Wednesday, May 30, 2012

Good Comments

Reading through some of last weekend's commentary  got me thinking about what I look for most -- and try to emulate -- in good economic commentary.

One of the first lessons we learn in econ 1 is that economics has a lot to say about incentives, which are usually ignored by popular discussions, and economists have a lot less to say about fairness, morality, or distributional questions, which is what popular discussions focus on. I don't mean that fairness or distributional questions are unimportant, just that economists don't have any special insight into those questions.

For example, an economist contributes best to the tax debate by pointing out margins that others have not noticed, such as the huge implicit marginal tax rates implied by phase-out provisions or the incentives for old people to save vs. consume when looking at confiscatory marginal estate taxes.

Economists need always to disinguish tax rates from taxes.  Whether "the rich" should pay more or less overall is really not that useful for us to comment on. Whether a code  attempts to raise revenue with high marginal rates and lots of deductions or low marginal rates and few deductions is something we can say a lot about. We need to remind people of econ 1, that who pays the tax and who bears the burden of a tax are often radically different. "Corporations" never pay taxes, they pass taxes on either to customers, workers, or investors.

Economists should focus on the things they know something about. Economists who pontificate on  the moral character of public figures are not saying anything about which they have any particular standing or expertise to analyze. It takes a lot of ego to think your political passions are that much more interesting than anyone else's.

More deeply, seeing some people as good and others as evil really is not that useful as social science or as a contribution to policy debate. Our ancestors in the middle ages knew how to do that. If you want to understand why people do what they do, why policies are formed as they are, it is much more useful to view people who disagree with you as well intentioned but mistaken -- we can't all study economics all our lives -- than as evil, or in the pay of dark powers.

Economic analysis is more believable when it is non-partisan. I like commentators who make an effort to find silliness (and there is plenty of it) attached to both parties. When I see an analyst that always seems to be plugging one of the political parties, I know he'll be shading the truth at least half the time. Even people who are partisan function most usefully by holding their own party's actions to scrutiny, rather than sanctifying any action on one side and demonizing any action on the other. Most hilarious are commentators who laud a policy action when their pet party does it, and demonize exactly the same action when undertaken by the other side. 

And economists should insist on precise language. When political discussion uses the word "drastic cut" to mean growing expenses by 5% where before the government was planning to grow expenses by 7%, our job is to remind them what "cut" means. So much economic discussion really belongs on my favorite game,  bullshit bingo.

By now you will probably guess that what set me off is Paul Krugman's announcement in the New York Times that in his exalted opinion New Jersey Governor Chris Christie is a "big fiscal phony," that Congressman Paul Ryan and candiate Mitt Romney are "fakers," who are "willing to snatch food from the mouths of babes (literally, via cuts [sic] in crucial nutritional aid programs)," all to serve the dark conspiratorial interests of their "financial backers."

This column illustrates just about every desirable principle by embodying its opposite.


There actually is a lot economists can add to the distribution debate. There are a lot of facts: the widening distribution comes from a skill premium, not inherited wealth. It's new people getting rich, not the old rich keeping more money. It's pretax income, not the rich keeping more money.  Consumption inequality is much less than income inequality. And so on. There's a lot of good theory: Optimal redistribution with incentive and participation constraints is great stuff. And both theory and experience on how well tax-based redistribution works out. I just meant we don't have much to add to the mostly normative questions. (Thanks to the "Lumpy Economist" Ruediger Bachmann for pointing this out.)

And lots more principles for economics come to mind.

There's always a supply curve and a demand curve. Most discussions assume one away.
Budget constraints.  The trade and capital account must balance.
Higher prices and interest rates can reflect good times not just signal bad times. 

Ok, too easy.