Tuesday, May 12, 2009

Which side is your choir on, boys?

Which side is it on?

I skimmed The Economist last week and this week. I found myself surprised by some of their throwaway partisan applause lines. The lines seem like sloppy surely-we-are-all-on-the-correct-side-of-this-issue preaching to the choir. That, alas, doesn't surprise me. (I grant the The Economist can be less cavalier about that than many magazines. That's damning with faint praise if there ever was.) But I am surprised at their implicit assumption about the partisan sympathies of their choir. What happened while I wasn't looking? The choir they seem to be expecting doesn't match what my mental model for who subscribes to The Economist.

One surprising line is on page 13 of the May 9 issue. "Thirty years after Thatcherism began to work its cruel magic in Britain (see page 60), continental Europe still tends to favor a larger state." Are they casually taking a side-swipe at the obvious overall cruelty of a smaller state and/or of Thatcherism? Some audiences would consider that to be controversial, not obvious. Damned few would claim there were no downsides to Thatcherism, of course. But some would dispute that they were particularly cruelly distributed, especially since the outcomes of the kinds of policies that Thatcher fought against have been seriously flawed as well.

E.g., high unemployment in France's rigidly controlled labor market has not been good for the poor. Even the same editorial acknowledges the very high unemployment concentrations in youth (over 20 percent) and various Muslim areas (over 40 percent). That outcome alone bears comparison with various negative outcomes associated with Thatcherism. If such unemployment were present in England (or the USA) and absent in France, I expect it would rank very high on any passionate leftist's list of flaws of Thatcherism (or the USA). (And indeed, now that economic upheaval has raised USA unemployment to the level of France, the paid defenders of the Anglo-Saxon model at the The Economist refer to this this as a notable disadvantage of the USA's approach; that is, a notable disadvantage relative to France! See my following post.)

Conceivably the "cruel magic" line is intended to be ironic. The authors could be using a light touch to express what could be heavy-handedly expressed as "after 'cruel' Thatcherism began to work its magic." But if so, the touch is so light that I can't feel it even when I try. It really seems to me that that line is an intended as an earnest reminder that obviously Thatcherism is particularly cruel.

(Now, denying passports and work visas and whatnot to subjects in Hong Kong as the lease expired, that was particularly cruel and particularly shoddy. But that's not what people usually mean by Thatcherism.)

Another surprising line is in the April 25th issue, in the cover editorial on p. 13: "The Depression showed how damaging it can be if governments don't step in when the rest of the economy seizes up." This line might be less controversial than the "cruel magic" line. Still, it's a funny thing to state as simple fact if you know the kind of person who reads Milton Friedman, or Amity Shlaes, or real business cycle theory, or George Selgin. Those are not terribly popular views, but they are not terribly marginal or terribly ignorant either.

Also, while right-thinking people have long considered the Depression to be clear evidence for the importance of governments artificially stimulating economies, the very length of this history can be a bit of a problem, because stimulus fans who argued for their models by back-fitting the Depression have had several sieze-ups since then when their policy prescriptions could be tried. They famously encountered difficulties in the 1970s in industrialized countries. As far as I know it's hard to consider their record in the Third World in any decade to be a success. And while there's considerable disagreement about what lessons to draw from Japan's lost decade, I think one plausible lesson is that even by 1990 even the broadest outline of how to un-stick a stuck economy was not very well understood.

Against that history, a possible triumph is that governmental manipulations broadly consistent with the Great Depression stimulus lesson might deserve much of the credit for "The Great Moderation". But as Bernanke was at pains to acknowledge in the given link, as of 2004 there was some difficulty in assigning credit. And measuring possible costs is even harder. At one extreme, continuing "small" costs (in the sense of being too small to measure easily) could be quite significant in economic outcomes. E.g., US macroeconomic policy has tended to discourage private savings and investment. It's hard to be sure that hasn't caused a penalty rather more than 0.1% in annual economic growth; that would add up. And at the other extreme, occasional huge costs can also be proverbially tricky to estimate: how often will the steamroller catch you just as you are trying to get away with your latest shiny penny?


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