I have a bit of a weakness for insulting people's intelligence. I recognize this and try to restrain myself. When I read Stephen Moore's op-ed in the Wall Street Journal today, I thought that I would give restraint a try. There's simply no way to honestly analyze this piece without commenting on the author's intelligence. I suppose, to be charitable, I should refine that to mean Moore's analytic intelligence; there are many kinds of intelligence, and perhaps Moore is gifted with great social intelligence, or artistic intelligence. And yet the relevant point is that Moore is the lead economic editorial writer for the country's leading economic newspaper and yet he lacks even a rudimentary understanding of economics.
What makes this point especially hard to resist is that Moore's lack of understanding of rudimentary economics is the subject of his op-ed. Here is his thesis:
Christina Romer, the University of California at Berkeley economics professor and President Obama's first chief economist, once relayed the old joke that "there are two kinds of students: those who hate economics and those who really hate economics." She doesn't believe that, but it's true. I'm surprised how many students tell me economics is their least favorite subject. Why? Because too often economic theories defy common sense. Alas, the policies of this administration haven't boosted the profession's reputation.
Moore believes the entire economics field is composed of idiots who fail to grasp obvious realities. Their theories defy "common sense," which is to say Moore doesn't understand them, which is to say they must all be wrong. For instance:
Mr. Carney explained that unemployment insurance "is one of the most direct ways to infuse money into the economy because people who are unemployed and obviously aren't earning a paycheck are going to spend the money that they get . . . and that creates growth and income for businesses that then lead them to making decisions about jobs—more hiring."
That's a perfect Keynesian answer, and also perfectly nonsensical. What the White House is telling us is that the more unemployed people we can pay for not working, the more people will work. Only someone with a Ph.D. in economics from an elite university would believe this.
Right. The theory holds that a lack of demand is creating a high level of unemployment. Unemployed people have a high marginal propensity to consume -- which is to say, they're generally desperate to pay the bills. If you let them keep drawing uninsurance claims, they will spend that money on things like repairing their car and buying clothes, creating more employment in the fields of auto repair and clothing retailers. Moore seems to think either that unemployment benefits can only have the effect of discouraging people from working -- that apparently, our economy suffers from a surplus of jobs that have gone unfilled because applicants would prefer to stay on unemployment. I suppose you could argue that this is the case, and that this effect overwhelms the demand-side boost from maintaining consumption for the unemployed who would not otherwise be obtaining work.
But Moore doesn't make that case. He just thinks it's obviously dumb to think that unemployment benefits could have an effect other than to discourage work. I have not omitted from his op-ed any portion where he makes this case.
A few months ago Mr. Obama blamed high unemployment on businesses becoming "more efficient with a lot fewer workers," and he mentioned ATMs and airport kiosks. The Luddites are back raging against the machine. If Mr. Obama really wants to get to full employment, why not ban farm equipment?
But Obama is not proposing to ban farm equipment, or ATMs, or airport kiosks. So, hey, maybe there is more to the argument! Indeed, there is an entire economic debate about the degree to which technological trends have impacted employment. Over the last three economic expansions, unemployment has taken much longer to come down than in previous cycles. Economists believe that technological changes have a great deal to do with this. That is the debate Obama was referencing. Moore, again, appears totally unaware of it.
Or consider the biggest whopper: Mr. Obama's thoroughly discredited $830 billion stimulus bill. We were promised $1.50 or even up to $3 of economic benefit—the mythical "multiplier"—from every dollar the government spent. There was never any acknowledgment that for the government to spend a dollar, it has to take it from the private economy that is then supposed to create jobs. The multiplier theory only works if you believe there's a fairy passing out free dollars.
Moore is at least referencing an economic theory here, albeit an extremely old one believed by very few economists any more. The theory holds that borrowing money in the short term must always lead to an immediate reduction in short-term spending. Economists have answers to this objection that do not rely on fairies. Moore genuinely seems to think that the entire field is filled with idiots unfamiliar with his "common sense" objection.
One more piece of Moore's argument:
Keynesians believe that the economic problem is abundance: too much production and goods on the shelf and too few consumers. Consumers lined up for blocks to buy things in empty stores in communist Russia, but that never sparked production. In macroeconomics today, there is a fatal disregard for the heroes of the economy: the entrepreneur, the risk-taker, the one who innovates and creates the things we want to buy. "All economic problems are about removing impediments to supply, not demand," Arthur Laffer reminds us.
Let's take the last part first. He cites supply-side guru Art Laffer, who claims that all economic problems are supply-side problems. Moore is not just saying that marginal tax rates matter. He is ascribing them total importance, reducing all economics to the supply-side. No real economist believes this. Moore is epitomizing the pure crankery of supply-side economics, the belief that it has discovered simple truths that have elided the entire profession.
In the first part of the paragraph, he assumes that Keynesian economics is simply the mirror image of his own belief system. He thinks that government discouragement of wealth is the only possible economic problem. Therefore, Keynesians must believe that a failure of demand is the only possible economic problem. But look, he says -- there were shortages under communism! He has refuted Keynesian economics! That Keynesians do not believe that a failure of demand is the only possible economic problem genuinely does not occur to him.
I have been following Moore for years, and I have met him -- yes, it was awkward -- and I can assure you that this is not just some oddball rhetorical game he's playing. He genuinely has no idea what he's talking about. And I'm sorry to be mean to what seems to be a fairly nice guy, but it does matter that there are completely ignorant people wielding great influence over the policy debate.