Wednesday, February 17, 2016

Sad CEA Letter

And just as I was getting all weepy about how great and a-political, obejective, non-partisan and all that the CEA is, along comes an open letter from past CEA chairs Alan Krueger, Austan Goolsbee, Chirstina Romer, and Laura D'Andrea Tyson to Senator Sanders, to restore my cynicism.

The heart of the letter is worthy, and commendable: to call out the fact that Senator Sander's campaign is making promises that don't add up, beyond even the usual stretches of campaign rhetoric from both sides.

But read
 When Republicans have proposed large tax cuts for the wealthy..
Hmm. I wonder if Republicans would characterize their proposals that way? How many speeches have you heard saying "we want  large tax cuts for the wealthy!" No, they say they want tax reform to reduce distorting marginal rates and rampant cronyism.

Really, dear colleagues and friends, how would you respond if Republican CEA chairs were to write a similar letter addressing the shortcomings of Trump's plan that started,
When Democrats have proposed incentive-killing growth-killing marginal tax rate increases with lots of exemptions for their donors... 
and goes on to trumpet their sober-minded analysis of the plans, would you be inspired to plaud their "reputation" for objective evidence-based analysis?

So this is just a poke in the eye, a repetition of partisan Democratic campaign rhetoric, stirring up the base by bulverizing the other party.

Why is Washington so polarized? Because even once-respectable academic economists, transported to Washington, cannot stop themselves from this sort of schoolyard taunting, tribalistic attacks, and repetition of their bosses' propaganda.

For many years, we have worked to make the Democratic Party the party of evidence-based economic policy.
Largely as a result of efforts like these, the Democratic party has rightfully earned a reputation for responsibly estimating the effects of economic policies.
our reputation as the party of responsible arithmetic.
Oh. I thought you were simply doing what all good economists, do, all good CEA chairs do, and you were working to make evidence-based policy a routine feature of all government policy under all administrations. I thought you were working for the benefit of the country, not just the Democratic party.

Worst of all, it's counterproductive. Once you start repeating propaganda -- "tax cuts for the wealthy" -- once you start schoolyard taunts -- the CEA chairs who serve under Republicans are apparently not even capable of arithmetic --  the other side, feeling exactly the intended sling of insult, turns off. You do not gain a reputation for evidence-based policy, you gain a reputation for pandering to political opportunity, and all your "evidence" is immediately suspect of the same partisan bias.

So I don't know in whose eyes the "Democratic party has rightfully earned a reputation for responsibly estimating the effects of economic policies." Among Democrats? Sure. But they often don't care a lot about evidence, as in, say GMO foods or nuclear power. Among Republicans? That's where it might count. I don't go to fancy Republican cocktail parties in DC, but I sort of doubt the chatter goes "well, those Democrats, they have a lot of looney ideas, but you have to hand it to them, they always stick with the science and the evidence."  Evidence is only evidence if it is objective.

So if there ever was such a reputation, you four just threw it away with "large tax cuts for the wealthy" and the insinuation that Republicans can't even add. Instead, you reinforced what I sense your party's reputation actually is among Republicans. And then you're surprised when they don't play nice.


  1. This is targeted towards Sanders and his supporters, not Republicans. Throwing in some partisan language might help to get the message across to Sanders supporters and reduce the chances of them being dismissed as corrupt neoliberals in the pocket of Wall Street.

    1. That may be the case, but it is a sad commentary on the current state of affairs when supposedly neutral people and groups ingratiate themselves to the very people they are criticizing by saying that the "other side" is even worse and/or not even worthy of receiving constructive criticism.

    2. David,

      The CEA was never a "neutral" group. See:

      "In 1949 a dispute broke out between Chairman Edwin Nourse and member Leon Keyserling. Nourse believed a choice had to be made between guns or butter but Keyserling argued that an expanding economy permitted large defense expenditures without sacrificing an increased standard of living. In 1949 Keyserling gained support from powerful Truman advisors Dean Acheson and Clark Clifford. Nourse resigned as chairman, warning about the dangers of budget deficits and increased funding of "wasteful" defense costs. Keyserling succeeded to the chairmanship and influenced Truman's Fair Deal proposals and the economic sections of National Security Council Resolution 68 that, in April 1950, asserted that the larger armed forces America needed would not affect living standards or risk the transformation of the free character of our economy."

      The only reason this "partisanship" is rearing it's ugly head now is because the world of economists is slowly coming to the realization that monetary policy (ie more debt) can't solve every problem.

  2. Why should it matter how Republicans characterize their proposals, as opposed to what the proposals actually entail? Isn't the whole point of economic analysis to see past slogans to consequences?

    1. Indeed, what should it matter at all if the purpose is to objectively critique Sanders' proposals (something that really can't be done in the format of an "open-letter", but such letters do have real propaganda value). Rather, it matters because the entire letter is focused on how the undersigned economists in the service of Democrats can out-manouver those evil and fantastical economists in the service of Republicans. It matters because economists in the service of one party or the other are allowed to fudge numbers, selectively cite support of claims, etc, so long as there is some non-laughable basis for supporting those claims. It matters because the authors in question are functioning not as economists, but as propaganda mouth pieces for their favoured candidate, probably with the hope for a nice policy job in the next regime which can be parlayed into a very lucrative influence-peddling career thereafter. The masquerade as the solely objective purveyors of "truth" is, though, rather touching, don't you think?.

      And, I seriously doubt you think that the language in that letter is designed to honestly portray what Republican proposals "actually entail". If you do, I've got some news for you. The whole thing would be laughable if it were not so sad.

    2. Mark,

      Every Republican tax plan that I know of is proposing a complete overhaul of the tax code, somewhat similar to the 1986 tax reform. Yes, they would lower the top marginal rate, but they would also consolidate brackets and cap or eliminate most deductions and credits, both on the individual and corporate sides. As far as I know, all of these plans would cut taxes across all income levels- just like the Kennedy, Reagan, and Bush cuts. I think it's a bit disingenuous for progressive commentators to repeatedly characterize all of this as simply "tax cuts for the wealthy."

    3. Zack,

      Here is an example tax plan from Donald Trump:


      1. Elimination of the inheritance tax ("death tax").

      2. No income tax for single individual filers earning under $25,000, married filers under $50,000.

      3. No long term capital gains taxes for single individuals filers earning under $50,000, married filers under $100,000.

      My own disagreements are as follows -

      1. First, everyone that earns an income should pay some tax - I disagree with a 0% income tax rate for anyone. My disagreement applies to the 0% tax rate for income under $25,000 as well as the 0% tax rate for inheritances.

      2. For tax policy to be an effective macroeconomic stabilizer it must be regularly adjusted in the same way that monetary policy is adjusted. Otherwise, the same issues (cronyism, special interest cut outs) are going to creep back in.

      3. Trump's plan does not address the issue of federal debt and monetary independence.

    4. Frank

      Those may be the selling points but I suspect that the amounts of money involved in reducing the top personal marginal rate to 25% and the top business marginal rate to 15% are rather larger than the provisions you quote.

    5. I agree with your criticisms #1 and especially #3.

    6. Absalon,

      I don't disagree. But government policy has a "touchy, feely" aspect where appearances matter as much as substance. Many politicians / talking heads make references to a "fair" tax code, and then go on to explain how their policy recommendations would make the tax code more fair.

      For me it least, a fair tax code begins with all income is taxed at some level.

    7. One other thing.

      On the inheritance / "death" tax, the claim is that inheritance income was taxed once and should not be taxed again.

      The reasoning is that "family income" should only be taxed once. If we are going to accept the notion of "family income", then all income received by the individual members of that family must be taxed at the same rate.

      For instance:

      Mark (Father) - Still alive and age 55 makes $55,000 per year

      John (Son) - Still alive and age 21 makes $27,000 per year

      Julie (Sister) - Still alive and age 30 makes $100,000 per year

      For the notion of "family income" to make sense Mark, John, and Julie must all pay a tax rate based on the combined annual income of $55,000 + $27,000 + $100,000 = $182,000.

  3. Goolsbee really cheapened the CEA Chairmanship with his "Whitehouse Whiteboard" videos. Regarding "tax cuts for the wealthy", here he is in all out partisanship mode with a corny down-to-earth shtick.

    That isn't "evidence based economics" or "a-polical, non-partisan, objective stuff". It's a CEA acting as a soap salesman and political hack. Sad for the economics profession and sad for government.

  4. In case anyone isn't aware, the Sanders adviser they're referring to here, Gerald Friedman of UMass, is claiming Bernie's proposals will result in an average GDP growth rate of 5.3% and a $22,000 increase in the median income. I guess your previous blog posts were actually way too pessimistic about the U.S. economy's growth potential!

    Apparently this is more realistic than other plans because,

    "it is pouring money into the economy, as opposed to cutting taxes" and

    "If there is more spending, people will have more to do"

  5. "our reputation as the party of responsible arithmetic"

    Okay so lets find out how good the Democratic Party is at arithmetic.

    Under any tax policy regime what is the non-discounted present value of all the tax revenue the federal government is ever going to collect?

    The starting point for any discussion on how to divide up the pie should be - how big is the pie?

  6. Professor Cochrane,

    I;m not sure your comparison between "When Republicans have proposed large tax cuts for the wealthy.." and "When Democrats have proposed incentive-killing growth-killing marginal tax rate increases with lots of exemptions for their donors..." is completely fair.

    The statement in the letter basically sticks to the facts about Republican tax reform plans -- they generally involve large reductions in the marginal tax rate that high income earners pay. Given this, I don't see why you should find fault with "when Republicans have proposed large tax cuts for the wealthy." No, obviously a Republican wouldn't characterize it that way, just like a Democrat wouldn't admit that high marginal tax rates damage incentives, but that's beside the point. The fact remains that Republican tax proposals do include "large tax cuts for the wealthy."

    Meanwhile, what you wrote for comparison is both a lot more hyperbolic and contains a lot more implicit theorizing than the actual text of the letter. Perhaps "when Democrats have proposed large tax increases on hard workers" is a more apt comparison. Yes, a Democrat might reasonably take issue with the "hard workers" part, but at least the statement is consistent with the facts about their tax plan.

    1. His point stands beyond the accuracy of his analogy. All he needed was something that could reasonably come across as insulting. It's just a question of trying to get the denotation right while imposing value judgements, but the very fact that one would introduce judgement of values while presenting the proposition of the opposition that is at stake: it's being unfaithful to the intention that is bad.

      I agree that his example does involve more presumptions -- you need beliefs about causality in his case, but not in the comment made by the officials. However, the problem is not so much factual accuracy as bickering and a general lack of charity in interpeting the opposition. That, I agree with professor Cochrane, is poisonous.

    2. I think the invalidity of the analogy is actually pretty important in this case. Cochrane basically cites the original letter a suggests it perpetuates the refusal of Republicans to "[ap]plaud [the authors'] "reputation" for objective evidence-based analysis."

      Certainly Cochrane's analogy would reasonably inspire this response, but the same case is a lot harder to make for the actual text of the letter that he quotes. After reading the whole letter, I think that the point is at least somewhat valid, but, by itself, the quote does not lend itself to that analysis that Cochrane offered in my opinion.


  7. "Republicans have proposed large tax cuts for the wealthy.."

    That does seem to be that direct, natural, immediate, first order effect of the proposals put forward by various Republicans. Just because Republicans want to run around claiming various (dubious) second order long term benefits from tax cuts, why does that put some obligation on Democrats to buy into the Republican spin?

    1. For the same reason that Democrats would like Republicans to take their proposals seriously and not instantly dismiss them as "spin." What goes around will come around.

    2. Is this your "moderate center right" viewpoint again Absalon?

    3. The objectionable spin is the exclusive emphasis on the effect on the wealthy. Almost all Republican tax cut proposals involve (i) reduced marginal rates across the board, and (ii) increased progressivity. Higher income taxpayers receive more of a cut in absolute dollar terms only because they pay so much more to begin with.

    4. Professor Cochrane, DW Anderson and Donk.

      I am genuinely confused about how you think political debates are supposed to be conducted. It is as though you feel that it is somehow unfair for the Democrats to point out the easy and obvious fact that the Republican proposals would reduce taxes on the wealthy.

      The Democrats could, instead, say that the analysis relied on by the Republicans to claim that reducing taxes will result in some great outpouring of investment, job creation and wage increases is all obvious malarky given the fact that we are in a zero interest rate world. I think it likely that you would find that even more objectionable.

    5. Absalon,

      Are you really not understanding the point being made here? Repeating phrases like "tax cuts for the wealthy" is a very misleading description of proposals that would lower taxes for all levels, not just at the top. A more accurate description would simply be "tax cuts." And of course there is much more to these proposals than just lowering rates.

      This type of rhetoric also obscures the fact that, contrary to popular belief, effective tax rates have actually become more progressive in the last three decades.

    6. Bernie Sanders is proposing free college for the wealthy.

  8. John,

    "But if there ever was such a reputation, you four just threw it away with large tax cuts for the wealthy and the insinuation that Republicans can't even add."

    Being able to add is not a prerequisite condition for serving in Congress (or as President of the United States for that matter).

    Would at least one party (Republican or Democrat) read the Constitution once and a while please?

  9. If I were Bernie Sanders, what I'd be saying right now is, "Thanks, keep these cards and letters coming."

  10. The bottom line here is straightforward. When Republican politicians propose smoke-and-mirrors economic programs, Republican economists remain silent or pretend the nonsense is sense. When a Democratic politician tries the same thing, Democratic economists blow the whistle. Instead of crediting them for their honesty, Prof. Cochrane snarks about their choice of language.

    1. "The heart of the letter is worthy, and commendable: to call out the fact that Senator Sander's campaign is making promises that don't add up, beyond even the usual stretches of campaign rhetoric from both sides"

    2. It's even worse than that really. He believes these EX(!) CEA chairs discredit the CEA because they don't describe tax cuts in Republican rhetoric. It would be like a Democratic economist criticizing Prof Cochrane as partisan for using the words "increasing the deficit" instead of "making simple and intelligent investments in America's future."

    3. @Steven Otto
      Don't be ridiculous. The fact that they are "ex" chairs does not change anything. Clearly they were attempting to use their CEA credentials in a political way. I don't believe Cochrane meant to suggest that they should have described the Republican tax proposals exactly as the Republicans have, just that they shouldn't have done it exactly how the Democrats have.

    4. @Mark Kleiman
      Was it really just their "choice of language"? Give me a break. You're trying to boast about what you perceive as the integrity of Denocratic economists when clearly their message destroyed any political integrity they may have had. You don't think their message would have been better received by all parties if they had just called out the issues they see in Sanders' plan? That's the crux of John's argument.

  11. Its my impression that supposed tax cuts for the wealthy generates a lot more political outrage than incentive destroying social programs ever have/do.

    Hell, paying unemployed factory workers to be ditch diggers still holds quite an appeal for people.

  12. I understand why the general populace hates tax cuts for the wealthy, but why do the commenters on this blog hate it? I figured the readers here would be skeptical about the implicit assumption that gov generally spends money effectively.

  13. Yes he keeps the corporate level income tax, but Rubio's plan is that billionaires pay no taxes. I'm sorry, but how else do you characterize that? At least if you think a huge chunk of the corporate incidence falls on consumers.

  14. “Why is Washington so polarized?” That’s the big question, and I’m not sure the failure of academic economists to rise above it is the answer. One possibility is that Washington is polarized because everywhere is polarized; people generally tend to be tribal, and politics everywhere is polarized to some degree. But my impression is that the US is more polarized than most countries that are not actually engaged in civil war, and that US politics is more polarized than it used to be. It would be interesting to see some stats on that. If that assumption is right, then there are two broad possibilities: (1) The US populace is polarized because Washington is polarized; (2) Washington is polarized because the US populace is polarized. Re (1), it’s possible that the US primary system leads to extremism which leads to polarization in Washington, which then feeds back to the polarize the populace as a whole. (2) pushes the question back to why the US populace is polarized. I blame the lawyers; more precisely, the legalization of major policy issues. (Disclosure: I am a legal academic.) I think litigation tends to extremism more than politics. The demonization of your adversary that we see in politics is routine in litigation, where you have to convince a judge that all of your opponent's positions are unfounded. Politics is different because to win you have to appeal to the median voter. So my pet theory is that legalization of major policy questions had made debate over those questions more legalistic and consequently more extreme, and that extremism has leaked over into politics because the questions at issue are ultimately political. This theory has testable implications. I am Canadian, and the adoption of our Charter of Rights and Freedoms in 1982 has legalized major policy questions, putting much more political power in the hands of our Supreme Court. My prediction is that this will result in increasing polarization of Canadian politics and Canadian society, in the manner that we now see in the US. If that happens, it would be evidence against hypothesis (1) because the Canadian electoral system is very different from that in the US. My impression is that we are already beginning to see that increased polarization, but again I don’t have stats.

  15. Professor,

    You are being disingenuous here by cutting off the statement from Romer et al in a way that mischaracterizes the complaint. "When Republicans have proposed large tax cuts for the wealthy..." is followed by "...and asserted that those tax cuts would pay for themselves, for example, we have shown that the economic facts do not support these fantastical claims. We have applied the same rigor to proposals by Democrats, and worked to ensure that forecasts of the effects of proposed economic policies, from investment in infrastructure, to education and training, to health care reforms, are grounded in economic evidence.  Largely as a result of efforts like these, the Democratic party has rightfully earned a reputation for responsibly estimating the effects of economic policies."

    Notice they are not complaining about conservative politicians - they are complaining about conservative economists. And they are not complaining about the normative phrasing conservative economists use to discuss economic plans put forward by politicians on the other side. They are complaining that conservative economists are willing to make up fantastical arguments to justify the plans of Republican politicians (i.e Marty Feldman's tortured justification of Romney's tax plan). Where do you ever see a comparable "analysis" on the left? When democratic politicians make ludicrous claims, their economists have refused to carry the water for their political masters - until now.

  16. John, you're not the audience here. You yourself in your post on CEA noted that CEA has to be able to operate in a political environment.

    The CEA chairs in the letter were writing to democrats and therefore had to signal their progressive bona fides or else be immediately dismissed as corporate shills. On the republican side it's called hippie punching, and it just makes sense if you're trying to criticize your team from within.

  17. Good post....but let's face it, the GOP does want to cut taxes on the wealthy. The Donks want more taxes and social services for unproductive people.

    I do wish the GOP would just once proposed tax reform along the lines of "the top marginal rate will stay the same and all the rates underneath will be reduced. We are especially trying to cut taxes on the employed middle class."

    Has the GOP ever express concerns about the trillion dollars a year now in FICA taxes?

  18. I do not know much about American politics, but I like the fact that this post attracted 10 times more comments than the CEA history one.

    1. I'm not sure I like that fact. If our government were more functional and everyone were behaving better, it would be the other way around.

    2. The U. S. government is dysfunctional by design.

      If our founders wanted a "well oiled machine" for a government they would have stuck with a monarchy - the king makes the rules, enforces the rules, and decides who's guilty / innocent in breaking the rules.

      A better turn of phrase would be:

      If the individual branches of our government were better able to act independently of each other, each branch would become more functional.

    3. Monarchies in practice are not well oiled machines either. Monarchs balance interest groups just like democracies. And the point of checks and balances is not independent action!

    4. "And the point of checks and balances is not independent action!"

      I didn't say that. The individual branches of government become more functional when checks and balances are eliminated, when each branch can act autonomously.

      For instance, suppose the Supreme Court justices themselves selected new justices, without consideration from Congress or the President. The Judicial branch would become more functional at the expense of checks and balances.

      Those checks and balances exist as a political restraint - all actions taken by the government must be accountable to the voters, whether directly (elections) or indirectly (appointments).

  19. When I read the former CEA letter, my first annoyance was with the statement - "When Republicans have proposed large tax cuts for the wealthy and asserted that those tax cuts would pay for themselves, for example, we have shown that the economic facts do not support these fantastical claims." Who were these Republicans making these claims? I doubt they can provide any evidence except for a second-hand quote here and there.

    My later reaction is that economics is not enough of a "science" to separate true from false. Christina Romer was at the WH when the famous graph of unemployment with and without the stimulus was released - one example here with the actual unemployment noted

    When it didn't work out that way there were excuses. It was worse than we thought, the stimulus was too small, etc. What good are economic predictions and policies based on those predictions if you can rationalize any outcome after the fact?

  20. even a cursory look at Friedmans CV suggests he's entirely out of his depth doing a report such as this. he's more comfortable studying ideology and labour movements not analysing tax plans. And one suspects given his department is the center of us Marxian and post Keynesian economics a sympathetic response to sanders program is not unexpected.

  21. Judges and economists are no longer credible -- both groups disregard what they have learned as students/researchers. They both take political positions and distort the law or economic principles (and theories and findings) to promote political views (these are usually views of their bosses or their organizations to protect their jobs or get promotions or more funds). Both disciplines are mushy -- so any political view can be accommodated and supported as being "scientific" or legal.


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