I've read the NY Times each day since I was 15. I've read the NY Post each day since I was 18! An Opinion Piece in the NY Times today by Bill Keller really grosses me out. In this piece, this journalist assumes that he knows more economics than leading Ph.D. economists and flat out insinuates that one of the world's leading public finance economists is a political shill. These are dangerous days. I wish we lived in a world where people trust experts whether the experts are climate scientists, economists, doctors or military leaders. Once trust is gone --- how do we build it back and what happens to collective decision making when we ditch delegation to experts?
First some preliminaries. Here is a photo of Keller. He has good hair and looks serious but does that make him serious? He thinks so. As a subscriber to the NY Times, I'm amazed at the certainty shown by their editorial columnists. Gail Collins, Dr. Krugman and Mr. Keller show amazing self confidence in their certainty that what they say to be true is true. I have many more doubts about this life and what is the "true data generating process". I wish I could sleep as well at night as this crew.
Here is the smug quote that angers me.
"THE TRICKLE-DOWN ECONOMIST R. Glenn Hubbard, who has been a top Romney adviser since the 2008 campaign, is a reputable economist, dean of Columbia Business School. He is not one of those abolish-the-Fed, tax-cuts-pay-for-themselves charlatans who seem to have captured the minds of so many Republicans. But he has increasingly traded in his economic science for partisan politics. As chairman of George W. Bush’s Council of Economic Advisers, Hubbard rationalized huge tax cuts (the promised bonanza of jobs failed to materialize) and deregulation (widely blamed for contributing to the housing and banking mess). Now he lends an expert gloss to the claim that Romney’s sketchy economic plan will create 12 million jobs — a claim I doubt would pass muster in a first-year Econ class at Columbia. "
Now, I taught the first-year Econ Class at Columbia from 1993 to 1996 and from 1998 to 2000. I know exactly what was taught in those classes. When I taught Principles we focused on microeconomics and spent almost no time on Macro. I told my students that Y = C+I+G and that we don't know why the Great Depression took place and that we must continue to think why the U.S economy has grown by roughly 3% per year per-capita.
The CEA's current Chair is Alan Krueger. He is a great economist. I bet that if he and Glen Hubbard had lunch together they would both agree that the U.S needs job growth. The question then becomes; "what set of incentives and government policies will achieve this goal?"
The Romney team seeks to have the private sector be the engine of growth. Could the private sector create 12 million jobs? Each journey begins with a first step. When would a profit maximizing firm hire an additional worker? From "first-year Econ", we know that the firm will hire a worker when the marginal revenue (after taxes) that the worker generates exceeds the wage the worker must be paid (the wage is the marginal cost of hiring the worker).
The Obama team would have some combination of government and the private sector be the engine of growth to create the 12 million jobs.
As a microeconomist, I would love to see a discussion of what must be the behavioral responses of firms to government incentives so that the macro jobs goal would be achieved. What do we know about how economic conditions and expectations of future policy shifts affect job creation now? If we acknowledge that our knowledge base is weak, how do we proceed?
I agree with Keller on one point. Given the current state of academic economic knowledge, how confident can an economist, even a great economist, be about an out of sample prediction of how our economy will respond to a change in tax incentives that we have never launched before? Talk about uncertainty! In the language of economics, one must conduct a massive policy counter-factual to generate the 12 million number. I don't know how to evaluate its validity in a general equilibrium model of the entire economy nested in a world economy.
It is possible that Keller's cynicism is warranted but this is an empirical question. Does Keller burst into surgery rooms and tell the surgeon how to do his job or pass his opinion on how the surgery is going? As a Ph.D. economist I'm sad that our great field is held in such "high esteem" by the esteemed NY Times.
The active academic economics research community should think about what we can do to raise our reputation with "the common man". Did we originally over-promise that we had figured out policies so that there would never be another deep recession again? At the end of the day, the Romney plan's predictions must be based on micro-econometric elasticities. It is up to the leading labor and public finance economists to avoid political wrestling and to take a look at that most convincing studies in the literature to determine whether the behavioral responses that the Romney team claims will be unleashed by their tax cuts could come to pass and are likely to be realized.