[Bad Economics] Matt Stoller is an uninformed clown
Matt Stoller has a widely read economics newsletter, and is the research director of an institute with economics in its name. That said, Stoller is as much an economist as I am a vascular surgeon[footnote]I am not a vascular surgeon[/footnote] and I would say we share our level of knowledge in those respective fields[footnote]I know absolutely nothing about vascular surgery. That said, I don’t host a newsletter on the subject[/footnote].
Like other pundits, Stoller’s newsletter leisurely jumps topics between politics, regulations, industrial organization and more typical business oriented microeconomics, all with the utmost authoritative tone, and of course without basic fact checks along the way. That said he happens to be right more often than not, if only because he’s guided by his left-leaning intuition, and most often talks about corporate monopolies, where many of our economists agree that monopsony is a real problem in labor markets and that traditionally “left” solutions like unions and minimum wages can improve outcomes.
That said, here’s an astoundingly ignorant twitter thread by Stoller. This is the kind of idiocy we can only find on modern social media: almost every sentence is obviously wrong, but also stated with total confidence.
Let’s start with a basic question. What is the point of economics? To understand the world accurately? No. Paul Pfleiderer notes economists launder political assumptions through complex models. And economists get big things wrong.
This isn’t just invective. It’s Stoller’s thesis.
It’s obvious to people actually studying economic models that the reverse is the case: pundits selectively choose which models to give media attention to given on the model’s alignment with their political ideology.
You can see this in which economic ideas are popular among politicians from mathematically bad ideas like nation-wide $15 minimum wage [footnote]$15 makes sense in some areas like NYC and the SF bay. In other parts of the country it would be a disaster.[/footnote] to complete nonsense like “trickle down economics” which isn’t even a term used by economists at all.
Similarly, politicians rummage through economists to pick the ones that already agree with their ideas. Pete Navarro and Stephanie Ketlon are both cranks whose ideas are rejected by the economic profession wholesale, but they’re Trump and Bernie Sanders’ economic advisors because their particular flavor of unscientific garbage agrees with the politicians’ misguided ideas.
In 2004, Ben Bernanke lauded the ‘great moderation’ of successful policy, just before the crash. Larry Summers mocked Raghuram Rajan in 2005 when Rajan warned of hidden risk in finance, which non-economist housing advocates in Las Vegas noted years before.
Bernanke’s speech is still true. The inflation rate is stable, including the 2008 crash.
So are most other macro indicators Bernanke is talking about, especially if you’re reading it in the context of the speech and Bernanke being a known scholar of the Great Depression.
It’s also really underhanded for Stoller to take a speech trying to bring theories to understand why we’re observing a fact into Stoller’s narrative prescription. It’s the economics equivalent of using the fact that people don’t have a COVID19 vaccine yet and are making theories on best treatment to push your herbal supplements and essential oils as the solution.
Stoller repeats this trick 3 more times: cherrypicking an anectode, correlating to a future event in an immensely wrong manner to try ti show that the expert might not have known everything a priori.
If the goal of economics were to ascertain truthful views about the world, if economics were as its proponents offer, a science, these errors would matter. They do not. So what is the goal? Simple. Winning bureaucratic turf fights.
As I have said before, bureaucratic turf fights pull economists into the room as weapons to push pre-conceived ideologies. People like Stephanie Kelton and Pete Navarro would get laughed out of the room at any respectable economics seminar, but hold positions of power because they are useful movers in a bureaucratic fight.
Similarly, Stoller here is himself trying to push down credibility of a field of research to push his personal agenda. The fact that he’s using the exact same argument pattern as medical cranks:
Provide anecdotes where experts opined and things deteriorated
Provide anecdotes where your policy was implemented and thing improved
Tie a loose-knit story around the above and sell whatever you’re selling around it (a product, and idea, etc.)
Never, ever try to falsify your idea. Never admit to previous mistakes. Lack of confidence does not jibe with a marketing campaign. Whatever you’re doing is the best and it should be obvious to anyone with a brain.
As we’ve seen in the MMT post, cranks are a methodological issue, and Stoller was casted in that mold a long time ago.
Here’s how it works. Bills that raise or lower deficits as per CBO projections are be held to points of order, which is to say, members of Congress have to affirmatively vote to ignore what is portrayed as the scientific truth.
Gosh, we have to plug some numbers into excel spreadsheets before expensing a budget. What tyranny. I hope he never has to work in an office.
Here’s the trick. CBO uses opaque economist models to appear that spending money on childhood poverty is more expensive than ends up being. But deregulating derivatives to banks gamble with public money? That scores as costing zero.
The CBO is by all serious accounts as accurate and non-partisan as we can hope it to be. We need someone to run the numbers and they’re about as good as you’re going to get at that job.
The banks didn’t gamble with public money. It’s a complete hack of the truth to claim so. The official Federal Reserve policy before the 2008 crisis was to never bailout anything for any reason.
The Fed let the first bank completely go bankrupt, and only started bailouts as a last resort when they saw the bloodbath it caused. The “no bailouts” policy was explicitly stated and retrospective studies showed that banks didn’t act in ways expecting to get bailouts in the 2003-2007 period. Bank executives were simply greedy morons taking excessive risks to boost their year-end bonuses.
In other words, spending money through the regular budget gets subject to points of order, but spending money by shifting risk onto the public balance sheet by letting banks gamble with our money doesn’t. Guess which one Congress regularly enables?
That’s a false equivalency as we saw above, which is built on a complete fabrication of history.
He goes on with similar falsehoods, when we happen upon his prescriptions:
First, make hidden political assumptions explicit. Split CBO into a Democratic CBO and a Republican CBO, and get rid of budget-related legislative points of order. Fight over assumptions, don’t hide them.
This is dumb for a straightforward reason. The current CBO incentives is to get things as correct as possible. A partisan CBO will always get the maximal or minimal prediction of any possible model on the data depending on the political incentive.
Imagine the following distributions are the possible outputs of all models over the data for a given proposal:
What we should care about is some point statistic (average or median) with a confidence interval around it. But with the new partisan dual-CBO we will only instead get the minimum and the maximum of the distribution for any proposal. The minimum and maximum are not informative statistics of the underlying distribution, no matter how you cut it.
Second, replace the Fed committee of economists and businessmen that sets interest rates (FOMC) with a Congressional committee. Congress should set interest rates and Fed policy, as the Constitution says.
This is the single stupidest proposal I’ve heard in the last 12 months [footnote]I’m a moderator of r/economics it should say a lot.[/footnote].
Congress can’t hit countercyclical fiscal policy like any children who took high school economics knows it should. Hell they can barely set a budget every year without shutting the government down over political infighting.
The independent fed can set countercyclical policy like the adults they are. Not only that, they can react to crises in an informed and aggressive manner. By most estimates, the 2008 recession shock was larger than the 1928 one, but the following recession was not a second great depression because the central bank had the tools to combat the crisis.
Economists have many useful things to offer, but it’s critical that economist reformers focus on bringing more democracy into governance rather than replacing neoclassical aristocrats with left-leaning aristocrats.
Translation: “We should listen to economists, but only the ones whose ideas I already agree with, regardless of their standing in the profession.”
By a similar methodology you can fully staff the EPA with climate change deniers.