McCain Doesn’t Really Hate Economists, Does He?

INSERT DESCRIPTIONPhoto: soggydan

Political rhetoric tends to be overwhelmingly simple while economic analysis is often needlessly complex.

This is not news. But it does make for a big disconnect between what politicians say and what they hope to do — because if they publicly said what their economic advisers told them, voters would either riot or fall asleep.

That said, after spending some time at the Republican National Convention this week, and hearing John McCain‘s multi-faceted energy proposal (the Lexington Project) reduced on the convention floor to the simple chant “Drill, Baby, Drill!”, I came to wonder if indeed McCain hates economists.

Consider what he said about economists at a New York town hall meeting in June during the frenzied days of the “gas-tax holiday” debate:

They’re the same ones, I guess, that didn’t tell us about the housing subprime lending crisis. They’re the ones that didn’t tell us about the dot-com meltdown. And they’re the ones that didn’t warn us about inflation that’s coming up. I have to fall back on the old adage that if you took all the economists in the world and put them end to end, they still wouldn’t reach a conclusion. So I trust the people, not the so-called economists. … to give the American people a little relief.

So I put a few questions to Doug Holtz-Eakin, McCain’s chief economic adviser, who participated earlier in a quorum on this blog about the role of such advisers.

Q: John McCain doesn’t really hate economists, does he? As his economic adviser, how did you feel about his “so-called economists” comment?

A: No, he doesn’t hate economists and I laughed when he said it. And I agree: you should not simply “listen to economists.” My well-meaning colleagues (and me) can be out of touch with conditions on the ground (if too reliant on data). And by focusing too much on differences, we as a profession often do not convey clearly the things about which we disagree.

Q: In our earlier blog quorum, you wrote that an economic adviser’s hardest job is fighting bad economic ideas. Can you give an example or two of bad ideas that you’ve helped quash?

A: Require that all oil extracted in the U.S. be sold in the U.S. — silly because it is a world market, etc.

Q: With energy such a prominent issue in this campaign, how are you helping your candidate communicate an effective political message about such a complex subject?

A: Break it into pieces. Problems: national security, economic security, environmental security. Solutions: change the way we drive (hybrids, electrics, biofuels); use the abundant resources (coal, nuclear); and break the political deadlock (moratorium, nuke storage, cap-trade).

Q: Can the sort of populism Sen. McCain appealed to in the “so-called economists” quote possibly be reconciled with the economic realities of the real world?

A: Sure. You listen to the people. You also listen to the political constraints. You listen to the research. That is the reality of economic policymaking and the reason it is not a textbook activity.

At first blush, McCain would seem to be the sort of candidate well-suited to appreciate economic advice. He, like many economists, is a rationalist — blunt, and not always politically correct. On the other hand, he publicly professed that “the issue of economics is not something I’ve understood as well as I should.”

In the new book The Leaders We Deserved (and a Few We Didn’t), Alvin Felzenberg attempts an unideological ranking of U.S. presidents, using more specific criteria than are usually used by people who rank presidents.

In judging the presidents’ economic successes, he breaks the issue down into a few categories: overall economic performance during their tenures; improving the country’s economic infrastructure; and expanding economic opportunities for all Americans.

According to Felzenberg, there have been four excellent economic presidents in U.S. history: George Washington, Abraham Lincoln, Theodore Roosevelt, and Ronald Reagan. Seven more did quite well: James K. Polk, William McKinley, Woodrow Wilson, Calvin Coolidge, Dwight D. Eisenhower, John F. Kennedy, and Bill Clinton. The worst economic presidents according to Felzenberg’s methodology were James Madison, James Monroe, Andrew Jackson, Herbert Hoover, Richard Nixon, Martin Van Buren, and Jimmy Carter.

So what is it that makes a president a good economic president? Here’s what Felzenberg says:

Most economically successful presidents were genuinely interested in business and economics. They availed themselves of multiples sources of information both inside and outside their administrations and selected good advisers and competent department heads … Nor did they resort to short-term gimmicks … While often reacting to short-term challenges, these presidents developed coherent policies designed to boost long-term economic performance. … None of [the failed] presidents, save for Carter and Hoover, showed much interest in business or economics.

Assuming that Felzenberg’s theory is mostly right, and given what we know so far of McCain’s appetite for economics, what sort of economic president do you think McCain would be?

[Note: you can hear a discussion related to this topic of The Takeaway.]


weeklymg

Was it that economists failed to warn, or that right-wing economists failed to warn, and Republicans failed to listen to warnings of the more left-leaning ones?

In any case, this false populism disgusts me. It's totally dishonest and hypocritical to criticize economists while having an economist on the payroll. The Republicans are trying desperately to pin their failures on any scapegoat that might work for them. It's so transparent that I wonder how there can ever be any accountability in American government if McCain wins.

William

If McCain/Palin are elected it will be disaster for the US economy even if he surrounds himself with good advisers, which I seriously doubt. He just does not understand Economics. However, the most important thing is he has no interest in Economics/Business. I can just imagine a McCain administration, you will see him walking around with all the Generals, National Security Advisors, Defense people. This is while his economic team will be be stuffed in a walk-in Closet and taken out like an old coat once in a while. This is particularly true if McCain decides to go after Iran.

PaulK

Rich C, although I agree with you, the problem is that too many Economists put themselves out as "experts" on everything. There has been a sense that economics experts were encouraging the heated capital of less than prime mortgages and "creative" lending. Few were pointing out the highly unbalanced risk models and the fact that the impact would not be felt immediately given the back-ended nature of these techniques. Instead, they were pointing out how it was staving off recession and helping the short-term economy. Even more "liberal" economists were encouraging this because it was making home ownership available to more people. These were not just researchers or just people studying, they were advocating.

The dot com boom was similar in that few were being dismal and noting that any system which assumes only continual input/growth is doomed to fail. Perpetual motion machines have real world problems.

The overheated stock market fueled by the average investor was perhaps a bit different in that words of caution about ever growing markets seemed to encourage more of the day traders, who tried to cheat that terminal value point by trading on short term changes, thereby making it more unstable.

The real problem for economists in general is that the ones that get most listened to are the ones "selling" what people want to hear (based on politics, greed, etc), and yet all economists get blamed in the end. Try to point out the absurdity of the gas tax holiday, no one wants to listen. Try to explain that more oil here does not stay here but goes to the highest bidder worldwide (and so has little effect until oversupply). Try to explain that allowing offshore drilling would have no effect for years (equipment has to be built and installed) and then has little effect due to the above cause. Try to explain that hiding true cost into the future will blow up in that future (whether nuclear waste, shoddy infrastructure, balloon loans, underfunded pensions, etc). Now you know why it is "dismal" ;-)

Read more...

BT

McCain would not do too well according to Felzenberg’s criteria.

1. Genuinely interested in business and economics - he has not shown much of that. NO

2. Multiples sources of information both inside and outside their administrations and selected good advisers and competent department heads - Doug Holtz-Eakin is an excellent choice. Phil Gramm would be a terrible choice for the Sec. of Treasury - NEUTRAL

3. Nor did they resort to short-term gimmicks - Gas tax relief + offshore drilling are terrible gimmicks. Palin might be too. - NO

4. While often reacting to short-term challenges, these presidents developed coherent policies designed to boost long-term economic performance - McCain has not been very innovative in his economic plan. He has basically adopted the supply-side economics principles of G. W. Bush. If the last few years are any indication, his plan would not likely improve long-term economic performance. - NO

Overall, I don't think McCain and his policies would be good for the economy.

Read more...

Jayson Virissimo

"As a physicist myself, I tend to be quite skeptical of economics and the social sciences in general." -Dave

Dave, did you predict the last tornado or earthquake far in advance? Should that make me skeptical of physicists since they are supposed to know about energy and matter? After all, you expect economists to be able to predict future changes in the market.

Rich C

I think some clarification of 'economist' needs to be made. I've been reading the posts and it seems that there is a lot of blame being put on 'economists' for the Dot-Com bubble, the Credit Crisis, etc.

An economist is someone who studied economics. It's a social science--one of the 'soft' sciences. The main focus is on theory and policy. There is no exact answer to any theory because of externalities. Yes, new information changes base line assumptions. That's because all information held by an individual, or even a group of individuals, is necessarily imperfect. No one person, or group, can know all of the information available at any point in time. Decisions are made based on the information at-hand. As new information is discovered, changes to that decision may or may not be possible. Another aspect of economics are the affects of the psyche of the country (or whatever locality) has upon decisions being made; expectations can change decisions and influence the way information is analyzed.

For everyone bemoaning economists as the source of the many financial woes, I would ask you to look a little deeper at some of the main actors in those events. The Dot-Com bubble was not caused by economic policy, it had to do with complete market saturation. People went into the Dot-Com business, many made money, and everyone thought it would go on forever. Then the market corrected itself, and many of those same businesses that had made extraordinary profits went bankrupt. If an economist had been the cause of it, there probably would have been a warning citing Business Cycle Theory.

The current credit crisis is also not to be placed at the feet of economists. Financiers and Wall Street bakers are more to blame here. Poor risk management is definitely to blame. Risky loans were made to people who, traditionally, could not get financing of this sort because of their historical inability to pay for those types of loans (i.e.: mortgages). So a new financial instrument was created, put to market, and sold to people who were known to be high-risk types. Yes, many people with more than ample means bought into these mortgages, also, but the targeted audience were the "sub-prime" classification. "Pay only the interest for the first 5 years!" Mortgages were made to people on the low probability that they would succeed to a higher level of income before the 5 years was up, and the higher monthly payments began to take effect. Then, to try and cover poor risk management, those high-risk loans were bundled with other financial instruments in the hopes that any losses would be masked by the profits of lower-risk loan returns. The people who designed these instruments were not economists by education or title. They were financiers and bankers; holders of MBAs and degrees in finance.

To reiterate my main point: let's not malign 'economists' who had little or nothing to do with the woes brought upon us by people who can't even speak about basic economic theory.

Read more...

Joe Smith

We have the Republicans and the Democrats competing to see who can be more fiscally irresponsible and the Fed blowing serial monetary bubbles. Its refreshing to have a politician admit he's ignorant. Now if the rest of them would just admit they don't know s**t from Shinola about economics maybe we could get somewhere.

MrIncognito

This is quite a list:

"According to Felzenberg, there have been four excellent economic presidents in U.S. history: George Washington, Abraham Lincoln, Theodore Roosevelt, and Ronald Reagan."

War, war, war, and cold war in other words. I would have to question how effectively the rankings are contextualized.

Abhi

For ONCE, will SOMEONE pay heed to the EXPERTS' advice/suggestions? Aren't they called that for a reason?

Buttercup

I'll give you what I can see as a possible way out of this.

One of the major problems for women is that the authority of "mom" has been deconstructed.

On one hand, the price-taker women have to "shut up and do as your told", on the other, mom's authority is deconstructed by masculine language in intellectual institutions. How can mom's "common sense" about food, health, raising good children compete with the scientific authority of a doctor? It's awefully convenient as a source of constant revenues for pharmaceutical and biotechnology companies, but it's tearing apart any potential for a liberally democratic household. Women have different language. I had to copy from masculine textbooks so that anyone would listen.

Obama is going in the right direction with his plan to support working women and families. This WILL work well for women. It WILL help bring better economic equality into a household and for women in general.

In campaigning to women, as I see it, it would be most efficient to explain the issue simply. On one hand it is "shut up and do what you are told", on the other, it is your responsibility to speak up and step up and help. You have a choice.

Explain what liberal democracy means to women. It means freedom, choice, responsibility. And to cut through the opacity of media coverage of the campaign, get information on the internet. The history of liberal democracy. American history. Great women in liberal democracy. More information. All the information you can give...FREE!... women will soak it up like a sponge! And I think the most important thing is to show TV ads that portray mom, in a feminine language, having authority in the house and men supporting her authority.

Liberal Paternalism is a great idea. Coming out of Princeton University on iTunes U... Defaults can be set to automate decisions for people who have indifference or lack of knowledge about a subject. They can debate issues and argue the placing of defaults if it concerns them. This will work wonderfully for womens issues. Good thing there are top female judges! But women will have to work out issues that concern them in a feminine language, and authority for feminine language will have to be reconstructed.

And finally, economically disadvantaged women would like to pay 50% of the dinner bill if they can. Until women are economically equal, they are going to need a hand up, and Obama is going to need a lot of masculine financial support. Men have far more economic power to command than women at this time. The market prices for stay-at-home mom services is running at or below minimum wages and the financial support from these women, regardless of hope, will be minimal.

Read more...

PaulK

With regard to the question of how McCain will fare, the 1st question is to ask is whether the best or near best pandered this way during their campaigns? I do not remember Reagan or Clinton ever trying to make economist the enemy during the campaigns. I think they went on selling vision (morning in America, it is the economy stupid, etc) and feel-good strategies (knowing full well that the consumer is the economic engine's fuel).

I have to think that when a candidate tries to "sell" quick fixes that do not work, whether offshore drilling or gas tax holidays or more Bush tax cuts, it seems unlikely he will be anything but terrible. I think many of the best presidents were careful to sell a tough vision rather than palatable but worthless "solutions". We all know that Americans want instant fixes and relief, but you are dealing with a large inertial engine with huge elastic boundaries (global economy, exchange rates, political control of supply/demand worldwide, infrastructure cost and time, etc). This kind of patient explanation does not fly with the "red meat" Republican base (e.g. not the old style fiscal conservatives), who hate and/or distrust people who are educated. To complete the picture, McCain needs to start affecting a Texas or Southern accent, maybe chew on a piece of straw. In other words, although he has been a maverick at times, in truth he has rarely been a leader. I think the best presidents from an economics perspective were true "leaders" in the sense that they could get the American people to follow them, even if the course was hard. So far, I only see one candidate taking that approach, and it is not McCain.

Read more...

Buttercup

I can see why McCain hates economists... It says so right here...

A price taker faces a perfectly elastic demand. One farmer's wife is a perfect substitute for the wife from the farm next door or from any other farm. Note, though, that the market deman for wives is not perfectly elastic. The market demand curve is downward sloping, and its elasticity depends on the substitutability of wives for other...

Oh, so that's why Americans can't get rid of their gun law. I thought it was because they wanted their shotguns to protect their property... oh, right women only became "persons" and not property a little while ago.

So what happens if a woman ISN'T a price taker? How about J Lo? (Didn't she get insurance for her butt?!) She's smart enough to get a pre-nuptual... and she gets to say she only wants sex twice a week. Poor husband. What do you say to that? Yeah, I get to have her exclusively, but sex only twice a week... but I have to look at her all the time! Does he take a lot of cold showers?

What would Elliott Spitzer think about that? I think I see a 600 pound gorilla in the room!

I think the US has a value conflict to resolve. Sex is caught between the institution of religion and no-one can will dare suggest constructing an economic institutional approach to sex.

In this book, we shall examine in detail the many functions that markets play in the sex economy. First, they facilitate the exchange of products and money between buyers and sellers. In doing so, they make both parties to a transaction better off. Markets also create value by encouraging competing firms to improve their prices, services, products, and values for consumers. Through competition, markets can also contribute to efficiency as well as economize on the efforts of buyers and sellers.Markets also place values on economic activities, creating both rewards for correct decisions and punishments for inefficient decisions. Perhaps most importantly and least appreciated by many, markets assist in the efficient allocation of resources in the sex industry, which in turn can improvethe living standards of a society.

What a political nightmare setting up the taxes and legislation and financial system to support this market would be!

Can any of you gentlemen suggest a logical and economic reason why a sex market SHOULD NOT exist?

Proof by Reductio ad Absurdum

It shouldn't, but it does, but it shouldn't, but it does...

If uncomfortable with indirect proofs, one is in good company with many mathematicians who take such proofs as a challenge to find the positive version of them.

THIS is why Hillary Clinton didn't get a united support from women. It's only half of the women. She's the olympic medallist for First Lady... that doesn't mean she's president. That would be a different competiton. I can't see any reason to compete for First Lady, and she was only offering more of the same.

What is really concerning me is that there is a generation of "princesses with a sense of entitlement" coming up behind me. Kids are growing up on music from groups called "Bad Religion" and you can see all sorts of strange and creative ways that women are getting around this problem of sex not being an economic institution. What about the high school girls in the news that formed a (economic?) pact to have babies and all provide support for each other? That caused an uproar when one of the fathers was a homeless man!

These girls are getting education, and a university education, and what happens when they get really smart? What man likes an intellegent woman? They're rather quarrelsome aren't they? Who wants that day after day? Especially when you get that all day at work too!

So... all is fine if the economy is booming. They get a job, get their own apartment, and go to the bar when they feel like casual sex.

And what happens in a recession? Competition for jobs gets fierce and the women get fired from their lower-paying (than men in the same position) jobs. They lose their apartment. They move home to Mom and Dad's place, but Mom and Dad were happy that they were finally out of the house. So they suggest that maybe it is time they think about getting married and settling down.

And now you want them to be docile and servient after you told them they could have their dreams?

How long is that going to last before they go jump off a cliff. Or swerve in front of an oncoming semi-truck?

I don't think it is a stretch to think that John McCain hates economists. What a headache!

...one is in good company with many mathematicians who take such proofs as a challenge to find the positive versions of them.

Read more...

H. Trent Moore

"It is better to be vaguely right than precisely wrong"

-John Maynard Keynes

If more bankers had relied on the advice of economists rather then their own greed we might just have avoided the sub-prime crises.

Editor of "The Journal of Applied Economy"

www.appliedeconomy.com

Robert

It's clear that if you put McCain economists Phil Gramm and Holtz-Eakin end to end, one could see where they have their heads.

The Republicans' alleged pretext for more drilling for American oil was to not send money to our enemies (Putin, Chavez and Islamists) and lower the price for Americans by adding to OUR supply.

Apparently that is a bad idea. Their better ones? We should stop whining (Gramm) and just watch Exxon sell OUR OIL to the highest bidder so they can make even more money at our expense (Holtz-Eakin).

What a crock.

lerxst

As an Economist for Obama I think that what is most disturbing about McCain is that he and his advisors basically have no compunction about lying about Obama (e.g. not just exaggerations, but outright lies about Obama's tax policy and health care plan --we catalogue these at our website).

The fact that he and his advisers do not honor honest discussion suggests that they will do the same if elected and continue to follow the Bush path of acting in the short-term political interests at the expense of the long-term interest of the country.

By the way, recall that Reagan presided over exploding deficits despite the good advice of Martin Feldstein. The fact that he is called "excellent" and FDR is not, essentially undercuts the idea that Felzenberg's list is ideologically neutral.

Sam

Reagan's on here and FDR isn't. Sure parts of the New Deal failed but it put people to work. And once WWII began employment skyrocketed.

Daniel

I think all of you have missed the point:

Who is that woman standing behind McCain?!!

Duffka

Society places a high value on economists and presidents serve society. How much value say you? Median wage of $42(BLS) per hour which is more than psychology and about equal to political science the next closest social scientists in terms of wage. We find value in what we are WILLING and ABLE to pay therefore THEY BETTER LISTEN!

Without further review...I agree with Felzenberg.

Stephen

Stephen Dubner doesn't really hate John McCain, does he?

There's a right way to ask a question and a wrong way. Dubner does it the wrong way. Sarcasm and unflattering photos are the tools of PR agents and partisan hacks -- not fair-minded economists. Dubner should know better.

Dubner surely is right that political rhetoric can be "overwhelmingly simple." But attempting to disguise a conclusion as a question is ... overwhelmingly simple-minded.

Jacque French

#54 mentions Keynesian Economics which has been the rage since the depression. In a paper titled

"Economic Possibilities for our Grandchildren" (1930)* he wrote, "... the day might not be all that far off when everybody will be rich. We shall then, once more value ends above means and prefer the good to the useful.”

“But beware!” he continued. “The time for all this is not yet. For at least another hundred years we must pretend to ourselves and to every one that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight.”

These are words of our most revered economist, and you can see his philosophy in our government still as the genesis of the 'trickle down theory' (You can google this complete paper.)

?

Read more...