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March 29, 2010
Robert Samuelson on Economics
And on unavoidable spending, and debt crises, and on budget accounting...
From the Washington Post: comes this headline:
With health bill, Obama has sown the seeds of a budget crisis
Here's a choice excerpt:
Should the United States someday suffer a budget crisis, it will be hard not to conclude that Obama and his allies sowed the seeds, because they ignored conspicuous warnings. A further irony will not escape historians. For two years, Obama and members of Congress have angrily blamed the shortsightedness and selfishness of bankers and rating agencies for causing the recent financial crisis. The president and his supporters, historians will note, were equally shortsighted and self-centered -- though their quest was for political glory, not financial gain.
Kinda weird -- I thought that Obama was inaugurated in January 20, 2009, which is somewhat less than two years ago, by my count. Aside from time dilation, I thought it interesting that Mr. Samuelson neglected to mention how much of the upward jump in the debt-to-GDP ratio occurred before January 2009, as shown in this graph.
Figure 1: Federal debt held by the public as a share of GDP, from FREDII (red square), from Treasury (blue line). NBER defined recessions shaded gray; assumes last recession ended 09M06. Solid line at 2009M01. Sources: Series FYGFDPUN from St. Louis Fed FREDII, from December 2009 Treasury Bulletin, and Macroeconomic Advisers (Jan. 15 2010 release), NBER, and author's calculations.
Here is where Mr. Samuelson dismisses the entire budgeting process in Washington:
But the CBO estimate is misleading, because it must embody the law's many unrealistic assumptions and gimmicks. Benefits are phased in "so that the first 10 years of [higher] revenue would be used to pay for only six years of spending" increases, a former CBO director, Douglas Holtz-Eakin, wrote in the New York Times on March 20. Holtz-Eakin also noted the $70 billion of premiums for a new program of long-term care that reduce present deficits but will be paid out in benefits later. Then there's the "doc fix" -- higher Medicare reimbursements under separate legislation that would cost about $200 billion over a decade.
The logical implication based upon this argument: Might as well close up CBO.
Interestingly, he doesn't mention Dr. Holtz-Eakin's other former role as Senator McCain's economic adviser. While this observation does not in itself invalidate the Holtz-Eakin critique, it does cast it in a different light. However, see [0]
I also like how Mr. Samuelson conveniently lumps certain spending as avoidable, and some unavoidable. I find in particular this passage from a 2006 WaPo article highly amusing (to say the least): "Some of Bush's spending increases (defense, homeland security) were unavoidable."
Here is a graph to put things in perspective.
Figure 2: Impact on budget balance, in billions of FY2010$, for EGTRRA; for JGTRRA; for Patient Protection and Affordable Care Act; and cumulative budget authorization for operations in Iraq through FY2010, in billions of FY2010$, deflated using CPI. Source: CBO, Budget and Economic Outlook: An Update (August. 2001), Table 1-4; CBO, Budget and Economic Outlook: An Update (August 2003), Table 1-8 (revenue implications only); and CBO, "H.R. 4872, Reconciliation Act of 2010: Estimate of direct spending and revenue effects for the amendment in the nature of a substitute released on March 18, 2010," (March 18, 2010), Table 1; and Iraq costs from A. Belasco, The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11, Congressional Research Services (Sep 09), Table 3: budget authorization for DoD, State, and VA Medical; for CPI, historical from FREDII, and forecasts/projections from CBO (January 2010).
So even taking Mr. Samuelson's misgivings about the implausibility of assumptions at face value, PPACA looks like a real paragon of fiscal rectitude by comparison with what preceded it in the previous Administration. And I haven't even mentioned the way in which Medicare Part D was funded (which to his credit, he did criticize elsewhere -- although not in this particular article).
Nonetheless, overarching all this is a simple question. Why do we ascribe any credibility to a person with an undergraduate degree in political science (what is called Government at Harvard) in the area of economics (let alone accounting)? (The question is inspired by watching the debate between Professor Krugman and Mr. Samuelson on Fareed Zakaria GPS yesterday...)
Update: 2:25pm Pacific
Here's some fact-checking on Mr. Samuelson's column.
Here's some sensible (and still skeptical) analysis of the bill's impact on finances, from Donald Marron, who is not a wild-eyed liberal.
Posted by Menzie Chinn at March 29, 2010 09:16 AM
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Re: Kinda wierd -- I thought that Obama was inaugurated in January 20, 2009, which is somewhat less than two years ago, by my count.
Obama wasn't born on January 20, 2009, and he certainly was expressing opinions before then. Why do you find it "wierd" that Samuelson asserts that "For two years, Obama [has] angrily blamed the shortsightedness and selfishness of bankers and rating agencies for causing the recent financial crisis"? Samuelson did not say "For two years as president...".
Re: The logical implication based upon this argument: Might as well close up CBO.
I'm surprised to see such an odd, unfair comment from you. Samuelson was pointing out the limitations of CBO projections and the potential for people to be misled if they mistakenly believe (often due to the deliberate misrepresentation by others) that CBO projections do not have the limitations he mentions. He's saying that just because CBO projects deficit-neutrality or net deficit reduction over some period, it does not necessarily mean that the projection is realistic, because it is based on policy assumptions that are not necessarily realistic, and may give a false impression if legislation games the system, so to speak, to take advantage of CBO methodology. That's hardly saying that "We might as well close up CBO". It's just saying "CBO projections have significant limitations that we should bear in mind and adjust for as we see fit when including those projections in our overall analyses". Big difference.
Interestingly, he doesn't mention Dr. Holtz-Eakin's other former role as Senator McCain's economic adviser. While this observation does not initself invalidate the Holtz-Eakin critique, it does cast it in a different light.
Posted by: Brooks at March 29, 2010 09:38 AM
Brooks: OK. I wish he'd written your interpretation of what he wrote, instead of what he actually wrote, in the article. Kinda makes you wonder why he didn't.
In any case, I'll just end with this line: "I think Bush's initial tax cuts were justified. Not only did he promise them in the 2000 campaign but their fortuitous timing helped prevent a deep recession."
There were no caveats about CBO accounting there. That line was written by guess who in 2005.
Posted by: Menzie Chinn at March 29, 2010 09:52 AM
There is a reason he is generally referred to as Robert "Not-related-to-Paul" Samuelson.
Posted by: Joseph at March 29, 2010 10:35 AM
I too was puzzled by Samuelson's remarks. Section 3403 as modified give considerable power to the
Independent Payment Advisory Board or IPAB, yet Samuelson dismisses it because "The Board is prohibited from submitting proposals that would ration care, increase revenues or change benefits, eligibility or Medicare beneficiary cost sharing,". All the board has to do is limit reimbursements.
Posted by: gnat at March 29, 2010 10:35 AM
I don't see any sin of omission on Samuelson's part in his comments regarding the CBO projections. He makes clear what he is responding to: "Obama supporters make two arguments. First, the CBO says the plan reduces the deficit by $143 billion over a decade." And his response is that this rhetorical use of CBO bottom line is misleading for reasons he provides (regarding the analytical restrictions by which CBO analysis is bound and how they relate to this legislation and related figures), and you mischaracterize his point as "Might as well close up CBO", which is quite different from what his actual point seems to be and is thus unfair per my prior comment.
So no, I don't wonder why he didn't say what I said, because he essentially did. He said essentially "There are folks claiming that we should see the CBO bottom line as meaning the legislation will reduce deficits, and thus as the ultimate arbiter invalidating any concerns or assertions that the legislation will likely increase deficits, but that claim is misleading because of the following reasons (limitations of CBO analyses)". I see no obligation on his part to use finite space in his column to explain why he wasn't making a categorically different assertion that he gave no indication of making (that CBO analyses are completely worthless).
Just to pick the first analogy that pops into my head (not a perfect analogy, but enough to make the point), it's like:
1. Some people point to data points in a highly trusted report on product prices that make it clear that the price of Brand A is $X lower than the price of Brand B.
2. They claim that this finding proves on an objective, trusted basis that it's a good economic decision for me to buy brand A because, per their assertion, I will save $X.
3. Samuelson comes along and points out that Brand A is much lower quality (or quantity) and will have to be replaced much sooner than Brand B, so I won't save quite so much by buying Brand A, and it may even cost me more over a given time period if I buy Brand A now instead of Brand B, and he suspects the latter, for reasons he provides.
4. You characterize Samuelson's point as an assertion that the pricing report is completely worthless and we might as well do away with it.
Do you really think that's a fair charge?
Posted by: Brooks at March 29, 2010 10:53 AM
Both parties are complicit in driving this country over the financial cliff. This partisan finger-pointing is childish.
Two comments:
1) All serious observers need to consolidate the GSE debt in the graphs (applies to Figure 1).
2) I'd say that the fiscal environment was a bit different in 2001/2002, when JGTRRA was enacted. It also represents the type of fiscal stimulus advocated by the author of the post in time of recession. Maybe the argument is that the act should have been repealed in 2004 or 2005 when GDP was growing.
Posted by: jult52 at March 29, 2010 10:57 AM
If I am faced with higher property taxes and higher health insurance premiums, that is unavoidable spending. I would love to have Mr Samuelson tell lenders they should give me cash to deal with those unavoidable expenses rather that instead telling me I must increase my income to compensate. In fact, why aren't those calling for tax cuts telling workers to cut back their hours to earn less so they are forced to borrow more to cover necessary spending?
For a government, the standard response to the cost of war has been tax hikes. Why isn't the logical response to governments faced with long term spending requirements to double down on debt reduction in order to become debt free when the time comes?
The last thing individuals are advised when they have spending under control, are repaying their debt, and are looking forward to old age is to cut back on work, stop repaying debt, and in fact to borrow more.
Since the Reagan Revolution and the self proclaimed fiscal conservatives looking toward the long term future of the US, deficits are a good thing. Deficits are a good thing in times of war stimulated economic activity because tax hikes would discourage economic activity. Deficits are a good thing in a time of peace and prosperity.
Because every problem of government is the future in which premiums go to pay benefits in social insurance. As if for-profit insurance companies aren't "ponzi schemes" that pay benefits from current premiums....
Of course, the solution proposed is the stock market where history proves you will get a 10% return which is much higher than social security. But how exactly does that work, but as a ponzi scheme where those who retire sell stock at higher prices than they bought it for because there are more buyers with more cash than a year ago and a decade ago.
Health care is legally part of social insurance since Reagan signed EMTALA into law placing a mandate on for-profit health care institution to match the public interest provision inherent in every State and Federal not-for-profit corporate charter.
The HHS actuary estimated the total US health care cost at 20.9% of GDP in 2019 with the Senate bill, and 20.8% of GDP for the status quo. Unless someone finds real flaws in the economic models used by HHS, the only thing the health reform bill is moving the deck chairs on the smoothly sailing luxury liner, or the Titanic, depending on your point of view.
All the critics of the Obama initiative refuse to admit that no one has a better alternative, unless Somalia and Haiti are better alternatives. Every nation with [near] universal health care payment systems have much lower health care costs than the US without sacrificing aggregate quality of output. Only those who argue for bankrupting those unlucky enough to suffer major health problems can argue the US has a good health care system, much less the best in the world.
To argue that those suffering a job loss at age 55 in this economy should first spend all their retirement savings, and then go bankrupt, become homeless, depending on poor houses and soup kitchens because the US can't afford social insurance, is again arguing that Somalia and Haiti are ideal economies.
I do think it interesting the rather long list of conservatives who would be put in the class of irresponsible people who don't deserve the benefit of social insurance program, or policy mandates. Many do support universal health coverage in some form, but in a "free market" system, Doug Holtz-Eakin, Dick Cheney, John McCain, Huckabee, should be denied health insurance, along with Stephen Hawking, who must have pissed off God, who knowing he would deny the Bible as literal truth gave him a genetic defect of ALS.
Posted by: mulp at March 29, 2010 12:42 PM
Menzie, you have such a wonderful platform here to promote 'productive' policy discussions, I am surprised you waste time on these right/left slanted debates. It is boring to rehash, (again and again) the obviously flawed past, when the present demands solutions to our looming public debt crisis. Has anyone produced a credible plan for reducing debt/gdp to sustainable levels? I wish the frequency of those posts would increase while the frequency of topics that rehash politically slanted views of the past would decrease. If it is the bikering you like, I am sure we can find plenty to bicker over if somebody would produce a detailed long term plan to get us out of this fiscal mess.
Posted by: tj at March 29, 2010 01:13 PM
As far as I know, the only plan offered by any office-holder (any member of Congress or the president) that apparently works out mathematically (at least if the spending side is adopted; perhaps not if the tax side is included) is Paul Ryan's "Roadmap" http://www.roadmap.republicans.budget.house.gov/ , but, although I give him credit for actually presenting a plan that reflects a particular set of priorities among trade-offs (as opposed to what everyone else is doing -- avoiding any acknowledgment of any set of sacrifices on the scale necessary), his plan is politically unrealistic, because his solution is all on the spending side (to the best of my understanding). It is simply politically implausible that we will solve our long-term fiscal imbalance problem either all on the spending side (let alone all on the social spending side) or all on the tax (revenue) side. And I'd add (to address the broader view from the left) that it is also implausible that we'll solve it entirely on the tax side combined with Defense cuts.
I've heard there are one or two plans from think tanks out there, but I don't recall specifically which they are. But it is safe to say that any ideologically pure plan of right or left is politically implausible. The only politically viable solution will be a combination of broad cuts in projected spending and broad tax increases.
Posted by: Brooks at March 29, 2010 01:44 PM
I'd like to point something out. Here are some of Samuelson's own choice of words: "curious", "worsening", "already-bleak", "suffer", "sowed", "ignored", "irony", "not escape", "angrily", "short-sighted", "self-centered", "political glory", "wrenching", "upheaval", "spook", "unnerve", "calamitous", "not pretty", "No one...could be unaware", "unconvincing", "reckless", "misleading", "unrealistic", "virtually ensure", "striking", "wishful thinking", and "rationalize".
This passes for well written and fair? Now, notice some other words: "should", "it would be hard not to", "no one...could be unaware...", "assumes", "suppose", "If", "resembles", "claims", "virtually ensure", "flirting", "intended", "parallels", and, finally, "No one can tell when or whether a crisis will come. There is no magic tipping point."
Here's what I wrote about Holtz-Eakins post which is mentioned on Scott Sumner's excellent blog:
"Then, you'll notice that DHE uses a number of qualifiers: "could", "if", "would need to", "expected", "intended", "anticipated", "promise", "expected", and "projected". Maybe it's because I was once an Ordinary Language Philosopher whose mentor was John Searle, or maybe it's because I'm a ( whispered: not yet published ) novelist, but words matter to me.
Krugman's tone was certainly insulting. But so was DHE's. What's more, he used one of the most standard and obvious rhetorical moves in what passes for argumentation today, which is to Negatively Characterize everything that your opponent says, while being careful to qualify what you're actually advancing. The point is to emphasize the negative connotation, which is an opinion, while leaving room for yourself to deny that you were making predictions, since you were really just offering opinions. Oddly, you can't really predict the future.
Of course, depending upon your view, you gloss over or rationalize the insults your side offered. I prefer a different mode of discussion."
Is someone teaching people to write and argue like this?
Posted by: Don the libertarian Democrat at March 29, 2010 02:14 PM
You do yourself a disservice by attacking him instead of his arguments.
Posted by: MikeR at March 29, 2010 03:42 PM
Unless you argue that the unsustainable growth of medicare would not have elicited cuts in spending or increases in taxes, or both, without expanding health insurance coverage, you can't claim that the tax increases and spending cuts in the legislation in any way 'pay' for the expansion in insurance coverage. The provisions to force people to buy insurance do not cover the cost of the expanded coverage, so the bill is not revenue neutral.
Let me try again, since this point seems so hard to get across. Suppose we have two bills going forward - one bill would raise medicare and other taxes and cut medicare spending to service the huge government debt, which is growing at an unsustainable rate (scored as a significant revenue gain) and the second second bill would expand medical coverage (and increase the deficit). By combining the bills, I can reduce the cost of the expanded medical coverage?
Posted by: don at March 29, 2010 03:56 PM
MikeR: Er, I thought I had (1) critiqued his mendacious and selective discussion of what constituted plausible scenarios, (2) his value-laden criticism of programs, masquerading as a paean to fiscal rectitude, (3) strange inability to tabulate correctly when deficits had risen and (4) his omission of the fact that fiscal solvency was hardly at all impacted by the health bill, relative to any other fiscal measures one can think of in the recent past. In other words, the only thing that might be construed as a personal criticism might be my statement of fact (and some people reading this blog might take it a good thing that he doesn't have an economics degree!).
Hence, please clarify for me the specific personal attack that you've identified.
Posted by: Menzie Chinn at March 29, 2010 03:58 PM
Oh dear, oh dear! Not a board certified economist (though Harvard isn't all that bad.) Good Jewish name but maybe not a liberal? Next thing you know he'll be making forecasts! Can't have that! People might confuse his forecasts with the accurate ones made by academic economic number fuddlers.
Posted by: C Thomson at March 29, 2010 04:01 PM
C Thomson: Back on September 5, 2008, you wrote: "This is the best economics web site." Could it be that your positive assessment is a function of the training of the hosts? If that is the case, then one might suspect you have an overdeveloped appreciation for trained economists, except when not convenient for your argument.
Posted by: Menzie Chinn at March 29, 2010 04:38 PM
Thanks Brooks, and I agree. I have a sincere doubt that the current group of congressmen/women will be able to produce a workable solution before it is too late.
Posted by: tj at March 29, 2010 06:16 PM
What argument, Prof. Chinn? This is certainly the best economics web site. But what is economics? A branch of history and hence a tool for understanding the past? Or a source of mathematical models that provide useful forecasts about the future?
Are academic economists now as useful as dentists, as Keynes hoped? A simple thought experiment about the comparative loss to the nation if all academic economists vanished, as opposed to all dentists, will easily establish the answer.
Posted by: C Thomson at March 29, 2010 07:52 PM
C Thomson,
Seems that you are being insulting just for the sake of being insulting. If you have an actual point, make it. It seems you are responding to Menzie's rhetorical question "Why do we ascribe any credibility to a person with an undergraduate degree in political science (what is called Government at Harvard) in the area of economics (let alone accounting)?" If you want to dispute Menzie's implicit premise that an economics degree is a prerequisite for one to have a high degree of insight into the likely long-term deficit impact of this legislation (which I would argue is at least as much, and probably more a political question than one of economics), and thus that Menzie is wrong to disqualify Sameulson on that basis, you can make that reasonable argument instead of making silly, snarky, irrelevant wisecracks about the contributions of economists.
Of course, if your objective is only to indulge yourself with what you (falsely) consider witty, worldy-wise ridicule, I guess that's what you'll choose.
Posted by: Brooks at March 29, 2010 08:35 PM
Elegantly expressed, C Thomson!
Samuelson's basic point that inflicting an open-ended new entitlement & a $trillion of new taxes on a gov't that already has $76 trillion in debt & unfunded liabilities seems pretty unassailable.
Posted by: bryce at March 29, 2010 08:55 PM
C Thomson,
While not so much a problem these days in Latin American countries, there was a time when many of those countries suffered from a serious lack of economic expertise to assist in measurement and in policy making. I think one would be surprised what a lack of economic expertise in the context of policy debates can do to a country. You might not notice the impacts of a sudden rapture of academic economics immediately, but over time their absence in the policy debate and in conducting exercises in economic measurement would be felt in a serious way.
Granted, that is an extreme case, but to dismiss the achievements of the advancement of the practice of economics is to declare oneself a troglodyte.
Posted by: Brian Quinn at March 29, 2010 09:03 PM
I'll tell you what is very assailable: the conceptually confused metric of "unfunded liabilities" as a measure of our long-term fiscal imbalance. It makes no sense. See my comment at March 9, 2010 06:06 PM on http://www.econbrowser.com/archives/2010/03/speaking_of_lia.html
Posted by: Brooks at March 30, 2010 08:07 AM
"Samuelson's basic point that inflicting an open-ended new entitlement & a $trillion of new taxes on a gov't that already has $76 trillion in debt & unfunded liabilities seems pretty unassailable."
It is unassailable, which is why we can shift the focus to his education. Next we will resort to name calling. This is the tactic obama uses to blame others like fat cat bankers or bush instead of talking about the real issues.
Posted by: MikeR at March 30, 2010 08:11 AM
MikeR: Still waiting: what is the personal attack I am purported to have made.
Posted by: Menzie Chinn at March 30, 2010 08:17 AM
Attacking CBO assumptions* is fine, but we're talking more than just the current article. We're talking a full history of using CBO estimates only when it's convenient, and claiming they are useless and flawed whenever they are inconvenient. This reduces the CBO to a political tool rather than an impartial information cruncher. Thus, the "might as well close up the CBO" comment.
Incidentally, his attacks on these assumptions have been deconstructed and discredited. The fact that the CBO _can_ be manipulated, as often happens, doesn't actually mean it _is_ being manipulated. But that's a different question. In this case, the cost estimates and savings estimates seem to be legit.
Posted by: Bribes at March 30, 2010 09:40 AM
Don't think you are being fair at all here, Prof Chinn.
There is a huge difference between running up yearly deficits, and enacting a huge expansion of entitlements. Our fiscal problem is one of unfunded government libilities, and this is a huge expansion.
And Samuelson is correct, the CBO's estimates of the cost offsets is largely dependent on creative accounting and very difficult future cost cutting measures.
And "Why do we ascribe any credibility to a person with an undergraduate degree in political science (what is called Government at Harvard) in the area of economics (let alone accounting)?" is an unnecessary barb, that is certainly an ad hominem and fairly insulting.
It does seem to me that economists have a tendency to be condescending. Is it just me?
Posted by: Brad P. at March 30, 2010 11:30 AM
"Samuelson's basic point that inflicting an open-ended new entitlement & a $trillion of new taxes on a gov't that already has $76 trillion in debt & unfunded liabilities seems pretty unassailable."
This line of arguement is bunk, because it doesn't compare the new entitlement to continuing businnes as usual. Business as usual wastes $1T/yr and leaves millions uninsured and more underinsured.
Unless Samuelson cares to say how he would deal with these problems with the old system, which seem to me to make it unsustainable, than I put him into the "die cheaply" school. This is unacceptable.
Posted by: Annoyed at March 30, 2010 11:51 AM
Brad P.: If I compare the accounting for this measure against that of the previous administration for the expenditures in the Iraq theater of operations -- year by year appropriations, conjectures that the entire war could be paid out of oil revenues (you haven't forgotten that choice forecast, have you?) -- then I think this measure has undergone substantially greater scrutiny, and is therefore substantially more realistic, than those measures passed in the previous administration.
I hardly think my remark regarding Mr. Samuelson's degree is an ad hominem attack. I have an undergraduate degree from that same institution in economics. However, I would not presume to speak with authority on political science issues, in the absence of some additional training in political science (and while I did take a PhD level gov course in addition to a couple of undergrad gov courses, I still don't presume).
Posted by: Menzie Chinn at March 30, 2010 12:14 PM
I find it more constructive, and fun, to wonder... if they only let economists vote, would this country still be going bankrupt?
And since when was doing away with the "donut hole" in the new plan an improvement over the disastrous Medicare Part D? And why is the taxpayer still paying for brand name prescription drugs instead of the chemically identical generic ones? Was this Obama reaching across the isle for the Republican vote, or do the drug companies own Democrats too?
That's a political science question, but maybe no one here knows the answer.
Posted by: Cedric Regula at March 30, 2010 12:55 PM
Cedric Regula: I don't know the answer to your first question, but I do know the generic drug issue is not as straightforward as you indicate:
Posted by: Menzie Chinn at March 30, 2010 12:59 PM
I am not going to defend the actions of the last administration, but when one says that someone "has sown the seeds" the person is focusing long-term.
The war was looked on as temporary, and the debt level it raised were still on a level that significant cutbacks couldn't have handled. At least most economists would say so.
The health care expansion, however, locks in spending that we had already proclaimed disastrous, all the while using up many of our easiest cost cutting measures. The war was irresponsible temporary spending; health care reform is irresponsible spending into perpetuity.
You are not particularly incorrect, and Samuelson is incorrect in that historians will likely point to Bush II just as much as they do Obama (hell, maybe revisionists of the future can reveal just how poor of a fiscal president Reagan was).
But the reason I side with Samuelson rests in this: it is a far easier political battle to end a foreign war than it is to end an across the board entitlement plan. You cannot account for both in the same way.
Also, I just noticed this:
I find in particular this passage from a 2006 WaPo article highly amusing (to say the least): "Some of Bush's spending increases (defense, homeland security) were unavoidable."
Considering that defense and homeland security are so radioactive that Obama wouldn't allow them touched when creating his budget, I think that part could be justified within beltway convention, even if it is somewhat ludicrous to the rest of us.
Posted by: Brad P. at March 30, 2010 01:14 PM
As I noted above, if the question (or at least one major question) here is "How realistic are the fiscal policies that CBO was required to assume in its scoring?", why is a prominent "Washington-insider" journalist with a focus on fiscal policy and with a political science degree necessarily less qualified than an academic economist to make that assessment? It seems to be largely a political question, along with with some legal/legislative details.
Separately, with all due respect, I know you can do much better in response to challenges to your arguments than simply to say essentially that "the other side was even worse in the past". For example, I explained why it was quite unfair for you to put the words in Samuelson's mouth that "We might as well close up CBO", and rather than acknowledge the error, you pointed to something Samuelson said in the past that really has no bearing on whether or not the view you attributed to him (that he was saying we might as well close up CBO) was justified.
And although the following is unrelated to my point in the prior paragraph, I would note that, IMHO, you cherry-picked a quote from that 2005 Samuelson column in a way that I also think presented a distorted picture of that column vis a vis your point about that column. You quoted Samuelson saying "I think Bush's initial tax cuts were justified. Not only did he promise them in the 2000 campaign but their fortuitous timing helped prevent a deep recession", and you remarked that "There were no caveats about CBO accounting there." It's unclear to me what relevance you were asserting. He did cite CBO projections in that column (for projected Medicare Part D spending), but if he had no point to make about unrealistic policy assumptions or gimmicks involved in those projections, I don't see what you are criticizing unless you think there were obvious unrealistic policy assumptions by CBO and that noting those dubious assumptions would have weakened his point about the cost. If your point was not really related to CBO analysis at all (meaning it wasn't relevant to the point I made about the view you attributed to Samuelson, or at least the conclusion you claimed followed directly from what Samuelson had said), and if your point was merely that Samuelson is selective and disingenuous in his calls for fiscal responsibility, merely posturing to attack programs he doesn't like, then a fuller excerpt would have been fairer, such as the following (elipses and emphasis mine).
I think Bush's initial tax cuts were justified). Not only did he promise them in the 2000 campaign but their fortuitous timing helped prevent a deep recession. Recall all the economic threats: the popping of the stock and tech bubbles; corporate scandals; and Sept. 11�But as the economy revived, the tax cuts could be justified permanently only if gradually matched by spending cuts. Except in rhetoric, Bush has declined. It would seem "uncompassionate" to curtail benefits or programs, regardless of their value. Nor did he want to offend affluent supporters by trimming their tax cuts.
Spend more, tax less. That's a brazen political strategy, not a serious governing philosophy.
Lastly, you write:
his omission of the fact that fiscal solvency was hardly at all impacted by the health bill
What is your basis for that assertion -- the CBO bottom line? That's exactly what Samuelson was addressing, explaining why it's misleading to use that score as some ultimate truth as a projection of deficit impact. He didn't "omit" the point that "fiscal solvency was hardly at all impacted by the health bill"; he addressed that claim by others and offered his refutation of it. It is certainly appropriate for you to challenge his arguments as you have done, but if you are characterizing as an omitted fact that "fiscal solvency was hardly at all impacted by the health bill" based on the CBO bottom line, I must ask: Do you really consider it safe to assume that all the "offsets" (tax increases and cuts in projected spending) that CBO was required to assume in their scoring will actually take place? And I'm not just referring to the points Samuelson made, but to all the offsets, many of which will be politically difficult, such as the excise tax on "cadillac" health insurance plans that Congress today didn't have the guts to include but which they assume a future Congress will impose.
(As a note, there is also the argument some present in the other direction -- that CBO was not able to adjust for cost reductions that may result from such efforts included in the legislation, because those cost reductions are speculative).
Just to be clear, I ask all of the above with all due respect. I think you generally offer excellent commentary for which I'm grateful. I do think, though, that sometimes your commentary reflects a partisan bias (not necessarily in the sense of political party, but ideologically and based on policy preferences), and I try to call 'em as I see 'em as far as the validity of anyone's arguments, whether or not I share the person's policy preferences.
Posted by: Brooks at March 30, 2010 01:19 PM
Menzie, now you're just being disingenuous. We can not tell what was in your mind when you wrote the article, but saying this: "I hardly think my remark regarding Mr. Samuelson's degree is an ad hominem attack." may be somewhat true that it is not an ad hominem. But it is sarcastic, an appeal to authority and to a larger extent arrogant (your degree is more important than his. Your opinion out weighs his.)
Posted by: CoRev at March 30, 2010 01:22 PM
Oh, and re: my comment that "I know you can do much better in response to challenges to your arguments than simply to say essentially that "the other side was even worse in the past", another example (and the one that prompted my response) was that BradP wrote "Samuelson is correct, the CBO's estimates of the cost offsets is largely dependent on creative accounting and very difficult future cost cutting measures", and your response was to argue that the healthcare reform legislation was subjected to more scrutiny and its scoring more realistic than the accounting and cost estimates for the Iraq war under the Bush Administration. I have no problem with that premise, but that response doesn't really address BradP's (and Samuelson's) point that we can't simply accept the CBO projections as realistic, given that CBO is required to take policy assumptions as given per the legislation, and that CBO scoring can also be "gamed" somewhat.
Posted by: Brooks at March 30, 2010 01:26 PM
Brad P.: Are you looking at the same Figure 2 I'm looking at? EGTRRA dwarfs even the ex post (up to FY10) cost of Iraq. You say most economists thought the war was affordable in terms of impact on the debt level? On the heels of EGTRRA and soon JGTRRA, I'm not sure what sample of economists yields "most".
Brooks: Well, if Mr. Samuelson is going to invoke Greece and financial crises, I think I have somewhat more academic writing on the subject of financial crises than he.
My point regarding the impact on the budget -- even if we lump in doc fix, etc., which Mr. Samuelson wants to lump in (and okay I'll defer to him on political prognostications), then the impact will still me much less than any of these other measures he had so little complaint about.
Posted by: Menzie Chinn at March 30, 2010 01:59 PM
Three questions:
When will the PPACA sunset?
What happens when you examine the extension of entitlements free of the cost cutting measures?
How do we trim back spending in health care entitlements now?
I take that chart with a grain of salt, as I know President Obama had to generate 1.2T in revenue and savings that won't be available when we have to pay down government debt.
Posted by: Brad P. at March 30, 2010 02:26 PM
Brad P.: Pay down debt? Isn't that a separate issue? These are cumulative net impacts on the budget balance relative to baseline, and so I do not understand what you are trying to say.
In general, you are free to assume any "likely scenarios" you wish based upon your priors; maybe there will be an armaggedon -- I can't rule it out. In any case, I find a useful basis for examining plausible alternative scenarios is this CBO document.
Posted by: Menzie Chinn at March 30, 2010 02:56 PM
Brooks: As far as I know, the only plan offered by any office-holder (any member of Congress or the president) that apparently works out mathematically (at least if the spending side is adopted; perhaps not if the tax side is included) is Paul Ryan's "Roadmap"
Huh? Works out mathematically??? Where did you study math? Ryan's "Roadmap" is about as dishonest a document as you're likely to find...even in Washington. How else do you describe a budget plan that included specific instructions to the CBO to ignore reduced revenues due to tax cut provisions in the "Roadmap." The CBPP has thoroughly deconstructed and unmasked Ryan's fictional plan masquerading as a healthcare "Roadmap."
CoRev: But it is sarcastic, an appeal to authority and to a larger extent arrogant (your degree is more important than his. Your opinion out weighs his.)
So apparently you wouldn't have any problem with driving across a bridge that was designed by a high school graduate without any accredited engineering expertise? And I suppose you're just fine with getting medical treatment from unlicensed quacks? Having formal training in economics does not guarantee competence (Prof. Mulligan is a case in point), but not having formal training certainly shouldn't qualify you for op-ed space and a public platform. Robert Samuelson practices economics without a license.
Brad P. : What happens when you examine the extension of entitlements free of the cost cutting measures?
The healthcare bill does not create an unfunded entitlement. It is funded through mandatory participation, taxes on "Cadillac" plans, and cuts in Medicare Advantage. It eliminates the biggest unfunded entitlement out there, which is the entitlement to receive expensive emergency care at the expense of government and private insurance subscribers.
Posted by: 2slugbaits at March 30, 2010 03:00 PM
Brad P: The health care expansion, however, locks in spending that we had already proclaimed disastrous, all the while using up many of our easiest cost cutting measures. The war was irresponsible temporary spending; health care reform is irresponsible spending into perpetuity.
Where are you getting this stuff? The healthcare bill does not result in a net increase in govt spending. And more importantly, it is likely to reduce total (public & private) healthcare spending as a percent of GDP. Not having a rational healthcare policy was a luxury we could no longer afford. Most of the healthcare bill is paid for through mandatory compliance and taxes on "Cadillac" plans. And those "Cadillac" plans are one of the primary contributors to rising healthcare costs in general....think of a rightward "income effect" shift in the demand curve for healthcare. So not only will taxing "Cadillac" plans increase revenues, but it will also relieve some of the upward pressure on healthcare costs.
I have absolutely no idea what you mean by "using up many of our easiest cost cutting measures." Are you suggesting that we should only do the hard stuff first, and failing that we shouldn't do the "easy stuff" because doing so would "use it up"??? I honestly don't understand your point. Savings are fungible. And do you believe that "harder" savings would have been easier to achieve if Obama had lost the healthcare battle?
Posted by: 2slugbaits at March 30, 2010 03:25 PM
Re: Where did you study math?
Where did you learn to read (or not, as the case may be)? Did you miss my parenthetical qualifier "(at least if the spending side is adopted; perhaps not if the tax side is included)" or do you somehow not understand it?
Posted by: Brooks at March 30, 2010 03:59 PM
First, just to be clear, I'm not here to carry water for Samuelson, although I do think he's an excellent columnist. I made two particular points upthread. (1) that you misrepresented his implication or the logical conclusion one must draw from his comments when you said "The logical implication based upon this argument: Might as well close up CBO." You still have not addressed my argument that your characterization was unjustified based on what Samuelson actually argued. And (2) that much of the general point Samuelson was making -- that we cannot overlook the fact that CBO is required to score per the policy assumptions it's given, while some of the policy assumptions may not be realistic, and the scoring can be "gamed" -- is largely a matter of political analysis (along with some legal particulars -- e.g., restrictions on the "Independent Payment Advisory Board"), and I asked you why someone with Samuelson's qualifications would necessarily (or even likely) have inferior insight on this matter (not the separate question of the risk of financial crisis to which you shifted) than would an economist at a university. You did not directly answer (you just shifted to that other question and made a comparative statement vs. other policies that Samuelson supposedly has not complained about). I asked you if you consider all the presumed "offsets" to be safe assumptions (as opposed to agreeing that the aforementioned general point has some merit), and you have not answered that question.
It's obviously your prerogative if you'd prefer to shift around, answer a different question than the one asked, or point to some past supposed transgression that is not directly related to the question asked or argument presented, but I know you're exceptionally capable of much more truly responsive and reasoned discourse.
Now on to separate points...
Samuelson's argument in that 2005 column was that the 2001 tax cuts were justified in terms of timing, given the threat of a deep recession. Again, he wrote:
their fortuitous timing helped prevent a deep recession. Recall all the economic threats: the popping of the stock and tech bubbles; corporate scandals; and Sept. 11�But as the economy revived, the tax cuts could be justified permanently only if gradually matched by spending cuts. Except in rhetoric, Bush has declined. It would seem "uncompassionate" to curtail benefits or programs, regardless of their value. Nor did he want to offend affluent supporters by trimming their tax cuts.
Spend more, tax less. That's a brazen political strategy, not a serious governing philosophy.
In other words, he's saying they were justified in terms of timing, but not justifiable as ongoing policy -- that upon economic recovery, the only responsible policies would have been either scaling back those tax cuts for the affluent or scaling back the increased (social) spending. In other words, he's saying that one way or another, we should be fiscally responsible, and that "Spend more, tax less" is irresponsible. That doesn't sound to me like a guy who is -- like many on the right -- gung-ho on tax cuts anytime, all the time, regardless of what is likely to happen on the spending side. If he were one of those unrealistic ideologues I wouldn't regard him as an excellent columnist but rather as yet another hyperpartisan hack. I Googled for a couple of minutes and found further confirmation of my recollection of his columns as generally sensible regarding the spending and taxation sides of the fiscal imbalance problem, and quickly and easily found such confirmation. Just one example, from Samuelson column August 31, 2009:
Ideally, conservatives would accept that taxes must ultimately rise; no plausible spending cuts can bridge the gap between government's promises and its tax base. http://www.washingtonpost.com/wp-dyn/content/article/2009/08/30/AR2009083002255.html
So it seems to me that you have presented/implied an at best overblown characterization of Samuelson as inappropriately or heavily ideologically selective in his expression of concern over policies that worsen our fiscal imbalance. His ideal proportions of tax increases and cuts in projected spending may be different from yours, but clearly he thinks it's irresponsible for the right to refuse to accept tax increases.
And I would also note the following from another column of his (February 13, 2008) that came up in my quick & dirty Googling:
Bush says his policies would produce a balanced budget by 2012, but his underlying assumptions are laughably artificial. First, he omits most of the future costs of the Iraq war (for budgeting, he effectively adopts his critics' plan of rapid withdrawal). Second, he assumes big savings in Medicare by freezing reimbursements to doctors and hospitals -- a policy Congress won't adopt. Third, he doesn't offset the growing revenue bite of the alternative minimum tax (AMT) that would result in a sizable tax increase -- an outcome Bush rejects. The only way Bush could balance the budget would be by not following Bush's policies.
But most Americans don't seem bothered. That's why both parties devote so little effort to addressing government spending or the deficits. As a society, we seem to have made a choice. It is to not control government. Almost every new spending plan or tax cut is simply piled atop previous spending programs or tax cuts. Democrats have spent seven years denouncing Bush's tax cuts but are willing to repeal only the cuts benefiting those with incomes above $250,000. http://www.washingtonpost.com/wp-dyn/content/article/2008/02/12/AR2008021201998.html
All of which leaves me wondering why you shift to such characterizations of Samuelson in response to my questions, given (1) that your characterizations are irrelevant to my questions, and (2) that your characterizations don't even seem to fit Samuelson.
I hope none of the above comes across as disrespectful or as ingratitude. Just challenging your comments where I see fit in the spirit of open debate/discussion and search for "truth".
Posted by: Brooks at March 30, 2010 04:00 PM
I agree with you that the CBO is a very handy reference. In fact, I would trust it as much as any. The point that I think Samuelson is making is not that we should ignore it, but that we cannot ignore the context and assumptions of the report.
And as a final point, to use your terms, Obama isn't raising spending relative to a baseline. He is raising the baseline.
Posted by: Anonymous at March 30, 2010 04:34 PM
Brooks: I apologize for not fully addressing your questions to your satisfaction. I would (1) repeat that had Mr. Samuelson meant what you ascribed to him, he should have written what you wrote; (2) note that if he wanted to stimulate the economy in 2001, then he should have stuck to the rebates, and not the ten year tax rate cut that blew a hole in the nation's finances -- that is not what I learned was an ideal countercyclical stabilization fiscal policy; (3) perhaps I over-react, but when I see the words "seeds sown", but no reference made to what measures truly set the seeds for our fiscal crisis (as laid out in my 2005 Council on Foreign Relations report), well, I do not see an honest assessment, but rather the ideological axe being sharpened, hidden in the guise of fiscal responsibility.
By the way, doesn't the invocation of "Greece" strike you just a "tad" bit hyperbolic, given what we know about net debt in the United States, and the exorbitant privilege? (no links here, but please do the requisite search on Econbrowser)
Posted by: Menzie Chinn at March 30, 2010 04:41 PM
I am getting my info from the CBO report and the CMS report on the estimated effects of the bill.
The CMS report, as far as I can tell one of the most referenced and reputable report for this information, estimates that health care costs will rise from 17.3% of GDP in 2009 to 20.9% of GDP ten years from now, a tenth of a percent more than under the status quo.
My entire point is that, even if the revenue and cost cutting measures (all of which are extremely politically difficult) are successful, they should have been employed to address budgetary issues rather than expanding entitlements
Posted by: BradP at March 30, 2010 04:45 PM
Brad "I take that chart with a grain of salt, as I know President Obama had to generate 1.2T in revenue and savings that won't be available when we have to pay down government debt."
Menzie: "Pay down debt? Isn't that a separate issue? These are cumulative net impacts on the budget balance relative to baseline, and so I do not understand what you are trying to say."
I certainly agree that deficit reducing measures should not be confounded with the cost of expanded health insurance coverage. Apparently you do not, as you seem peculiarly enamored of this chart and what it seems to tell us about the fiscal prudence of the enacted health care reform. The chart may be accurate as far as the legislation goes (although even that is debatable). The point is that the chart tells us nothing about the cost of the expanded health care coverage. Instead, it confounds the cost of that expansion with separate, terribly needed deficit reducing measures. The only way joining these two things can be justified is if the deficit reducing-measures could only be accomplished if tied to the health care reform. The health care reform by itself is not revenue neutral, let alone revenue positive.
Posted by: don at March 30, 2010 05:00 PM
What BradP said. I didn't see his post when I wrote mine. (Was it up then?)
Posted by: don at March 30, 2010 05:03 PM
Brooks: Yes, I saw your parenthetical note. In fact, it made me wonder just why you then cited the Ryan "Roadmap" as an example of something that "mathematically works out". What was the point?
One of the problems with Samuelson's critique is that not passing healthcare reform would not reduce the likelihood of any of those problems. In other words, let's turn it around and ask if any of Samuelson's criticisms would be less likely if Obamacare had failed? If, as Samuelson believes, it's likely that Congress will increase payments to physicians in the wake of healthcare passing, is it correspondingly less likely that Congress would not have increased payments to physicians if healthcare had not passed? I don't think so. Look at it this way, when Krugman and other supporters of the healthcare bill talk about cutting healthcare costs they are usually thinking in terms of changing the slope of the cost curve. The kind of cost increases that Samuelson is talking about are intercept shifts...they could happen whether or not Obamacare passed.
Posted by: 2slugbaits at March 30, 2010 05:05 PM
Re: Yes, I saw your parenthetical note. In fact, it made me wonder just why you then cited the Ryan "Roadmap" as an example of something that "mathematically works out". What was the point?
Is this really hard to get?? My point is that Ryan laid out a way to reduce projected spending to solve the problem of our long-term fiscal imbalance. Period. If you are disputing that premise, say so. If not, I have no idea why you are having a problem understanding my point.
Re: the doc fix, I don't think it's necessary to include that argument for the point to be valid that this legislation makes our long-term fiscal outlook worse. I'll elaborate in my next comment in my reply to Menzie.
Posted by: Brooks at March 30, 2010 06:23 PM
[forgive the long post; trying to address your points/questions directly and fully]
Re: I would (1) repeat that had Mr. Samuelson meant what you ascribed to him, he should have written what you wrote
I�ve covered this already, in response to the first time you said it. See my comment at March 29, 2010 10:53 AM. In short (or at least shorter :) ), he essentially write what I wrote: He said that some are claiming that we should simply assume that the legislation will reduce deficits because that�s the CBO score, but that their claim is misleading because CBO is required to make the policy assumptions it is given regardless of the extent to which those assumptions are realistic, and because the scoring can be �gamed� by gimmicks (and I�m leaving aside the question of validity of his arguments about supposed gimmicks because that�s irrelevant to the question of what his arguments were). So he is saying we must adjust as we deem appropriate for such artificial restrictions inherent in CBO scoring to try to get to a more realistic projection of deficit impact. He is not saying or implying or even hinting that CBO scoring is completely worthless simply because it is unable (by design) to discount unrealistic policy assumptions, so why would you continue to think that it was reasonable and fair for you to attribute that position/implication to him simply because he didn�t waste space in his column explaining that he wasn�t asserting something that he give no indication of asserting to begin with?
If you wish, see my earlier comment for that �pricing report� illustration of my point. Clearly it is baseless and unfair to say someone is asserting/implying that some analysis is worthless simply because he is pointing out it�s limitations and the need for adjustments, right? So wasn�t your characterization of his commentary re: CBO baseless and unfair? If not, please explain to me why one equates to the other (why pointing to limitations of some analysis and need for adjustments equates to asserting/implying that the analysis is completely worthless).
Re: note that if he wanted to stimulate the economy in 2001, then he should have stuck to the rebates, and not the ten year tax rate cut that blew a hole in the nation's finances -- that is not what I learned was an ideal countercyclical stabilization fiscal policy
First, although I won�t claim to be at your pay grade on economics (I�m not an economist), don�t many/most economists argue that if a tax cut is known to be temporary (e.g, rebates), it won�t increase consumption and/or investment as much as if the tax cut is �permanent� (which really just means indefinite � to remain until changed � not really �permanent�)? Something along the lines of Ricardian equivalence? I�m not suggesting this makes a temporary tax cut less desirable on balance, just suggesting one argument one may have for preferring �permanent� tax cuts as stimulus (perhaps to be scaled back or eliminated entirely at whatever later point Congress and the president deem desirable to do so). I don�t know whether or not Samuelson has addressed that question or presented that rationale, nor for that matter if he was necessarily saying that �permanent� tax cuts in 2001 were preferable to rebates (as opposed to asserting only that the 2001 tax cuts were �justified� vs. no tax cuts at all), but I don�t simply assume that because he wasn�t opposed to those tax cuts and accepting only of rebates, then he must not be sincere in viewing the primary justification for those tax cuts as counter-cyclical.
Second, as I noted above, �permanent� doesn�t really mean �permanent�. It just means �until we decide to change it�.
Third, another theoretical possibility is that his preference would have been to keep those tax cuts and cut projected spending sufficiently to keep our fiscal imbalance manageable for the foreseeable future (at least mid-term outlook) at that time, and perhaps (and I�m just suggesting possibilities, not likelihood) he erred in his view of the probability of those spending cuts happening, but clearly when he saw that not happening � and spending actually moving in the opposite direction � he called for something to give: for tax increases, spending cuts, or both (and clearly he is saying �both� in one of the excerpts I provided). So again, you seem to be at best caricaturing � and at worst grossly mischaracterizing -- a guy who seems to be at least fairly sensible (and I�d say very sensible), straight-talking, and very concerned about our long-term fiscal imbalance. Apparently because he has criticized a policy you like (or at least that you prefer to what he would prefer), you are painting him as some mendacious, crazed right-winger putting forth the mere pretense of concern about our fiscal outlook only to sneakily pursue the destruction of social spending programs he doesn�t like. I just don�t see why you are doing this when you are certainly capable of presenting strong AND fair arguments to advocate for your policy preferences. Perhaps it�s more effective with many readers, but to me and I think to many others (many of those not already firmly on the same partisan �side� and not focused much more on advocacy for �the cause� than on objective analysis) such partisan bias/spin detracts from your persuasiveness.
Re: perhaps I over-react, but when I see the words "seeds sown", but no reference made to what measures truly set the seeds for our fiscal crisis�well, I do not see an honest assessment, but rather the ideological axe being sharpened, hidden in the guise of fiscal responsibility.
He has written numerous times about the need to face the reality that we must both cut projected spending and increase taxes. He wrote in this particular column � not inappropriately -- about legislation that has just passed that substantially worsens our fiscal outlook for reasons he gives: (1) a more realistic projection than what CBO is allowed to provide would show a net increase in deficits, and (2) even if it were truly deficit-neutral, it uses up the politically easiest and least painful budgetary sacrifices � stuff we will eventually need to do anyway -- to �fund� incremental spending rather than to mitigate the long-term fiscal imbalance, leaving us only with more politically difficult and more painful sacrifices to be made later to truly �offset� this incremental spending, because however much pain we will need to inflict, we�ll need to add enough additional pain to cover the cost of this new entitlement. I should also add that this whole package of healthcare �reform� has been sold as �rock soup� is sold in the fable, as in �We need to bend the curve, this package has elements that we think will bend the curve, so we need this package� � never mind that no clear argument is presented as to why we must accept the huge incremental spending (the subsidies) to get those cost-control efforts, nor any argument that total federal (or other) spending will be lower on an NPV basis even if the curve is bent at some point. And I want to stress that I�m saying nothing about whether or not this legislation is desirable; I�m not advocating or expressing approval or disapproval here, just making an analytical point about what it means in terms of trade-offs. (I generally leave it to others on blogs to make the value judgment regarding priorities; I just want people to face trade-offs rationally).
I guess ideally he would have repeated in this particular column that taxes need to be increased, but I don�t see why leaving that out on this occasion when addressing the adverse impact of the legislation just passed justifies your charge � contradicted by the evidence of his columns, as I�ve explained and demonstrated � that he is just a wild, disingenuous ideologue using the �guise of fiscal responsibility� to pursue his ideological agenda. There are certainly plenty of ideological hacks on both right and left that you can rightly criticize in that way, but it�s counterproductive for you to cry �wolf� by characterizing Samuelson that way.
Re: By the way, doesn't the invocation of "Greece" strike you just a "tad" bit hyperbolic, given what we know about net debt in the United States, and the exorbitant privilege?
It�s probably hyperbolic for him to imply, as he seems to, that such a crisis could hit us at any time, but clearly his focus is primarily longer-term, and I don�t think it�s hyperbolic to say that it�s quite possible we could face a very bad crisis (very injurious increase in interest rates) if we continue on our current fiscal course for another 5 or 10 years, do you?
Lastly, you still haven�t explained why someone with Samuelson�s background should be presumed to be less qualified than a university professor to assess the likelihood of ostensibly planned, politically-difficult fiscal policies actually getting implemented, nor have you conceded that this presumption is inappropriate.
Posted by: Brooks at March 30, 2010 06:28 PM
Just as a bit of follow-up to the last point in my prior comment, I realize that you said you'll "defer to him on political prognostications", but that just begs the following question: The essence of his overall argument (made suboptimally, IMHO) that in reality -- as opposed to per CBO scoring -- the legislation will have a net effect of increasing deficits is "political prognostication", so why would you assert that he, as a non-economist, is wholly unqualified to make that point and that an economist is highly qualified to make such an assessment?
Posted by: Brooks at March 30, 2010 06:56 PM
Brooks: Let me address only the point you make in bold-face, since time is short. I will concede that Mr. Samuelson may have greater insight on the politics, although if he was guessing the Iraq war was one of necessity, and likely to be short, well I'll leave it at that (read Rick's book Fiasco, and I think we know lots of informed people knew better). I will only note that the breadth of my experience is not limited to that of a university professor. I've seen things from the inside as well, in two Administrations, both Democratic and Republican. I can speak with particular familiarity about the 2001 EGTRRA.
Posted by: Menzie Chinn at March 30, 2010 07:14 PM
I wasn't saying anything about you in particular. You made a general point, also unrelated to yourself in particular. You referred to "Mr. Samuelson's misgivings about the implausibility of assumptions at face value", and proceeded to write:
overarching all this is a simple question. Why do we ascribe any credibility to a person with an undergraduate degree in political science (what is called Government at Harvard) in the area of economics (let alone accounting)?
That's the assertion of yours that I have been questioning, and your response to my question -- a response that relates only to your particular qualifications -- does not really address my actual question, which, again, is why you would assert that someone with Samuelson's background should be presumed to be less qualified than an economist to assess the plausibility of the assumed policies in question (or if you are conceding that such would be an inappropriate presumption, what valid assertion you were making in the above quote). If you wish to answer my actual question, great. But even if not, I'll stop with all this stuff, lest I start/continue to be an irritant.
Thanks as always for a great blog, notwithstanding my perception of partisan bias in this case and some others.
Posted by: Brooks at March 30, 2010 07:41 PM
Menzie, countering my point re: appeal to authority with just more "appeal to authority" is a weak argument.
Posted by: CoRev at March 30, 2010 07:57 PM
CoRev: I'm afraid I don't recall countering your remark, or indeed responding at all to your remark. You must have confused someone else's reply with mine.
Posted by: Menzie Chinn at March 30, 2010 08:49 PM
Menzie, I have to echo your first commenter. You appear to have trouble reading. Nowhere in the Samuelson quote does he claim Obama was president for two years. He doesn't even come close to making that claim. Candidate Obama was eager to scold just about everyone for everything.
Also, with regard to the second quote, it does not logically imply that we might as well close up CBO. The CBO scores what it is asked to score. If congressmen chose to game the system, that's their own fault.
While Samuelson is wrong that Bush's defense spending increases were unavoidable, it is a bit deceitful on your part to portray him as a defender of Bush's economic policies when you're taking the 2006 quote out of context from a paragraph in which he's criticizing Bush's wild spending.
Posted by: James at March 30, 2010 10:45 PM
Hi Menzie, seems you are hunting comments right in front of easter time. Nearly 60, not bad for econbrowser.com.
Do you intend to expand into web commercials ?
Posted by: Johannes at March 31, 2010 05:19 AM
at least if the spending side is adopted; perhaps not if the tax side is included
Ooh! I can play this game!
The Pittsburgh Pirates will effortlessly win the World Series this year (at least if you count the runs they score; perhaps not if you count the runs they give up).
Posted by: matt w at March 31, 2010 06:16 AM
U.S. military expenditure is 41.5% of the military expenditure of the ENTIRE world. Despite our massive, and massively inefficient, health care system, I am pretty sure that we do not spend 41.5% of the entire world's health expenditures. Might our military expenditures have also "sown the seeds of a budget crisis?". Oh, and where is the deficit neutral accounting for that?
What is lost in all this is the "first mover advantage" by Grover Norquist and Co. By cutting taxes to historic lows, they crippled the government from doing anything useful without people like Samuelson screaming. This is what sowed the seeds of the budget crisis. Samuelson may not realize this, but he is basically carrying Norquist's water. What is required after the recession is over is a significant increase in taxes which as Oliver Wendall Holmes said is the price of civilization (or at least civilized health care).
Posted by: Mark K at March 31, 2010 08:02 AM
Brooks: You will recall my original quote was about economics, and accounting. I think my critique is valid. Is there a theory of debt crises in Mr. Samuelson's article; well yes -- more debt implies cet par higher likelihood of a crisis. But if we have learned anything in the past 20 odd years of financial crises, it is that such stories often obscure the more relevant explanations. I'll refer you to first (Salant-Henderson-Krugman type), vs. second (Obstfeld) vs. third generation (Corsetti-Pesenti-Roubini; Dooley) models. Mr. Samuelson works off the first -- and maybe that's the right one. Or could be a second or third (multiple equilibria, contingent liabilites). If those are more appropriate, then not clear where Mr. Samuelson's story lies.
I won't even mention his wierd tabulation of when debt levels started rising (hence my query about accounting, but maybe it should be a query about his ability to look at time series).
To recap -- I find Mr. Samuelson grasp of economics (and his ability to count) a little tenuous. That's what I said at the beginning, and that is where I end up.
Posted by: Menzie Chinn at March 31, 2010 09:27 AM
I realized after my last post that perhaps your remark about his lack of qualifications pertained more narrowly to his assessment of risk of a crisis rather than also/instead to the other major point of his column, his assessment of the likely deficit impact of the legislation in reality (as opposed to the CBO score that, in his view -- and mine -- some supporters of the legislation were misrepresenting as an inherently realistic projection worthy of our automatic trust). If you were not referring to the latter point (which pertains largely to political analysis rather than economic) and only to the former (risk of a crisis granting arguendo his premise of likely deficit impact and his point that the legislation uses up "offsets" on incremental spending rather than on deficit-reduction, making it harder to solve the fiscal imbalance problem), the disagreement I expressed does not apply. In other words, I assumed you were asserting that he is unqualified (or at least not as qualified as an economist) to assess how realistic the fiscal policy assumptions of the CBO score were, and to assert that using these "offsets" for incremental spending makes it harder and more painful for us to eventually solve the fiscal imbalance problem. If you were making no such assertion, I withdraw my expression of disagreement.
I would add that it naturally follows -- as Samuelson implies -- that insofar as we use up the politically easiest, least painful budgetary sacrifices to "fund" incremental spending rather than for deficit-reduction, we are delaying progress on mitigating the fiscal imbalance and increasing the risk of crisis. How much incremental risk is indeed a question an economist is, generally speaking, better trained to assess, but one need not be an economist to see (directionally) that the risk is increased by policies that delay mitigation of the fiscal imbalance problem.
I think it's also worth noting that there are many non-economist columnists who focus largely on the economic effects of fiscal policy (e.g., Samuelson) and other generalist columnists who sometimes address that topic (e.g., many of the NY Times and WaPo columnists, etc.). I assume they (at least the good ones) combine their own informal education in economics with a substantial degree of consultation with economists and related reading of their views on the matter -- i.e., journalism. I think it's appropriate to bear in mind that their conclusions are probably largely derivative in many cases (i.e., drawn largely from those views expressed by economists), but I think it's wrong to go so far as to dismiss them as lacking credibility entirely, as you seem to. And as a note, when I heard that Samuelson was being matched up against Krugman on Fareed Zakaria GPS (which is either the single best program on TV or tied with PBS NewsHour), my immediate thought was indeed that it is probably not a fair fight, given that Krugman is a noted economist and much of the debate would relate to economics. As much as I love that program (and encourage all to watch it), the fault lies with them for that pairing.
As for the "accounting" in question, I don't think an economist is so much more qualified to comment on it than a non-economist to justify your complete dismissal of Samuelson. If you disagree, I'd be interested in hearing your argument as to why an economist should have credibility and someone with Samuelson's qualifications should have none when commenting on the accounting involved here. It just doesn't seem to me to require great depth in economics training to address, whether or not the points made in this particular case are valid (i.e., the preceding isn't an argument that his points are valid, just a general assertion regarding qualifications to be potentially worthy of credibility on these "accounting" matters -- e.g., "gaming" of CBO's scoring).
If I may introduce something else, since you express concern about analytical consistency regarding the risks of fiscal policy (as opposed to phony posturing for the hidden purpose of pursuing preferred policies or opposing undesired policies), wouldn't you have to say that Krugman is guilty of gross inconsistency, apparently on such a partisan basis, when we compare the extreme alarm he expressed in 2003 regarding the level of risk/harm associated with our (then) projected long-term fiscal imbalance vs. his "sanguine" view (and mocking of others as "hysterical" and "fear mongering") in 2009/2010 amid a much worse long-term fiscal outlook. In 2003 he was criticizing the Bush tax cuts, and in 2009/2010 he was advocating greater stimulus and a new healthcare entitlement, thus the partisan motive. The gross inconsistency I'm referring to is NOT his view that higher deficits are desirable under some conditions and not others, nor that some policies that increase deficits are better than others, so please let's not get lost in that irrelevancy. The gross inconsistency I'm pointing out is in his assessments of the level of risk/harm associated with a given projected long-term fiscal imbalance.
In 2003 Krugman was looking at the projected long-term fiscal imbalance and the drivers of that imbalance (the "aging population", meaning the baby boomers moving toward their senior years), and asserted emphatically and with great alarm that great harm to our economy was unavoidable based on that observation. Again, he told readers that he is �terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits� we�re looking at a fiscal crisis that will drive interest rates sky-high�, describing this fiscal outlook as a �really scary�threat to the federal government�s solvency�, saying �the conclusion is inescapable. Without the Bush tax cuts, it would have been difficult to cope with the fiscal implications of an aging population. With those tax cuts, the task is simply impossible. The accident, the fiscal train wreck, is already under way�. 2003 http://www.nytimes.com/2003/03/11/opinion/11KRUG.html
Then in 2009 and 2010, with the medium and long-term fiscal outlook much WORSE (substantially larger deficits and debt-to-GDP and now on the verge of baby boomers beginning to enter their senior years), Krugman asserts emphatically that those expressing anything anywhere near the level of worry that he expressed in 2003 (see above) is "hysterical", a "fear mongerer" using "scare tactics", and asserted that the lesson of the post WWII years (a period of history with which he was undoubtedly already familiar when expressing such fear and making his prognostication in 2003) is that we'll be just fine -- we have a problem, but it's clearly manageable and we'll handle it and be ok.
2009 http://krugman.blogs.nytimes.com/2009/08/23/how-big-is-9-trillion/
Subsequent 2009 http://krugman.blogs.nytimes.com/2009/08/28/the-burden-of-debt/
2010 http://www.nytimes.com/2010/02/05/opinion/05krugman.html?ref=opinion
If we are applying a single standard (not play favorites based on who is one one's "side" vs. the other "side") regarding gross inconsistency in analyses one has presented, apparently motivated by partisanship, don't we have to charge Krugman with this transgression?
Posted by: Brooks at March 31, 2010 11:40 AM
Brooks: Re: your Krugman question: No -- there's a long term/short term distinction. This point is related to the following observation, which is relevant: we were headed toward a fiscal problem long before Obama, due to entitlements. EGTRRA, JGTRRA, MMA and Iraq merely accelerated that. That's why I find Mr. Samuelson's argument so bizarre. In other words, lots of people have been sowing lots of seeds for a long time -- and to focus on this relatively benign program is indicative of the fact he has some agenda in mind, but is masquerading behind fiscal conservatism. (We all knew EGTRRA was going to be in place for the ten years, if not more -- his plea for more restraint in 2006 is laughable. You don't do macrostabilization with ten year tax cuts, PIH notwithstanding.)
Finally, on accounting, please see the link to Donald Marron, which I provided as an update -- he debunks Mr. Samuelson's quoting of Dr. Holtz-Eakin. If Mr. Samuelson can't even quote a correct accounting, well, where are we. By the way, Donald Marron was a CBO deputy, an acting head, and then a member of President G.W. Bush's CEA at the very end of the Administration.
Posted by: Menzie Chinn at March 31, 2010 12:09 PM
I must say this is disappointing.
Re: Re: your Krugman question: No -- there's a long term/short term distinction.
Not sure what you're talking about. Clearly in 2003, as in 2009 and 2010, Krugman was expressing an assessment of the level of harm/risk he associated with the projected long-term fiscal imbalance at each time. As I've explained as can be seen clearly by any reasonable reading of those columns to which I linked, in 2003 he was looking at the projected long-term fiscal imbalance at that time and said eventual disaster was pretty much inescapable, yet in 2009/10 he was looking at significantly WORSE projected long-term fiscal imbalance and said it was clearly manageable and that anyone expressing concern anywhere near the level he expressed in 2003 was just a "hysterical" "fear monger", etc. It's hard for me to believe that you actually read those columns and don't see that, so I have to think either you aren't really paying attention or you just don't want to apply a single standard if it means calling the same foul on someone on your "side". This one isn't even a close call. It's quite obvious Krugman has been grossly inconsistent on this matter, and apparently for partisan reasons. Seriously, you can't possibly read those columns and conclude otherwise. Please don't let your objectives of advocacy, sense of camaraderie, or any other source of favoritism so supersede reasonably objective, honest analysis.
Re: accounting, I clearly distinguished what my question WAS from what it WAS NOT, yet you chose to answer the latter rather than my actual question. I can only paste again:
As for the "accounting" in question, I don't think an economist is so much more qualified to comment on it than a non-economist to justify your complete dismissal of Samuelson. If you disagree, I'd be interested in hearing your argument as to why an economist should have credibility and someone with Samuelson's qualifications should have none when commenting on the accounting involved here. It just doesn't seem to me to require great depth in economics training to address, whether or not the points made in this particular case are valid (i.e., the preceding isn't an argument that his points are valid, just a general assertion regarding qualifications to be potentially worthy of credibility on these "accounting" matters -- e.g., "gaming" of CBO's scoring).
In other words, forget what Samuelson said in this column. I was asking a general question about qualifications of his type (or for that matter any qualifications other than in economics) to address the "accounting" questions he addressed. I don't think it's possible to more clearly distinguish what I'm asking from what I'm not asking. If I can't get you to answer my actual question because you'd prefer to answer what I'm explicitly saying I'm NOT asking, so be it.
Posted by: Brooks at March 31, 2010 12:31 PM
Brooks, you failed to mention the best line in that column:
"And that's [CBO deficit estimate] way too optimistic. The Congressional Budget Office operates under ground rules that force it to wear rose-colored lenses."
Posted by: Brad P. at March 31, 2010 01:22 PM
That line is not quite accurate. In some cases CBO is prevented from factoring in possible positive factors because they are too speculative. As I've mentioned, some contend (reasonably, IMHO) that there will probably be some cost-savings resulting from cost-containment measures in the legislation that CBO did not factor into its scoring because it deemed them too speculative. So it can cut both ways. I'm not saying that the two balance out, just that it can cause CBO to exclude both positive and adverse factors that a more realistic projection may include.
Posted by: Brooks at March 31, 2010 01:40 PM
Oh, I see now what you were referring to (the 2003 Krugman column). While the point I made in my prior comment re: CBO is valid, I see now that your point was that Krugman in 2003 was doing just what Samuelson did in the column being discussed here: pointing out that CBO's projections can understate how bad our fiscal outlook is. Good catch.
Posted by: Brooks at March 31, 2010 01:57 PM
Brad P.
Those same ground rules also mean that sometimes the CBO wears opaque glasses and pretends that some clear types of savings will have exactly zero positive effect on both the economy and the fiscal position. For example, one of the clear benefits of healthcare reform is that people will not be so fully tied to their current job, which without health insurance reform limited both mobility and better employment prospects. Improving employment mobility both increases labor productivity and is welfare enhancing. There is no downside to greater employment mobility, but yet CBO gives this zero weight. Another example is the effect of taxing "Cadillac" plans and how that is likely to soften demand for useless tests. A third example is the effect of increased fraud enforcement. All of these things are likely to have at least some positive effect, but yet CBO gives them no weight. Finally, it is by no means a certainty that Congress will shrink in terror and refuse to implement at least some of the more difficult cost cutting measures. Sometimes even Congress does the right thing.
Posted by: 2slugbaits at March 31, 2010 02:19 PM
Menzie said: "CoRev: I'm afraid I don't recall countering your remark, or indeed responding at all to your remark. You must have confused someone else's reply with mine."
Sorry, my BAD!!!! I did read 2slugs' response and assign ownership to you. My apologies.
Posted by: CoRev at April 1, 2010 03:57 AM
Did you happen to see Krugman's treatment of Eakin-Holtz column on how the CBO is operating under a set of assumptions that are not realistic?
(EDIT: I see Menzie linked to it)
The title was "File Under Vile", and he states:
"time to scratch Holtz-Eakin off my shrinking list of reasonable, reasonably honest conservatives"
Krugman only addresses two of Holtz-Eakin's seven points concerning the CBO's assumptions. Calls one statement (that certain revenue streams are started before corresponding entitlement costs are started) that is actually true a lie, even though he shows a graph confirming the point.
Apparently Holtz-Eakin is lying because he implies there is funny business going on, and Krugman gives us proof that he is lying because while Holtz-Eakin is technically right, the small costs that he is referring to do not outweigh the other estimations.
Then Krugman goes on "Wait, it gets worse: Holtz-Eakin implies that there are hidden, delayed costs". Yet, the portion he references is widely accepted as a double-counting of that 70B.
Of course, no mention is made of the other five assumptions and gimmicks Holtz-Eakin referenced. When you simply consider those points that Krugman mentions, yes, it looks like Holtz-Eakin is misrepresenting the assumptions the CBO had to make, but when you combine all of the points he makes, the point is clear.
And that point, to borrow from the Krugman that wasn't a sycophant of the current administration, is:
"And that's [CBO deficit estimate] way too optimistic. The Congressional Budget Office operates under ground rules that force it to wear rose-colored lenses."
Posted by: Brad P. at April 1, 2010 07:59 AM
I am very happy that the bill frees people up from employers and their health care plans. That is great.
Of course, the subsidies are set up so that, were many people to leave their employers plans they would be set to receive far, far higher subsidies, and the cost of health care reform would skyrocket. There is also a strong possibility that the rules and penalties applied to employers will create situations where it would be impossible for employers to manage to provide competitive compensation packages. There are multiple downsides to "employment mobility", as this bill did not appear to concerned with that issue.
As for the Cadillac excise tax, I am highly dubious that tax-hating republicans and union-loving democrats would get together to push it through in ten years, but assuming they do, could you explain how it will likely soften demands for useless tests?
I am unclear on the increased fraud enforcement. Can you link me to an explanation of the measure and what costs it might save?
Posted by: Brad P. at April 1, 2010 08:09 AM
Krugman has made it clear for a long time that he -- like many others on both right and left, unfortunately -- is more than willing to abuse the credibility that comes with expertise to deliberately mislead people for the purpose of advocating policies or supporting the ideology or people on his "side" and/or to please a partisan target audience. Such behavior is all too prevalent but quite unethical. That's why it's disappointing to see Menzie defending him in the example I provided of Krugman's clear inconsistency, apparently disingenuous in at least one of the cases (2003 or 2009/2010) for the apparent purpose of advocacy. I must admit I asked Menzie about it because I wanted to see if he'd approach it objectively, see the obvious inconsistency (perhaps the clearest example of analytical inconsistency by a columnist I've ever seen), and acknowledge it, rather than defending Krugman simply because he was on Menzie's "side". Unfortunately, unless Menzie just wasn't really paying attention to what Krugman wrote in those columns and to what I pointed out, Menzie apparently chose defending the guy on his side as the priority, which was disappointing.
As we consider policy alternatives, we depend to a large extent on experts to help us get a sense of what the trade-offs are, but unfortunately, rather than serving the public well by offering their good-faith analysis of trade-offs, many/most experts in the media (columnists, bloggers, etc.) often choose instead to use their "analysis" as merely a tool for advocacy, without much/any regard for any reasonable degree of objectivity, openness or even sincerity. For some it's at least part a "business" decision -- catering to a partisan target audience and/or trying to be provocative for greater marketability in the media -- but insofar as they do it to advocate for causes they believe in, I suppose their moral reasoning is as follows:
"If I present a good-faith analysis on this matter -- including pointing out/acknowledging drawbacks to the policy I favor, weaknesses in the arguments made by some on my 'side' of this issue or some broader ideological battle, inconsistencies and apparent disingenuousness on the part of some on my 'side', etc. -- my audience won't make the right choice, and I can safely assume that I have superior insight into what is the right choice because my values and priorities are best/better. So, when faced with situations in which my good-faith analysis would at least include elements that would detract from my cause, I am going to spin, distort, cherry-pick, use straw men, etc. in my 'analysis' because I am misleading people on the analysis to achieve a noble end, and the end justifies the means."
I consider the above mindset and behavior unethical, particularly for those who are educators (professors) who are supposed to be devoted to educating not propagandizing, regardless of the worthiness of their cause and the harm they perceive in some opposing cause. Experts have an ethical obligation to make a good-faith effort to be reasonably objective, open and sincere. They are certainly free to also advocate, but their advocacy should be based on good-faith analysis, not their "analysis" skewed to serve their advocacy.
Posted by: Brooks at April 1, 2010 09:25 AM
I agree with you on all of that, and I would agree with Menzie who would doubtlessly say Samuelson is a classic example of what you are talking about.
Perhaps I'm in a conciliatory mood so I want to propose this:
Samuelson's credibility aside, the CBO's credibility aside (I think the differences in opinions here are bloated for argument's sake), do you find Krugman's analysis of Holtz-Eakin's analysis to be harsh and uncalled for?
In other words, since I have made basically the same argument at Holtz-Eakin, would you call me unreasonable and dishonest, or is this particular concern justified?
Posted by: Brad P. at April 1, 2010 10:52 AM
I don't have that impression of Samuelson, particularly if you mean someone whose analysis is consistently heavily skewed (due to heavy bias or insincerity) to favor the right or the left ideologically (and/or Republicans vs. Democrats). For example, as I've noted and quoted (see quotes in my comment at March 30, 2010 04:00 PM), he has called out conservatives and Republicans (as well as liberals/Democrats) on their B.S. and irresponsibility.
I also see David Brooks as a good example of a columnist/commentator who expresses an ideological point of view and argues his positions on issues, but who very regularly calls out arguments from some on his "side" that are bogus, and does the same for those on his side whose actions or inactions seem irresponsible.
It's really all about whether one sees his role as that of a spokesperson whose sole mission (or at least primary and superseding priority) is to advocate for one "side" (an ideology, issue position, party, etc.) even if that means engaging with less than good faith, or if one sees himself as an advocate who is committed to good-faith analysis/argumentation and openness whether or not such good faith communications include some particulars detract to some extent from the case being made by one's "side".
There have been countless occasions on blogs and elsewhere in which I pointed out invalid claims or argumentation of someone who was advocating policy I favor. And when I advocate for something I try hard to fairly represent and address opposing arguments, often acknowledging that those arguments do indeed represent drawbacks to the policy I favor. But unfortunately, most folks on blogs seem to insist on an "us vs. them" food fight of talking points, with each person reacting to another's argument/question but not really directly addressing the actual argument/question if doing so might risk weakening some case or someone from their "side". So we see a mess of evasive answers, diversions, straw men, non sequiturs, ad hominem, etc., all to avoid genuine discussion/debate. Some of it is probably the personal insecurity of individuals (not wanting to let the discussion go down a road that could end up revealing some error of theirs), but a lot of it is also this unfortunate, prevalent hyperpartisanship that afflicts America today more than ever.
Posted by: Brooks at April 1, 2010 12:38 PM