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Austan Goolsbee's academic work (pdf) suggests that investment tax credits don't do much for the economy. The White House that Goolsbee will work for is, however, proposing just such a credit, and Goolsbee will probably be defending it at some point. You see this happen a lot in government, and Megan McArdle has the right take on it:

There's going to be some inevitable accusations of hypocrisy here, but I think that in general it's not very helpful to throw the academic work of presidential advisors up against them. It's great for scoring political points, but the fact is that economic advisors cannot run around saying that presidential policies are a bad idea. Presidents are naturally going to do a bunch of things that are economically sub-optimal, politics being what it is. If you pillory good economists for giving cover to those economic policies, the result will be that the president will only get hack advisors who will give him terrible, ideologically-driven advice. This does not sound like a better outcome, unless you are an ideologically-driven hack who doesn't really care whether the president is in touch with reality, as long as he's serving your ends.

I was disappointed when people who should have known better did this sort of thing to Mankiw and Hubbard, and I feel the same way now about Goolsbee and Romer. I would much rather have them in office, making awkward public statements in favor of policies I'm quite sure they don't fully support, and giving the president excellent advice, than to have them in the ivory tower, maintaining their intellectual purity while political hacks drive policy.

By Ezra Klein  |  September 10, 2010; 11:11 AM ET
 
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Comments

All well and good, except that Mankiw acts as an ideology driven hack about 80% of the time when he's at Harvard, which makes me think he acts as an ideologically driven hack 100% of the time when he's in government. Just one more problem with the right.

Posted by: goodepicwashpost | September 10, 2010 11:48 AM | Report abuse

Unfortunately, the firing squad is circular. Academic economists engage in discussions of appropriate policy, only to be met with unsupported arguments from economists in government spouting the party line. This promotes patently false arguments about the efficacy of different economic policies, which serves to undermine the pursuit of objective social science research.

It would be far better for our government and our society if, instead of shilling for policies that they know are ineffective, government appointees that are also recognized experts in their field maintain their intellectual integrity by agreeing to at least "say no evil". In other words, refrain from intentionally undermining the public's knowledge of what scientific research has so far shown to be true.

Policy wonks who are well-versed in the politics tend to lose sight of the fact that for most Americans their only exposure to macroeconomics comes from political debates about fiscal policy. If Douglas Holtz-Eakins concludes in 2003 that tax cuts don't generate the revenue necessary to offset their costs to the federal budget, and then approves of John McCain's supply-side nonsense during the 2008 campaign, the public's only going to pay attention to the shilling, not the actual research he conducted with the CBO.

Posted by: besmit02 | September 10, 2010 11:57 AM | Report abuse

"but the fact is that economic advisors cannot run around saying that presidential policies are a bad idea. Presidents are naturally going to do a bunch of things that are economically sub-optimal, politics being what it is."

Shouldn't Goolsbee, in that case, tell the President that the credit is likely to do little for the economy, and convince him to do something else? Is Obama really only interested in smoke and mirrors?

What the hell is the point of an economic advisor if Presidents are just going to run with whatever policies they want, regardless of merit? To have an expert who can act as a salesman for snake oil?

If at the end of the day, Obama tells Goolsbee that "well, I think you're right the investment tax credit won't do a thing for the economy now, but it looks good politically", Goolsbee should resign. His other option is to lie to the American people in support of what he thinks to be a bad idea.

I'm all for keeping money in the private sector, but giving rents to capital producers isn't worth the greater deficit (and higher future taxes).

Yet another reason to be skeptical of government.

Posted by: justin84 | September 10, 2010 12:06 PM | Report abuse

"I would much rather have them in office, making awkward public statements in favor of policies I'm quite sure they don't fully support, and giving the president excellent advice, than to have them in the ivory tower, maintaining their intellectual purity while political hacks drive policy."

I don't see how it is different.

If Presidents promote a policy his advisor(s) say are clearly ineffective because of smoke and mirror political reasons, it probably doesn't make a huge difference who wears the clown suit while defending it. If the defender is a known partisan/political hack, maybe that's a plus because he/she won't be effective at selling the bad idea.

Posted by: justin84 | September 10, 2010 12:12 PM | Report abuse

Sorry but unsurprising McArdle is wrong. Would you want some in charge of the NSF who is willing to say evolution is only a theory in order to support a President's policies?

Posted by: endaround | September 10, 2010 12:28 PM | Report abuse

As usual, McArdle, does not have the right take. The right take away is that the proposed policy will probably be ineffective.

The logic that calling out advisers for ideological hack-like behavior will actually benefit ideological hacks is less than convincing. The president will get advice from who he wants to get advice. It may or may not be the public face of the administration.

Megan's fear that if independent experts are criticized for hypocrisy then only hacks will want to become political advisers is a bit far-fetched. Academics especially presumably thrive in a peer-review environment. The real fear is that the so-called independent expert will become a political tool by sacrificing his or her independent judgment (ie that the expert will get played by the politician who has no intent to listen to the 'expert.') See Colin Powell.

Posted by: kisfiu | September 10, 2010 12:36 PM | Report abuse

Brad Delong makes McArdle seem silly (to be fair, McArdle helps):

http://delong.typepad.com/sdj/2010/09/did-megan-mcardle-really-graduate-from-a-business-school.html

Read the response by McArdle in the comments section for extra bonus silliness.

Posted by: CarlosXL | September 10, 2010 12:42 PM | Report abuse

But that's not what Goolsbee says in this paper at all. What he argues is that investment tax credits drive up the cost of equipment and wages for capital goods workers. Essentially, the supply of capital goods is close to fixed at any point in time, so an increase in demand for these goods increases their price (and the profits of the employers and wages of the workers in the capital goods industry) in the short run, even if over time it eventually increases the quantity produced. This doesn't mean that the policy is ineffective (he estimates a demand elasticity for investment tax credits over 1, meaning you get more investment than in the absence of the policy), just that most of the benefits go to the capital goods industry rather than to the purchasers of the capital goods. In so far as building up the capital goods industry (where the US has comparative advantage) is unarguably a big part of getting back to balanced trade, I don't really see how this is an objection.

The only other point I'd make is that the portion of the benefit that does accrue to capital goods purchasers may be much more valuable now, when many firms are credit constrained, than in 1997 when Goolsbee wrote the paper.

Posted by: rwclayton7 | September 10, 2010 5:10 PM | Report abuse

The media have generally painted Mr. Goolsbee to be some sort of pro-regulation progressive. In fact, his heart is in UofC, and he is a bad choice for anything in this era. Just take a look at his 2007 (!) NYT piece extolling the benefits of subprime lending - and arguing against regulation -- at http://www.nytimes.com/2007/03/29/business/29scene.html?_r=1

your buddy Mike Konczal notes the same..

http://rortybomb.wordpress.com/2010/09/10/goolsbee-on-supply-side-and-subprime/

Sure. He conveniently extols consumer protection now...but this is where academic convictions work both ways - to stand up to lobbyists what he really thinks (and not says later) is important.

He is Summers, Jr. He has Summers political skills too. I heard him at a future of housing finance forum in late 2008 talk about those "irresponsible" subprime **borrowers**. Yikes. Fortunately, the father of MBS, Lew Ranieri, put him in his place at that event and placed the blame on the industry. Pretty sad that it took an industry guy have to stick up for the borrowers vs. an administration rep??!!

Posted by: idw3 | September 10, 2010 5:26 PM | Report abuse

rwclayton7,

The concluding sentences of his paper are as follows:

"Indeed, the results are most disturbing for the ongoing debate over investment tax policy.
In addition to their large revenue costs, investment tax subsidies may give large, unintended rents
to capital suppliers without increasing real investment until several years later because of the
short-run asset price responses of capital goods. For policy makers interested in using tax policy
to stimulate investment or, especially, to smooth business cycle fluctuations, the results are not
promising."

If he tries to sell this policy honestly, he will get nowhere.

Why not just cut corporate taxes rather than to play around with credits which don't have the effect that policymakers would like them to have?

Posted by: justin84 | September 11, 2010 4:04 PM | Report abuse

The argument is kinda moot.
expert:
1 Experienced (in), having experience

2 Trained by experience or practice, skilled, skilful.

3 Tried, proved by experience.

NONE of these guys are experts at anything other than being students. Not a one can point to having had their ideas implemented and then causing an economy to grow. FACT.

Posted by: illogicbuster | September 12, 2010 9:52 AM | Report abuse

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