June 24, 2004

The Mad, Mad, Mad, Mad World of National Review

Matthew Yglesias climbs to the mountain peak and gazes out in wild surmise at the ocean of stupidity that is National Review's economics coverage:

Matthew Yglesias: June 20, 2004 - June 26, 2004 Archives:A Novel Theory: "How To Abuse Accounting Identities," by Tom Nugent of The National Review:

What the senators and media don't get is the basic equation that defines the role of government deficits in the economy: The federal government deficit = non-government savings (of net financial assets). That's fact, not theory, a.k.a. an "accounting identity." Non-government savings include that of both residents of the U.S. and foreigners. If the federal budget deficit of $450 billion about equals the current account deficit, it means that all the net financial assets added by the deficit are being saved by foreigners, who desire to hold all those dollar-denominated U.S. financial assets and are willing to net export to us in order to get them.

This data indicates is that the federal deficit is too small for the U.S. domestic sector to save anything! Domestic savings are low because the budget deficit is too low. Low and unobtainable savings means low demand, excess capacity, and low levels of employment. In other words, to get adequate demand from a healthy economy, a much larger federal budget deficit is needed. Unfortunately neither political party sees the light on this one, and both proclaim a sincerity to balance the budget -- which would totally choke off what growth we do have, as it would actually drain domestic income and savings and further reduce demand.

Er, no. Which leads me to wonder what kind of fools have entrusted their money to PlanMember Advisors, Inc. and/or Victoria Capital Management. If my name were, say, "Ramesh Ponnuru" I would be very embarrassed to be appearing in the same publication as this kind of thing.

UPDATE: I was struggling to devise a good analogy for the "reasoning" on display in this column, but here goes. It's as if I thought I could make my car's engine more powerful by making the car heavier. After all, force equals mass times acceleration!

Matthew is right. Moreover, Matthew politely doesn't comment on the fact that Nugent has even his identity wrong. The identity is not:

deficit = non-government savings (home and foreign)

The identity is:

deficit + private investment = non-government savings (home and foreign)

The structure of the argument isn't, "I can make my car's engine more powerful by making the car heavier. After all, force equals mass times acceleration!" The structure of the argument is, "I can make my car glow brighter by making the car heavier. After all, luminosity equals mass times acceleration!"

Matthew Yglesias asks a good question: why don't the people who write for National Review in other fields who want to be taken seriously go to the editors and read them the riot act? Ramesh Ponnuru's and David Frum's credibility depreciates when their writings appear under the same masthead as those of Luskin or Nugent. It is a mystery why they don't take a stand--there are, after all, lots of bright conservative straight-shooting economists who would love to write for National Review.

Whatever, this particular variant of right-wing idiocy is a disability of long standing. Sometimes it is the result of cognitive deficit: Whittaker Chambers appears to have been genuinely unable to perceive the difference between John Maynard Keynes and Karl Marx. Sometimes it is the result of deliberate mendacity: witness Irving Kristol's 1995 claim that in his mind the important thing about supply-side economics had been its "political effectiveness", not its "accounting deficiencies".

Posted by DeLong at June 24, 2004 06:15 PM | TrackBack | | Other weblogs commenting on this post
Comments

Brad, you give way too much credit to Ramesh Ponnuru... He is as much a political hack as Nugent is a "economic" hack... At least that was my impression after engaging in a personal exchange with Ramesh...

Posted by: econBras on June 24, 2004 07:04 PM

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You know, even the uncontroversially correct definitions of national income accounting identities and other basic macroeconomic relationships are quite tricky to keep straight in your head at the best of times, especially if thinking about them isn't your full-time occupation. (This is one of the reasons that they required so much hard work to make precise in the first place.) So it's a real pain in the keister to routinely see these kinds of errors thrown about in confident tones.

Posted by: Kieran Healy on June 24, 2004 07:25 PM

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Unfortunately neither political party sees the light on this one, and both proclaim a sincerity to balance the budget -- which would totally choke off what growth we do have, as it would actually drain domestic income and savings and further reduce demand.

Hey, I know - it's a troll.

Posted by: bubba on June 24, 2004 07:50 PM

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This is the Warren Mosler argument. Isn't he a democrat and postkeynsian? The car analogy is very apt. Somebody should send it to him, it might get under his skin.

Posted by: xtc on June 24, 2004 07:52 PM

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Paul Krugman once told me that the toughest thing to explain to politicians is economic identities.

Posted by: Knut Wicksell on June 24, 2004 08:28 PM

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So is Brad DeLong paid to be an economics professor or a pundit?

He hasn't published in a refereed journal in a decade, so that's obviously not why they keep him around.

Quite the conundrum!

Posted by: Smitty on June 24, 2004 08:32 PM

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Smitty: He hasn't published in a refereed journal in a decade, so that's obviously not why they keep him around.

Animal sex insults are sure to follow. Congrats, Brad - you must've cut to the bone.

Posted by: bubba on June 24, 2004 11:34 PM

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Two small observations you might could use:

These right-wing wackjobs really do believe that a huge imbalance in foreign trade and Federal deficit is good, meaning that foreigners are stuck with our worthless paper, (while we in return are stuck with their worthless gluestick furniture and dark plastic wampum.)

That is, you gave me some stuff, and I gave you a worthless check depreciating moment by moment. Who is better off, eh, the deficor or deficee?

Except the foreigners can redeem our worthless paper for forty acres of US property and a mule.

We're stuck paying dump fees for their wampum, sleeping in a cardboard box when they foreclose.

----------------------

The second item worthy of note is these Neo-Cons go absolutely bananas when you call their leader Dick Man and Monkey Boy. Like Batman and Robin, except the imagery I guess is a little skewed.

For what it's worth. Always nice to break the stride of some Neo-Con wackjob with a little
"Monkey Boy" retort, watch them foam up into,
"Shut up, shut up, shut up" ala Mssr. O'Reilly
or Mdm. Limbaugh.

Posted by: Clarence Thomas on June 25, 2004 12:55 AM

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Actually, a better metaphor would be that you can make the car faster by giving away the fenders, hood, bumpers, etc. It does it fact go faster in awhile, but eventually one has given the car away.

Posted by: Richard Green on June 25, 2004 05:39 AM

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Brad says: Matthew Yglesias climbs to the mountain peak and gazes out in wild surmise ...

From an ex-English prof, Brad, thanks for the Keats reference! The sonnet's a favorite of mine.

Posted by: Michael on June 25, 2004 07:54 AM

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You are welcome...

:-)

Posted by: Brad DeLong on June 25, 2004 07:57 AM

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OK OK I won't mention, my ahem, "explanations" any more, but DeLong, get real -- Getting sooo upset at these idiots is really worse than smoking for your health. Ask your doctor! Besides, it's sooo unkewl. And besides that, Cheney wil tell you to go f... yourself.

How about a quack journal -- or at least quack blog!

Journal (or Blog) of infinite horizon and divergent present value economics

Maybe Mankiw can be the editor or chief contributor!

I can't take these idiots with a straight face anymore.

Posted by: CSTAR on June 25, 2004 10:11 AM

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I do give Luskin (and Glassman) credit as authors. I find them extremely useful in my Finance MBA classes. I ask students to read and interpret one of their articles each term. They must describe 1) the assumptions and if they are in error, and 2) the logic correct and where it may have gone wrong. Given the far better than equal probability that a Luskin or Glassman article will be extremely haywire on both counts, it is a great learning experience. Oftentimes, the best way to understand rather complex thought processes is to figure out how others don't.

Posted by: Thorstein Veblen on June 25, 2004 11:24 AM

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Brad:

"Matthew Yglesias asks a good question: why don't the people who write for National Review in other fields who want to be taken seriously go to the editors and read them the riot act? Ramesh Ponnuru's and David Frum's credibility depreciates when their writings appear under the same masthead as those of Luskin or Nugent. It is a mystery why they don't take a stand--there are, after all, lots of bright conservative straight-shooting economists who would love to write for National Review. "

A partial answer can be found at http://www0.gsb.columbia.edu/, the homepage of the Columbia B-School:

"Professor R. Glenn Hubbard Appointed Dean of Columbia Business School"

Brad, there is no penalty attached to anybody who leaves this administration on good terms. They remain part of the real elites of this country - not the 'point-headed intellectuals', or 'Hollywood liberals', but the people with the money and power and media.

I confidently predict that Mankiw will return quite placidly to his Harvard post, with nobody there giving him so much as a harsh look.

Posted by: Barry on June 25, 2004 12:11 PM

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This is a good example of how writing on technical subjects can actually be more believable when it is less accurate, because of the impediment to critical thought created by obfuscation. When I read about physics, I'm reading from a position of knowledge and I don't get to experience this directly; but I'm a complete ignoramus about macroeconomics, so I can feel it working.

When I first read that, my reaction to the supposed accounting identity was "I can't understand how that could possibly be true. I guess economics really is beyond my feeble comprehension." And, consequently, I had a tendency to give the article the benefit of some doubt, since it was talking about things I didn't understand.

But the correct version of the identity makes clear sense! And if it were actually given in the original article, it would have been easy for anyone with a grasp of arithmetic to reason out the hole in it.

(As it was, all a naive reader could do would be to wonder how this supposed identity accounts for the late 1990s.)

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