Megan McArdle

As it happens, I am blogging from a local coffee shop with bloggers Matthew Yglesias and Brian Beutler. Yes, this is the glamorous blogging lifestyle you've read so much about. At any rate, Matt and I were explaining the secrets of creating an ordered (numbered) list and an unordered (bulleted) list in html. At which point, Brian asked: why is a bulleted list "unordered"? Matt and I responded, with stunning obviousness, that an ordered list has numbers. But then Brian showed us a preview of the post he was writing and sensibly asked "Is there any doubt about what order you should click on the links?" Now I am trying to formulate a philosophy of numbered lists that distinguishes them from bulleted lists. Reader thoughts are welcome.

I rarely pay attention to claims that "casualties in Iraq are down this month" because anyone who's followed the place even cursorily knows that they're remarkably cyclical, peaking each year right around Ramadan. (And don't get me started on the people who wrote that the peak in October 2006 was some sort of attempt to influence the American election.) But I didn't know why:

August 31, Juan Cole was shrill about administration and media statements that GI deaths in Iraq were down for the year. His point was that temperatures get to 120 degrees, so summer means low combat. He produced a table contrasting 2006 with 2007 by month: deaths are higher in 2007 than 2006. He asked for a visual display and many responded. I'm posting mine here. But this is just part of a pattern of communicating, where true facts are presented within a limited context, so that the resulting asymmetry of information creates a false impression. Most of us don't know that Iraq temperatures reach 120 degrees in July so that physical activity like combat is down. On the other hand, if an official announced that lowland US snow fall in July was the lowest it's been all year -- duh. The difference is that here in the US we all know about July snow fall, so there's no asymmetry.

But as the author points out, many of the administration and military folks making those sorts of claims do know this (or at least, I certainly hope they do; if they don't, we're in worse trouble than I thought). They nonetheless produce meaningless claims about how casualties have fallen.

But indeed, it hasn't, since I've already said it, and no one has noticed. I am not fighting for the Bush tax cuts; I'm fighting the notion that people who are in favor of tax cuts are all a bunch of liars or loonie tunes. Politicians in favor of tax cuts are all liars, as are all the politicians against tax cuts; in politics, lying is, sadly, the stable equilibrium. But most politicians are not loons; and most of their economics advisors are sober and intelligent fellows. Apart from the capital gains tax cuts, of which I am in favor and stand foursquare in favor of continuing, I don't particularly care about the tax cuts one way or another. Economically, I don't think they made much difference either way; socially, I think the contribution to increasing either income or consumption inequality will end up being trivial (since the rich will eventually pay whatever tax increases are necessary to pay off the relevant bonds); personally, I'd like to pay lower taxes; ideologically, I think the government spends to much money on things it shouldn't; but morally, I think that once we've voted for spending, we've already got the tax, and having created the tax, we ought to do the manly thing and pay it ourselves. Overall, I'm mildly in favor of ratcheting back the Bush tax cuts, starting with the income breaks for the wealthiest brackets, until we hit budget balance. But on my list of policy priorities it's somewhere around "What shall we do about France?" I expect that we will get a Democratic president in 2008, and (s)he will raise taxes, which will be fine, except (s)he will also play with the capital gains tax, which won't be fine, and will furthermore spend the money on programs I dislike, which won't be fine at all, instead of reducing our national debt or further closing the budget deficit or doing something about our future entitlement problems. And unless that president takes on something like a gas tax, or serious tax simplification, or (on the negative side) promises a zillion stupid tax credits, I will have about the same level of interest in their tax policy as I do in George Bush's, which is not overmuch. It's spending I care about.

You know, I'm getting a little tired of people who blithely criticize me while making elementary factual errors. It was a Watermelon Martini.

Scott Adams explains. Frankly, I'm getting all misty and homesick. I'd go back, but the last time I went home a friend took one look at me and said "Oh, God, you've reverted to the mean." Thomas Wolfe was right.

They have to calculate the inflation rate on products like this:

The iPod will be six years old next month. The newly released iPod Classic with 160 GB of memory is $50 cheaper, holds 40 TIMES more songs, plays color videos and displays photos than the original. It is smaller, lighter and has a better battery. I wonder how the BLS takes account of the quality differences when measuring the price index and inflation.

A commenter demands proof that the Bush administration has ever had any rationales besides the Laffer Curve for its tax cuts. Well, you could start with the White House statement on the tax plan.

Invading Iran seems like a very bad idea, considering all the problems we've experienced invading a neighboring country less than half the size. If any Bush administration defense policy bigwigs are reading this, I just think that's something you might want to think about.

Brendan Nyhan, of whom I am generally very fond, is attacking me on supply side economics. In his post, he does a brilliant job of proving that politicians make ludicrous claims for their policies. Stand by for the blistering expose of the shameless way that men pursue young, attractive women, and the follow-up report titled "Sometimes, when the people you have slept with say they are going to call, they don't mean it". Once again, before I go any further, I think people should spend all the time they want refuting those claims. What I don't think is that supply-side economics is dominating Republican policy, which is what Chait, and now Matt, and for all I know everyone to the left of Lincoln Chafee, are now claiming. To release a book subtitled "How Washington Got Hoodwinked and Hijacked by Crackpot Economics" you need a little more than "sometimes, in the course of selling their policies, politicians make ludicrous claims based on discredited economic notions", because that is not exactly a unipartisan vice. To subtitle your book that way, you need the most extreme form of supply-sidism to be the driving force behind Republican tax policy. And it just isn't. Supply-side claims are made in the course of selling tax cuts, but they are not the dominant reason that politicians pursue tax cuts. Nor are they the dominant means by which those tax cuts are sold to the public; Brendan or anyone else can find plenty of other arguments for tax cuts from all the politicians they cite as rabid supply-siders. Supply-side economists do not dominate Republican advisors--the only one I am aware of is Steve Forbes for Giuliani, which is another excellent reason not to vote for the man. And the supply side arguments which are generally made to me by the various Republican think-tank people I talk to are vastly more plausible arguments about increasing the size of the economy and keeping spending down, not implausible ones about tax cuts paying for themselves. That's why I said that Chait's claims were "overblown", not "wrong". The people I would call "strong" supply-siders (the ones who claim that tax cuts raise revenue) are fun to refute, because they are so easy to refute, because they make such extravagant claims. But inflating the strong supply-siders into the driving force behind Republican tax policies is overblown, and it seems like a way to avoid engaging the more substantive arguments in favor of tax cuts. And to all the liberal commenters who are preparing to say "there aren't any substantive arguments in favor of tax cuts" . . . thanks for making my point for me.

Matt has argued that Republican supply-side tax arguments are as if

. . . Hillary Clinton got up at the next presidential debate and said "I believe a policy of 'Medicare for all' could save enough money to pay for a universal preschool program and more generous Social Security benefits,"

Ezra says:

If Clinton said that, heads would nod. A very strong argument could be made that administrative and bargaining savings -- i.e, the government saying they're going to pay 20 percent less for Lipitor, and Pfizer will just have to deal -- from a Medicare-for-All system would save enormous amounts of money. Obama wouldn't dare attack it, he'd just argue that he doesn't think it politically possible, and the sort of policies required for those savings have tradeoffs Americans may not want to make. (Incidentally, I don't think Medicare-for-All would create those savings, but not because it couldn't, only because we wouldn't want to implement the necessary regulations.)

The problem with supply siders is that they are arguing that they can make the government money by lowering tax rates, not that they can make the economy money. Arguably single payer health care will save the economy money, but the government will be out a whole lot more cash. Government health programs already enjoy all the administrative cost savings that Ezra promises, and even really vigorous price controls bargaining on drug prices is not going to save enough from Medicare Part D to put the 247 million people currently not enjoying government insurance on the rolls. Arguments like this are exactly why I have a hard time debating this topic: it's not clear what the people on the other side understand supply-sidism to be. If you want to frame a supply-side argument on the terms that Ezra has framed the health care debate--that "we" as a nation can save money by cutting taxes--then the supply-siders could be right; the tax cuts might make the economy grow by more than the size of the tax cut. Probably will, in fact. The problem is a fiscal one: the government only takes in a little less than one-fifth of any extra growth that tax cut produces. So the extra growth has to be quite massive in order to overcome the lost revenue from the tax cut. Say you've got an economy worth $100, growing 10% a year with a tax rate of 25%. In year one, with no tax cut, the government will take in ($110 X .25=$27.50). If you cut taxes to 20%, the economy has to grow to $137.50 in order to make the same revenue, which means that a 5% tax cut has to more than triple the rate of economic growth. This is not likely. Although you should note that this means that supply-side claims are more likely to be right the farther out you go, since small changes in the rate of economic growth compound.

I've promised not to say too much more about Jonathan Chait's piece, as I'm doing a TPM book club on the topic next week. But here are the two areas that I think are being misunderstood. My quarrel is not with the notion that Republicans make supply-side arguments; they do and they oughtn't, and I won't stand in the way of any Democrat who criticises them for doing so. I have dabbled in such criticisms myself. The only reason that I haven't criticised the Republicans on this this time around is that I am not paying any attention to any of the campaigns. If you want to send me ridiculous supply-side quotes from Republicans, please do. I will be happy to make fun of them. But I am not willing to spend time seeking them out. My quarrel is with the notion that supply-side theories have enormous influence on Republican policy. Supply-siders haven't had the kind of influence that Chait describes since the Reagan administration. And that's because everyone observed the Reagan tax cuts opening up huge deficits. Supply side theories are window-dressing--bad, horrible window-dressing, but still, just window dressing. You don't need it to construct an argument for tax cuts, which is why, contra Chait, getting rid of the supply siders would not much change the desire for low taxes among Republicans. Nor do I think you even need supply-side arguments to sell the tax cuts to the public. The benefits of tax cuts to the public are quite evident: you send less money to the government. Politicians like to tell people that the goodies they hand out will cost less than they actually do, which is why Republicans exaggerate the revenue they can recoup from supply-side effects, and Democrats lowball the cost of new spending. And people like to pretend that they believe them. But even if the costs were higher, many people would still want tax cuts, or health care plans, or whatever. If people actually cared that much about the cost of these things, they would punish politicians for widening the budget deficit. They don't. And are these lies more uniquely horrible than, say, John Kerry pretending that his health care plan would cost half as much as most reasonable estimates predicted, so that he could claim it could be paid for out of repealing part of the Bush tax cuts? I don't think that John Kerry believed that this was true--at least, I hope he didn't. Nor do I think that any of his supporters would have been shocked and horrified to find that the program actually cost 2-3 times what Kerry promised. From an economist's perspective, these are the same thing: fiscally, a tax credit is no different from a subsidy, and underestimating the revenue cost of a program is underestimating the revenue cost of a program whether that program is a tax cut or a health care plan. Morally, my liberal friends seem to feel that the two are very different, which is the source of a lot of this outrage.

Ezra's post is an example of exactly what's wrong with Jonathan Chait's article on supply-side economics. Chait, and others writing in this vein, refute the strongest claims of the supply-side movement: that tax cuts produce astonishing growth, or that cutting taxes can increase tax revenue. Then they imply that they have thereby refuted all the economic claims in favor of tax cuts, which they haven't, not even close. I haven't read the book, and the article may well have gotten muddy in the trimming. But from the article, it's not even clear that Chait is familiar with the moderate arguments about things like deadweight loss and fiscal stimulus that motivate many academics in favor of tax cuts. He certainly doesn't address, much less refute them. But nonetheless, a lot of people seem to have gotten the misimpression that there are no serious intellectual, economic arguments in favor of tax cuts. There are. I agree that any Laffer-type arguments offered by the administration are wrong, and should not be taken seriously, and that Republicans should be pressure not to deploy them. But contra Ezra, it's not some sort of weird, uniquely awful Republican behaviour to sell your policies using dubious economic claims. I'll never forget being asked, in an interview with BET, how much Clinton's Urban Empowerment Zones contributed to economic growth in the 1990s. The correct answer--not in any measurable way--met with a great deal of skepticism, since the producer had seen Bill Himself making grandiose claims about the effects on growth and (slightly more plausibly) poverty. Politicians often assemble policies for a variety of reasons, and then sell them using the least plausible, but most appealing, rationale. Any social worker, for example, will tell you that a core of their clients have no reasonable chance of getting off support. They have poor impulse control, drug habits, extraordinarily bad planning skills, and often, a rather lackadaisical attitude towards work. But almost no social worker ever says, "We need welfare benefits because these people are too screwed up to hold a job", because Americans do not care to give money to people whom they perceive as not trying. Whether this is appalling dishonesty, or merely putting your best foot forward, depends much on how you feel about the underlying program. The actual rationale behind tax cuts was multiple. There was a fairness argument about how much of peoples' lives they should be compelled to spend laboring for the government; a fiscal stimulus argument about an economy sliding into (or just out of) recession; a deadweight loss argument; an efficiency argument about the structure of the tax code . . . these were serious beliefs, and they did, in fact, all get advanced during the policy debate. But liberal commentators have ignored all of these in favor of swiping down the few claims that are easy to refute.

I'm diving into Jonathan Chait's piece in The New Republic on how a whole huge conspiracy of crazy supply-siders has taken over the Republican party. This is, to put it kindly, wildly overblown. I mean, I'm all for someone taking on the sillier kind of supply siders who fanny about claiming that tax cuts increase tax revenue, but they've been rather thin on the ground lately. Most tax cutters today want tax cuts because they think they are good for the economy, not because they think that it will increase tax revenue. And contrary to Chait's assertions, these are not wild, insane things to think. Chait tars all tax-cutters with the ideas of the looniest supply siders. One can believe that tax cuts, by reducing deadweight loss and/or providing fiscal stimulus, will be good for the economy, without necessarily believing that the economy will be crippled by a 5% rate increase. His primary exhibits for the nefarious influence of supply-side policy are: Larry Lindsay, Dick Cheney, Jack Kemp, Jude Wanniski, and George Gilder. Cheney I give you, but Larry Lindsay was drummed out of the administration in disgrace (for unrelated reasons) even before Bush's major tax cut, and Chait somehow neglects to mention the more conventional economists who have occupied the job since. Jack Kemp hasn't had access to serious power since I was snoring my way through Algebra I, and what power he did have was over HUD. Moreover, though I agree that Jude Wanniski and George Gilder are barking moonbats, they have, to put it kindly, limited influence on today's Republican party; which is hardly surprising given that Wanniski was kicked out of the party in disgrace before he died in 2005, and George Gilder has turned his attentions to that hugely influention Republican mouthpiece, the Gilder Technology report. This motley collection of names is hardly proof that the Supply Siders Have Taken Over the Building. Chait also elides the difference between statutory and effective marginal rates in "proving" that the latter group is wrong: after all, if high marginal rates are so bad for the economy, how come we grew so fast in the fifties, when the top marginal rate was 91%? The answer is that there was a pretty big difference between effective and actual tax rates, thanks to various generous deductions that were largely done away with by the middle of the Reagan administration. Chait then claims this as evidence for the notion that "whatever negative effect such high tax rates have, it's relatively minor. Which necessarily means that whatever effects today's tax rates have, they're even more minor." For the record, I don't think that increasing the marginal tax rate on the rich (or almost anyone else) will have much effect on the economy. But Chait's breezy assertions are not good evidence for my belief. Perhaps growth in the 1950's could have been even more fabulous absent the high tax rates. Also, our tax code, and our economy, is substantially different in structure from the tax code of the 1950's, so extrapolating from then to now is very, very silly. Again, it might be that the changes would make the effects of rate cuts even more minor--but in fact I doubt it; the tax base is much broader now, and labor and capital mobility much higher, which should greatly magnify the effects of a change in rates. The article features this kind of simplistic, off-the-cuff journalistic reasoning over and over. And it's often flat wrong, as in its discussion of the Laffer Curve:

That fateful night, Wanniski and Laffer were laboring with little success to explain the new theory to Cheney. Laffer pulled out a cocktail napkin and drew a parabola-shaped curve on it. The premise of the curve was simple. If the government sets a tax rate of zero, it will receive no revenue. And, if the government sets a tax rate of 100 percent, the government will also receive zero tax revenue, since nobody will have any reason to earn any income. Between these two points--zero taxes and zero revenue, 100 percent taxes and zero revenue--Laffer's curve drew an arc. The arc suggested that at higher levels of taxation, reducing the tax rate would produce more revenue for the government. At that moment, there were a few points that Cheney might have made in response. First, he could have noted that the Laffer Curve was not, strictly speaking, correct. Yes, a zero tax rate would obviously produce zero revenue, but the assumption that a 100-percent tax rate would also produce zero revenue was, just as obviously, false. Surely Cheney was familiar with communist states such as the Soviet Union, with its 100 percent tax rate. The Soviet revenue scheme may not have represented the cutting edge in economic efficiency, but it nonetheless managed to collect enough revenue to maintain an enormous military, enslave Eastern Europe, fund ambitious projects such as Sputnik, and so on. Second, Cheney could have pointed out that, even if the Laffer Curve was correct in theory, there was no evidence that the U.S. income tax was on the downward slope of the curve--that is, that rates were then high enough that tax cuts would produce higher revenue.

Ownership of the means of production doesn't really model the same way as an income tax, and at any rate the Soviet government did not take 100% of any worker's output. And no economist that I have ever met doubts that the Laffer Curve holds true, to the extent that there is a revenue-maximizing tax rate which is well to the left of 100%. The Laffer Curve isn't wrong, as Chait wrongly implies; it's just that we're not anywhere near its maxima in the US, this being what responsible tax-cutters like Greg Mankiw have been saying all along. Chait finishes up with another, really inexcusable bit of journalistic sloppiness: he complains about the share of national income going to the very richest, without informing the reader that these figures are calculated pre-tax. The implication is that the tax cuts have somehow altered the income composition of America at the behest of corporations and mean rich people, when at the most they have acted as a somewhat smaller check on inequality that is growing for reasons unconnected to the tax code. It is not that I do not support Chait's project: refuting the sillier supply-side notions about tax revenues and growth is God's work. Except . . . this isn't the way to do it. This article isn't going to convince the people at the places Chait excoriates like the Club for Growth or the Weekly Standard--or indeed any of their supporters--that they should jettison their more extreme claims. It's too easy, reading this article, to claim bad faith.

He's a great economist--a really great economist, though I have started to doubt that strategic trade theory is going to push him into the Nobel-winning category. Paul Krugman is about a zillion times smarter than I am, and also, grows a prety impressive beard. He was also, in the 1990's, one of the greatest economics writers in history, headed up there in the economics writing firmament with John Kenneth Galbraith and Milton Friedman in terms of lucid explanation of their ideas. (About the quality of JKG's ideas . . . well, we'll leave that for another post. But I think there's really no doubt that he was the finest prose stylist the profession ever produced.) His columns for Slate, his other writings in the popular press, were all first class . . . and unlike a lot of current economics writing, they made accessible a lot of Big Ideas on things like trade. I think his writings in the 1990s on trade should be required reading for . . . well, everyone. That is precisely why I dislike his New York Times column. Or rather, I did dislike it, until they moved it behind the pay barrier, whereupon I mostly forgot about it. I don't say that Paul Krugman never writes good economics; he does. But not so often, any more. Look at his recent column topics:

WMD in Iraq FEMA and Katrina An article on the Bush administration's lunatic decision to cut back S-Chip Race and electoral demographics Bank runs The housing slump Republican candidates are big fat narcissists Liquidity in financial markets Republican candidates also suck because they haven't said anything about policy--just like Paul Krugman in this column, except that he does like him some single payer health care. Lower tax rates on hedge fund carry interest are bad. I agree, except that the economics of the competing proposals are abandoned in favour of arguing that Democrats are really awesome guys and gals, except when they happen to be Chuck Schumer. S-Chip Ordinary Americans haven't gained much from the recent expansion France's internet is way better than ours.

At least half the piece he writes make little use of his economic expertise. For this we gave up writing such as the pieces found in Pop Internationalism, or the liquidity trap piece I linked yesterday? Then there's the fact that in the new Paul Krugman's world, there seem to be only two explanatory variables for anything that ails you, me, or the economy: an unexplained secular increase in the general nastiness of rich people; and the Bush administration. This is not a very good model of the world. For one thing, where is Kathie Lee Gifford in all of this? Moreover, while there are often pretty good reasons to thwack the Bush administration's economic and other policies, when there is a conflict between

1) proving that Bush is a monstrous amalgam of the worst excesses of Andrew Jackson, Herbert Hoover, Warren Harding, and Adolf Hitler 2) writing in a clear and accurate fashion about the underlying economic principles and data involved

#2 is too often the priority that must give way. I blame a number of factors. First, Paul Krugman clearly really, really hates George Bush. Okay, fair enough. Second, 700 words is a terrible length to write about economics: too short to say anything meaningful, but long enough that the temptation to provide filler (which for Paul Krugman, too often takes the form of vituperation about Bush) must be nearly overwhelming on those uninspired mornings when the column's due. Third, twice a week is a terrible frequency at which to write about economics. Coming up with two brilliant column ideas a week is beyond all but a few freak talents; even harder when the topic of the column is rather narrow, and all your fellow economists are waiting for you to be dazzling. And fourth, Paul Krugman undoubtedly gets a great deal of reinforcement from people whose familiarity with economics is only passing, but whose hatred of George Bush, and longing for "scientific" evidence to back that hatred up, is nearly bottomless. Meanwhile, enough of his critics are equally economically illiterate conservatives caught in the grip of some fringe economic scheme, that he can dismiss them all as Bush-worshipping (or market-worshipping) cranks. But whatever the cause, I do not think that the New York Times column has done good things for him. He has gone from being the best popular economics writer of his generation, to being a mediocre political writer. This is a tragedy for us, though I presume he likes things that way. Update: Ygglz misunderstands me; I didn't say that Paul Krugman never writes about economics; only that he has squandered a comparative and absolute advantage in writing extraordinary economics columns, in order to write not particularly interesting political columns that get taken seriously largely because he's a Very Important Economist. Even when he writes about things like health care, it's far too light on the economics, and far too heavy on the "Why do Republicans want babies to die?" rhetoric I could read from any 23-year old lit major interning at a left-wing political magazine. And when he writes about things outside his field, he makes what are (I am told) elementary mistakes on things like foreign policy, while his writing rarely reveals anything new. I don't devote my time to hating him, or anything; it's just that I wish he would write more novel an interesting things.

Will Wilkinson and The Economist offer some thoughts on immigration and poverty, made fresh by Robert Samuelson's current column:

It takes a special kind of brazenness to propose a reduction of the national poverty rate at the expense of ensuring that more people stay poor by denying them opportunity to set foot in the nation. If Mr Rector cared about actual human poverty, as opposed to some statistic about the number of Americans beneath what he agrees is an arbitrary line, he’d favour an increase in legal immigration and some kind of guest-worker program. If these policies were to inflate American poverty rates, as they surely would, that would be something to be proud of. From a humanitarian perspective, if a wealthy nation’s poverty rate improves, then it isn’t letting enough poor people in.

At some point, it's plausible to argue that the change in the number of poor people, and the depth of their poverty, might change the character of America for the worse in a way that gives us the moral authority to restrict their entry. But I don't think it's plausible to say that we've reached that point yet.

It's rather common to hear those in favor of price controls on prescription drugs argue that the government does all the real research anyway, and the pharmas just steal it and slap their name on the resulting pill; or that the cost of R&D is wildly overblown. As a counterexample to these two claims, I (well, Derek Lowe, really) give you: Renin inhibitors.

I notice that the first marketed renin inhibitor seems to be doing fairly well. That's an interesting phrase, "first marketed renin inhibitor". . . This is a good example of what drug discovery can be like. Renin is a fine drug target – it’s been known for a long time as a key component of blood pressure regulation, and that’s a condition affecting a huge market whose treatment provides a real medical benefit. What more do you want? OK, let’s make it even more attractive. It’s not that hard to set up a renin assay, and the protein is well-studied. The counterscreens and secondary assays are not a problem; hypertension is fairly well understood. And if you screen for renin inhibitors, you generally find chemical matter to start off with, too. Protease inhibitors vary quite a bit in their drug-likeness, but they’re certainly not impossible on the face of them. But even after all this, I would not like to be asked to count how many renin inhibitors have been reported over the years, never to be seen again. The first reports I can find go back to the early 1980s. Given the lead time for these things, I can safely assume that these compounds were being made around the time I went the my high school Junior Prom (theme: “Saturday Night Fever”, natch – it was 1978, after all). And here we are in 2007, and the first one has finally made it to market. It wasn't easy, either - the compound was left for dead years ago, and was only kept going by some ex-Novartis people who started their own company and licensed the compound back to Novartis when it finally made it through the rough spots. So, what’s the problem? Many compounds have been done in by poor behavior in living models (distribution, absorption, and so on). Getting oral bioavailability in this area has been a lot harder than anyone thought, and even the current drug is no great winner in that category. Projects start and stop, difficulties occur, and the years go by. And other mechanisms for going after hypertension have, of course, come to market, starting with the ACE inhibitors (which come from roughly the same disco era as the first run of renin compounds). They took the gigantic market that an early-1980s renin inhibitor would have had, but even so, I don’t think a year has gone by since that someone in the industry hasn’t been working on one. (There's still room to think that a renin compound would have a better profile than the existing drugs, though). And here we are: 2007. A sobering thought, that is.

They've found our secret. Now the market will be flooded with cheap knockoffs.

With the publication of Jon Chait's new book, The Big Con: The True Story of How Washington Got Hoodwinked and Hijacked by Crackpot Economics, I think we can expect to see a repeat of the bomb-throwing that took place between liberal and conservative economists, and their often sketchily informed supporters, surrounding the Bush tax cuts in 2003. So I thought it might be wise to arm my readers against the more extravagent claims:

1) Cutting marginal tax rates can make tax revenues rise. This is trivially true: at some tax rate, people will stop working, and you can therefore increase the amount of revenue you raise. But the United States is not anywhere near this point. Except for one group--high income women--the labour supply is surprisingly inelastic with respect to tax. that elasticity does mean that you get some extra money back by cutting taxes, though no one knows exactly how much; Greg Mankiw's estimate of roughly 25% of the total tax cut sounds about right to me. But that still leaves a 75% hole in the revenue stream. 2) Cutting the budget deficit magically makes the economy grow. I dealt with this at great length on my old blog. 3) Increasing the size of the budget deficit restrains government spending growth. The evidence for this intuitively attractive premise is, at best, extremely shaky. 4) Highly respected economists Greg Mankiw and Glenn Hubbard shilled for the crackpot supply side theories of the Bush administration. This accusation is, to put the most charitable light on it, horribly overblown by people who don't really understand the debate very well. The Bush administration was not cutting taxes out of crackpot supply-sidism; it was cutting taxes because it wanted to cut taxes, and making extravagently exaggerated claims about the benefits of its policies. This is not exactly surprising or novel behavior for a presidential administration; in his book, Bob Rubin claims that real interest rates fell by an utterly implausibly large amount due to deficit cuttery. The accusation against Bush's two economic advisors comes in two flavors. The first, concerning Mankiw, is that he couldn't possibly have really believed in tax cuts without spending cuts . . . because it would be, like, totally unimaginable for a Keynsian to believe that the government should borrow money to spend during a recession. For the record, I don't think the tax cuts did much to help the economy--or to hurt it, either. But then, I am not a Keynesian. Greg Mankiw is, so I have absolutely no difficulty believing that he believed that the tax cuts were a good idea. The second is that Glenn Hubbard said that budget deficits weren't hurting the economy, when his very own textbook affirmed the standard economic model in which raising the budget deficit caused interest rates to rise (and thus savings and investment, and ultimately economic growth, to contract). This is a bit of cheap fun by those who don't understand the model they are talking about, or are too interested in scoring rhetorical points to care. People who understand the model, which is pretty much bog-standard macro, know you have to look at how all the variables move, not just the one that makes the prettiest argument. As I wrote in that piece on the budget deficit:

. . . as Glen Hubbard has repeatedly pointed out, it is very, very hard to build a credible model in which budget deficits matter to investors, but taxes do not. The basic idea behind the "Deficit reduction causes growth thesis", known to journalists as "Rubinomics", is that by reducing the government's demand for capital, you lower interest rates. Ceteris paribus, I agree with that. However, the Clinton deficit reduction was not ceteris paribus; he got as far as he got mostly by raising taxes. If you lower interest rates, but increase taxes, you increase the demand for investment capital, but you decrease the supply of it, because savers now make less of a return on each dollar they invest. Higher demand for capital, combined with a lower supply of it, raises interest rates right back up again. How far is a matter for debate, but I see no reason to believe that the positive effect of deficit reduction could be anything close to what the Clinton team claims. Indeed, Robert Rubin's claims in his memoir border on the ludicrous. (Border? Hell, the hedges are growing well over the property line, and the neighbours are threatening to sue.)

Reasonable macroeconomists may (do) disagree about the relative impacts of taxes and deficits; the weight you put on the two variables will determine how much you like the Bush tax cuts, or the Clinton tax increases. But it was not, as Hubbard's critics have implied, unreasonable or dishonest for him to support the tax cuts after printing that model in his book; depending on those relative values, the model could either have indicated or contraindicated cutting taxes as he did.

More as I actually read the book.

Carbon offsets have all sorts of problems. The methods used to calculate teh precise offset are often sketchy, and it's not clear to what extent offset carbon stays offset. Creating a market for greenhouse gas reduction may also have the undesireable effect of encouraging companies and governments to keep belching factories going until they can sell the offset, or even build new ones for the purpose of being paid to shutter them. But this is really something special. Upon original reading, I had thought that it must be taken out of context or otherwise misleading:

Climate Care celebrates the fact that it encourages the Indian poor to use their own bodies rather than machines to irrigate the land. Its website declares: ‘Sometimes the best source of renewable energy is the human body itself. With some lateral thinking, and some simple materials, energy solutions can often be found which replace fossil fuels with muscle-power.’ (2) To show that muscle power is preferable to machine power, the Climate Care website features a cartoon illustration of smiling naked villagers pedalling on a treadle pump next to a small house that has an energy-efficient light bulb and a stove made from ‘local materials at minimal cost’. Climate Care points out that even children can use treadle pumps: ‘One person - man, woman or even child - can operate the pump by manipulating his/her body weight on two treadles and by holding a bamboo or wooden frame for support.’ (3) Feeling guilty about your two-week break in Barbados, when you flew thousands of miles and lived it up with cocktails on sunlit beaches? Well, offset that guilt by sponsoring eco-friendly child labour in the developing world! Let an eight-year-old peasant pedal away your eco-remorse…

But no, their website is exactly as described. To be fair, there apparently are other projects that don't involve tethering people in developing countries to human hamster wheels, but all in all, that may be one of the most appalling things I've ever read. Special bonus question: why are the smiling brown people naked? Have they given up clothes to save the energy of washing them?

Back when I was Countries Editor at Economist.com, one of my little jobs was fielding the complaints over maps. The most frequent ire was drawn by the body of water which Korea calls the East Sea, and Japan calls the Sea of Japan, and no one else besides mariners cares about; no matter what we printed, there were surprising numbers of angry people who had taken time out of their busy day to demand that we alter a map. One of my old colleagues has expanded upon the phenomenon for a column.