11 November, 2008

Obama's Economic Policy pt. 1

Okay, so the country came together and Barack Hussein Obama will be our next president. Moving on, it's time to get down to the nitty-gritty and look at what he's actually going to do.

First off, a kind of nitpicky point, which really isn't nitpicky at all. Here's a good post from Bill Buiter on the people that make up Obama's "Transition Economic Advisory Board" and...it's not the group of people I would have picked. Buiter points out that there are only four economists, but eight lawyers:

Except for a depressingly small minority among them, lawyers know nothing. They are incapable of logic. They don’t know the difference between necessary and sufficient conditions or between type I and type II errors. Indeed, any concept of probability is alien to them. They don’t understand the concepts of opportunity cost and trade off. They cannot distinguish between normative and positive statements. They are so focused on winning an argument through technicalities, that they no longer would recognise the truth if it bit them in the butt.
Harsh, but mostly accurate. Lawyers are trained as advocates. It's their job to represent a particular constituency. Here, you've got Reich representing the unions, Granholm the car manufacturers, and so forth. Making economic policy, on the other hand, is about weighing trade-offs between different constituencies. Moreover, lawyers are trained to point out flaws, no matter how trivial, in the arguments of others, rather than to understand all of the relevant arguments and synthesize them in a more deep and substantive way.

The best public policy does not emerge from a competition between advocates of various constituencies. That's how you get disasters like the annual Farm Bill or every trade bill ever or Medicare Part D. Good policy comes from a group of serious people being open to all the relevant considerations and thinking hard about them.

What Buiter doesn't object to, but I will, is the six or so businesspeople on the board. I'll give Paul Krugman the mic:
The converse is also true: What people learn from running a business won't help them formulate economic policy. A country is not a big corporation. The habits of mind that make a great business leader are not, in general, those that make a great economic analyst an executive who has made $ 1 billion is rarely the right person to turn to for advice about a $ 6 trillion economy.

Why should that be pointed out. After all, neither businesspeople nor economists are usually very good poets, but so what? Yet many people not least successful business executives themselves believe that someone who has made a personal fortune will know how to make an entire nation more prosperous. In fact, his or her advice is often disastrously misguided.

I am not claiming that businesspeople are stupid or that economists are particularly smart. On the contrary, if the 100 top U.S. business executives got together with the 100 leading economists, the least impressive of the former group would probably outshine the most impressive of the latter. My point is that the style of thinking necessary for economic analysis is very different from that which leads to success in business.
Maybe this is all for show and publicity, but I'd feel a lot more confident if I could actually see Obama taking advice from some established economic thinkers besides Larry Summers. (Although I'd love to see Summers reprise his role as Treasury Secretary. All of the arguments against him are bogus.)


Elliot said...

I think you and him get lawyers wrong, at least from what I've gleaned from the study. Far from not understanding those basic concepts, they are trained to understand them just well enough to be able to thwart them with technicalities.

But (half) joking aside, the relevant distinction would be I think between legal scholars and those who only practice advocacy. Those (like Obama!) who are professors, theorists, and judges have as their job the nuanced balancing of costs and benefits, and of competing interpretations.

As for the larger point, fair enough, I guess. I'm not one pushing for more corporate executives to be in charge of economic policy. But a couple things rankle: one, the idea that economists aren't advocates or a particular constituency. You guys don't float in space.

Two, I agree with your take on how good public policy is made, but the point of having advisers from all sectors and constituencies is that "all relevant considerations" include many things besides the best economic thinking. For instance, when trying to pass bold legislation, you better have a bunch of nitpicking lawyers on your team, because the reality is that good legislation can be defeated by the other side or overturned by the judicial system do to "trivial" flaws or technicalities.

And I guess last, what about the likes of Furman and Goolsbee? I think they are still close advisers even if they aren't on the T Team.

spencer said...

Sure, judges, legal theorists and the like get a pass on the first part of my critique. But they still bite the second part of my critique, and too often miss the forest for the trees. I think most judges would not see their duty as weighing the consequences of ruling one way or another, but as deciding how to correctly apply the law. Besides, there are no judges or legal theorists on the board in question.

I take the point that economists are indeed advocates. But they're advocates for a particular point of view, not a particular constituency. When Jennifer Granholm walks in to such a meeting, her goal is to get as much federal money as possible funneled to Michigan. She's not looking out for, say, service workers in Chicago. An economist, on the other hand, will try to determine what's best for the entire society, not just for a particular sector. So you might have economists who think lower taxes is better and some who think a bailout for GM is better. But no one is considering only the welfare of a certain group. (And this argument applies to lots of analysts, not just economists. You could imagine political philosophers or ethicists or sociologists contributing something useful.)

As to your last point, it's perfectly possible to separate the group that actually plans the legislation and the group that makes sure it can pass Congress and judicial review.

Furman and Goolsbee I'm sure will reappear in some capacity. It's just kind of disappointing that Presidents can't lean more on people like them instead of convening groups of the rich and powerful.