Mason's Introduction: Politicians Have Pushed Economists Out of the Discussions About Economics Within the Democratic Party

Now let's go back to what Mason actually wrote that first got Tyler Cowen's attention over at Marginal Revolution. From Mason's initial post:

... Those who see it as a decisive break with neoliberalism. Both the Clinton and Obama administrations entered office with ambitious spending plans, only to abandon or sharply curtail them (respectively), and instead embrace a politics of austerity and deficit reduction. From this point of view, the fact that the Biden administration not only managed to push through an increase in public spending of close to 10 percent of GDP, but did so without any promises of longer-term deficit reduction, suggests a fundamental shift.

What does Mason mean by neoliberalism? This is how the Democrats were affected by that rightward shift of both parties that put Clinton and Obama to the right of Kennedy and Johnson.

I'm a bit bothered by that last sentence. Mason does not seem to have accepted the evidence that whether it's financed with debt or taxes doesn't matter — it's still financed with money coming from us. He is right though, that complaining about effects on deficits appears to have been an effective whinge that gets peoples' attentions, and that it's absent this time around.

Mason continues;

The fact that people like Lawrence Summers have been ignored in favor of progressives like Heather Boushey and Jared Bernstein ...

He may be right. If he is, this is a huge deal. Summers is at the core of macroeconomics over the last 40 years. He might be a lock for a Nobel Prize (although to me, he's always seem just a little below that level). And Summers is huge in Democratic politics: 7 years in Treasury under Clinton, 2 years in the Cabinet at Secretary of the Treasury, a top position in the White House at the start of the Obama administration, Chief Economist at the World Bank. That's a serious resume for a Democrat. 

Unfortunately, I think the attitude of progressives towards Summers is analogous to a child sticking their fingers in their ears and saying "Nah nah nah, they can't hear you!". 

This part is the worst:

To be clear, the bill did not pass because some economists out-argued other economists. It was a political outcome that was driven by political conditions and political work.

I do get the political conditions: lots of people need help, and even more want it.

And I get that the Democrats control both Congress and the White House. 

What bugs me about this bald statement — and I agree with Mason that it is true — is that we would object if this happened in any other area. Time for analogies: can you imagine if the football coaches were overruled on the field by the owners in their private boxes; can you imagine if the orchestra conductor was replaced between symphony movements by the big donor from the audience; can you imagine if your Dad was making your favorite meal and he was pushed out of the kitchen by your Mom's step-Uncle Louie from Canoga Park?

I am not being Chauvinist here (you may need to look that word up, since it has many meanings). But I think that in any other area if decisions about that area were being made, we'd want someone with some expertise in that area making the decisions. But this is not how macroeconomic policy works any more.

This is not to say that the Biden or any other administration doesn't employ and consult a lot of macroeconomists. Instead, macroeconomic policy is an area in which we routinely accept the macroeconomic viewpoints of people who are less than experts.

So what Mason is saying (and I agree with him) is that we're seeing politicians and bureaucrats not looking up some theory and evidence to justify their decisions, but rather making the decisions and claiming that theory justifies them. If so, I'd like to know what theory. Increasingly it seems to be a combination of "we know best", "shut up", and "you're just mean".  Am I wrong for thinking there should be more to it than that?

Back to Mason:

Still, from my [Mason's heterodox] parochial corner, it’s interesting to think about the economic theory implied by the bill. Implicitly, it seems to me, it represents a big break with prevailing [neo-classical] orthodoxy.

Here's how he describes that orthodoxy (catechism is an interesting choice of words):

Over the past generation, macroeconomic policy discussions have been based on a kind of textbook catechism that goes something like this: Over the long run, potential GDP grows at a rate based on supply-side factors — demographics, technological growth, and whatever institutions we think influence investment and labor force participation. Over the short run, there are random events that can cause actual spending to deviate from potential, which will be reflected in a higher or lower rate of inflation. These fluctuations are more or less symmetrical, both in frequency and in cost. The job of the central bank is to adjust interest rates to minimize the size of these deviations. The best short-term measure of how close the economy is to potential is the unemployment rate; at any given moment, there’s a minimum level of unemployment consistent with price stability. Smoothing out these fluctuations has real short run benefits, but no effects on long-term growth. The government budget balance, meanwhile, should not be used to stabilize demand, but rather should be kept at a level that ensures a stable or falling debt ratio; large fiscal deficits may be very costly. Finally, while it may be necessary to stabilize overall spending in the economy, this should be done in a way that minimizes “distortions” of the pattern of economic activity and, in particular, does not reduce the incentive to work.

I could pick at parts of that, but I won't (Cochrane does, linked in a separate post). I'm willing to let it ride as a decent one-paragraph-attempt to describe the theoretical landscape backing up policy in D.C., and that gets taught to undergraduates in principles classes.

Then Mason makes a jump:

Policy debates — though not textbooks — have been moving away from this catechism for a while. ... The size and design of ARPA is a more consequential rejection of this catechism. Without being described as such, it’s a decisive recognition of half a dozen points that those of us on the left side of the macroeconomic debate have been making for years.

ARPA is the acronym for the "Biden" stimulus package. 

That last quote relies on nebulous "policy debates". I'm not sure how debate-like these are. But I've seen them, and you may have to. In another post I link to posts from Tyler Cowen where he discusses the problems with these debates, which he describes as "Twitter Economics".

For my part, I would describe these as the sort of policy debates that policy-oriented non-economists have amongst themselves, after they've told all those buzzkill economists to take a hike. I have seen this this going back to the late 80's, and this is exactly what I meant when I wrote about the Marxist/radical/heterodox/post-Keynesian economists at the U in the 90's "not getting out that much".

I don't for a minute want to exclude the voices of non-economists from discussions like this. But I'd at least like to have a referee or facilitator present to say things, like "yeah, it doesn't work that way ... we looked". Cowen makes the point in some of his posts about this that Mason and progressives are asserting the incorrectness of multiple neo-classical positions that have never been disproved with data.