Tuesday, September 08, 2009

On the impossibility of socialism

Just imagine that there is a policy proposal that you oppose. And imagine that the advocates of that proposal lay out for you specifically the effect that that proposal will have--numbers, graphs, charts the whole thing--in such a way that its failure, should it come, will be clearly discernible. In policy debates, such an occurrence is rare, so when it occurs it should be duly noted.

Harvard economist Greg Mankiw has unearthed the unemployment predictions of the Obama administration during the debate over the stimulus bill (p. 4 of the economic teams January report), and mapped onto it the actual unemployment figures for March and April:

What the graph shows is that, not only was unemployment worse than the Obama administration said it would be after the passage of the stimulus plan, but it is worse after the passage of the stimulus plan than it predicted it would be if the plan were not passed in the first place.

Mankiw is customarily gracious about this little presidential oops:
What does this mean? One interpretation is that the fiscal stimulus has failed to achieve what Team Obama thought it would. Another interpretation is that the baseline was worse than they believed at the time. I am confident the report authors would adopt the second interpretation. If so, that fact is consistent with what I said in a previous post: In light of the shifting baseline, it is impossible to hold the administration accountable for whether its policies are achieving their intended effects.
In other words, the stimulus may have worked or it may not have worked. We'll never know. In this vast socialistic experiment the President is subjecting us to, we will never know whether it would have been better or worse not to do it. Since we cannot know what would have happened if the stimulus had not been passed, we guinea pigs have no control to compare what happened after it was passed:
It is like asking a doctor, "How much sicker would this particular patient have been if you had not given him treatment up to now?" You can get, as an answer, the doctor's subjective professional judgment, but you cannot expect objective measurement.
Instead of jumping on the administration and saying that the stimulus plan did not work, Mankiw is essentially standing up as the representative of Economics and taking the bullet himself.

Well, I'll have to admit, I'm impressed with the nobility of his act. But there's more to it than that. When, after issuing very specific predictions about what would happen under a certain policy, a socialist policymaker issues a report saying that such and such will happen if it passes and such and such will happen if it doesn't, and, after it is passed, the such and such that he said would happens if it was not passed happens anyway--and it fact it's worse than he predicted if it didn't pass, it's awfully hard not to say that the policy failed. And all the talk about changing baselines would sound like so many excuses.

I mean, you know what would happen if the predictions were met: there would be no question about shifting baselines then. The socialist policymaker would be trumpeting the their success from the rooftops.

But there is something else. Socialism itself is premised on the idea that centralized planners can know with some accuracy what the economy is doing--that their figures are accurate. If they make predictions and later, to avoid the obvious conclusion that it didn't happen they way they said it would, they say they didn't have all the facts--and they do this on a consistent basis--which they do--then, if you are logical, you will have to question the whole socialist paradigm--which, of course, they never do.

In other words, saying that either the Obama administration's stimulus plan either failed or is impossible to verify means we can come to one of two conclusions: either this one socialist stimulus plan failed or socialism is impossible.

In either case, it doesn't bode well for Obama's economic plan--or his health care reform plan.

1 comment:

Lee said...

I would characterize Mankiw as a fairly rare breed of scholar, the "reasonable liberal." Most are not. Reasonable, that is. He is going to make sense most of the time, but he is not going to say anything to make anyone question the liberal paradigm.

BTW I wrote a blog post on this very topic a few months back, entitled, "The Mel Blount Rule."


My argument was that simple changes in the rules can lead to profound changes in the game. I do believe that Mankiw lets Obama off the hook, but Bush deserves to be hanging on that same hook to a large degree.

The rules of the economy have changed so much in the past year, the game itself is barely recognizable. I wrote:

> "In fact, the game has changed so much that you will no longer need to wonder, when ten different economists are trotted out to articulate ten different opinions, which one happens to be right. Now you will know none of them are right. They were all trained in economics as it used to be, the old game, according to the old rules. Nobody knows how it is going to be from here on out. Nobody's forecasts are worth a dime. Nobody's advice is worth soliciting. New rules, new game."

So I will meet Mankiw halfway. Yes, he's right that the landscape is shifting too fast for any competent, trustworthy economist to be able to predict anything.

Where Obama is to blame, however, is in the role he has played in changing the rules enough to bring this situation about.