Over at Equitable Growth: The State of Macroeconomics? Not Good...: Monday Focus for July 21, 2014
Liveblogging World War II: July 21, 1944

Monday Smackdown: Robert Waldmann Is (Relatively) Gentle with Late-1970s Martin Feldstein But Not with Mid-1970s Mad Dog Samuel Huntington's Intellectual Origins of Reagan-Thatcherism

NewImageRobert Waldmann: Comment on Intellectual Origins of Reagan-Thatchernomics: "That is a long and interesting list...

...Somewhere the crime wave seems to have fallen between to stools (between 17 and 18). I think that, to be fair to both, especially Feldstein, you should number separately.

Huntington's willingness to criticize democracy and praise deference to superiors is amazingly frank...

On Huntington:

Trying to be quicker on (18)-(30) which I will ascribe to "Mad Dog" (to avoid an concerns about context)

On (18) ["the democratic surge of the 1960s raised again in dramatic fashion the issue of whether the pendulum had swung too far..."]: His courage amazes me. Even George Will doesn't question Democracy so bluntly any more.

On (19) ["the vigor of democracy in the United States in the 1960s thus contributed to a democratic distemper... the expansion of governmental activity... and the reduction of governmental authority..."]: The word "distemper" is pejorative. Think of trying to tell a Tea Partier that a reduction in "government authority" is "distemper". I think they would lose their tempers. Again amazing frankness (I refer to Mad Dog, who may or may not have anything to do with a Harvard prof.)

On (21) ["in the late 1960s... after the... Welfare Shift... the overall government deficit took on new proportions... obviously one major source of the inflation which plagued the United States..."]: Subsequent events have not been kind to Mad Dog either. You have a problem yourself if you consider deficit phobia to be part of the intellectual origins of Reaganism.

On (22) ["the beneficiaries of governmental largesse coupled with governmental employees constitute a substantial proportion of the public. Their interests clearly run counter to those groups in the public which receive relatively little in cash benefits from the government but must contribute taxes..."]: Mad Dog has a problem. The big expansion in spending was mostly Medicare--not cash, and benefiting all who live past 65. He seems to think that a high fraction of GDP was spent on means-tested cash benefits. He is wrong. Increased public employment had a lot to do with teaching baby boomers how to read. I'm sure he doesn't oppose that.

On (24) ["the commandments of judges and the actions of legislatures were legitimate to the extent they promoted, as they often did, egalitarian and participatory goals. 'Civil disobedience', after all... implied the moral value of law-abiding behavior depended upon what was in the laws, not on the procedural due process by which they were enacted..."]: Does Mad Dog know what "procedural due process" means? It sure doesn't mean depriving people of the vote then passing laws to keep them separate and unequal. Did Mad Dog know that congress is supposed to declare war and peace and that Johnson was sure the Tonkin gulf resolution did not grant him authority to escalate? I mean, how the hell does he dare place contempt for due process on the side of protesters when it characterized those against whom they protested?

On (28)-(29) and (30) ["Politicians... [seek] achievement which may have an immediate payoff but which they and, more importantly, their country are likely to regret... giv[ing] to dictatorships (whether communist party states or oil sheikdoms)... a major advantage..." "An 'excess of democracy'.... The effective operation of a democratic political system usually requires some measure of apathy and non-involvement on the part of some individuals and groups..." "Marginal social groups, as in the case of the blacks, are now becoming full participants in the political system.... Less marginality... needs to be replaced by more self-restraint..." "Democracy is more of a threat to itself in the United States than it is in either Europe or Japan where there still exist residual inheritances of traditional and aristocratic values..."]: Again, amazing boldness. Also cluelessness. Had Mad Dog ever visited Europe? I knew there was somewhere the US authoritarians' frank expression of envy of dictators. I think subsequent events have taught a bit about the advantages of dictatorships. The fact is that history shows that democracy works horribly, but less horribly than the alternatives.

On Feldstein:

I will use the word "Feldstein" to mean "Martin Feldstein as quoted by Brad DeLong with no claim by me that all necessary context was included in the quotes". On 1,2,4 and 6: subsequent evidence has been very unkind to Feldstein. Post-Reagan Revolution all did worse than pre-. (6) ["Increasing pressures and risks in the financial sector..."] was an amazing hostage to fortune, on which Feldstein would have lost a fortune if he took his own arguments seriously.

On (5) ["a falling share of national income devoted to net investment and to research and development..."]: Huh?!? The ratio of nonresidential fixed capital investment to GDP was extraordinarily high in the 70s. (also it declined in the 80s). What the hell is he talking about?

On (1)-(8): he is playing with timing. He is ascribing the 60s boom to the old policy regime even though it followed the policy shift. He is like the supply siders who decide that Reagan policy began in 1982.

On (9) ["expansionary monetary and fiscal policies... in the hope of lowering the unemployment rate but without anticipating the higher inflation rate that would eventually follow..."]: this assertion is simply false. The increase in inflation was certainly anticipated by all prominent paleo-Keynesians (who argued for tighter fiscal policy in the 60s). What actually happened is fiscal policy was loose (at least by pre-Reagan standards), as no one likes taxing and Nixon demanded loose monetary policy to stave off the McGovern juggernaut. The second claim is a paraphrase of Arthur Burns--who would tend to be more expert on the thought of Arthur Burns than Feldstein was.

On (10): I know of no evidence that taxing investment income reduces national savings. The data since 1979 have been very very unkind to Feldstein.

On (11): Feldstein assumes that health has nothing to do with productivity. The data suggest that good health precedes rapid growth (in a cross section of countries). Of course the "without considering" is simply a lie. I was alive in the early 70s and read some newspapers--possible undesirable side effects of regulation were discussed at length (in the not so high brow Newsweek).

On (12): [Feldstein] has to deal with experience rating of UI when considering the effect on layoffs. Job search can be productive if it leads to better matches. it is easy to write down models in which UI causes a Pareto improvement.

On (13): Medicare, Medicaid & health care costs. This is very hard to reconcile with subsequent international comparisons. US has a larger fraction private and much higher spending than other developed countries. Private insurance plus out of pocket have grown very fast. Again subsequent data have not been kind to Feldstein.

On (14): There is little evidence that welfare programs weaken family structures. The structures kept changing the same way after welfare reform. Of course, I must admit there is little evidence for the pro-generous welfare position (say Moynihan) that it is important to provide welfare to unemployed couples too. Basically, even in the 25 blue states which did this, the program was irrelevant, as too few couples needed it. Now there has been a decline in teen pregnancy. That was clearly due to the Clean Air Act (see (11)--I am 100% serious).

On (15)[federal aid through the tax laws and through special credit programs to encourage homeownership would have such adverse effects on the cities..."]: Good point Marty--note how actual elected Republicans don't agree.

On (16): Again, WTF?! Is the labor market loose or tight? In (2) vs (16) Feldstein has it both ways. On taxes, the top rate was higher in the 40s and 50s than in the 60s and 70s. As quoted, Feldstein is using high GDP growth in a period with UI, Social Security and high tax rates as proof that you can't have high growth with UI, Social Security and high tax rates. WTF?! Huh?! Etc...

On (17): Good point again. However, I again note the very high level of investment in plant and equipment in the 1970s.

Summing up: I think Feldstein wrote crazy things about investment in the 70s and growth with high taxes UI and Social Security. I think he knew better, but was exploiting the vague sense that everything was very right-wing in the 50s. I think he counted on tricking people who were paying more attention to the (18)-(30) issues than to actual economic policy. He arbitrarily picked the peak of a boom as the end of the good old days. This is cheating.

However, he certainly was right that 70s economic performance was very disappointing. I didn't think that Reaganism was worth a try, but I can see how some people did. Subsequent poor economic performance refuted Feldstein's argument, but hey, that's social science. I think this is also true of health care spending. The USA had not pulled away from the pack yet. On (20): WTF?!?! Does Mad Dog think Vietnam is internal to the USA? Some of the points clearly refer to the 60s and not the late 70s. Where was prof. Mad Dog at the time ?

I think claims (8)-(17) (which are standard pro-market arguments) have weak empirical support (that includes (15) and (17), with which I agree). I'm pretty sure they are based on economics 101, and the assumption that elasticities are high.

I (not surprisingly) tend to agree with Robert: Feldstein is making a set of judgments and setting forth a set of hypotheses as to the causes of late-1970s malaise that were not implausible at the time but that history and subsequent evidence have not been kind with. Huntington is genuinely frightening.