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Idiomics and the Obama Administration

Posted on August 11 2010 10:00 am

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President Obama’s Chief Economics Adviser, Christina Romer, resigned last week. Private sector jobs declined about 130,000 or so according to the July jobs report. That’s what she deserves for supporting political policies in stark contrast to her own research The Macroeconomic Effects of tax Changes where she states in the abstract: “…….tax increases {designed} to reduce [an} inherited budget deficit or to promote long term growth…..are highly contractionary. The effects are strongly significant {and} highly robust…..The large effect stems in considerable part from a powerful negative effect of tax increases on investment”. As Reason Magazine’s Tim Cavavaugh noted re: Ms. Romer, “Now how will you get your soul back”?

Further, and as ludicrously, informal Obama economic advisers Mark Zandi and Allan Blinder also declared that the $800 billion stimulus “worked” even though its predictions failed. This is one reason Macroeconomic science is viewed with such disdain. For those interested in the statistical and logical errors inherent in this declaration please read economist Arnold Kling’s commentary How the Blinder-Zandi Study Was Done . In short, Zandi/Blinder “corrected the model’s past forecast errors, so that it would track the actual behavior of the economy over the past two years exactly”. This is generally called “data fitting” and has been the scourge of the macroeconomics profession for decades. Zandi’s studies are simply fitted mathematical “models”, not evidence empirically deduced as at least was the case in Romer’s tax study referenced above.

In an idealized world, citizens disagree about political policy for one of three reasons; 1) core moral principles; 2) differences of opinion about utilitarian/practical outcomes relative to alternative policies; and, 3) the self interest of various constituencies, usually using one of the two other reasons as rationales. Sometimes all 3 reasons can be in agreement or stark disagreement. For example, what if we could harvest body parts from convicted serial murderers to save the life of multiple children in need of transplants? (This was the theme of the television show “The Closer” this week). Closer to political reality perhaps, what if we could harvest “stem cells” from unborn children to save the lives of the “born”? Or, what if Steve Jobs’ self interested insatiable desire to be the global gadget king creates a secure life for millions of employees and vendors without taking away their liberty?

In matters of economics, it is reasonable to believe all 3 of these reasons can generally be in harmony. This was assumed by our founding fathers to be possible under the right set of constitutional principles and laws. The moral principal of individual freedom, the “selfish” pursuit of life, liberty and happiness, and the Adam Smith derived belief that competition by the many produce better utilitarian results than planned actions by the few, were all taken for granted by our founders. There were no Marxists or Socialists in their time, but there was Mercantilism, anti-free trade and government supported monopolists. For reasons known only to Obama, Pelosi and Reid they have rejected our founders’ notion in favor of more central planning.

My fellow New Jersey citizen, Michael Fleischer, a small business owner, details in a highly intuitive WSJ editorial on why business isn’t hiring. Rather than summarize what he wrote, let me provide some evidence that Fleischer’s example is not merely an anecdote but a representative condition as predicted by Christina Romer in her own study. The following facts can be found here on the Small Business Administration website. We have all heard these kinds of statistics before, but it is worth focusing on them again as election time approaches.

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