Mason's Epilogue

I needed a word for Mason's last 7 unnumbered paragraphs, so this is it.

Note that at the top he says that thinking about economic policy has changed, but at the bottom he says there is no theory for this yet, and it isn't in the textbooks. Is it just me, or does this sound like one of those hotel commercials where the guest is so well-rested they have superpowers?

Mason also wonders what macroeconomics would look like if AD shocks had permanent effects, and we were not eventually constrained by long-run aggregate supply. I think this is easy to piece together in terms of the AD-SAS-LAS model that I teach in principles. In that model, the economy starts on LAS, an AD shift opens a triangle (with one edge along the LAS), and this is closed down slowly by SAS shifting in the direction that makes the triangle smaller. We end up back on the LAS, but typically at a different price level. I think it's easy to modify this so it works in the way described by Mason: SAS doesn't shift, the triangle remains, and it is slowly closed off by LAS shifting right (due to accumulation of labor, capital, and technology) until equilibrium is achieved again. The problem I see with this is that the initial story of SAS shifting is due to people working too much, and asking for nominal wage increases. To me, it seems that Mason is either asserting that 1) people can't be pushed to work too much, or 2) people won't bargain for higher wages when they are pushed too much. I'd say these are possible, but I'm not sure they are plausible.

But his middle 3 paragraphs seem to contradict all this. It sounds like he envisions something like this, but in which the economy is never off the LAS (thus the constraint on employment growth ... this is like saying the LAS can shift to the right only so fast). But he also asserts that there could/would be higher wage growth, but this is the SAS shifts not happening that I mentioned in the previous paragraph. I can't see how they both happen and don't happen? Or how the most important input cost to enterprises, wages, is supposed to go up without that being transmitted into output prices? This could happen if output demand was very elastic, so that suppliers got the burden of the cost shift, but how do we make elasticity do what Mason wants??

Then there's the last paragraph:

... a generation of mainstream macroeconomic theory was retconned ...

That's pretty offensive. Retconned is a newer portmanteau word in the English language. It means that after the fact you changed your story to match what happened before. I think the implication of retconning in new classical macroeconomics is just ... unbelievably ignorant. In the 70's and into the very late 80's, those new classical macroeconomists were ... out there. Lots of people thought they were crazy, and even dangerous. If anything, it was the politicians and the bureaucrats of the 80's and 90's who retconned, as they struggled to figure out what parts of what they were already doing could be justified by the new theories that were getting confirmed left and right. Part of this was the recognition that monetary economists going back as far as Patinkin in the mid-50s, and more popularly to Friedman in the 60's — who were largely ostracized by polite society — had been right all along.

In the end, I think the title of the post is pretty informative. We're now in a world in which the political plan doesn't have much underlying economic theory. Who's going to retcon in response to that?

ARPA and ARRA

 Mason uses one terminology, based on acronyms formed from the titles of Congressional bills.

I prefer the more public label.

So

• ARPA = "Biden's Stimulus package"
• ARRA = the 2009 "Obama stimulus package"
  

Mason's # 10: The Government Is Better at Stuff than the Private Sector Is

Says who?

Lack of faith in the efficiency of government is not a strictly American phenomenon. 

... The institutional and ideological obstacles to shifting activities from for-profit to public provision are still formidable.

It's interesting that Mason wrote that, and yet never made clear whether or not he thinks those obstacles are a waste of time. 

I get that he thinks government is more efficient. Fair enough. Then does that quote mean that he thinks the obstacles are misplaced, or the people placing the obstacles are misinformed?

To me ... this is a just-so story.

Mason's # 9: Aggregate Demand is Chronically Weak

Mason needs to get out more.

Amazon. Is. All. Demand. That's their business.

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I learned from Chris Fawson (a friend from Utah State) to always check arguments for asymmetry. If someone is going to say one thing on one side of the argument, without admitting the opposite will generally happen on the opposite side, you should be suspicious of them.

So consider 2 alternatives: AD is perpetually being pushed to the right, or AD is being perpetually pushed to the left.

In the first case, the side effect should be inflation. In the second it should be deflation.

If Mason is right ... where's the deflation?

If Mason is right ... and we push AD hard right, is he expecting inflation?

No to both: Mason's position instead seems to be that inflation is disconnected from AD on both ends. How so?? 

No, really, which point of his argument explains that?

Mason's # 8: Means-Testing Is Not Easy

I wholeheartedly agree. I think the people who write laws and regulations involving means-testing are completely clueless about how difficult it is in practice.

And I think at the end, Mason says the key thing:

In order to exclude a relatively small number of high-income families you risk letting many lower-income families fall through the cracks.

I would go further. Stop worrying  about whether the rich are getting aid from the government at all: there just aren't that many rich people and the marginal amount they'd benefit is minute. Focus on getting as much into the hands of people who need it, with fewer strings attached. Walmart gets this. Politicians and bureaucrats do not.

Mason's # 7: Direct Visible Spending Is Better

I agree.

Do note that Mason does not say we should substitute direct spending for indirect spending. But without that, his position is actually 1) more spending is better, and 2) once you're committed to that it should be direct.

Mason's # 6: Work Incentives Don't Matter Much

Again, I am inclined to agree with Mason here, with the extremely strong caveat that they don't seem to make much difference for the poor.

He is right that the $600 extra unemployment benefit seems to have pushed few people to actually choose unemployment.

On the other hand, evidence from when Congress did this sort of thing in 2009 as part of the "Obama stimulus package" points strongly to the idea that people receiving unemployment benefits don't seem to find very many jobs ... until those benefits are about to run out.

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A lot of the motivation for means testing of welfare benefits (this is where he is referring back to Clinton's reforms) is that there had been too much carrot and not enough stick. So the shift back to sending out more checks is going back to the systems that bothered enough people to get them changed in the 90s. A lot of Democrats were in favor of that at the time, and those sort of Democrats seem to be a target of Mason.

On the other hand, the idea of just sending out checks instead of our huge system of overlapping welfare programs was originally a conservative or even Libertarian approach. The point here is that the problem is not the poor it is the bureaucrats being paid to help the poor. Most of them work for agencies who survival depends on the existence of poor that need to be helped, so they are unlikely to actually ever reduce the number of people needing aid. It's make-work for people with certain college degrees. The idea with sending out checks is that it actually helps the poor without helping the middle and upper class white collar workers of anti-poverty agencies.

On this point, Mason is silent. He asserts that incentives don't help the poor get into jobs, but he doesn't consider if incentives might keep others in their jobs.

A parallel idea is that sending checks would be cost efficient if we substituted this for all those agencies; it's a sad fact that most of the money allocated to fight poverty pays people who fight poverty rather than getting into the hands of the poor. Unfortunately, the sudden switch to issuing checks during the pandemic/lockdown has created parallel systems that cost more.

Keep in mind while thinking about what Mason wrote that, 1) the public perception is that the "Biden stimulus package" was mostly about sending checks to people, while 2) 80% of the funds were allocated to government agencies and politically connected institutions. This makes me thing the "bait and switch" worked, and the bureaucrats are laughing all the way to the bank. What is scary here is that people are forgetting how strongly the Washington D.C. metropolitan area has risen in the ranks of rich cities over the last 15 years. It didn't used to be a place you moved to to get rich.