Some Thoughts on Economics, the Role of Government , and Sequestration

I have been having some lengthy Facebook conversations with a friend and collegue about sequestration. After spending nearly three hours going back and forth, I decided to briefly summarize my thinking on the matter as an exercise in critical thinking. Readers of the blog might be interested (or might not), but I suggest talking just a few minutes to compose your own thoughts on whether economics is a science (which drives how much faith you should put in any predictive models for economies as a whole), the proper role of government in economic affairs, and whether the cuts involved in sequestration are better than no cuts at all (and what your reasons are for thinking so). Once you spend ten to fifteen minutes thinking about that, you will get more out of this blog post.

 

You can take the wide range of opinion among economists on any topic such as the impact of raising the minimum wage or the value of "propping up" the economy in a recessing as a sign that no one agrees on anything in economics so just pick the expert that says what you want and go with that. A lot of people do that. The lesson I draw from this data, that I apply to all macroeconomic predictions and models for what the "government should do" goes like this:
  • The economy is really complex (at least in developed countries).
  • Since the economy is so complex, *any* model or prediction or analysis is subject to simplifying assumptions because modelers cannot get all the data they "need"
  • The assumptions used are based on what the modeler thinks is important, even if not intentionally manipulated, drive the outcome of the model
  • No one (at least not politicians and journalists) ever goes back to the prognosticators and says, "Gee, why didn't your model accurately predict the outcome?"
  • It bugs some really smart people that markets and freedom do not produce outcomes they prefer
  • No small group (less than a million people) makes better economic decisions than the market. Ever.
  • When the government does intervene in markets to change outcomes (this is not an argument that we should have no government or some kinds of regulation), it distorts the outcomes, sends strange signals, and makes things worse, just differently worse. The moral shield the intervenors hold up when this is pointed out is, "Well, my intentions were good" or "It would have been worse if we had not acted" (which is impossible to verify so it is just best to focus only on outcomes and not intentions).
  • Because of these beliefs, I believe the less intervention the better.

 

Here are what I see as the flaws in arguments that basically say, "I am in favor of reduced government spending, just not this way. We should do it smarter":

 

  • They accept the assertion about slower recovery that will result with insufficient skepticism. Economic models show it both ways (faster and slower recovery).
  • They assume that some other government with some other incentives could have produced another outcome that they think is better. I argue that the government we have, with the incentives the politicians have, and the initial positions each side had, could only have produced this outcome. The outcome cannot be any "smarter" with the government we have. I don't see this as good or bad, just reality, because I don't believe anyone is powerful enough to do anything differently, nor would I want them to be.
  • They often focus their attention on the impact on just those people that will be getting a government disbursement. If this is your primary focus, the logical extension is admitting that we should never cut any spending ever. Someone, some group, will always be disadvantaged by starting, stopping, or continuing any government program. My focus is on the economy as a whole and future generations. No one can be "right" or "win" this disagreement.
  • They are using what they have found in a macroeconomics analysis to justify the result they (and the economist) favor. I can cite different papers and different economists.
  • The issue and fundamental disagreement is not resolvable through science and math and complex equations. It comes down to values and philosophy and no science can resolve that. Economics is just window dressing people use to appeal to authority for what they want to do.

 

 

I am not really trying to be close-minded about this although I have strong beliefs based on my values. Here is what people that think differently than I do would have to do to bring me over to their view: 

 

  • Tell me exactly what they mean by the government "propping up" the economy, which industries, for how long, with how much money, and what outcome you predict it would have? It might make you feel better, but speaking in generalities when you talk about government policy and spending billions of dollars is a bad thing for me.
  • Show me more than one or two examples of government intervention in the economy that was not more harmful than what it was trying to prevent. That might not do any good because "more harmful" is based on value judgments.
  • Explain why I should care that someone else's paycheck is going to be any lower vs. the overall health of the economy and bills to be paid by future generations. Should I care that 98% of people worked on farms in 1860 and now less than 2% do?
  • Explain a different process that will work in our current political environment, with the politicians/bureaucrats we have, with the government we have, to produce smarter ways to reduce spending since I argue that the sequester is the only way. The special screwdriver that people seem to imagine they will discover to tweak the government to produce the results they want is a fantasy.
  • Tell me how DoD or any government agency will get as creative at finding ways to spend less money as they are now without taking the money away first. One of the reasons government worker paychecks are going to be lower is DoD refuses to cut/rationalize its really big, expensive weapons programs (I don't need to list them here). Our leaders have said this on the record.