|Man Without Qualities|
Wednesday, March 26, 2003
The Wall Street Journal runs two items on the first "dynamic scoring" of the budget by the Congressional Budget Office - that is, evaluation of a budget (especially taxcuts) which includes their stimulative effects. The first such item is by a staff reporter, and it states in part:
For the first time, CBO used what's known as "dynamic scoring" to estimate the favorable macroeconomic and revenue effects of budget proposals, a move tax-cut advocates have long urged and deficit-phobes feared. The range of estimates released Tuesday by CBO said adding supply-side effects could add as much as 10% to conventional estimates of the five-year cost of the Bush budget or subtract as much 17%, depending on the model used. The administration plans this week to release its own estimates that suggest Mr. Bush's proposed dividend and other tax cuts would recoup some 30% to 40% of their cost by generating more economic growth and tax revenue, a senior administration official said Tuesday.
Fair enough. But the second item - an op-ed item by Kevin A. Hassett and R. Glenn Hubbard, the latter the just-departed chairman of President Bush's Council of Economic Advisers who is now a professor of economics and finance at Columbia University - is more interesting because it indicates what is really going on:
One surprise was finding so little difference between the static and dynamic scores of the president's proposals. How could that happen? Clues in the report indicate the CBO found that the negative effect of higher spending and expanded entitlements offset the positive effect of the marginal tax rate reductions. Relying on models similar to those used by the CBO, the president's Council of Economic Advisers estimated that the dividend proposal would, all else equal, add about one percentage point to GDP growth in 2003 and 2004. Yet all else is not equal in the budget, and the remaining changes offset the beneficial impact of pro-growth policy. These offsetting effects largely work through the crowding out of capital formation by consumption of individuals and government. The CBO dynamic score allows for far more such crowding out than empirical evidence suggests. Even so, now that dynamic scoring has been proven possible, economists can stop debating its existence and turn to the important work of improving the models.
The two items form a complementary pair that helps the reader understand the economics of dynamic scoring issues. That is likely why the Journal ran them both on the same day and its also likely why Brad DeLong ignores Professor Hubbard's explanation. Why does Good Professor DeLong find Professor Hubbard so threatening that his comment must be so willfully ignored? Only a few month ago the Good Professor condescendingly and gratingly argued:
He has let himself get boxed into a position the soundbite version of which ("no evidence" that swings in the deficit of the scale seen in the United States affect interest rates; the belief that the 1990 Bush and 1993 Clinton deficit-reduction packages substantially fueled the 1990s boom is "Rubinomics... complete nonsense") is radically inconsistent with what Glenn believes and teaches students in his Money, the Financial System, and the Economy textbook (see especially page 661, but there are lots of other pages as well). ... Bluntly, White House Media Affairs, White House Political Affairs, and the White House Chief of Staff now know that you will say whatever they want you to say. Hence when the inside-the-White-House balancing of interests and power groups that determines what options get submitted to the president takes place, your views are ignored--for you will play along anyway, and there are other groups to be appeased and conciliated that will not.
Well, Professor Hubbard is not in the White House now, and he is not subject to all those pressures from White House Media Affairs, White House Political Affairs, and the White House Chief of Staff - and he's still arguing that the CBO dynamic score allows for far more such crowding out than empirical evidence suggests. In other words, the Good Professor's nasty assertions that Professor Hubbard doesn't believe all those supply-side arguments that he's been propounding about the Bush tax cuts are wrong. And his advice probably wasn't "ignored" in the Administration - despite the Good Professor's hopes to the contrary. But don't expect that much intellectual honesty from the Good Professor - he won't even acknowledge the existence of Professor Hubbard's piece in the Wall Street Journal. The Good Professor seems to have, shall we say, a complex relationship in his own mind with Professor Hubbard. On one level there is a serious desire to pick a fight - perhaps born of a deep resentment that Professor Hubbard has held positions of economic and academic influence that dwarf anything the Good Professor has been allowed to get near, including in their current academic positions and their positions within their respective presidential administrations. But then there is his wavering understanding that Professor Hubbard has just deserved his influence and positions. The demons in the Good Professor's mind battling over Professor Hubbard can be detected, for example, in the many "addenda" to his original snarky post cited above.
Similarly, the Good Professor's observations about Money, the Financial System, and the Economy say more about him than Professor Hubbard. This is an economic textbook. It is true that some authors of textbooks construct them entirely from the perspective of their own personal or professional beliefs. That approach - which the Good Professor seems to think is the only approach - has the unfortunate tendency to produce an economics textbook bearing an uncomfortable resemblance to political agitprop. But many more textbooks are written so that the student using the book can learn what is being done and generally believed in the field. In that kind of textbook the author suppresses his or her own personal or professional beliefs and takes a more objective approach. A textbook and curriculum are not good indicia of what many academics personally believe - or of what they would tell the President if they had his ear, as Professor Hubbard did for quite a while.
Correspondingly, there are economics teachers whose teachings (and blogs) are constructed entirely from the perspective of their own personal or professional beliefs - and then there are teachers who actually try to teach what is being done and generally believed in the field. It appears that the Good Professor is of the first variety of teacher and that Professor Hubbard is of the second variety of teacher.
MORE: From Luskin.
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