Writing for Tyler
- Posted by ryan on October 5th, 2009 filed in Economics
I have to say, I was a little surprised to read Tyler’s take on my post addressing Arnold Kling’s “recalculation” theory of business cycles. He seems to suggest that the post is high in emotional content. I was not feeling particularly emotional when I wrote it. Rather, I was perplexed by what I thought was an idea that made no sense. I still think this. Tyler says that phrases I use, like “make no sense” or “is a little nuts,” indicate I haven’t thought hard about the issue. I find that a little odd (can I say this?). I don’t know why someone would try to divine my understanding of the question from phrases like that, rather than focusing on the content of the arguments that accompany them.
I feel as though Tyler deals with the points I actually make as superficially as he says I engage with Arnold’s. He seems to try and score rhetorical points by criticizing my summary of the recalculation theory as “full of strawmen.” It’s brief, but I don’t think it’s unfair.
And I don’t believe Tyler really got the criticism I was making. Arnold previously wrote this:
From the Recalculation perspective, the economy needs to shift resources out of some sectors and into others. The government is either (a) permanently shifting resources from the private sector to government or (b) temporarily shifting resources from the private sector to government. If it is doing (a), then we are not facing mere temporary deficits but permanent increases in government spending, and eventually we will have to figure out how to pay for them. If it is doing (b), then the Recalculation problem isn’t really being solved. Instead, at best the government is redistributing the pain from the reallocation process out of the present and into the future. People who otherwise would be unemployed can find temporary work on government projects, but when those projects expire they will go back to being unemployed. This is what makes the fiscal exit strategy so problematic.
My question is this: why does the economy need the million or so workers kept out of unemployment by stimulus to be unemployed in order to recalculate? Why wouldn’t we want them to transition into different jobs at a later time, and why would that later time be pushed back by stimulus? Why is stimulus remotely problematic here?
It certainly seems to me that Arnold is arguing that it’s very important for recovery that every last worker who “should” be driven out of work by the recession actually lose their job and stay unemployed until some new private demand appears to bring them back into the workforce. Tyler says that not all of the recalculation can be done at once, and so some interventions are ok, but only bail-outs and automatic stabilizers, not other kinds of stimulus. Why? If we had a more generous social safety net and the automatic stabilizers played a greater counter-cyclical role, would that still mean that automatic stabilizers were ok, or would that be too much intervention? But what if the combined effect of all of those interventions got us down to 8% unemployment, where the new natural rate during recalculation is 7%?
Tyler writes:
On aid to the states, the recalculation problem applies very directly (Matt says it doesn’t but I don’t see where in his post he gives a reason for that view). You can think that some form of state-level aid is necessary, as I do, and still see the recalculation idea as explaining why a big state-level ouch is coming in about two years’ time. When (if?) the stimulus is not renewed, a painful sectoral reallocation will have to take place and right now we are only postponing that pain. By the way, it would be nice if state governments played along by having a coherent long-run fiscal plan but right now at least half of them are not doing this, thereby worsening the forthcoming ouch. Wait until you see what happens with state universities in two years’ time. Ouch, ouch, and triple ouch.
I don’t understand this at all. The recalculation includes state and local government employment? What does providing federal government aid to states now, when budgets are tight, have to do with the ability of the states to provide certain services two years’ down the road, when tax revenues have recovered much of their ground? In a world where state governments are typically constitutionally unable to borrow — to maintain a steady level of service provision by running deficits, which I believe would count as an automatic stabilizer — federal government aid is simply shifting the borrowing to the federal level, which makes a great deal of sense given the terms on which the federal government can borrow.
Tyler concludes:
The bottom line is this: if you’re trying to use the recalculation idea to explain why the fiscal stimulus should be zero, that in my view will fail. If you’re using the recalculation idea to explain why the stimulus has a lower rate of return than many people think, it hasn’t much been dented by the recent criticisms. After all, if the problem were just insufficient AD, a solution would be ready at hand. But it isn’t and it’s not just because Obama isn’t “tough enough” to propose a bigger stimulus. It’s a genuinely difficult problem to solve.
I might say that there’s a disconnect between the rhetorical content of the polemic Tyler wants to level and the information content in his post. Essentially, Tyler says that to the extent Arnold is saying that stimulus isn’t doing any good (and is actually doing some harm) and it certainly seems to me that this is what Arnold is saying, Arnold is wrong. Tyler then goes on to say that his views are right and others’ wrong, but I don’t think there’s much in the way of evidence offered to support his claims. I mean, many Keynesians continue to argue that a solution is at hand, and just because a sclerotic political system is unable to do much about it doesn’t mean that they’re not right. Unless we’re arguing that political sclerosis is somehow a manifestation of the recalculating process.
But I have learned something from this exchange — Tyler discounts arguments couched in emotional, or emotional-seeming, terms. That’s a shame. Sometimes people see and write most clearly when they allow themelves to be angry. It’s then that they feel no obligation to water down their argument with unnecessary caveats or efforts to protect interpersonal relationships. Maybe Tyler never has these inclinations, but I believe that most people do.
October 5th, 2009 at 11:36 am
Can I be angry about something here? And not you Ryan, just the general discourse about employment and the rationality of market. I think the idea of people who should or shouldn’t be employed or jobs we should or shouldn’t have are incredibly loaded. And ridiculously anti-people. It’s sort of like the British term of redundancies. It anthropomorphizes the market into something living and breathing separate from human actions. It’s Calvinistic, really.
I read recently at Richard Layman’s blog about Paris which we’ve discussed here as being sort of this idealized city. Perfect in every way. Richard pointed out (and I’m pulling from memory here) that they have twice daily mail delivery, that they have 7 day a week (multiple times a day trash pick up) and they each and everyone of their streets is hand swept daily.
So of course the city looks beautiful. It’s got a ton of people working behind it. And that keeps the French employed. We would scoff at this of course. That should be automated! The unions are guaranteeing employment! What a waste of taxes!
But is it? Is Paris worse off because it puts in the kind of manpower that would make Disney World blush?
And is it really a good thing to lose workclass and handicraft jobs? Are we losing a skills and abilities (and internationalizing them) that perhaps in the long wrong we are worse without? I’m reading Richard Sennet’s (sp?) The Craftsman right now, and it really points to the importance of handcraft practice. And how developing those skills is intellectually and brain development-wise a good thing.
So I cringe at this idea that there are certain jobs that maybe we are just better off without. Or we are better off outsourcing those skills. We become not just dependent on other countries to provide us our necessities, but we also lose part of our national skill set. And I think that’s troubling.
I’m not sure if the Paris example is directly related, but it does seem like part of a French appreciation for the work provided by all people. And how keeping those skills in-house as it were is maybe a good thing.
October 5th, 2009 at 1:23 pm
I agree that Arnold’s recalculation doesn’t come together for me. We are laying off employees here at Carolina and our long term projections are for growth on top of growth. Application were up as usual during the recession. However, there is a liquidity constraint and some people are going home.
Moreover, layoffs are up in basically every industry. Maybe not health care. How can we be recalculating for a smaller everything? Doesn’t that simply mean there is a problem with the labor market reaching equilibrium?
If this recession were only construction workers loosing their jobs then this could make some sense. Though it still looks like construction employment is below its long run equilibrium path. However, we are seeing broad based losses in jobs.
On the other side I tend to think the watering down is somewhat useful. I think its easy to get trapped into defensive analysis, not taking other writer’s arguments seriously because we want to “win.” This is the enemy of clear thinking and should be avoided.
October 6th, 2009 at 2:01 pm
The short answer is that there is no such thing as homogeneity, in anything. Getting those workers back into jobs requires the creation of new, heterogenous uses of labor and capital. This takes time, even if the planning comes from the government rather than corporations. Even a stimulus must eventually find its way into creating new heterogenous uses of labor and capital.
October 6th, 2009 at 2:35 pm
The simple answer to your mystification at Tyler’s response, Ryan, is that angry people are not rational.
I’m sure you feel righteous and passionate and splendid, wrapping your prose in cutting remarks, letting your stupid opponents know exactly how you feel about their vacuous
But the FACT is, Ryan, that you are not 100% correct about anything. No one is. The reason we use civil language is because we cannot be right all the time, nor are we likely to be right most of the time.
Everyone knows this, at least, everyone out of their college years. They *know* that you can’t be right about everything. So they look at your arguments, and if your arguments are full of sound and fury, it is a strong indication that you haven’t actually thought them through in a reasoned manner.
No matter how much better you feel about yourself after deriding Arnold Kling, you are not (I assume) writing these posts to convince yourself of the sanctity, virtuousness and wonderfulness of your own option. You are trying to convince other people that they should weigh your opinion more highly, and Arnold Klings’ position less highly.
And why should anyone change their weightings when you can’t even restrain yourself enough to be civil about your disagreement?
I mean, if I follow up my reasoned paragraphs above with “And you, Ryan Avent are a Pompous Douchbag”, you would probably feel completely justified in dismissing my entire argument out of hand.
So suck it up, and make the effort to be civil. The people who are “on the fence” about the issue will find that reasoned discourse to be much more persuasive than polemic.
October 6th, 2009 at 4:38 pm
The phrase “an irrational passion for dispassionate rationality” comes to mind. Google doesn’t seem to know where it originated. It’s a fair description of a certain tendency in economics - you could call it the Panglossian or neoclassical mindset. It shouldn’t be necessary to point out that some of the finest thinkers in a number of fields have been fiercely passionate individuals.
Now I come to think of it, one could put together quite an anthology of statments by “orthodox” economists expressing their distaste for emotional language. Perhaps there is some connection between ideology and personality? Where’s dsquared? This is his hobby-horse.
October 6th, 2009 at 5:16 pm
Angry or not, you continue to misconstrue Kling’s arguments. Most importantly, he is not against stimulus, rather he favors stimulus in a form that acts quickly and does less to impede “recalculation” adjustments. His idea is a payroll tax holiday. If you want to argue against him, you should be arguing against that.
October 6th, 2009 at 5:43 pm
“My question is this: why does the economy need the million or so workers kept out of unemployment by stimulus to be unemployed in order to recalculate? Why wouldn’t we want them to transition into different jobs at a later time, and why would that later time be pushed back by stimulus? Why is stimulus remotely problematic here?”
There are two reasons:
1) Imperfect/uncertain information for planning. For the sake of argument, say I have a stimulus or bailout funded job. Is it in a sector that will still be strong enough to need me when the stimulus is withdrawn? Is there a chance I’ll get a second, or third, &c. round of stimulus (even under a different name) or do I need to find another job in another sector as soon as I can? I don’t know, no one knows exactly, and pouring money into specially selected sectors distorts the overall price signals for all sectors. When those signals are distorted no one has any idea where to invest resources of any variety (money, time, employment, etc.) because no one knows what the market would do if those chosen spots weren’t being stimulated.
2) Stimulus doesn’t really work that way if you accept at all the premise of malinvestment (some economists don’t, Paul Krugman for example). Stimulus, if directed at different avenues investment will either be stimulating behavior that likely would have been done anyway (but without free market feedback as to the degree or timing of investment, and with political favoritism as an underpinning) which is a waste of good money, or if directed at the already over-built sectors, is work which no longer needs done in that quantity, which is also a waste. If the financial and real estate sectors, for example, were over-developed there is no productive use of money in developing them further. Obviously, it is not a good use of money to pour it into something which is already over built, but from an employment perspective it also delays the necessary retraining of the workers. Financial workers don’t become workers in industry X or Y overnight. Stimulating their original sector doesn’t help that recalculation/retraining take place softly, giving time to become skilled in X. It only serves to delay it since the distortions in the market prevent discovering what X is, and therefore what they should be retrained to do instead.
October 6th, 2009 at 6:04 pm
Also, read: http://globaleconomicanalysis.blogspot.com/2008/12/krugman-still-wrong-after-all-these.html
for some reasons on why housing/financial/credit markets affect far more than just those sectors.
It doesn’t help with recalculation, however, as just as the boom money slushed around a lot of sectors the fallout does. How many Bed, Bath and Beyonds _should_ exist per capita when everyone isn’t cashing out their home equity to pay on their 14 credit cards?
There is no obvious way to answer that.
October 6th, 2009 at 6:19 pm
Government isn’t a separate sector in the Recalculation, it is part of the restructuring.
If we are trying to reorganize production, there is no reason that stimulus for any given sector has any given predictable effect. All the sectors have to grope their way through, there is nothing special about government in Realculation theory, nor should there be any special about government in any economic theory.
October 6th, 2009 at 7:36 pm
I read lots of Kling and barely ever see him argue for a payroll tax holiday. I don’t recall him doing it but one time, about 5 months ago.
However, I do see him frequently critisize stimulus.
October 6th, 2009 at 8:32 pm
Mike, if you use the Google you’ll find that Kling has talked about a payroll tax holiday lots of times, including this post from just last week:
http://econlog.econlib.org/archives/2009/10/the_stimulus_de.html
I don’t think any sensible economist would have designed the stimulus package we got. But it still may be true that it was better than no stimulus.
October 7th, 2009 at 5:42 am
I think the points I wanted to make have already been made by your surprisingly verbose commenters, but I’ll put in a few quick asides anyway.
1) What jb(4) said about emotional arguments. In response to (5), the fact remains that the vast majority of people who use emotional arguments are blinded by the position they have already taken to do what Tyler accused u of not doing, i.e. thinking hard enough to find a sensible reason for whatever argument u disagree with, and not react immediately. Yes, a lot of the people who “get things done” have passion, but they should and probably did use it in other ways, not polemical speech. (Although I didn’t really think you post was all that polemical, to be honest.)
2) Basically, about the recalculation vs stimulus thing which should really not be a “vs” issue at all, as has been mentioned: I think (not really being an economist or anything, I can’t tell for sure) the argument is that when you actively intervene in the economy, you might end up preventing the recalculation from taking place and even go against the natural sector-shifts, which means the market will then try to undermine you when the stimulus is inevitably lifted (as AK and TC say, you really do need an exit strategy). Essentially, the unemployment that would otherwise take place now will just take place later, and you end up wasting a whole bunch of money in stimulus. This is obviously for the case where the stimulus money is focused on the “old”, “to-be-shifted” sectors. If they focus on “new” sectors, like Obama is trying to do with his green strategy, then it might work quite well.
October 7th, 2009 at 5:43 am
Oh wow, that was long. :O
October 7th, 2009 at 10:02 am
@9
So anybody can raise taxes, and write laws?
October 7th, 2009 at 10:32 am
ThomasL
“Imperfect/uncertain information for planning.”
As though we had that without the stimulus?
“Obviously, it is not a good use of money to pour it into something which is already over built, but from an employment perspective it also delays the necessary retraining of the workers.”
As though
a. they knew what they should be training in;
b. they could all start training at once.
Sorry, I find the comment just silly in the current circumstances.
October 7th, 2009 at 10:35 am
And I don’t think Paul Krugman thinks malinvestment doesn’t happen. I’m sure he thinks it does. He just doesn’t think
1. it is the primary cause of the problem - read “Babysitting the econonomy”
2. it is not particularly relevant when every industry has empty order books and existing resources are not being used to capacity. (Besides which we have a globalised world and real production bottlenecks are rarely insoluble).
October 7th, 2009 at 10:36 am
Ryan,
Kling has repeatedly stated two things:
The Recalculation Story is not an argument against stimulus. But a certain type of stimulus, the payroll tax holiday, is far less intrusive and quicker.
The current debate is ignoring the Recalculation aspect of this recession, so Arnold is pushing that story, with hard tunnel vision, in order to be heard. He notes it’s not a complete analysis.
To the other points you make:
Local and State government’s budgets are bloated. They over-committed thinking revenues from the housing boom were permanently rising. They’re going to have to shrink, in order to balance, given the new lower housing equilibrium. If the Feds want to step in now to help ease that burden, fine, but the Federal money is temporary. Which means the budget cuts are just being delayed. Eventually, these decisions will be made to shrink the local government sector. Conditional on the assumption that something unforeseen doesn’t change, somehow boosting tax collections.
I think you understand that this is what Arnold and Tyler are saying about how the specific type of stimulus we enacted (direct fiscal spending) affects the “Recalculation,” but that you are still not convinced it is true. To that end, I am not sure how it could be put any other way.
October 7th, 2009 at 10:45 am
ThomasL
To be honest it sounds to me like you think that a Walrasian auctioneer really exists. Have you ever thought of the possibility that in the real world the adjustment process might initially take you in the wrong direction. That lots of firms might interpret falling absolute levels of demand as falling relative levels of demand?
October 7th, 2009 at 3:12 pm
reason,
I think we may be far closer in opinion than you think. That said, I’m not entirely sure what points you believe to be scoring with your critiques, as an answer to every one can be prefixed with “of course.”
Of course people always have imperfect information at all times. However, they act on the best information they do have and, in the context of employment, are lead by job market signals. With stimulus/bailout funded jobs, what signals am I getting from the gov’t or the “market” on when to leave? I’m getting mixed signals all over the place. I, and no one else, has any idea what the market for my services is absent that constant inflow of gov’t money. It may be strong enough to need me anyway, but it may not, and I can’t tell which as the natural level is completely masked. I also cannot tell how stable my stimulus funding is. There may be more rounds, or there may be a new bill that secures my funding forever, or I may get cut off. It depends a lot on how well connected my lobby is. There is no functioning market for my services to provide feedback and information and my job exists only at the mercy of governmental caprice. That is not conducive to good planning. It might be unpleasant personally, but if I get laid off the clear message is there is not enough market for me doing that particular thing here, and so I’ll either need to go somewhere else, or do something else.
Of course no one knows exactly what everyone should be retraining to do, that is much of the point and why I specifically said, “the distortions in the market prevent discovering what X is, and therefore what they should be retrained to do instead.”
It takes time to discover what people should do, and it is absolutely unlikely they should all do the same thing at the same time. The problem is, employing them to do what they were doing just keeps kicking the ball down the road. Employing them to do something else means you are supplanting Bernanke’s and Frank’s choice on what the “next big thing” should be for individual and market choices. That is highly unlikely to work. Even if they make a good choice it operates absent real feedback, and so can go in inefficient directions even while trying to do worthwhile things (cf. Bill Gates comments on the difficulty of selecting efficient, helpful charitable projects through the Gates Foundation in the absence of consumer feedback and prices). The government sponsored sectors have a lot of the aspects of a charity.
Of course the readjustment might head the wrong way to start. So what? Some people were doing X, they get laid off, they start doing Y, they get laid off, they end up doing Z. So? Your implicit assertion is that Bernanke/Obama/Frank/Pelosi are certain to pick all the right things on the first try. I think they are almost certain to pick the wrong things, and not just because of their politics. Central planning simply does not have enough knowledge about the preferences, abilities, and ideas of all the people in economy to direct them all productively. More philosophically, they also don’t have the right to pick the winners and losers, which is an implicit and necessary consequence of taxing one sector in order to give handouts to another, or taxing everybody through inflation to bestow disproportionately the new dollars on their favorites.