My Failed Gotcha
By David Henderson
And remembering another failed gotcha in the past–and what I learned from it.
This morning I read an article about the Greek crisis by UC Berkeley economist Barry Eichengreen, who has been following the crisis. In it, he writes:
The implication is clear. Never underestimate the ability of politicians to do the wrong thing. I will try to remember next time.
Ah hah, I thought. I bet I can find many examples on the web of Eichengreen’s underestimating the ability of politicians to do the wrong thing in the past. That wouldn’t even technically be a gotcha because he himself implicitly admits that he has underestimated. Still, I thought, it’s worth pursuing.
I recalled that he is one of the economists who is regularly asked to give his opinions on economic issues for something called the IGM Forum, based at the University of Chicago. Surely, I thought, if I went through how he voted and his reasoning on each, when he gave a reason, I would find lots of examples of his having too much confidence in politicians.
I was wrong. I was wrong for two reasons. First, my rough estimate is that about 80% of the issues on which he was asked to give his opinion were positive, not normative, issues about the economy. So, for example, here’s the question from February 15, 2012:
Question A: Because of the American Recovery and Reinvestment Act of 2009, the U.S. unemployment rate was lower at the end of 2010 than it would have been without the stimulus bill.
One can think that the unemployment rate was lower than it would have been without having a lot of trust in politicians and without even thinking that the jobs produced by the ARRA were good jobs.
Or consider this one from May 12, 2015:
The 9% cumulative increase in real US median household income since 1980 substantially understates how much better off people in the median American household are now economically, compared with 35 years ago.
Again, that’s a positive issue, at least if you can assume that what people can consume is a measure of their wellbeing.
So there’s just not much room for figuring out an economist’s views on the competence of government from his views on these kinds of issues.
But even on more-normative issues, I didn’t see clearly that Eichengreen badly overstates the competence of government. Here are his votes and reasoning on the various issues.
Here’s a clearcut normative issue, from May 6, 2015:
Considering both distributional effects and changes in efficiency, it is a good idea to let companies that send video or other content to consumers pay more to Internet service providers for the right to send that traffic using faster or higher quality service.
I would have liked an Agree. What he gave was an Uncertain. That’s simply humility on his part, an underappreciated virtue.
Moreover, I often found myself agreeing with Eichengreen on issues that were posed as positive ones but that had a normative tone, such as this one from September 29, 2014:
Letting car services such as Uber or Lyft compete with taxi firms on equal footing regarding genuine safety and insurance requirements, but without restrictions on prices or routes, raises consumer welfare.
Eichengreen gave it a Strongly Agree. Granted that this was posed as a positive question, but it would be a rare duck who would say, “I strongly agree that this would raise consumer welfare and I’m against it.”
Once I figured this out, I had a choice: scrub my planned blog post or write it up with my actual results. I chose the latter. We economists are all familiar with journals that reject articles, not because they’re badly done, but because they don’t find the result that the researchers were expecting (hoping?) to find but didn’t. But it’s a bad idea to reject such high-quality articles: those articles tell us something too.
I learned something from this research, and it’s a lesson I also learned much earlier in my life but seem to have to relearn. Actually, two lessons. The first, which I first learned from reading Pride and Prejudice three times in high school, was not to assume but to pay attention and weigh evidence. The second, which I learned when I was a summer intern at the Council of Economic Advisers under Herb Stein in the Nixon White House, was how much agreement there is among economists about not restricting competition, not regulating prices, etc. One afternoon that summer of ’73, when I was caught up on all my projects, I found some old files from the mid-1960s when Kenneth Arrow was a senior economist at the Council. In one of his memos, he made the case for deregulating natural gas prices.
What was my earlier failed gotcha that I mention at the top of this post? In 1984, when I was a senior economist at the Council, I read a Washington Post editorial that argued against the Securities and Exchange Commission regulating newsletters. The Post made the case based on the idea that even if financial newsletters were misleading, we should trust freedom of speech and not trust government to regulate. So I sat down to write a letter to the Post making the case that the Post editorial writers should follow their own reasoning more consistently. Of course, the best way to make that case would be to find another editorial in which the editors advocated more regulation and more trust in government. None of the other editorials that day were on such topics. So I checked the previous day and found two editorials on topic. The problem: both advocated deregulation. So I went back one more day and found another editorial on topic that advocated–deregulation. I wrote my letter and it was published, but it wasn’t as strongly worded as I had planned at first. Again, I learned something: Don’t assume and specifically don’t assume that you don’t have allies.