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May 03, 2005

Mark Thoma Is on Intellectual Garbage Pickup (Another Why Oh Why Can't We Have a Better Press Corps? Edition)

Mark Thoma of the University of Oregon is performing this thankless task.

Here's Thoma on John Tierney:

Economist's View: Tierney on Social Security Privatization: Seeing the Tree: John Tierney looks at the case of a single individual and concludes that privatization in Chile is a success. Success stories are easy to find when the focus is on a single individual, in this case an economist at the University of Chile: "...Pablo, who grew up to become an economist %u2026 called up his account on his computer and studied the projected retirement options for him. 'I'm very happy with my account,' he said to me after comparing our pensions. He was kind enough not to gloat. When I enviously suggested that he could expect not only a much heftier pension than mine, but also enough cash to buy himself a vacation home at the shore or in the country, he reassured me that it would pay for only a modest place..."

But what if we look at the whole forest, not just a single tree? This is... from earlier in April: "In Chile: A Safety Net With Some Holes, By Monte Reel, Washington Post Foreign Service, Monday, April 11, 2005; Page A11.... Given the pace of contributions, more than half of the workers who retire in the next 30 years will not have enough money in their plans to receive the minimum payout..." [T]he forest is much less healthy than the single tree Tierney examined...

And here's Thoma on Robert Samuelson:

Economist's View: Samuelson's One-Sided Scissors: Robert Samuelson... excused the U.S. from any responsibility for the current account deficit.... "[W]hat if the problem of today's global economy is that people elsewhere... are saving too much and spending too little?... Bernanke's global savings glut is just such a notion. It helps explain (a) the huge U.S. trade deficits; (b) the weakness of the current economic recovery (now 3 1/2 years old); and (c) the difficulty of doing anything about (a) and (b).... [T]he flow of surplus global savings to the United States has caused Americans to spend more and save less.... Americans' low saving and high consumption offset foreigners' high saving and low consumption. The huge U.S. trade deficits result.... Like others, Bernanke warns that these trade imbalances -- our huge deficits, their huge surpluses -- seem dangerous. His contribution is to show that their main causes lie outside the United States...."

The argument is that high foreign saving caused low U.S. saving.... But isn't it equally logical... to argue the reverse, that the low saving rate, particularly public saving (the deficit) in the U.S. caused funds to flow in from abroad? Would that then mean, under Samuelson's definition, that the main cause lies within the U.S.?... As Marshall reminded us long ago in a slightly different context, "We might as reasonably dispute whether it is the upper or the under blade of a pair of scissors that cuts a piece of paper." Yes, the high foreign saving rate played a role, but that is only one side of the scissors. The U.S. public and private saving rates played a role as well.

And, of course, Mark is right. A global savings glut that generated a two or three percent of GDP trade deficit for--capital inflow into--the U.S. would not be a bad thing. But overlay the Bush deficits on top of that, and the trade deficit gets worrisome. Have the trade deficit further amplified by China's and Japan's desires for export-led growth--and have foreign private investors decide that they don't want to hold any more U.S. bonds--and the situation becomes terrifying.

Samuelson, however, is no longer in the economic analysis business: you learn nothing about why Bernanke sees the current situation as dangerous. Samuelson, instead, is in the business of laying down a marker saying that anything bad that happens in the future is not George W. Bush's fault--"[Bernanke's] contribution is to show that [the deficits'] main causes lie outside the United States." Tierney never was in the economic analysis business: he can't truthfully say that Bush's private accounts are a good deal for beneficiaries, and he can't truthfully say that Chile's system has prefunded adequate pensions for its population, but he can misdirect with one personal case.

As I said, it's intellectual garbage collection. Mark Thoma is performing a thankless but necessary task, for which we should be grateful.

Posted by DeLong at May 3, 2005 08:15 PM