Stimulus Debate with Jon Chait
I did a “critic from the right” post at The New Republic on the stimulus debate, and Jon Chait responded. I have a long post up replying in turn. Here is the key part of my response:
It is nerdy-sounding, but I believe critical to this discussion, to distinguish between measurement and knowledge. I made a very strong claim about measurement, and a very specific claim about knowledge.
I claim that we cannot usefully measure the effect of the stimulus program launched in 2009 at all. We can call this a “natural experiment” all day long, but in the absence of a control case, we cannot know what output would have been had we not executed the policy. Econometric models are not sufficient to estimate this counterfactual. Therefore, there is no achievable level of output in the United States in 2010, 2011, and so on that would enable a definitive answer to the question, “What was the effect of stimulus spending on output?” See, for example, in my original post, the response of leading economists when confronted by unemployment with stimulus that turned out to be higher than they projected unemployment would be without stimulus:
Ms. Romer famously projected in January 2009 that without government support, the unemployment rate would reach 9%, but with support the government could keep it under 8%. It’s 9.5% today.
Some Obama administration officials privately acknowledge they set job-creation expectations too high. The economy, they argue, was in fact sicker in 2009 than they and most others realized at the time. But they insist unemployment would have been worse without the stimulus.
All potentially useful predictions made about the output impact of the stimulus program are non-falsifiable. Failure of predictions can be simply justified by this sort of ad hoc explanation after the fact.
And pace Chait’s argument that private forecasters’ models all estimate a positive effect from the stimulus (implicitly because they all econometrically estimate a lower counterfactual than actually occurred), see Stanford Professor of Economics John Taylor’s analysis that adds to this list alternative economic models from the European Central Bank and Harvard that show no material effect of the stimulus. This argument will always degenerate back into endlessly dueling regressions, because there is no ability to adjudicate among them via experiment.
This does not mean that we have no knowledge about the potential effects of stimulus spending. It simply means that we have no scientific knowledge about this topic. Macroeconomic assertions about the effect of a proposed stimulus policy are not valueless, but despite their complex mathematical justifications, do not have standing as knowledge that can trump common sense, historical reasoning, and so on in the same way that a predictive rule that has been verified through experimental testing can.
When using stimulus to ameliorate the economic crisis, we are like primitive tribesmen using herbs to treat an infection, and we should not allow ourselves to imagine that we are using antibiotics that have been proven through clinical trials. This should not imply merely a different feeling about the same actions, but should rationally lead us to greater circumspection.
Re: tribesmen & herbs
For what aspects of policy making/governence would this not be an apt metaphor?
Asked in all earnestness, and eagerly awaiting your reply.
— Tony Comstock · Aug 24, 02:13 PM · #
Tony,
Very few. This is a longer answer.
Jim
— Jim Manzi · Aug 24, 02:48 PM · #
TOUCHSTONE:
Hast any philosophy in thee, shepherd?
CORIN
No more but that I know the more one sickens the
worse at ease he is; and that he that wants money,
means and content is without three good friends;
that the property of rain is to wet and fire to
burn; that good pasture makes fat sheep, and that a
great cause of the night is lack of the sun; that
he that hath learned no wit by nature nor art may
complain of good breeding or comes of a very dull kindred.
— Noah Millman · Aug 24, 02:48 PM · #
“When using stimulus to ameliorate the economic crisis, we are like primitive tribesmen using herbs to treat an infection”
It’s fair to make this point, if you also acknowledge that at the time the debate was between tribesmen who wanted to use use those herbs and tribesmen who wanted to do nothing, except maybe put the patient on the altar of the “god of corporate tax cuts” and pray.
Oh, and we really weren’t facing the financial equivalent of an infection. It was more like a massive heart attack or stroke. And the choice was between tribesmen who wanted to do some crude and questionably effective version of CPR and tribesmen who were afraid of coming near the patient, lest they be overcome by the demon inside him.
Mike
— MBunge · Aug 24, 02:54 PM · #
Mike,
As indicated in the complete post to which this links, I advocated repeatedly in favor of the stimulus at the point of crisis.
Best,
Jim
— Jim Manzi · Aug 24, 03:52 PM · #
“As indicated in the complete post to which this links, I advocated repeatedly in favor of the stimulus at the point of crisis.”
And? The fact remains that there wasn’t a choice between the Obama/Democratic stimulus plan and some Republican/conservative alternative. There was essentially no activity or support from the GOP in Congress or from the vast majority of right wing pundits for a different approach to handling the crisis.
I recently saw Megan McCardle suggest we should have gone with payroll tax cuts and increased unemployment benefits instead of the stimulus. That sounds like a halfway decent idea, but most importantly…IT’S AN IDEA.
Grousing about the effectiveness of the stimulus is perfectly legitimate but unless you honestly think doing nothing would have been better, such grousing should be framed by the understanding that what we got was the best we were going to get.
Mike
— MBunge · Aug 24, 04:27 PM · #
Mike:
I argued for a package of payroll tax cuts and very short-term spending at the time.
Best,
Jim
— Jim Manzi · Aug 24, 05:47 PM · #
Mike, you’re begging the question.
If the patient is suffering a heart attack, and your solution is to trepan his skull, then apply leeches, it’s not a sufficient argument to argue that other witch doctors counsel doing nothing. In that case, the other witch doctors are correct.
If patient 1 is suffering a heart attack, and your solution is to take some anti-cancer medicine away from patient 2 and apply it to the patient 2, then you should be concerned with the question of whether you are doing more harm to the patient 2 than you are doing to patient 1. This is true even if the alternative to switching medicine is doing nothing.
Your argument, as I understand it, is that we should not ask those questions because republicans are bad people. As Monty Python’s logic professor might point out, this is a logical fallacy, and now that you are finished scr-wing the milkman, supper may now logically be got.
— J Mann · Aug 24, 06:24 PM · #
“Macroeconomic assertions about the effect of a proposed stimulus policy are not valueless, but despite their complex mathematical justifications, do not have standing as knowledge that can trump common sense, historical reasoning, and so on in the same way that a predictive rule that has been verified through experimental testing can.”
I have always been uncomfortable with this pet idea of yours that we can’t really “know” anything without rigourous scientific testing and thus should be “circumspect.” I think the “can’t really know anything without rigourous scientific testing” part is obvious. This is why economics, for instance, is called the dismal science.
But the thing for me is, very little of life process has been confirmed with rigourous scientific testing, and yet we are constantly being asked to make decisions about what process to proceed with. So, what is really needed—insteaded of the common sensical recomendation to be “circumspect” is a sophisticated process by which to make decisions when information is incomplete. Something that combines something like identifying what you DO know, past experience, possible costs and benefits, current best practices, probabilities, game theory (when opponants are in play), etc…. Maybe systems like this already exist. And if you did have a system you could actully test it scientifically. Have people or groups try to solve identical problems with the system and without and compare results.
Becasue if you just state that we have imperfect information in many situations and then stop there, then I think the kwoledge you are flying blind to some degree, as oposed to forging ahead as best you can, actaully could increases the chance of making a bad desicions. First it could either lead to paralysis or be used as an excuse to do nothing. This is a disaster when decision HAVE to be made. Second, if people feel like there is no way to really KNOW what to do, then the temptation, conscious or not, to fall back on favored ideological soloutions is enormous. I sometime suspect that this is the case with you. Being a conservative you favor limited,“circumspect” action from government. And these type actions are also what you recommend for global warming for instance and also financial stimulus. It may be that someitmes a situation requres something more than circumspection. Maybe you are face with the need to swing for the fences or die. A habitual conservativism is not very useful in these situations.
So I think recognizing where our knowledge stops is a great thing, but it is only one part of a good decision making process.
— cw · Aug 24, 07:09 PM · #
I shouldn’t say “pet idea,” I should say “favorite topic.” Pet idea is a little disparaging and I don’t think there is anything to disparage in what you are doing. Critique maybe, but not disparage.
— cw · Aug 24, 07:12 PM · #
Minor point: if the infection has a very good chance of being fatal, and there is some plausible chance that the herbs could work, one thing you’re probably not going to worry too much about is the cost of the herbs.
But the biggest problem I have with the herbalist metaphor is that it sneaks in a reason for status quo bias. It compares a human being to an economy, but the human body has evolved over millions of years to function well enough to successfully reproduce more often than not without medical intervention until recent centuries. Our economy is nothing like that—to the extent that it has “evolved”, it has evolved in constant coexistence with government intervention, and over a timescale of decades rather than eons. There’s nothing naturally stable about it—it’s filled with positive feedback loops propelling it to dangerous bubbles and miserable, pointless depressions.
Our body has a natural immune response. But it’s not clear at all that our economy has any “immune response” to financial contagion at all—unless the government is considered to play that role. Our economic and social systems do not have the predictability of simple mechanical systems. But they also lack the natural stability of biological and ecological systems.
— Consumatopia · Aug 24, 11:40 PM · #
Grousing about the effectiveness of the stimulus is perfectly legitimate but unless you honestly think doing nothing would have been better, such grousing should be framed by the understanding that what we got was the best we were going to get.
I was one of many who thought doing nothing would have been better than what was proposed, which does not mean it was the best that could have been done.
When the stimulus was first proposed, I figured it would be worse than doing nothing, but since Democrats were in the driver’s seat (never mind the White House) it wasn’t reasonable to expect anything positive to happen. Democrats are going to do what Democrats do. Also, I figured that a public works program, though a waste of money and a hindrance to recovery, would not be a complete waste, because in the end we’d have the roads, bridges, and other public infrastructure to show for it. What I did not count on was that the Democrats would do worse than worse, spending the money in such blatantly political and corrupt ways on non-infrastructure projects.
It’s a character flaw on my part. I always underestimate the evil the Democrats will do. Time to give up those rose-colored glasses, I guess.
As to the cost of herbs, when the nomenklatura is telling me about the astounding benefits of the herbs it is trying to sell me, I do think quite hard about the cost no matter how sick I am. Their pitch is like the sales programs for some technology products. When the sales rep won’t tell me the prices up front, but wants me to do a ROI analysis under his guidance, I then know what I need to know. Time to tell him the conversation is over.
— The Reticulator · Aug 25, 02:34 AM · #
Well, I suppose if you’re a primative tribesmen in a pre-medical culture picking from herbs by intuition to treat your infection, it would make sense to stop talking to technology sales reps.
— Consumatopia · Aug 25, 03:27 AM · #
Thanks for the comments.
In terms of the “it wasn’t an infection, it was a heart attack / stroke / pick your deadly malady” comments, I don’t want to over-burden the metaphor, but I chose infection pretty carefully. It has a very wide range of potential outcomes, often including death in primitive circumstances. I wasn’t trying to minimize the severity of the situation, merely trying to focus on our lack of knowledge. This doesn’t mean zero knowledge, just a different level of knowledge than modern medicine can provide.
In terms of the “doing nothing wasn’t an option” comments: (1) as I said, I advocated executing a stimulus program at the time, and continue to believe that this was a correct recommendation – so I don;t think it’s plausible that my argument about the state of our knowledge is some kind of coded argument against stimulus, and (2) doing nothing is always an option.
Consumatopia / cw:
As always, great questions that I see as very related. In shortest form, I’d say that I believe that human societies are in fact evolved instruments that embed substantial information about what institutions will permit human survival and flourishing. I think that what is often called status quo bias should instead be considered a rational status quo preference. This doesn’t mean we live in the bets of all possible worlds – we need some framework for rational reform, and some approaches to dealing with crises that (potentially) demand immediate reaction. I think that both of these processes resist algorithmic description, but I have a book coming out on this, and I guess you can judge for yourselves whether or not I’m right.
The point of the original and follow-up posts was narrow, but I believe important. In plain English, when some economist attempts to shut down the debate by priveleging his/her “knowledge” about the effects of stimulus in contrast to the “folk wisdom” of politicians, historians or cab drivers, we should see it for the rhetoric that it is.
Most important, of course, is that Air Jordan kicks Ugg butt.
— Jim Manzi · Aug 25, 10:43 AM · #
Jim,
Sorority type babes here in Madison really digg Uggs. I often count the Ugg-shod while driving along Campus Dr. (or, the Ugg-Zone) in the colder months. I would say the average ratio of Uggs to non-Uggs is aproximately 2-1. I particuarly like the Ugg/leggings/badger sweatshirt/long blond hair/big sunglasses look. Very popular in the fall football season.
About economists vrs. cab drivers, too much hyperboly. Economists are going to have some knowledge of the macro-economy. Sure it’s incomplete but it’s going to be better than that of the layman, even if only a little.
About status-quo bias, I am open to your argument. I can see that there will be times when doing nothing is the right move. But the history of humanity is one of constant change in the stauts quo. Crocodiles have maintained the status quo for 50 million years and it works for them, but if we followed your bias we would still be sleeping in nests of leaves in the crooks of tree branches. But obviously that is not human nature. The status quo is constantly going to be challenged. I mean, our natures cerated this volitile economy, global warming etc…. We have set this crap into motion and it has delt with. So I want to know when not to act but also when and how TO act. Maybe you are just going to tell us the when not to act and someone else will have to come up with the when to act part.
Again, what I would be most interested in seeing is some tested, well thought out method for making descions with imperfect information.
— cw · Aug 25, 02:57 PM · #
re: status quo & human nature
My father was a Marine Corps officer in the 50s and my recollection is that he once explainec to my that in a 50/50 situation, Marine Corps doctrine dictated action over inaction; the theory being that more often then not creating/seizing initiative will yeild a better outcome; and I have (to a certain extent) lived this doctrine in my decidedly lower-stakes affairs.
Recently, however, I’ve come to realize that this doctrine is predicated an adversary that can be surprised, intimidated and/or bluffed.
— Tony Comstock · Aug 25, 03:26 PM · #
Yeah, someone earlier talked about some research that said (paraphrase) that in a situation where you can’t reliably predict the outcome, being “prudent” and not acting is just as risky as taking a risk and acting. Or something like that. This is where I think Jim’s bias towards the status quo is a mistake, unless he has some good research that proves his point (as much as he can prove it, “knowing” what we do about the unreliability of social science “knowledge”). But maybe he can show some evidence or something showing that in certain situations maintaining the status quo results in more positive outcomes.
I’m certainly open to that.
— cw · Aug 25, 04:41 PM · #
Safer to talk about being pragmatic, rather than “prudent”. The former has a fuller history and better foundation.
“Quine held that we apply pragmatic principles of choice to pare down competing theories….[e.g.,] simplicity, fertility, modesty, and conservativism.”
— KVS · Aug 25, 11:07 PM · #
Again, what I would be most interested in seeing is some tested, well thought out method for making descions with imperfect information.
One method is to watch out for those with conflicts of interest, e.g. when the nomenklatura (aka ruling class) recommends changes that will grow the government.
I have the same reaction to establishment academics who recommend new government interventions as I do when some store owner advertises his business as a Christian business: I first check to make sure my wallet is secure before getting any closer.
— The Reticulator · Aug 26, 01:10 AM · #
“Safer to talk about being pragmatic, rather than “prudent”. The former has a fuller history and better foundation.”
I read the info at the link and have a shaky sort of grasp of it. But explain further how it applies to what we’ve been discussing.
— cw · Aug 26, 02:30 AM · #
Wasn’t “prudent” one of GHWB’s favorite words? I keep hearing Dana Carvey’s voice.
To answer you question, cw: here (and elsewhere) KVS is making an ex post facto case for his decission to become a lawyer.
— Tony Comstock · Aug 26, 12:48 PM · #
Well, we do need more lawyers.
But I don’t quite see how pragmatic works better than prudent regarding (what I assume is) Jim Manzi’s bias for the status quo when you don’t have good predictive information for a decision. Pragmatic means to me—and that was re-enforced (I think) by what KVS linked to—doing what works (without regard for any theory or ideology). When you don’t have good information to move forward, the pragmatic thing is to start trying stuff to see what works. You can’t do what works unless you do something. Work = do. I think prudent means cautious. When you can’t see the way forward the cautious thing is to stop and stay where you are. More or less, I think, sort of.
But I assume what KVS is saying is that pragmatic has a specific established meaning related to what we are talking about. That’s what I wanted him to explain more about. THis is all epistemology really, and I don’t know jack about epistemological theories.
Here’s a chance for you to put that weird-ass education to use, KVS.
— cw · Aug 26, 01:50 PM · #
…or an ally that could reassured. Seizing the initiative makes sense when you’re talking about any sort of “animal spirits” situation, and those are not always, or even usually, adversarial.
— Consumatopia · Aug 26, 02:22 PM · #
consume: the first step on my own personal decission tree is to ask whether success will be defined as supremacy or survival; with different approaches to 50/50 situations.
Politics, it seems to me, often conflates supremecy with survival; giving rise to solutions that must serve two masters.
— Tony Comstock · Aug 26, 03:46 PM · #
It’s not a good one, even with the post facto advantage. The money, and….
CW: not that you’re hanging on every word, but let me try to respond to this later. A medium corporate case just went belly up on me.
— KVS · Aug 26, 04:47 PM · #
Hmmmm…. intriguing: put actually paying work before blathering on the internet. I will have to try that.
— cw · Aug 26, 07:30 PM · #