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Friday, May 19, 2006

LET'S NOT BITE THE HAND THAT FEEDS OUR PRODUCTIVITY   Economist Ken Rogoff on the American productivity miracle:
Together with a few sister “big box” stores (Target, Best Buy, and Home Depot), Wal-Mart accounts for roughly 50% of America’s much vaunted productivity growth edge over Europe during the last decade. Fifty percent! Similar advances in wholesaling supply chains account for another 25%! The notion that Americans have gotten better at everything while other rich countries have stood still is thus wildly misleading. The US productivity miracle and the emergence of Wal-Mart-style retailing are virtually synonymous.
Via Greg Mankiw.

Posted by Donald L. Luskin at 8:31 AM | link  

IT'S BEEN A LONG SIX MONTHS   The fundamental fatuity of Thomas Friedman (from The Corner, via Econopundit).

Posted by Donald L. Luskin at 8:29 AM | link  


Thursday, May 18, 2006

THE WORD IS SPREADING   I'm cited today in Investors Business Daily:
The economy took off after the 2003 tax cuts, creating more revenues than even the spendthrifts in Congress imagined.

Take just one example: capital gains tax cuts, one of the favorite targets of those who want to soak the rich.

According to Congressional Budget Office data, the reduction in the cap-gains rate to 15% was expected to cost the federal government some $27 billion in revenues. But it didn't happen that way.

In fact, as [Trend] Macrolytics' Donald Luskin recently pointed out, the tax cuts ended up bringing in $26 billion in added revenues -- exactly the opposite of what was predicted.

This has happened everywhere in the economy. Revenues from cap gains, corporate and income taxes are up sharply, pouring into government coffers across the board.

Fact is, tax cuts do "pay for themselves" -- by creating strong new incentives to work, produce and invest that make the economy larger and stronger. Data show this conclusively.


Posted by Donald L. Luskin at 8:55 PM | link  

VERY COOL TOOL   From Congressional Quarterly -- an interactive map of House, Senate and governor races across the country, complete with summary scorecards. I have to say, from this, things don't look all that horrible for the governor .

Posted by Donald L. Luskin at 11:50 AM | link  


Wednesday, May 17, 2006

NEW YORK TIMES BACKS PERSONAL ACCOUNTS FOR SOCIAL SECURITY   Well, not exactly. But in a piece yesterday by the Times' crusader for higher taxes, David Cay Johnston, this graphic is presented to show the awesome earnings potential over time in personal Roth IRA accounts -- which amounts to the same thing.

Of course the point, for Johnston, is not that this tax-free account is a way for ordinary Americans to accumulate great retirement wealth over time (which is true). It's that the government is being deprived of tons of tax revenues in the future (which is also true -- and equally wonderful). Thanks to reader Steve Ambos for the link.

Posted by Donald L. Luskin at 7:59 AM | link  

SCIENCE? I THINK NOT   My friend Greg Mankiw writes on his blog about economics as "science," in distinction to the mere "engineering" of macroeconomics. A useful distinction to be sure -- but I think Greg is being naive about the reality of the scientific nature of even the most basic economics:
Economists like to strike the pose of a scientist. I know, because I often do it myself. When I teach undergraduates, I very consciously describe the field of economics as a science, so no student would start the course thinking he was embarking on some squishy academic endeavor. Our colleagues in the physics department across campus may find it amusing that we view them as close cousins, but we are quick to remind anyone who will listen that economists formulate theories with mathematical precision, collect huge data sets on individual and aggregate behavior, and exploit the most sophisticated statistical techniques to reach empirical judgments that are free of bias and ideology (or so we like to think).
Sorry, but none of that qualifies for "science." Where is the utterly essential ingredient of repeatable experimental verification of falsifiable hypotheses? Without that -- and economics surely doesn't have it -- there can be no claim to science or the scientific method. The best that can be said for economics as a science is that it strives to be scientific -- but in the complex real world of human behavior (which is, after all, the domain of economics), there can never be science in any hard sense. A scientific attitude toward inquiry, yes -- but let's not pretend it's hard science.

Update... Reader David Hemmer says,

This got me to thinking, do you consider mathematics to be a science? We really don't have this ingredient -- repeatable experimental verification of falsifiable hypotheses -- either!
I would say math is not a science -- it is a language. It happens to be a language particularly useful to science. One of the fallacies that is often used to support the status of economics as a science is the application of math to it (indeed, Greg makes that very case). But math can be applied to astrology, too -- and that doesn't make astrology a science.

Update 2... A hedge fund manager (who has asked for anonymity) writes,

I use a helluva lotta math in my financial industry job... but I’m no scientist.
Update 3... Economist John Seater writes,
I recommend that you post your definition of science. It seems clear that some of the difference between you and Mankiw over whether economics is a science arises from differing definitions of the term science. You suggest in your comments on Mankiw that science requires experimental evidence. The definition I use (memorized long ago from Funk and Wagnall's dictionary) makes no mention of experiments:
Science: Any department of knowledge in which the results of investigation are logically arranged and systematized according to general laws and hypotheses subject to verification.
Note that the nature of "verification" is not specified here. Would you consider astronomy or geology sciences? They can't reconstruct what they study. They can't creat a slightly different Milky Way or Earth. Astronomers can't even touch what they study (well, almost can't, anyway; they do send rockets to planets and comets). Your implied definition, which qualifies "verification" with "experimental," is just as valid as mine. Definitions are totally arbitrary. They are never right or wrong, only useful or useless. I don't argue with your definition. I just would like to see it. I suspect that some and maybe even most of the disagreement between you on the one hand and people like me and Mankiw on the other is semantic rather than substantive. All I really care about is whether economics helps us understand the world. Whether it is called "science" doesn't much interest me.

Finally, let me add another remark that may clarify some of the differences between the various sides in this debate. There is a distinction to be made between the nature a science per se and the practice of it. There are a large number of economists who do not behave as scientists, usually because doing so would mean they could not use economics to advance their other agenda, whatever those might be. This is a problem with all science, in fact, and it is especially bad when the results of investigation have any public policy implications (e.g., environmental science, global warming).

Economics has an extreme problem here because essentially everything in economics has policy implicationis. Far too many economists let their policy preferences interfere with the conduct of their science (rather than changing their preferences in response to their scientific findings). That says nothing about economics, only something about the integrity of the economists in question. My sense from reading your blog for quite some time now is that part of your criticism of "economics the field" stems from your frustration with many "economists the phonies." I share with you the latter, and perhaps with this distiction in mind we don't even disagree much on the former, except for the semantic issue mentioned above.

I would reply to John that I can live with the Funk and Wagnall's definition. The word "experiment" may not appear in it, but to require it to do so in order to satisfy my point is fallacious. The notion of "experiment" is clearly implied in the phrase "subject to verification." Economics is simply not "subject to verification" in the same way that, say, physics is. I guess if I had to come up with a definition of science on my own it would be something like this: Science is knowledge that results from the application of the scientific method -- i.e., the experimental testing of falsifiable hypotheses.

Update 4... Reader Gerald Hanner writes,

Reminds me of an online discussion between some economists I was once monitoring (lurking). At one point an engineering prof pipped up and made this statement: We engineers take our cues from the basic research done by physicists. If you followed the same pattern, you would be taking your cues on human behavior from the psychologists, but you don't. How can you claim to be scientific?
Update 5... Greg Mankiw has responded on his blog. Greg makes the point that not even all the hard sciences strictly use "experimental" evidence -- such as astronomy, which uses observational evidence. I accept that critique, and indeed I considered addressing it before I wrote my earlier remarks. I decided it was unnecessary, though, as I regard such observational evidence -- provided that competing observers are free to make the same observations, or refute that such can be made -- as a form or subset of experimentation. Second, Mankiw notes that there is some work in so-called "experimental economics." I accept that, too. Fine. All to the good. But Greg's abilty to find one or two white sheep in the flock doesn't mean all the sheep are white. "Experimental economics" is an avant garde rarity within the field, and hardly justifies the characterization of the entire field as experimentally validated.

Update 6 [5/19/06]... Reader Greg Ransom, who describes himself as a Hayek scholar, says:

I take Hayek's view that economics is a non-experimental science that succesfully explains undesigned order -- just as Darwinian theory is a non-experiemental science that sucessfully explains undesigned order. The key thing is that Hayek's scientifically sound explanatory strategy is largely unused by the "idiot savants" who populate the econ. departments.

What is more Mankiw's brag points -- i.e. "economists formulate theories with mathematical precision, collect huge data sets on individual and aggregate behavior, and exploit the most sophisticated statistical techniques to reach empirical judgments that are free of bias and ideology..." -- has for the most part nothing to do with the explanatory project of economics outlined by Hayek.

Well, that's a taster of the Hayek view.


Posted by Donald L. Luskin at 7:44 AM | link  


Tuesday, May 16, 2006

IRONIC JUXTAPOSITION (OR IS IT MORONIC?)   California reader Marty Holloway notes,
The Sacramento's Bee's two main editorials this morning are an amazing misunderstanding of cause and effect.

The lead editorial, "Living Large," was about how California "is enjoying a hefty influx of tax revenues from stock market capital gains and other unexpected sources."

The second editorial, "Where's the Sacrifice," bemoans the extension of the 2003 tax cuts that are responsible for a lot of that money from heaven that California is enjoying.

Taken individually, each of these editorials might make a coherent argument. Putting them together and juxtaposing them makes my head spin.

While you fight the big battles, I'll skirmish out here on the West Coast.


Posted by Donald L. Luskin at 2:25 PM | link  

THE RELIGIOUS LEFT CELEBRATES ITS PARADISE   From the American Spectator:
...one of the little boobies they let write editorials for the Times now that Abe Rosenthal is gone decided to celebrate the world of the Nukak tribe last Saturday: "Perhaps you read yesterday's article about members of the Nukak tribe...who walked out of the Colombian jungle and renounced their ancestral ways....According to witnesses, they say they are happy about it....None of which explain the bittersweet feel this story leaves in the reader's [the editorial writer's] mind....We have no clearer idea what it would mean to live a subsistence life in the Colombian jungle than the Nukak have of living even on the fringes of the modern world. [Only, little booby, if you have no intelligent imagination or sense enough to get some anthropological information, so readily available on the Internet. See, presumably the difference between you, and them is that you are supposed to be educated]....it's hard to escape the feeling that their SELF-SUSTAINING EXISTENCE...WAS HOLDING SOMETHING OPEN FOR US, SOMETHING THAT HAS NOW BEEN LOST."

Ah, the romance of the "bittersweet" life of the "self-sustaining existence"! Paradise regained, eh? Breadfruit dropping from the trees; fresh, silvery, fish jumping out of the sea into the waiting pan; the beautiful, brown skinned Gauguin women in their colorful sarongs -- what a life awaits. Oh, yes, the "self-sustaining existence"!

We will tell you what it's like, editorial writer, if you don't have the smarts to get the information yourself.

Let's assume that you are a boy editorial writer and you wake up one morning in the Colombian rain forest as part of the Nukak tribe. You've gotten your wish. It's true that you don't have to worry about that $600,000 mortgage anymore. Your new home is whatever you can see before your eyes -- roots, vines, trees, lizards -- all mortgage-free. You won't have to worry about whether Social Security will last until you turn 65, because you won't turn 65. The elders of the tribe rarely get to be older than their forties -- extinguished by malaria, fatal accidents while racing through the jungle after tonight's dinner, and sometimes eaten by a family of crocodiles while fishing...

It goes on and on and gets better and better. Thanks to reader Jameson Campaigne for the link.

Posted by Donald L. Luskin at 7:15 AM | link  


Monday, May 15, 2006

SHAKE DJIBOUTI?   Tasteful, and probably very effective as a preventative:
ABIDJAN (Reuters) - Days after bird flu was detected in Ivory Coast, hundreds of people were trembling, flapping their arms and clucking like hens.

But there was no cause for alarm -- the outbreak was confined to dancefloors.

The movements which are now the talk of the town in the West African country are the brainchild of a 21-year-old disc jockey DJ Lewis, who invented a dance making light of the deadly virus -- by imitating a chicken in its death throes during a cull.

"When you kill the chicken this is how it dies," he shouts into the microphone as a Saturday night crowd rose from tables of green and brown beer bottles to watch him demonstrate the moves...


Posted by Donald L. Luskin at 10:41 AM | link