Smackdown: Paul Kasriel vs Michael Boskin
We at the Big Picture have never been fans of economist Michael Boskin. The infamous Boskin commission was an intellectually dishonest exercise in clever ways to understate inflation, thus lowering Social Security obligations. (I found that approach cowardly, and instead offered up some SS truths).
His commission helped the BLS to habitually understate inflation, the net result of which was to encourage Greenspan’s rate recklessness, setting the table for the 2007-09 crisis. How about Boskin’s “discovery” of a 12 trillion dollar cash horde that the government had somehow “overlooked?” That was used to justify unfunded tax cuts. Afterwards, he issued an Oops, declaring “My Bad.”
Perhaps most unforgivable to investors, those who followed Boskin’s investment advice in March 2009 missed one of the best market rallies in decades. Indeed, Boskin’s partisan screeds costs any investor foolish enough to listen to him big money.
So when earlier this month, he published yet another partisan rant (Summer of Economic Discontent), I loathed having to fisk the intellectual dishonesty likely to be its main theme. Fortunately, Northern Trust’s Paul Kasriel has spared me the labor. His commentary eloquently disembowels Boskin, and reveals him to be a hypocrite to boot.
Boskin’s OpEd compared the anemic current economic recovery with more vibrant ones such as Q1 1983, when Martin Feldstein was chairman of President Reagan’s Council of Economic Advisers. He blames the lackluster recovery not on the prior crisis, but on Obama’s overly aggressive responses. Other’s, such as FT’s Martin Wolf, have called the Obama response “too feeble.”
Kasriel points out one notable omission from Boskin’s history: Q2 1991, when “Mr. Boskin himself was the chairman of the President’s Council of Economic Advisers at the time of the 1991 economic recovery.” Kasriel finds it “curious that he makes no reference to that recovery when critiquing the current recovery.”
To rectify that notable omission, Paul shows 2 charts (top right, below) – comparing various recoveries, including the 1991 Bush I that Boskin somehow overlooked. These include the year-over-year percent changes in real GDP and real bank credit one year after the final quarter. The current recovery compares favorably with the one Mr Boskin oversaw in 1991 — when the terms “double-dip” and “jobless recovery” entered the economic lexicon.
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charts courtesy of Northern Trust
Perhaps Boskin’s omission is due to other factors:
Perhaps Mr. Boskin is not suffering so much from amnesia, as I have suggested, but rather is experiencing an episode of déjà vu. He intimates that if current economic trends continue, President Obama will have a difficult time being elected to second term in 2012. Yes, just as President George Herbert Walker Bush was unable to win a second term in 1992, which terminated Mr. Boskin’s tenure as chairman of the President’s Council of Economic Advisers.
I still think its intellectual dishonesty, which has been a hallmark of Boskin’s career. I will defer to Mr. Kasriel, and simply call it a case of déjà vu all over again.
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Previously:
The Danger of Dogma (July 27th, 2003)
Michael Boskin on “The Obama Crash” (December 7th, 2009)
Why Michael Boskin Deserves Our Contempt (January 19th, 2010)
Sheehan on Michael Boskin (January 19th, 2010)
Sources:
Michael Boskin’s Summer of Economic History Amnesia
Paul L. Kasriel
Northern Trust Global Economic Research, September 07, 2010
http://bit.ly/bXWN2k
Summer of Economic Discontent
MICHAEL BOSKIN
WSJ, September2, 2010
http://online.wsj.com/article/SB10001424052748703882304575465462926649950.html
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September 10th, 2010 at 10:25 am
That was awesome. PK is like a fine wine.
September 10th, 2010 at 11:09 am
Reminds me of the time Reagan wanted to cut funding for the disabled and clean out the psyche wards…
http://en.wikipedia.org/wiki/Domestic_policy_of_the_Ronald_Reagan_administration
No data, appealing to people’s emotions about goldbricking lazy bums… like these guys…
“…Would you rather play tennis or make an extra $80? …”
http://online.wsj.com/article/SB10001424052748704392104575475781704072278.html
…who obviously need tax cuts.
September 10th, 2010 at 11:20 am
Your critique that Boskin is a politician not an economist is well taken, but the chart you close with is misleading. A look at the more famous DShort charts comparing unemployment and stock indices across recessions shows how selective the graphic you chose is. Relative to history this is a slow sh*tty recovery, and would be regardless of the last presidential election outcome.
September 10th, 2010 at 11:55 am
If you are going to compare this recovery with Boskin’s, you should also include some data about how much stimulus was thrown at the economy in each period. While Boskin’s job growth isn’t anything to write home about, my recollection is that he didn’t spew hundreds of billions of taxpayer money to achieve those results either. So far, not a very nuanced discussion.
September 10th, 2010 at 12:23 pm
The point is that Boskin omitted his own anemic recovery when critqueing Obama’s.
What Kasriel (and I) are critiquing is his omission. This is not a discussion of the overall recovery, which I called “anemic” in this post, and have discussed ad nauseum in 4,000 other posts.
Please remove your selective perception goggles.
September 10th, 2010 at 1:04 pm
Sorry, just unhappy with the chart. Sometimes I look at something and think: why would someone choose to present it that way?
Why private payroll employment instead of UE or total employment or something else?
Why line up the series by matching downward slope through index=100?
…and then label that trough when it continues lower?
What is the usual range of this metric, are we looking at Everest or a mosquito bite?
In this case I guess decisions were inherited from the reference, Boskin.
Sorry, I’ll stop complaining so much about this excellent, free content.
September 10th, 2010 at 1:30 pm
No shortage of politicians, and politician surrogates, who are intellectually dishonest.
Certainly most of Obama’s defenders fall into this category.
September 10th, 2010 at 1:35 pm
the near flatline of the last 3 recessions demonstrates just how bad things have been for the labor market. This past decade it took 11% growth of constant dollar GDP to generate 1% increase in NFP. In the prior four decades, on average it only took 1.5% GDP growth to increase NFP 1%. As a result U-6 rose from 7% to 16.7% this decade. Total NFP increased only 1.65% (thru 2009). To add to the challenge, the labor pool is expected to increase 10% in the next 10 years. Another decade like the past one will push U-6 to over 25%. Meanwhile, income and wealth becomes more concentrated at the top. All of this argues for the govt to do what it can to stimulate employment (either govt or private) and to increase the take home pay of the middle class. Hopefully the additional jobs will be productive ones.
September 10th, 2010 at 1:57 pm
There is another unstated problem here when comparing recovery numbers now with the recover numbers from Reagan. The numbers quoted for the Reagan recovery are the numbers from the revisions made in 2009 — they are not the numbers reported at the same point in time relative to the recession. James Grant reported on this recently in his Grant’s Interest Rate observer.
Over time the Reagan numbers were continually revised upwards. The numbers that came out in 1984 were considerably weaker than the most recent set of data. When comparing the current recovery to the same point in time numbers Obama fares much better. Surely Boskin knows this.
September 10th, 2010 at 2:01 pm
I remember the 1992 election period when the economy was obviously getting better. The tv folks would conduct man-in-the-street interviews that went like this: Reporter: “This economic stat is getting better, do you detect an improvement in your well being” MITS: “No.” Reporter: “There you have it, no economic recovery (vote for the Democrat)”
We’ll see the same thing in October with the ‘recovery’ being pumped up in order to pump up the Democrats to say nothing of what the media will come up with in 2012 to get Obama reelected.
September 10th, 2010 at 2:07 pm
On the subject of “intellectual honesty”, I think that a substantial portion of economic debates boil down to the question of the level of Federal spending that a given pundit or politician actually advocates. Is the preferred level of spending equal to 15% of GDP…? Is it 25% of GDP…? In Krugman’s case, it’s probably 40%. In Obama’s case, it’s at least 50%, if not 70%.
If I had to take a wild guess, I’d put Mr. Ritholtz in the 30% category.
September 10th, 2010 at 2:30 pm
In his January 2010 critique, “Why Michael Boskin Deserves Our Contempt”, Mr. Ritholtz tells us that rather than distorting CPI to suppress entitlement COLA’s, Boskin should, “man up and say “fix this, its broken, we can’t afford it”.
Fair enough…. I can’t disagree with that….
But since today’s piece is an apology for Obama, would it not also be fair to ask what has generally been the democratic response to republicans who have indeed, “manned up and said “fix this, its broken, we can’t afford it”?
I seem to recall that when Newt Gingrich tried to “man up” on Medicare in 1995 and restrict its growth to that of inflation, he was demonized as wanting to throw Grandma in the gutter without her arthritis medicine and his career spiraled downward from there.
I also seem to recall the response Bush 43 got when he tried to “man up” on Social Security reform in 2005…. You can debate the merits of his plan, but the democratic response (including Obama) was not to “man up” but rather to demonize the attempt and bury their collective heads in the sand at the sight of demographic and economic reality. Even as I write this, democrats are attacking Rep. Paul Ryan’s attempt to “man up” on government debt and entitlements as dishonest and racist to boot….
Seems to me that with a few rare exceptions, our entire political and media elite on BOTH sides deserve our contempt, not just Mr. Boskin.
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BR: This is not an “apology for Obama,” whose economic policies I have been very critical of. My beef is with Boskin, whose chicken-shit Inflation revision allowed Greenspan to fool himself into thinking that there was no inflation as housing and commodities spiraled skyward and the dollar lost 41% of its value from 2001-07.
If you have a scalawag you care to disembowel for his crimes against the nation, feel free to
September 10th, 2010 at 2:41 pm
VRWC:
Well put.
September 10th, 2010 at 2:55 pm
What does the level of federal spending as a share of output possibly have to do with intellectual honesty? If person A says 20 percent and person B says 30 percent, on what basis could you possibly judge their intellectual honesty?
In this proximate issue, Boskin was critical of the “Obama recovery” while omitting, as Kasriel notes, a comparison to the recovery that occurred from the first of the three recessions over which a Bush presided and, perhaps more importantly, during which the critic was chair of the CEA.
As for Krugman, he believes that national governments should run surpluses during economic expansions so that they can run deficits during economic contractions; that is, fiscal budgets should be balanced over the economic cycle. This is hardly a controversial opinion for a neoclassically-trained new Keynesian economist. It is, I would submit, the source for intellectual dishonesty in certain economic debates.
September 10th, 2010 at 2:57 pm
Why is a belief intellectual dishonesty.
Faking the data so it confirms to your beliefs — now THAT is intellectual dishonesty.
So is omitting data that you know disproves your arguments — and if you were the CEA chairman at the time, well than, that simply makes you a weasel
September 10th, 2010 at 3:27 pm
IS_LM @ 2:55
Of course, there’s nothing dishonest about saying that you want spending to be 25% of GDP, or 40%, or whatever the number is.
But if a politician says that we have to spend more on program “X”, or program “Y”, quite often that is code for, let’s increase Federal spending as a percentage of GDP. I’m not (at the moment) debating the question of whether it is better to have spending at the 15% level, or the 30% level, only that it would be more honest for a politician to say where he stands on the issue.
I think that the Obama/Pelosi/Reid axis would like to see Federal spending at a much higher level (relative to GDP) than is currently the case. I don’t, however, expect any of them to explicitly admit it.
September 10th, 2010 at 4:15 pm
I still take exception to your concept of “unfunded tax cuts.” The only unfunded is government spending. I consider the money I earn mine. The government has a right to take a share, but to consider cutting my taxes somehow defunds the government implies that the money is THEIRS to begin with.
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BR: They are not mutually exclusive. Spending must be paid for, tax cuts must be paid for.
You should look into double entry accounting if you want to understand why BOTH Spending and Tax Cuts need to be paid for . .
September 10th, 2010 at 4:19 pm
@vrwc: “man-up”? That’s what you call having the guts to cut SS benefits?
Which SS benefits?
The ones people and employers have been paying into for decades and are earned? Or the ones the bureaucracy pays out to people that haven’t paid a nickle into?
IMHO a better definition of “man-up” is for politicos to admit every nickle paid into SS has been spent. For the betterment of of the elite well-connected fat cats.
So suck on that.
September 10th, 2010 at 4:33 pm
rip,
Excuse me, but if you read more carefully you would note that “man up” is a quote of Mr. Ritholtz from his January 19th post.
He was saying that Boskin should have been more honest in his intentions regarding COLA’s…. I agreed…. but was pointing out that the folks on the left that he usually defends have not been terribly helpful when anyone on the right attempted such honesty.
I agree with you that SS has been run like a ponzi scheme…. by both sides…. and now we all have to pay the price one way or another.
September 10th, 2010 at 4:44 pm
rip, if the government engaged in less deficit spending, fewer dollars would swirl around the economy and end up in your pocket. Is deficit-begotten money “yours”? Or are you rebating money the government created? Who made who?
We don’t even know what money “means” if the government creates a lot more of it through deficit spending. I prefer higher taxes and lower deficits rather deficit spending and less-easily-calculated inflation effects.
September 10th, 2010 at 7:28 pm
@BR: agree totally about Boskin. But more importantly he is very good at doing his boss’s dirty work: Clinton. And Obama has tons of the same kind.
Guess my earlier post about vrwc disappeared.
Oh well. His issue is an important topic you’ll bleed another day.
And if I’m still here and motivated I’ll contribute. Or not.
September 10th, 2010 at 7:38 pm
@vrwc: Sorry. Agree with your last post. I harshed you and I apologize.
Somehow the timing here gets messed up.
Somehow I think we are almost all on the same page.
Thanks BR. I’m sure we’ll be back here soon.
September 10th, 2010 at 8:55 pm
@DL, you’re throwing numbers around like Brett Favre throws a football. Last time fed spending was 15% of GDP was early 1920s — before the military-industrial-oil complex sunk its fangs into American society. The number under Ronald “Gov is the problem” Reagan was always north of 30%, and while it’s above 40% now, it’s still lower than the ratio we saw during WWII. Which seems about right, given that thirty years of free-trade supply-side voodoo economics has left the American economy in the shitter.
As for Boskin, he was, is, and always will be a hack.
September 10th, 2010 at 9:35 pm
@wunsacon: AGREE
September 10th, 2010 at 10:25 pm
The Minneapolis FED has some great Chart Porn for you BR. These Charts put
THE RECESSION AND RECOVERY IN PERSPECTIVE… A MUST SEE….
The 2007-2009 recession is widely thought to have ended sometime last summer. How bad was this recession, and how quickly is the economy recovering? How does this recession and recovery compare to previous cycles?
The official month (quarter) marking the end of this recession, and the start of the recovery, has yet to be determined (see discussion below). Until the official date is announced, July 2009 (the third quarter) is used as an estimate.
The chart calculates every recession from 1948 until 2007
Employment is nonfarm payroll employment calculated by the Bureau of Labor Statistics.
Output is gross domestic product adjusted for inflation as calculated by the Bureau of Economic Analysis
Use these charts to compare various recoveries, including the 1991….
http://www.minneapolisfed.org/publications_papers/studies/recession_perspective/
Also the double-dip 81-82 recession which is my all time favorite…
September 11th, 2010 at 5:55 am
@BR: They are not mutually exclusive. Spending must be paid for, tax cuts must be paid for.
You should look into double entry accounting if you want to understand why BOTH Spending and Tax Cuts need to be paid for . .
As in FASB as opposed to Double books accounting. Ooops, we’re not discussing Wall St!!
September 11th, 2010 at 8:43 am
The debate about government size as a % of GDP is for pea-brained idiots. You could make the gobinment much bigger if you took the parts of it “hidden” in Fannie and Freddie onto the balance sheet (the reverse was done decades ago to “hide” war spending). You could similarly cut the “size” of the gobinment budget in half by moving the social security part of its budget into a “private” entity (Bush II tried that idiotic trick). The real issue is what % of GDP is spend on what specific societal functions. Calculated Risk http://www.calculatedriskblog.com had some nice charts on that. a few days ago.
September 11th, 2010 at 9:46 am
I am not certain about Boskin’s intellectual dishonesty. All I know is that every October the NFP numbers are revised back five years due to the annual March benchmarking. The last benchmark was 1.3 million positions lost for the 2005-2009 period. How many positions will be gained/lost during the next benchmark? Stay tuned for the Employment Situation Summary release next month and finalized in February, 2011 for the first year revision. The slope of the redline in Kasriel’s vintage chart (2009 recovery) will change. Will Boskin or Ritholtz be vindicated? Will vintage or revised data be determinative? I am not certain about Ritholtz’s intellectual honesty, but it will take him 5 years to find out.
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BR: If you are uncertain of my intellectual honesty, well then, may I point your lazy ass to the 14,799 posts this blog has made over the past 7 years. Read some of them and draw a conclusion.
As to Boskin, his track record is well established. He has already made his intellectually dishonest bed . . .
I am cerain
September 18th, 2010 at 12:38 pm
[...] we noted in these pages a few weeks ago, Paul Kasriel gave Micahel Boskin’s selective memory a what [...]