Brad DeLong's Semi-Daily Journal: A Weblog

But what do you say to people who dismiss this type of thinking as "Rubinomics"?

Well... if you don't believe that economics is a valid science -- and there is, perhaps, more reason to doubt the validity of economics than most sciences* -- then there's really no point in someone trying to use an economic argument to try to convince them. Perhaps the response should be to say "fine: I've made my argument for why the deficit matters. If you want to claim it doesn't, then you should explain why not and explain the mistaken assumptions or inferences in my argument, not just claim that my argument is unsatisfactory ex cathedra."

* I've been seeing too many Cobb-Douglas style production functions that look like (K^a)*(L^b) lately, which seems to correspond to the production processes of no real-world firms. Yeah, that's probably because this is kiddy economics, and exponents are easy to differentiate, but still... if a firm ever hires me as a consultant, they'd better have decreasing returns to scale and an easily differentiable production function, or I'll have nothing to say to them! (j/k)

Adam,

I like Julian Elson's point, and it would be my preferred method.

That said, you point someone who makes that argument (which assumes that they either [a] know what Rubinomics was or [b] have heard Cokehead or some other "economist" speak about it) to, say, Arnold Kling's idiotic article at Tech Central Station about the "four myths" of social security and say: "All right; the anti-Rubinomics people accept that the future deficit is there as well, even if they do confuse economics with accounting. Short of selling those future obligations as if they are third-world debt, or declaring bankruptcy and defaulting on the obligations, how do you see funding the gap? Use real-world examples, such as how people who repaid their student loans were able to simultaneously spend that money on housing, food, or other things."

technical question:

Does it matter very much what scenario we're using as a baseline of comparison? In other words, deficits reduce national income *compared to what?* I see three possible answers:

1) Compared to a budget ballanced by higher taxes (say, repealing Bush's tax cuts and raising other taxes). Taking into account any negative-growth impact of higher taxes is the best way to insulate the arguments for fiscal discipline against the bloody murder screams of low-tax idealogues.

2) Compared to a budget ballanced by spending cuts alone. The Cato's and Kudlows of the world will just say this is proof we should cut spending deeply and quickly.

3) Some sort of ballance between the two.

a-ro,
Clinton proved raising taxes doesn't matter.

a-ro, I think that it's possible to analyse the deficit as a deficit itself. I.e. the economic effects of the deficit are what is shared in common between a government with 14% of GDP revenue and 18% expenditure, and a government with 18% of GDP revenue and 22% expenditure. There are economic costs and benefits to the collection of revenue and the programs that are spent on, too, and those are certainly worthy of analysis, but I think the effects of the deficit itself can be teased out. As we've just read the the Gale and Orszag article, the effects are not precisely measureable: their rule of thumb is that each Dollar of deficit reduces national saving by $0.50 to $0.80. We don't know exactly, but the idea here is that there are costs to deficits distinct from the costs of spending generally.

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Adam,

You could point out that "appeal to ridicule" is not a valid form of argumentation. A partisan appeal to ridicule is also merely preaching to the chior. Rubin ran Treasury during a pretty impressive period of US economic performance. Resorting to the term "Rubinomics" to ridicule proposed fiscal policies is an attempt to rub some of the aura of failure surrounding "Reaganomics" off on a more conventional, responsible form of fiscal policy. Only those who are like their policy-making with a strong dose on name-calling mixed in are likekly to be taken in by this stuff (think "ditto-head").

Good golly, I can mess up a sentence if I really try.

"Only those who like their policy-making with a strong dose of name-calling mixed in are likely to be taken in by this stuff (think "ditto-head").

I'm trying to fully understand your criticism Julian. Cobb-Douglas is fairly robust for macro production. And of course it could be diminshing returns if one wanted it to be, but it isn't logical to be so on a macro scale. I wouldn't use it for a given individual firm necessarily but unless there is soemthing specific that one wants to examine on the production side, Cobb-Douglas works well enoguh.

(That is until DD shows up and starts complaining that it's all bogus since the measure of capital is inherently wrong).

Rubinomics = "Longest peacetime economic expansion in United States history"

Ask anyone who uses it as a term of derision if their problem is with (1) sustainability, (2) stimulating the economy WITHOUT expending resources in a war, (3) a rising tide/expanding pie, or (4) basic addition.

The responses from there are, as they say, left as an exercise to the reader.

Perhaps you're right, Rob, but I'm not taking a Macro course, Rob. we've been working on individual firms, mostly. We're getting to market supply around now, but we've been using Cobb-Douglas style production functions for individual firms.

Of course, I agree with the short analysis, but getting closer to a balanced budget could be a cruelly grudging process. We are growing too slowly for a healthy labor market, and the stimulus programs we set in place are quickly waning in effect. The Federal Reserve is in a tightening sequence. Raise taxes or cut government spending and we risk a further slowing of growth.

Also there is the matter of a conservative majority in Congress, that will determinedly fight tax increases. Then, there is the absence of a sense of urgency. When projections are made 10 years on, there is less urgancy than often needed for legistative change. When economists are worried about 75 years in the future, few people will join them.

The argument against running our projected deficits has to be made more compellingly.

http://www.nytimes.com/2004/11/01/business/01health.html?

States Are Battling Against Wal-Mart Over Health Care
By REED ABELSON

In the national debate over what to do about the growing number of working people with little or no health insurance, no other company may be taking more heat than the country's largest employer, Wal-Mart Stores.

The company, despite its popularity with consumers, has grown accustomed to being accused of crushing Main Street merchants with its sprawling stores and low prices and of driving down wages for workers across the retail industry. And more than a million former and current female Wal-Mart employees are part of a sex discrimination lawsuit that the company is fighting.

Now, Wal-Mart finds itself under attack for what critics see as its miserly approach to employee health care, which they say is forcing too many of its workers and their families into state insurance programs or making them rely on charity care by hospitals.

Wal-Mart vigorously defends its health care policies, saying it offers affordable coverage for all employees.

The company says it has no way of knowing how many of its employees, whom it calls associates, or their families are insured under state programs. The larger issue of whether companies can and should absorb the soaring cost of health care is a national issue, said Susan Chambers, the executive vice president who oversees benefits at Wal-Mart. "You can't solve it for the 1.2 million associates if you can't solve it for the country.''

A survey by Georgia officials found that more than 10,000 children of Wal-Mart employees were in the state's health program for children at an annual cost of nearly $10 million to taxpayers. A North Carolina hospital found that 31 percent of 1,900 patients who described themselves as Wal-Mart employees were on Medicaid, while an additional 16 percent had no insurance at all.

And backers of a measure that will be on California's ballot tomorrow, which would force big employers like Wal-Mart to either provide affordable health insurance to their workers or pay into a state insurance pool, say Wal-Mart employees without company insurance are costing California's state health care programs an estimated $32 million a year.

Meanwhile, in Washington State, where the insurance commissioner is pushing the legislature to adopt a law similar to the one on the California ballot, companies that struggle to compete with Wal-Mart while insuring most of their own workers have become openly critical.

"Socially, we're engaged in a race to the bottom," said Craig Cole, the chief executive of Brown & Cole Stores, a supermarket chain that employs about 2,000 workers in Washington and adjoining states and pays for insurance coverage for about 95 percent of its employees. "Do we want to allow competition based on exploitation of the work force?" he asked.

Reduce national income by 2% in 10 years? Why would anybody pay attention to such a small effect?

What will the price of oil be in 10 years? Much chance it will be under $4/gallon in 2004 dollars? Why would anybody care about a 2$ effect when we have such bigger things to deal with?

The most effective approach to dealing with the budget deficit problem, might be to emphasize how effect Robert Rubin and Bill Clinton were both in reducing the deficit and allowing for a reduction in long term interest rates that helped produce a wonderfully vibrant economy. Let's get back to Rubinomics!