Posts filed under “Really, really bad calls”
As the Heritage Foundation’s fingers lose their collective grip on the last rung of the ladder of credibility, William Beach, who authored their analysis of the Ryan budget proposal, takes aim at Paul Krugman, who has arguably been the biggest — but hardly the only — thorn in his side. Beach’s open letter is, regrettably, as pathetic as their recent budget analysis and subsequent hide-and-seek shenanigans with the unemployment rate. While I disagree with much of what Beach has written, I think it might be instructive to put that disagreement aside and look instead at another facet of this debate.
For those who are just tuning in:
Heritage’s original analysis of the Ryan budget proposal had the unemployment rate falling to a near-record-low of 2.8 percent by 2021. This, of course, raised some eyebrows. Among the first to question this projection was Krugman. We at TBP made some quick Obama/Ryan comparisons here. (Personally, I find it hard to believe that anyone from Heritage actually looked at — scrutinized — their output and questioned whether a 2.8 percent unemployment rate — without inflation, mind you — is attainable. Garbage in, garbage out, is what I’m saying. But I digress.)
Within 24 hours, Heritage had disappeared the analysis that contained the 2.8 percent unemployment rate and replaced it with one that called for a higher rate. We covered that here. Some, myself included, wondered how Heritage managed to rejigger their numbers so that only the unemployment rate changed. A friend at one of the Fed’s regional banks wondered the same thing, and the widely respected Macroeconomic Advisers — who wrote the most blistering critique of Heritage that I’ve seen — put it this way (footnotes removed):
In any event, the update goes on to say “while the adjustment has an impact on the unemployment rate in the model, the overall results elsewhere in the model do not change significantly. Of course it can’t be the case that no other variables changed. In particular, for a given population, if the unemployment rate rises for whatever reason, either household employment must be lower and/or the labor force participation rate must be higher. Is it really the case that in a general equilibrium model such large changes in labor force participation, household employment, and the NAIRU have no other significant impacts? We doubt it. To us, these machinations call into serious question this part of the exercise.
NationalJournal reported that Nigel Gault – an economist at IHS Global Insight, whose model Heritage used — was incredulous about the output:
An economist at IHS Global Insight, whose model Heritage employed in the analysis, seemed skeptical of the low unemployment projections on Tuesday.
Nigel Gault, Global Insight’s chief U.S. economist, noted that in any economic model, forecasters make assumptions about labor supply, capital spending and other details that can affect the projections.
“I’m not quite sure what assumption… would deliver 2.8 percent unemployment,” Gault said in an interview, adding: “We might assume different parameters.”
I am still looking for economists/bloggers who – having thoroughly examined the Heritage analysis – have given it their blessing. And, to be clear, that’s not, “Yeah, it’s the conservative/Tea Party position so I’m all for it.” I’m looking for, “Yeah, I have examined these numbers with a fine-tooth comb and they work.”
So, to recap: The Heritage analysis has been found wanting by Krugman, DeLong, Chinn, Shedlock, CR, Bonddad, Macroeconomic Advisers (among others), and seriously questioned by IHS Global Insight, whose model Heritage used. Apologies to any econ blogger I may have missed who’s weighed in on this.
Yet Heritage, instead of addressing the concerns of its various critics, chooses to go after only Krugman. Why? My guess is that, given Krugman’s liberal leanings, the path of least resistance for Heritage is to simply point at him — to the exclusion of all others — cry “liberal with an agenda,” take their ball and go home. Simply put, Krugman’s the low-hanging fruit. After all, Macroeconomic Advisers’ critique is much more thorough, detailed, and scathing than Krugman’s (“We believe that the main result — that aggressive deficit reduction immediately raises GDP at unchanged interest rates — was generated by manipulating a model that would not otherwise produce this result, and that the basis for this manipulation is not supported either theoretically or empirically. Other features of the results — while perhaps unintended — seem highly problematic to us and seriously undermine the credibility of the overall conclusions.”); why not take them on? Because this exercise is simply not about the facts, the data, or arguing on the merits (or lack thereof) – it is about labeling one’s opponent an ideologue and hoping that’s good enough to discredit him and end the argument.
There is an old Wall Street joke about analysts: “You don’t need them in a Bull Market, and you don’t want them in a Bear Market.” Which brings me to Standard & Poor’s. They put a “negative” outlook on the U.S. AAA credit rating, citing rising budget deficits and debt. To which I say “Who…Read More
The “Datapoint of the Day” comes from the NYT column we referenced yesterday: The mind-boggling drop in Justice Department criminal referrals over the past decade. I find this specific factoid astounding: “Data supplied by the Justice Department and compiled by a group at Syracuse University show that over the last decade, regulators have referred substantially…Read More
GE paid no taxes; Goldman Sachs paid $14 million last year. The GAO reported in 2008 that “two out of every three United States corporations paid no federal income taxes from 1998 through 2005.” Companies have become all too astute at paying for loopholes which allow them to shift profits abroad, or move their gains…Read More
Our story so far: Irish banks went hog tulip-wild, building out a huge residential and commercial boom. The construction was far beyond actual demand for the former Celtic tiger; it was essentially speculation run amuck. Ireland had briefly found the pot-o-gold at the end of the rainbow: Everyone was making oodles of loot. Banks were…Read More
Here is a question for the paranoics out there: Can we tell any difference between High frequency trading and cyberattacks? We have previously discussed how the NYSE allowing co-located HFT servers is the equivalent of turning our national security over to Skynet. We now have a new Robot Uprising: It is becoming increasingly difficult for…Read More
Even 60 Minutes seems to be sugarcoating the motivation for fraudclosure: “Banks so poorly handled documentation on millions of mortgages that many today cannot prove that they own the homes they want to foreclose on. The resulting rash of lawsuits from people seeking to save their homes has one of the government’s top banking regulators…Read More
I like Mike Shedlock — but I have no idea what to make of this foolishness he recently posted: How the CRA Fueled the Housing Bubble That “source” Mish is citing is a (WTF?) IBD Editorial — an editorial page notorious for their hard right views. They do not believe that radical deregulation of the…Read More
Call it The Big Renege: Last month, I discussed what a horrific decision the Irish made when it came to their bank bailouts. They foolishly placed the entire liability for reckless bankers onto the taxpayers. Well, the Irish voters tossed out the entire lot, and the new government has been looking for an excuse to…Read More
Want to understand how utterly corrupted the US has become by its own banks? Consider the regulatory difference between the United States and Britain — whom Jesse Eisinger describes as “two countries separated by a common financial crisis.” “[In the UK], major government figures speak openly about requiring substantially higher bank capital. The governor of…Read More