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March 23, 2005

April Fool's Day Comes Early This Year!

April Fool's Day comes early this year!

My scheduled once-every-three-months surf over to Donald Luskin's website was supposed to happen on April 1. But a correspondent writes that Washington Post reporter Jonathan Weisman could use a little backup:

Donald Luskin on Social Security, Life-Cycle Accounts, and Robert J. Shiller on NRO Financial: The economics professor who may have coined the expression ‘irrational exuberance’ has been acting pretty irrational himself lately....

Here are the first two sentences from Jonathan Weisman’s story about the so-called ‘paper’ in last Friday’s Washington Post:

Nearly three-quarters of workers who opt for Social Security personal accounts under President Bush’s ‘default’ investment option are likely to earn less in benefits than those who stay with the traditional Social Security system, a prominent finance economist has concluded. A new paper by Yale University economist Robert J. Shiller found that under Bush’s default ‘life-cycle accounts’... nearly a third of workers would bring in less in benefits than if they remained in the traditional system.

Wait a second — is it ‘three-quarters of workers’ or ‘nearly a third of workers’?...

Readers of Weisman know that the "nearly three-quarters" number is if future returns have the same distribution as past global returns, and that the "nearly a third" number is if future returns have the same distribution as past U.S. returns. (Shiller thinks, quite reasonably, that the U.S. has had a bunch of good and lucky economic breaks over the past century and a half, and that as a result past U.S. returns overestimate what we should expect average luck to bring in the future.)

Only by artfully chopping and excerpting the lead of Weisman's article can Luskin create even the appearance of confusion between "nearly three-quarters" and "nearly a third."

Luskin's claim that Shiller coined the phrase "irrational exuberance"? It seems to be another piece of evidence of Luskin's isolation from reality. Shller writes:

Definition of "Irrational Exuberance": The term "irrational exuberance" derives from... Alan Greenspan... in a black-tie dinner speech... at the Washington Hilton Hotel December 5, 1996.... [P]eople ask me whether I coined the term irrational exuberance, since I (along with my colleague John Campbell and a number of others) testified before Greenspan and the Federal Reserve Board only two days earlier, on December 3, 1996.... I very much doubt that I am the origin of the words "irrational exuberance."... Greenspan is quoted in a Fortune Magazine article in March 1959... about "over-exuberance" of the financial community. Probably, "irrational exuberance" are Greenspan's own words... probably Alan Greenspan had written a draft of his 1996 speech even before I testified.

You do have to wonder just what National Review thinks it is doing by sponsoring Luskin. The overall effect is loony. After all, we have seen Luskin's ignorance of what a real exchange rate is, his claim that David Brooks is both 100% correct and is a traitor to his party for saying that the Bush administration routinely lies, his denial that the yield on a bond is an interest rate, his accusation that Gretchen Morgenstern is a plagiarist, his claim that George Soros might try to crash the market on October 31, 2004, his being off by a factor of five in calculating the liabilities of the Social Security system, his erroneous claims that faster productivity growth doesn't help the Social Security system--you get the picture.

Is National Review trying to damage the reputation of all its contributors? The blowback is something the smart ones are worrying about. The blowback should be something that we all worry about. Dean Esmay likes to quote John Stuart Mill: "Lord, enlighten thou our enemies... sharpen their wits, give acuteness to their perceptions and consecutiveness and clearness to their reasoning powers. We are in danger from their folly, not from their wisdom: their weakness is what fills us with apprehension, not their strength." A poor and stupid right wing is a dangerous menace--to us as well as to itself.

Posted by DeLong at March 23, 2005 01:09 PM