I wouldn't do that if I were you

By Megan McArdle

Jonathan Chait has apparently gotten the notion somewhere that Martin Feldstein is about half a step above George Gilder and Jude Wanniski in intellectual heft:

I see that, in their efforts to show that Republican budget policy is actually driven by sensible people rather than raving loons, conservatives are now citing the work of Martin Feldstein (see here and here.)

I will concede that Feldstein is more credible than, say, George Gilder or Jude Wanniski. That, however, is not saying much.



I've only been a journalist for a few years. But I've developed a small list of phrases that should never come out of one's mouth:

"Peter Singer--what a 'tard!"

"I just don't think Stephen Hawking is all that bright"

"Well, fine, Crick and Watson may be smarter than your average creationist, but not much."

Since I mostly write about economics, that means I mostly try to avoid saying, or implying, that highly respected economists are not very good at their job1. Even when you think their research is mistaken, you want to tread carefully with the accusations of stupidity or bad faith. Especially when that economist is a holder of the John Bates Clark medal, which is harder to get than the Nobel Prize in economics. Extra especially when he is a chaired professor at Harvard, and the head of the National Bureau of Economic research. For one thing, when you do write things like that, anyone who knows anything about the subject is not reading it and thinking, "that McArdle chick sure must be smart, if she knows more about trade theory than Paul Krugman!"

Moreover, you run the risk of having to prove that you are smarter than said professor, when trust me, you aren't. There is no way an argument between you and Martin Feldstein, or any other economist of his stature, about their subject is going to end except with you backing away slowly, eyes fixed on your shoes, mumbling "I'm sorry, I just didn't quite understand . . . I'm sorry, yes, listen, I really ought to go . . . I think I left something on the stove . . . no, no more equations, PLEASE MAKE IT STOP!"

And of course, sometimes my old employer notices what you've said, and then things like this tend to happen:


JONATHAN CHAIT apparently is unimpressed by citations to the work of personages such as Martin Feldstein, the president of the prestigious National Bureau of Economic Research and the George F. Baker Professor of Economics at Harvard University. Indeed, Mr Chait has a knack for drawing the bounds of intellectual respectability so tightly around himself that by late afternoon even his shadow falls outside the charmed circle. Even so, one must admit that Mr Feldstein's Clark medal and his endorsement by the New York Times for the job of Chairman of the Federal Reserve does leave one with a residue of suspicion. The Bank of Sweden has not bestowed upon him its coveted prize—though it's true he has been mentioned, specifically for his work on the theory of taxation. So let's not be too hasty to take him seriously. 

Because Mr Chait is a self-avowed empiricist, perhaps he will favour this new NBER paper (free version here) by Christina and David Romer of the Univesity of California, Berkeley (despite somewhat embarrassing credentials, even slightly more lackluster than Mr Feldstein's). It is a dazzling empirical investigation of the effects of tax cuts and increases on economic output in the United States since the end of the second World War—one that significantly improves on the methodology of earlier attempts to estimate the effects of tax changes. They find that



tax increases appear to have a very large, sustained, and highly significant negative impact on output. Since most of our exogenous tax changes are in fact reductions, the more intuitive way to express this result is that tax cuts have very large and persistent positive output effects.


The economists Romer looked at every tax change legislated at the national level since WWII. Impressively, they scoured "presidential speeches, executive-branch documents, and Congressional reports ... to identify the size, timing, and principal motivation for all major postwar tax policy actions." They then categorized each tax change based on whether or not it was intended as a forward-looking correction to the direction of the economy (they call these "endogenous" changes), or intended for other reasons, such as to reduce an inherited deficit or to boost long-run growth (the "exogenous" changes.) This allows them to tease out the output effects of tax cuts and tax increases set in place for different reasons.

Those interested in raising taxes, but unwilling to take seriously Martin Feldstein's estimate of the deadweight loss of tax increases, will need to grapple with Mr and Ms Romers' new findings. For example:

Our baseline specification suggests that an exogenous tax increase of one percent of GDP lowers real GDP by roughly three percent.


This is bad news for those with aspirations to higher levels of tax-financed spending. However, they find that not all tax hikes hurt the same. Tax increases specifically intended to offset budget deficits largely avoid the negative effects of other kinds of increases, in part by improving the climate of investor confidence.



The deadweight loss of taxation is still a matter of hot debate, and other economists would push forward other numbers. But Mr Chait's recent writings seem to imply that he hasn't really understood the terms of the debate, or learned how to separate the cranks from the titans, which may be why his article lumps all of their claims together. Unfortunately, I haven't a copy of the book, so I can't tell if it's any better than the article in The New Republic.

"It's true because Martin Feldstein said it" is a stupid argument--but no stupider than "Tax cuts are bad because Art Laffer likes them".



1But what about Paul Krugman, I hear you cry. I don't care for Paul Krugman the columnist, which is a job I know something about. You won't see me airily dismissing his work on trade, however, nor other respected economists whose work I disagree with, like Card and Krueger.

This article available online at:

http://www.theatlantic.com/business/archive/2007/09/i-wouldn-apos-t-do-that-if-i-were-you/1898/