Richard Posner writes dishonestly about the Obama stimulus package. I count at least seven major ethical lapses in his piece.[2]
They start with:
Richard A. Posner: [Council of Economic Advisers Chair Christina] Romer argues in her talk that by the end of the second quarter of this year, $100 billion of stimulus money had been spent. That is a suspiciously round number, and it is unclear how it was arrived at...
But consider Mark Zandi: Mark Zandi was one of John McCain's most senior economic advisors last fall. Mark Zandi's estimates of stimulus spend-out are that it amounted to $89 billion as of the end of June--$2 billion in February, $7 billion in March, $13 billion in April, $32 billion in May, and $35 billion in June; with (so far) about 60% of the spend-out coming in the form of tax cuts and about 40% in the form of aid to states (with a trivial amount in direct federal government spending):
Source: Mark Zandi, http:/www.economy.com
The number is "suspiciously round" because Christina Romer is rounding it: this is a talk, whereby the audience is supposed to take in information through its ears, and rounding things to one significant figure is something you do to make your talks informative.
Posner's snide and sneering implication that Christina Romer is bulls---ing her audience is false--unless, of course he wants readers to also believe that long-time Republican Mark Zandi and many others as well are corrupt and in the pay of the Obama administration.
If I were Richard Posner, I would under no circumstances publish this piece in Great Britain. Just saying.
It gets worse. Posner goes on, demonstrating nothing either his lack of facility with arithmetic or his willingness to play intellectual three-card-monte:
[Christina Romer] then argues that this small expenditure [of $100 billion]--about two-thirds of one percent of the Gross Domestic Product--is responsible for the fact that the decline in GDP fell (on an annualized basis) from 6.2 percent in the first quarter of the year to 1 percent in the second quarter (though the latter figure is likely to be readjusted upwards)...
Posner is trying to get his readers to compare the number 5 (the percentage-point swing in the growth rate between the first and the second quarter of 2009) to the number 2/3 (the percentage share of second-quarter stimulus expenditures to annual GDP). He hopes that they will conclude that Christina Romer's claims are wrong because the effect is disproportionate to the cause: $1 of stimulus could not reasonably be expected to produce $7.5 of boost within the same quarter. But the stimulus money spent in the second quarter was spent in one quarter, so the right yardstick to use to evaluate it is not annual but rather quarterly GDP--stimulus spending in the second quarter was not 2/3 of one percent but 2.6% percent. And the level of production in the economy in the first quarter was not 6% but rather 1.5% below its level in the fourth quarter--the 6% number is not the decline from one quarter to the next but rather the rate of decline, how much the decline would be after a year were it to go on for four quarters. So the right comparison is 1.5% to 2.6%[1].
Posner is off by a factor of 16. That is hard to do if all you are doing is the arithmetic: subtraction and division. But it is easy to do if making an apples-to-oranges comparison is not a bug but a feature you are striving for.
I would say that it gets worse, but it doesn't. It merely passes from the libelous and the wrong into the incoherent:
No one has the faintest idea what effect the stimulus has had. My guess is that it has had some positive effect... some of the $100 billiion--though no one seems to know how much--has been spent rather than saved. But it is impossible to determine the net impact of the stimulus on GDP or employment because so much else has been happening.... Some people have had to dissave.... Some people have had to replace durables.... And the government has been doing a lot to stimulate recovery besides the stimulus.... Disentangling the various factors that are responsible for the reduction in the rate of decline of output in the second quarter is probably impossible, but in any event has not, to my knowledge, been attempted...
If it is "impossible" to attempt--Posner does say "probably impossible"--then why has Republican economic advisor and macroeconomic forecaster Mark Zandi attempted it?
Source: Mark Zandi, http:/www.economy.com
As Mark writes:
It is not feasible to identify and count each job that results from the stimulus; economic impacts are estimated... [from] a statistical representation of the U.S. economy based on historical relationships... the Moody's Economy.com model, which is used regularly for forecasting, scenario building and policy analysis. The Obama administration has derived its estimates of the stimulus' impact using a similar approach. To date, most of the benefits from the stimulus plan have gone to state and local governments to pay for Medicaid and educational programs and expanded unemployment insurance benefits. This stimulus is defensive--it helps forestall draconian cuts in government services or tax increases that would have otherwise occurred. In the nomenclature of the debate surrounding the merits of the stimulus, this preserves jobs...
We do know that the stimulus money has been credited to the states, and we do know that the states have by and large used this money not to cut taxes (which would also be a stimulus, albeit a less effective one) but rather to fend off some of the spending cuts that their own internal budget procedures were forcing them to make.
And why does Posner say that "disentanging the various factors" "has not, to my knowledge, been attempted"? Does he not have Google on his computer?
And is he not reading Christina Romer (2009), "Is It Working?: An Assessment of the American Reinvestment and Recovery Act at the Five-Month Mark"? Two pieces of disentangling evidence in her talk stood out at me: the fact that those states that--by historical accidents of state-level social-insurance system design--are receiving a relatively small share of the stimulus money are doing relatively poorly:
and the fact that around the globe countries that have over the past six months responded to the crisis with large stimulus packages appear on average to be doing better than it was expected they would six months ago:
And worst of all is Posner's claim that:
As an academic, Christina Romer was a respected student of the business cycle, and actually expressed skepticism, no longer in evidence, about the efficacy of stimulus programs in arresting economic downturns...
As an academic, Christina Romer:
strongly expressed a preference for using expansionary monetary rather fiscal policy to arrest economic downturns in normal times when expansionary monetary policy can push short-term interest rates down and so stimulate the economy; these aren't normal times--short term interest rates are now zero and cannot be pushed any lower--and so it is appropriate to resort to tools that in normal times are second and third best.
argued that during the 1930s New Deal government spending was too small and too often offset by tax increases to play a material role in recovery from the depths of the Great Depression.
I don't think Posner has read Christina Romer's academic work on fiscal and monetary policy, or he would not make such a claim.
In his conclusion, Posner:
raises the question of the ethical responsibility of academic economists, such as Romer (and Krugman, and Lawrence Summers, and many others), who write for the media or join the government, either to adhere to academic standards in their nonacademic work or to make clear to the public that they are on holiday from those standards and that what they say in their public-intellectual or governmental careers should not be thought identical to their academic views...
I don't see daylight between Christina Romer (2009), "Is It Working?: An Assessment of the American Reinvestment and Recovery Act at the Five-Month Mark" and Christina Romer and Jared Bernstein (2009), "The Job Impact of the Americn Recovery and Reinvestment Plan" writing for the Obama administration and Christina Romer lecturing here at Berkeley.
I do see a much more serious ethical question here: Richard Posner:
- has not read (or has not understood) Romer (2009) or Romer and Bernstein (2009);
- has not listened to Christina Romer lecture;
- has not read (or has not understood) her academic work;
- has not used Google to ascertain that a number of attempts have now been made to ascertain the effectivenss of the stimulus package;
- has not used Google to determine the use that state governments have made of their second-quarter stimulus money;
- has not taken the courses in or studied the subject of econometrics in the amount necessary to acquire a view of how one can tease conclusions out of imperfect and confused economic data--or he would not dismiss as "impossible" things that economic forecasters do prospectively and retropectively every day;
- has not checked his arithmetic to correct howling errors of a factor of 16.
In my view, anyone holding themself out as a public intellectual has one duty: to be smart. Being smart involves (a) checking your arithmetic, (b) building up your intellectual tools, (c) using Google, (d) reading works until you understand them, and (e) not writing things where you have absolutely no clue about what you are talking about.
Does Richard Posner think that he is behaving ethically here? In my view, he has failed to satisfactporily perform any item of that checklist.
Does the Atlantic Monthly think that it is behaving ethically here in publishing Posner? At the very least whoever in the Atlantic offices is looking at Posner should have caught the factor-of-16 arithmetic error, not to mention a bunch of the other howlers should have raised red flags and caused the piece to be bounced back for quality control.
Inquiring minds would really like to know...
[1] A very reasonable number for a within-quarter multiplier: second-quarter spending will have effects on production and demand now and next quarter and into the future as well, as people who had jobs in the second quarter because of the stimulus spend some of their incomes in the third quarter, and so forth.
[2] UPDATE: Make that eight major ethical lapses. U.S. Treasury staff report that Richard Posner's claim that the $40 billion number they gave Christy Romer is some sort of accrual number is simply false. It is a cash flow number.
