Noah Smith, Get Out of Scott Sumner's Head

     Smith has a new post about to what extent economic arguments are 'stalking horses.' 

     "On Twitter, Russ Roberts said something I tend to agree with:

Just a curious coincidence that economists who like stimulus want bigger government and those who oppose it prefer smaller. 

      "In fact, he said something very similar back in 2011:

The evidence for the Keynesian worldview is very mixed. Most economists come down in favor or against it because of their prior ideological beliefs. Krugman is a Keynesian because he wants bigger government. I’m an anti-Keynesian because I want smaller government. Both of us can find evidence for our worldviews[.]

      "Now, Roberts doesn't actually know Krugman's motives - he's necessarily making a guess. But he definitely does know his own! Basically, he's saying that he adopts an anti-Keynesian stance not because be thinks stimulus actually fails to fight recessions, but because he wants to shrink the size of the government in the long term."

     "Furthermore, he strongly implies that he will selectively display evidence against the effectiveness of stimulus as a stabilizer, in order to ward off the long-term expansion of government. That's motivated reasoning."

      "I have long believed that stuff like this happens in economics arguments all the time. It's probably not (usually) an intentional subterfuge, but more of an unconscious bias. An economist is presented with the proposition that countercyclical fiscal policy (stimulus in recessions, austerity in booms) increases overall efficiency. He is generally against increasing the size of the government. So when he sees that countercyclical fiscal policy will (temporarily) increase the size of the government in a boom, it triggers warning sirens in his subconscious. "What? Increase the size of government? Never!", says his subconscious. And so that motivates him to argue against the proposition that countercyclical policy is effective at stabilizing booms and recessions. "

     "So Russ Roberts is being honest and introspective, which is good. Introspection is difficult and often unflattering, so not enough people engage in it."

     http://noahpinionblog.blogspot.com/2015/06/economic-arguments-as-stalking-horses.html

     To an extent it does seem like Roberts is being honest and introspective-but to me it seems the real endgame of this moment of 'opening up' is to claim that Keynesians have no argument or fiscal stimulus other than they want larger government. By seemingly admitting he does the same thing it disarms the reader into accepting the main point-Keynesians have no real factual basis for desiring fiscal stimulus. 

    Sumner does this same move all the time. And it's clear that while he claims that he's making an intellectual argument about demand stabilization, he's opposed in principle to increasing the size of government ever. 

   This is one of the things he and I always knock heads on. He has often chided me for not understanding economics well enough to have a discussion with a well informed economist like him. He has chided me for not seeing that economics is about science not ideology. However, while I find economics fascinating, I've never bought that it's anything like ideology free-ie, there's no question that while I do believe that economists are sincere in wanting to be about finding the truth, no question economic arguments are also stalking horses-they're not only that, but this is part of it. 

   In a new piece of his, he again embraces the Great Stagnation. The trouble here is that productivity has been crushed, according to him:

  " I’ve been arguing that 1.2% RGDP and 3.0% NGDP growth is the new normal.  The RGDP growth is of course an arbitrary figure, reflecting the whims of statisticians at the BEA.  But the NGDP slowdown is real (pardon the pun.)  So let’s not have any tiresome debates over angels dancing on a pin, or whether there is unmeasured digital “output.”

   "It seems like the experts are beginning to figure this out:

Productivity fell at a 3.1 percent annual rate instead of the previously reported 1.9 percent pace, the Labor Department said. That was the first back-to-back fall in productivity since 2006.

.  .  .

The productivity decline mirrors the economy’s dismal performance in the first quarter, when output contracted at a 0.7 percent rate.

Given that temporary factors contributed to the decline in output, the drop in productivity could be overstated and a rebound is likely in the second half of the year.

Still, weak productivity suggests that the economy’s potential growth could be lower than the 1.5 percent to 2.0 percent pace economists currently estimate.

     “economists currently estimate”?!?!?  Not me."

     "Over the past 5 years, productivity has risen by less than 3%.  That might not seem so bad, except I’m referring to the total increase, not the annual increase. Again, get used to 1.2% RGDP growth; it’s the new normal, the new trend line. Within a few years I expect even the Fed will begin to catch on to what’s happening."

     "After I wrote this I noticed a comment by Justin with many similar points:

In the 5 years to April 2015, just shy of 12 million private sector jobs were created, an annual growth rate of 2.1%/yr.

For comparison, in the 5 years to December 2007, 7.1 million private sector jobs were created, a growth rate of 1.3%/yr and in the 5 years to March 2001, 12.3 million private sector jobs were created, a growth rate of 2.4%/yr. So from a job creation perspective, the current expansion is running much hotter than the Bush years, and just a bit slower than during the go-go years of late 1990s.

What’s the disconnect? Productivity. In the 5 years to 2001Q1, productivity grew 2.7%/yr, and in the 5 years to 2007Q4, productivity grew 2.4%/yr. Over the past 5 years, productivity has grown just 0.6%/yr. If productivity were growing as it had during the past two cycles, we’d be enjoying 4% real GDP growth, not 2%.

     http://www.themoneyillusion.com/?p=29534 

     Knowing how defensive and hypersensitive Scott is, I figured I'd lob him a softball to see what I get out of him. I humbly asked him what can be done about this 'productivity puzzle?'

    “Can anything be done policy wise about productivity or is policy pretty much powerless?”

Yes, stop electing politicians who favor more government spending, regulation, taxes, wars on drugs, NSA spending, etc. Small government capitalism promotes productivity. Libertarianism"

   So it would seem that Noah's description fits Scott to a T. Think about it, if you believe that any government spending kills productivity-from what he says here, Sumner apparently thinks that all government spending is created equal; spending on a wasteful and counterproductive war on drugs is the same as government spending that say rebuilt schools and roads-then you could never for any reason recommend, apart from what you believe regarding fiscal policy as a stabilization tool. 

   The idea of a Great Stagnation seems to have a lot of takers-both many liberals and conservatives have signed on though often very different reasons. Piketty's story is very depressing as he thinks that the age of productivity is basically over. 

   It seems to me that in many ways, however, this is a very efficacious argument for conservatives-again we're talking about ideas as stalking horses. The GS argument fits very well with a general argument that 'We just can't afford it all anymore.'

    I think that Morgan Warstler-who of course is very conservative-is probably too big a technophile but I prefer this to all the GS pessimism.

      Whether from the Right or Left, I tend not to like 'Time to settle for less' arguments.