favor cutting military spending and redirecting that spending to domestic discretionary
So if we understand that a policy can do plenty of harm even if there were full monetary offset-again, just for instance, not conceding this is what we had-then there is still plenty of reason to oppose austerity. Yet any criticism of austerity brings Sumner up in arms. Why might that be?
ReplyDelete