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August 21, 2012

Latest Posts from Economist's View

Latest Posts from Economist's View

Posted: 21 Aug 2012 12:06 AM PDT
Posted: 20 Aug 2012 01:55 PM PDT
Niall Ferguson has a really bad defense of himself:
The worst case against the Obama administration, by Ezra Klein: ...On Sunday, Paul Krugman noticed Niall Ferguson writing something apparently false about the Affordable Care Act. Today, Ferguson responded to Krugman's critique by saying, in effect, that he wasn't wrong so much as he was very carefully trying to mislead his readers.
The sentence in question is straightforward enough. Ferguson wrote:
The president pledged that health-care reform would not add a cent to the deficit. But the CBO and the Joint Committee on Taxation now estimate that the insurance-coverage provisions of the ACA will have a net cost of close to $1.2 trillion over the 2012–22 period.
The intended meaning is pretty clear. Ferguson is saying Obama "pledged" that the Affordable Care Act would reduce the deficit, "but" the Congressional Budget Office and Joint Tax Committee now say otherwise.
The problem, as Krugman pointed out, is that the CBO and the JCT do not now say otherwise. Ferguson is simply wrong. But that's understandable. The CBO did release a confusing report back in March 2012 in which they updated their estimates for the insurance coverage provisions of the law (which is to say, the part of the kaw that spends money) without including estimates for the revenue provisions, or the Medicare provisions, which are the parts that save money. It was easy to get confused. But if you actually read the report, it said that the Affordable Care Act was going to cut the deficit by more than the CBO initially thought, not by less.
But Ferguson says he wasn't confused. Rather, he phrased his original comments very carefully in order to deceive his readers.
Brad DeLong is not amused. See this too. But let's go back to Ezra:
...the main reason to mistrust Ferguson is that, for years now, his argument has been wrong.
Almost since the crisis began, Ferguson has pushed a very specific theory with a very specific prediction: The bond markets, he has said, are going to revolt against American debt. And if that doesn't happen, inflation is going to run amok. ...
These predictions — and others, like when Ferguson warned that "the Chinese clearly feel they have enough U.S. government bonds" — were the testable hypotheses generated by Ferguson's worldview. That worldview, in essence, was that the United States was under imminent threat from its debt, and that the result would either be a crisis as the U.S. proved unable to pay its creditors or runaway inflation as the Fed printed money in excess of what the economy could handle.
These predictions were wrong. But Ferguson hasn't updated the theory to account for their failure. Instead, he has simply applied that same theory to argue that Paul Ryan ... should be vice president, because his deficit-reduction plan could "end four years of economic underperformance [and] stop the terrifying accumulation of debt." ...
And this is really a rather important point about the current crisis. There is a strain of thinking that argued, from the beginning, that Obama's policies would fail because the required borrowing would send interest rates soaring. Ferguson was a member of this club, but so was the Wall Street Journal editorial board, which warned, back in May 2009, that the bond vigilantes "appear to be returning with a vengeance now that Congress and the Federal Reserve have flooded the world with dollars to beat the recession."
It is no surprise that most of the folks who bought into this theory were early and enthusiastic backers of Paul Ryan. After all, he bought into this theory, too, and his initial budgets included deep, quick cuts. More so than any other politician, he translated this theory into legislation. But the theory's primary predictions proved wrong. That has not, however, had any reputational impact on the people who believed those predictions, and their champion is now on the GOP's presidential ticket, but neither he nor his backers appear to have rethought any element of their critique or of their program. ...
Whatever you believe about Obama's policies, the Ferguson/WSJ/Ryan theory has clearly failed in its main predictions, and it's worrying to see that this hasn't led to a more serious effort to rethink its premises. ...
The people pushing the Ferguson line and the austerity that follows from it have done a lot of harm, yet it "has not ... had any reputational impact." No accountability at all, and we are worse off becasue of it.
Posted: 20 Aug 2012 09:56 AM PDT
Jeff Frankel argues that thinking of black swans as "events of inconceivably tiny probability" is incorrect:
A Flock of Black Swans, by Jeffrey Frankel, Commentary, Project Syndicate: Throughout history, major political and economic shocks have often occurred in August, when leaders have gone on vacation believing that world affairs are quiet. Consider World War I's outbreak in 1914, the Nazi-Soviet pact in 1939, the Sputnik launch in 1957, the Berlin Wall in 1961, and the failed coup in Moscow of 1991. Then there was the Nixon shock of 1971 (when the American president took the dollar off the gold standard and imposed wage, price, and trade controls), the 1982 international debt crisis in Mexico, the 1992 crisis in the European Exchange Rate Mechanism, and the 2007 subprime mortgage crisis in the United States.
Many of these shocks constituted events that had previously been considered unthinkable. They were not even on the radar screen. Such developments have been called "black swans" – events of inconceivably tiny probability.
But, in my view, "black swan" should refer to something else: an event that is considered virtually impossible by those whose frame of reference is limited in time and geographical area, but not by those who consider other countries and other decades or centuries.
The origin of the black swan metaphor was the belief that all swans are white, a conclusion that a nineteenth-century Englishman might have reached based on a lifetime of personal observation and David Hume's principle of induction. But ornithologists already knew that black swans existed in Australia, having discovered them in 1697.  They should not have been viewed as "unthinkable." ...
He goes on to explain why many recent events labeled as black swans "should not have surprised anyone." [See also Gavyn Davies on Keynes and unknown unknowns: The Plague of Economic Uncertainty.]

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