Friday, October 31, 2008

Economic Crisis Forensics

We've finally traced back the cause of the crisis!

Morning Joe Entering Silly Season

Joe Scarborough, who I like, did a silly piece on folks on the upper west side of NYC supposedly saying "nasty things" to McCain-Palin supporters (specifically his "news you can't use" correspondent, Willie Geist), and take it as "representative" of some broader population. He asks, "Would the same thing happen in Nashville?" (in the other direction, against Obama supporters), since Mr Geist went to Vanderbilt for college.

While there's room to debate how "nasty" the comments of these folks really were, I can tell you that there are plenty of conservative areas where reasonably intelligent people are being just as nasty. I've heard numerous accusations of socialism directed towards friends of mine who support Obama, and really really nasty things being said about the candidate himself. It's depressing, and the total lack of intellectual diversity here really makes it isolating. Heck, people only tell a McCain supporter in the upper west side to "go to the east side." Here, they tell us to go in a different direction - the nicer ones imply that that direction is somehow farther North; the not-so-nice ones imply that that direction is more downward, and somehow involving flames that burn but do not consume.

This still all misses the point. In either event the jackasses are an irrepresentative subsample of the overall groups of supporters. Most McCain supporters are decent folks who want the best for the country. Most Obama supporters are decent folks who want the best for the country. The contention that lefties are more (or less) nasty than righties is misleading. A jackass is a jackass on either side and can't be held up to represent the whole group. The bigger question is: why raise the subject? Are McCainiacs so desperate to villify the left that it's no longer a matter of: (1) winning the ideas; (2) personally attacking the other candidate, or; (3) cherry picking facts. Now it's a matter of making personal attacks against the rank and file supporters of a candidate, party or set of ideas? Seems silly to me.

Monday, October 27, 2008

This One

John McCain and his surrogates keep asking: which economist would promote tax increases at a time like this? Well, if structured intelligently, then, THIS ONE.

What's surprising is how confused Mr. McCain is about his economice ideologies. The concept of fiddling with taxes and expenditures on the fiscal side to affect the economic equilibrium at the macro level and combat recessions is a Keynesian (read: "liberal") one. Now, for those tax cuts to be most effective, in the Keynesian framework, they should be targeted in the ways that do most to stimulate consumption (i.e. to the middle and lower classes), so that inventories are mopped up, and thus intended investments are made instead of being diverted into unplanned inventory accumulation. This is a pretty standard principles approach. A more sophisticated approach might suggest that markets and their prices are not well-coordinated between factor markets and product markets, leading to "good" (high demand) equilibria, and "bad" (low-demand) equilibria. Random events can knock a "good" economy into a "bad" equilibrium, but government can use fiscal policy to offset those distrubances.

So, let's look at the supply side. Tax cuts are good, but ONLY if the government debt is held constant. Candidate McCain's proposals would cut taxes but wouldn't reduce spending enough to control the deficit or the debt. Most studies suggest that the proposals of each side would have equal impacts on the debt, and both would actually expand our debt, and that assumes Mr. Obama gets his way on health care and other subsidy programs, which is doubtful. McCain on the other hand is more likely to get the types of spending he wants, because he has the authority to keep troops in harm's way, and thus hijack the congress into approving more spending for those wars - denying funding is a politically indefensible position for any member of congress.

So, assuming McCain's and Obama's taxation and spending proposals would have equal effects on the debt if both get the spending increases and cuts they want, there is no net long-run difference in the two candidates' impacts on the economy. However, if we look at the political realities of their spending requests, McCain is more likely to get the increases he wants. Obama is not. Expect a filibuster on health care and other types of entitlements and education spending that Obama has proposed, and for there to be compromises on these areas of his agenda. It seems to bet the case that some of these political realities have not been taken into account in the estimation of the impact of each candidate's economic plan on the long-run economy.