How Does Brad DeLong Define Success?
[UPDATE below.]
I’m not sure, but it must be a low bar. In a recent, exhaustive critique of Hassett, Hubbard, Mankiw, and Taylor (HHMT)–who have written a “white paper” on the Romney economic program–DeLong is upset that these critics of Obama have pointed to a certain research paper to bolster their objection to the “cash for clunkers” program. (HT2 Daniel Kuehn) Here’s DeLong, first summarizing the HHMT position, and then critically responding to them:
HHMT: The negative effect of the administration’s ‘stimulus’ policies has been documented in a number of empirical studies. Research by Atif Mian of the University of California, Berkeley, and Amir Sufi of the University of Chicago showed that the cash-for-clunkers program merely moved new car purchases ahead a few months with no lasting effect.
[DeLong responds:] DOES NOT FOLLOW: Such policies are supposed to shift demand forward in time into periods where the crisis is acute from future periods in which, it is hoped, demand is less slack. When Mian and Sufi present their work, they characterize it not as showing the failure but rather the success of programs like CFC [cash for clunkers].
Now when I read this, I thought, “Ah, excellent. Here we have a pretty straightforward factual claim and counterclaim, and one that we can easily verify in 10 seconds with Google: Did Mian and Sufi in fact interpret their own work as showing cash-for-clunkers was a failure or a success?”
Here’s the abstract from Mian and Sufi’s paper:
Abstract:
A key rationale for fiscal stimulus is to boost consumption when aggregate demand is perceived to be inefficiently low. We examine the ability of the government to increase consumption by evaluating the impact of the 2009 “Cash for Clunkers” program on short and medium run auto purchases. Our empirical strategy exploits variation across U.S. cities in ex-ante exposure to the program as measured by the number of “clunkers” in the city as of the summer of 2008. We find that the program induced the purchase of an additional 360,000 cars in July and August of 2009. However, almost all of the additional purchases under the program were pulled forward from the very near future; the effect of the program on auto purchases is almost completely reversed by as early as March 2010 – only seven months after the program ended. The effect of the program on auto purchases was significantly more short-lived than previously suggested. We also find no evidence of an effect on employment, house prices, or household default rates in cities with higher exposure to the program.
I think I solved the mystery here. DeLong knows how he writes about people or programs with which he disagrees; accusations of perfidy and fascism come to mind.
So, since Mian and Sufi don’t say, “Why oh why can’t we have better Administration economic policies?!” DeLong interprets that as a ringing endorsement.
Last point: Forget DeLong for a moment. Go re-read the HHMT position (the top half of the first blockquote above), and then re-read the Abstract from the Mian and Sufi paper. It is almost verbatim.
And yet, DeLong blows a gasket and adds this to his list of misleading statements or outright lies (DeLong’s term) put out by HHMT.
UPDATE: Daniel Kuehn links to this article by Ezra Klein, who contacted some of the economists whose work was cited in the HHMT white paper. I didn’t hunt down the originals and compare with what Klein asked the people, but assuming Klein was being fair, it looks like HHMT misrepresented some of the research on which they relied. One of the people Klein contacted, was an author on the cash for clunkers paper. Notice though that even here, the guy’s response is (paraphrasing), “Oh, we weren’t criticizing stimulus plans in general. We were just saying the CFC didn’t do anything, but that was a $4 billion drop in the bucket. So you can’t generalize from that failed program, to the Administration’s stimulus policies in general.” Like I said, I am paraphrasing there, so go look at his actual position if you want.
Did he even *read* it!? Oy vey.
DO NOT QUESTION GOVERNMENT SPENDING, SERF!
Yes, Sir!
Perfidy.
Thanks for making me Google a word.
DeLong sounds mad.
If DeLong admits that such programs as CFC are not really stimulating the economy over the complete period but are essentially a zero sum game of demand, then didn’t he actually admit right there that the multiplier theory and this whole stimulating thing is wrong and finally deceiving?
+1
I think he did admit this, though I don’t think he is even aware of it.
This kind of statement from DeLong:
“Such policies are supposed to shift demand forward in time into periods where the crisis is acute from future periods in which, it is hoped, demand is less slack.”
is an admission that the government spending multiplier is zero, and that Keynesians like Delong implicitly depend on the Fed to reverse future drops in demand through money printing. If course Austrians know the future drop in demand is a part of the correction process (not to the credit circulation cycle, but to artificial demand created by state activity and thus the resources and labor that get tied up there, instead of where the consumers want them).
If one wants demand in the present to rise at the expense of demand in the future, with programs like CFC, and one then says that “hopefully” demand will be higher in the future, then what one is really saying is that one hopes that the Fed will step in and reverse the decline in future demand by a fresh new round of printed money.
It is quite amazing how sloppy Keynesian thinking can get. DeLong is grounding his entire worldview on nothing but the “hope” that future nominal demand will not fall.
Bob Murphy said…
How Does Brad DeLong Define Success? fascism comes to mind.
[Difficult to believe that there was once a time when the american right, though obviously deluded, was actually capable of real policy discussion. Alas, this kind of wingnuttery became the norm long ago – Brad]
So, DeLong seems to be admitting a multiplier of zero for CFC. Right?
Nah guys, in principle the pull-forward effect is consistent with a positive (and large) Keynesian multiplier. E.g. say the CFC pulled forward $100 billion of auto demand from the year 2014. Then, in 2014, when we’re out of a recession, the fed funds rate would normally be (say) 5 percent, in the absence of the CFC. But now the economy has lower demand in 2014, because all of those car purchases had been pulled back to 2012. No problem: The Fed ensures full employment in 2014 by cutting the fed funds rate to (say) 4.5 percent.
But the reason the Fed can’t restore full employment today, is that the fed funds rate is already 0%. So that’s why other tricks must be used, to boost total demand to today (like pulling forward car purchases from the future).
So DeLong didn’t get caught here admitting the theoretical vapidity of Keynesianism. Instead, he painted himself into a corner by saying that CFC worked because it pulled demand from the future, when the economy is in recovery–when “the future” is 7 months from now.
But now the economy has lower demand in 2014, because all of those car purchases had been pulled back to 2012. No problem: The Fed ensures full employment in 2014 by cutting the fed funds rate to (say) 4.5 percent.
Maybe I am missing the elephant in the room, but if the Fed has to inflate in the future, so as to reverse the lower future demand that follows CFC, then isn’t this a tacit admission that the CFC multiplier is indeed zero?
I don’t think it is fair to say that spending multipliers can be greater than zero by depending on the printing press. I thought the whole point of fiscal multipliers was that it is a way to increase spending by methods apart from the printing press.
Or are Keynesian multipliers tied up with inflation?
Isn’t decreasing the FED’s fund rate not just another method to shift demand from the future into the present? Sounds a bit naive to claim a positive multiplier was achieved with CFC if I do this with just another pull of demand into the present. It is clear that if they leave the FEDs fund at 5% (as it actually is required in an all else equal thought experiment to prove if a change of one variable has an effect then you are not allowed to change another to get the wished result) that there is no multiplier of CFC. If instead of a decrease of the FEDs fund they just made another CFC(2) it would yield a similar effect. Yet nobody would claim then that there was a positive multiplier for CFC1, if it is clear that CFC2 was introduced and caused this additional demand in 2014.
So I am with MF.
Please give me your opinion on: Is lowering the FEDs Fund pulling demand from the future into the present?
Hm, I’m not sure I see any outright stupidity in this, just De Long mischaracterizing the disagreement. Here’s what happened:
HHMT: Cash for Clunkers didn’t increase total demand; it just moved demand forward, lowering it in the future and increasing it in the near term.
De Long: Cash for Clunkers didn’t increase total demand; it just moved demand forward, lowering it in the future and increasing it in the near term. And that’s a good thing.
Silas, I appreciate your attempt at evenhandedness, but you’re leaving out the crucial part of the exchange: HHMT saying “these two guys agree with us that it had only short-lived and small effects,” and DeLong saying, “No, they say it was a success.”
Problem of referentiality, I guess. To pre-revelation Oedipus, “Iocaste” means “woman I romantically love”, not “my mother”. To DeLong, “merely shifted sales forward” means “success”, not failure. You’re right that he’s misleading (arguably lying) about how the authors regard their result, though.
So demand was less slack September ’09 to March ’10? Or was it just hoped that it would be and the hope is what made it a success?
Also, I think this exposes something for the general public who don’t quite understand: Keynesians are time period bound. I believe the g.p. tends to believe the multiplier is a ‘net effect’ rather than a ‘borrowing from the future’ effect.
I also don’t think they understand that even the period effect doesn’t account for the destruction of value in junking the junkers. That doesn’t show up in GDP, but it does in reality.