Thursday, August 6, 2009

Politics and Economic Rhetoric

Law professor James Huffman, in today's Oregonian complains about politicians' claims regarding stimulus spending. [Not available on-line apparently, how shocking is that?] And he has a point, the number that state representatives have been using for the $176 million state stimulus package, 3,236 is pretty indefensible. But somehow this complaint about ways that politicians put a spin on their policies (this, in itself, a startling revelation) morphed into claims that stimulus spending is bad economics. And that is an even worse rhetorical slight of hand.

There are really two main points to make here. The first is that you can't have it both ways. Yes, the $176 million is a drop in the bucket that is likely to have a minimal impact on the real unemployment rate in the state. But this also means that it is a drop in the bucket in terms of a drag on the state economy in the future. For a $160 billion economy, $176 million just 'aint gonna do much either way. So don't complain about inflated job numbers and then turn around and make inflated claims about damage to the economy. This is true with criticisms of stimulus. If government spending is so useless in terms of job creation than it is disingenuous to suggest that taxation is, on the other hand, completely devastating in terms of job destruction.

The second point is that the jobs numbers from the federal stimulus package are derived from economic theory and empirical evidence about the correlation between changes in GDP and changes in unemployment. There will never be a counter-factual to use for comparison, so we will never be certain just how the stimulus spending performed. What you have to do in these cases is use the best available knowledge and data to guide policy. The entire point of stimulus is to counteract the bad times by borrowing from and tempering the good times. And there is no rhetorical trick to the phrase 'jobs created and saved," it is simply a recognition that the jobs created are created in a time of massive job losses, so it is a clarification that we are not talking about additional job on top of the peak employment numbers.

As as another side note on rhetorical malfeasance, Huffman suggests that the tax increases in Oregon are to finance the stimulus spending which is false. The tax increases are to counter fractionally the lost revenue that has resulted from the recession. Whether they are a good idea or not is a separate discussion

Huffman suggests that there is no escaping the economic wisdom of the political class - but the political class in Washington has surrounded itself with some of the very best economists in the world. We would be better off escaping the economic wisdom of the lawyer class.

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