Sunday, May 11, 2008

McCain's Economist Supporters vs. Facts

Over at MarginalRevolution, Tyler Cowen has posted the text of an email he received recently. It seems a number of prominent, right-leaning economists have endorsed John McCain's stated economic proposals. The list includes many of the usuals (e.g., Becker, Hassett, McCain chief economic adviser Doug Holtz-Eakin, Taylor, Harvey Rosen, Meltzer, etc.); the list is chock full of prominent economists who have earned their academic reputations. Here's the text that Cowen excerpted in his main post (the rest of the letter is posted in his comments section):

We enthusiastically support John McCain's economic plan. It is a comprehensive, pro-growth, reform agenda. The reform focuses on the real economic problems Americans face today and will face in the future. And it builds on the core economic principles that have made America great.

His plan would control government spending by vetoing every bill with earmarks, implementing a constitutionally valid line-item veto, pausing non-military discretionary government spending programs for one year to stop their explosive growth and place accountability on federal government agencies.

I've previously discussed the enormous increase in deficits that would be caused by McCain's tax proposals, as scored by Len Burman and Greg Leiserson of the Tax Policy Center. So let me focus on the second paragraph above, which is uniformly contradicted by both facts and experience:

  1. His plan would control government spending by vetoing every bill with earmarks, Well, this one has already been repudiated by....John McCain's chief economic adviser, Doug Holtz-Eakin. I've already posted on this issue:
    • McCain has already had to change his "definition" of those nasty earmarks he'll eliminate (somehow, without a line-item veto). According to this story by the Politico's Ben Smith, Holtz-Eakin initially claimed that there were $100 billion in earmarks in the current budget, the idea presumably being that eliminating all of these earmarks would give McCain $100 billion to work with in paying for his tax cuts. After a former senior Democratic staffer, Scott Lilly, pointed out that many of these earmarks included stuff McCain supports, like money for Israel, Egypt and U.S. military construction, Holtz-Eakin stated that in fact the real amount of money associated with earmarks McCain would not fund (again, magically preventing them without a line-item veto) was only $16-18 billion.
  2. implementing a constitutionally valid line-item veto... Clearly, this one is there to allow them to respond to criticisms, like the parenthetical reference in my earlier post, based on the fact that under current law, the President has no capacity to pick and choose which items to fund. President McCain will have to sign or veto actual statutes, not their components. Back in the first Clinton Administration, Congress enacted and President Clinton signed the Line Item Veto Act (LIVA) to change all this. Lawsuits ensued, and after some standing-oriented skirmishing, the case made its way up to the Supreme Court. In Clinton v. City of New York, the Court struck down LIVA as a violation of the Constitution's Presentment clause. For all you "judicial activism" buffs, the vote was 6-3, with Justice O'Connor in the minority but Chief Justice Rehnquist in the majority. So, even if you assume that both Justice Alito and Chief Justice Roberts would side with President McCain and his economists, the vote would still be 5-4 in the event of a redo. I am not a constitutional lawyer, but given my understanding of the Court's language in Justice Stevens's opinion for the Court, I find it very difficult to imagine that McCain and his lawyers (much less his economists) will be capable of "implementing a constitutionally valid line-item veto".

  3. pausing non-military discretionary government spending programs for one year to stop their explosive growth... Gee, I hardly know where to begin on this one. First off, a one-year pause would do nothing to stop "explosive growth". It would reduce the level of spending, to be sure, but then that "explosive growth" would go right on happening. This is a mathematical principle of which each of the economist-letter's signatories no doubt is aware.

    That said, this post over at CBPP is worth a look [Update: I see that Mark Thoma posted much of the CBPP post, which I should have noted was written by Richard Kogan, back in March]. It shows the following:

    1. Domestic discretionary spending fell from 18.4% of all non-interest federal spending in 2001 to (an estimated) 14.7% in 2008. By comparison, defense and security spending (in which the CBPP includes DHS and Veterans' spending) rose from 21.7% to 29.2%.
    2. The real, i.e., inflation-adjusted, growth rate of domestic discretionary spending over this period was 1.3%. That's hardly an "explosive growth" path; by comparison, defense/security increased 9.1%, while SS/Medicare/Medicaid increased 3.8%.
    3. As a share of GDP, domestic discretionary spending actually fell, from 3.1% to 2.8%. That means that this category of spending has been becoming less, not more, burdensome. Defense/security rose from 3.6% to 5.6% of GDP over this period, while SS/M/M rose from 7.7% to 8.4%.

    I am frankly baffled as to what my colleagues on the right are talking about when they discuss "explosive growth" in "nonmilitary discretionary government spending". The real money on the spending side is in the military and entitlement categories. Some of the increase in entitlements is demographically driven. But over the seven years of the Bush Administration, Republicans, with some substantial Democratic help, have voted for ginormous increases in military spending: the Iraq war needs no introduction. In terms of projected future spending, as opposed to spending that has already occurred, the biggest policy-based expansion of which I am aware was the Medicare Part D drug plan, which McCain did vote against (indeed, even tried to filibuster) and to which he has proposed some cuts via income-testing.

    It is inconceivable that McCain will cut military spending substantially, given his simultaneous refusal to consider leaving Iraq until we have "won" and his willingness to stay for 100 years after the advent of said "victory". Moreover, even after we "win" or leave Iraq, one legacy of the wars in Iraq and Afghanistan will be substantial future expenditures to care for wounded and disabled Veterans.

    Perhaps McCain does intend to broadly slash future entitlement spending; the economists' letter refers to "plans to address entitlement programs--especially Social Security, Medicare and other government health care programs". But apart from the Part D income-testing he has proposed, neither McCain nor these economists have said how or how much he will "address" entitlement programs. No one covering this race should grant a pass either to McCain or to his economist fans concerning this issue. There are real challenges facing Social Security, Medicare and Medicaid, but too many Americans depend on these programs to allow the sort of glib avoidance that the press granted George W. Bush on these issues in 2000.

  4. That leaves "place accountability on federal government agencies." Frankly, I have no idea what this means, or how it would save any money at all, much less the hundreds of billions of dollars needed to make up for McCain's extension of the Bush tax cuts.
Politics is tough arena for economists. Few of us, myself included, have ever seen a candidate whose policies all comport with our professional judgments, much less our personal preferences. I certainly won't claim that I agree with absolutely every economic policy proposal that Obama has made, and I dislike gratuitous accusations of either incompetence or dishonesty.

But it is difficult for me to believe that people who promote John McCain's economic policies on the basis of the second paragraph of the letter above can simultaneously be aware of the facts and providing honest assessments. Perhaps I am wrong. I hope so.

3 comments:

donpedro said...

Great post. I'd been thinking about writing something similar all day, after seeing the letter earlier, but you beat me to it and did a better much job than I would have. I think we should come up with a list of succinct, relevant, non-snarky questions and email each of the economists on the list to politely ask for a response. I'm not sure exactly what the questions should be, but here's a first attempt:

1) Do you take seriously the $5.7 trillion in additional deficits over 10 years projected by the Tax Policy Center analysis of McCain's program? If not, where do you think this analysis is in error?

2) Given the Supreme Court's rejection of the line-item veto, do you think a "constitutionally-valid line item veto" is possible, and if so, how?

3) What makes you say that there has been explosive growth of non-military discretionary government spending programs? (given the figures Jonah cites.)

4) Are you concerned about the long-term cost of a continued American military presence in Iraq?

Richard H. Serlin said...

It is interesting how some economists at top universities (even though they are very rare) can support today's Republican's when their policies and dogma are so against economic growth and so brain dead.

Part of it is the super specialization of academics today. Most university economists specialize in a very small technical part of economics, which may involve mostly advanced math anyway, and they may have little and poor understanding on most of economics, yet if they work hard from a young age and publish a lot in their little area, they can rise to a top university. I remember as a Ph.D. student taking an econometrics class from a top econometrician and talking to him about the Microsoft anti-trust case which was in the news at the time. I could not believe the stupid things he was saying. He was a good mathematician, but he knew nothing about the economics of industrial organization, and had little intuition for economics in general.

Another part of it is just that some have a very Libertarian philosophy. They may understand economics well enough to know that the Republican extreme and unthinking anti-government, every man for himself, dogma will lower economic growth greatly, but they support it anyway because they just hate the government telling people or businesses what to do in any way. They are very willing to accept much lower growth and great human suffering to get even a small bit of extra economic freedom. I find extreme Libertarianism very ugly, uncaring, and harmful, but there are some extreme Libertarians in economic academia, who have worked hard and made it to the top universities.

Finally, for some economists, support of Republicans is a way to get great jobs and patronage. With the vast majority of Economists supporting the Democrats, a rare Economist supporting the Republicans has a much better chance of getting a great job in government in a Republican administration, not to mention a Republican "think"-tank, mega-financed by wealthy conservative families.

So you can see why some economists at top universities support the Republicans, but it's really ugly and unfortunate. It's a stain on economics that just adds further to the high level of confusion about economics among the public, a confusion that has allowed them to be fooled causing tremendous harm.

Has The Who's rock anthem, "Don't get fooled again!" ever been more appropriate – "Meet the new boss, same as the old boss!". How's that for a theme song for Obama!

Curtis said...

Richard,

I find your comments about "economists at top universities" to be very interesting. I think you should actually say "economists at top universities in the United States."

I began my economics studies in Mexico at the National Autonomous University of Mexico (UNAM) before finishing my BA in Economics at the University of California at Santa Cruz. I began my education in Mexico with an overview of the history of thought in economics, something that would be taught as an "advanced" course in the United States. Because I began my studies with an overview of the various philosophies, I was able to identify the standard American view on economics as coming from only one subset of economic thinking and everything else being taught through that lense.

For example, what was taught as Econ 102 - Macro Economics, in the United States was taught as Keynesian and Kaleckian theory in Mexico. Well, that is not entirely accurate because the Econ 102 class was actually a neoclassical version of Keynesian theory.

The bottom line is that it is extremely difficult to see the whole picture when you only own one pair of glasses.