Friday, April 12, 2013

Is it possible to finally slay the most monstrous of all green boondoggles?

The various subsidies and mandates for corn ethanol are not the most stupid and ludicrous alternative-fuel policies out there. That title goes to cellulosic ethanol.  But they have probably been the most costly and deadly.  Perhaps there is hope that this monster of a boondoggle will be given the boot.

Wednesday, April 10, 2013

The Missouri Quality Jobs Program: Simply a waste of money

Back in late January I testified in front of the Missouri House Committee on Government Oversight and Accountability about the Missouri Quality Jobs Program.  The program provides tax credits to firms that promise to provide new jobs in Missouri, and has given out hundreds of millions of dollars in credits since 2006.  The Missouri Department of Economic Development claims that the program has directly created more than 11,000 jobs.  This claim is simply the sum of the new jobs associated with projects that received the credits.

The problem with the DED's claim is that it assumes that all of those jobs would not have been created were it not for the credits.  This is clearly incorrect, however, because many firms only apply for the credits after deciding on a project.  In addition, the claim ignores that the most of the workers filling these new jobs usually come from other jobs within Missouri. Thus, they are merely shuffled from one Missouri firm to another.

I presented some preliminary estimates that the overall effects of the program so far was a small decrease in employment.  The best-case would be if the program was simply a waste of money.  I'm waiting for new data so that I can do a complete analysis of the policy. 

Here are some summaries of the hearing:

Department of Economic Development's Forecasting Model Questioned, El Dorado Springs Sun, March 7.
Economist Casts Doubt on Mo. Business Incentives, BloombergBusinessweek, January 28.
House Committee Looks for Ways to Improve Quality Jobs Program, Missourinet, January 28.
Lawmakers Address Mamtek, abc17news, January 28.

Tuesday, April 9, 2013

A catalog of economic incompetence

Someday there will be an extremely long book that catalogues the stupendously wrong-headed economic policies pursued by President Obama.  In the meantime, Richard Epstein has a good summary.

As an aside, I can no longer say that every economic policy pursued by the administration is the opposite of what should be done. The president's modest proposal to trim social security payments by using a more-accurate inflation measure is perfectly sensible.  That said, I'm not sure it's a good idea.  But at least it's not the opposite of what should be done.

Monday, April 8, 2013

Experts shmexperts

Michael Greve has a nice discussion of how the economy and much of the government has been outsourced to panels of experts who are not particularly expert:
How is this working out? Not so well, in my judgment—not for the pubchoice reasons of old, but for more Hayekean reasons.
For starters, it’s obvious that the experts don’t have a clue. The Fed’s pronouncements anno 2007, to the effect that everything was firmly in hand, are the stuff of legend, and its models have proven lamentably inaccurate in predicting even short-term economic performance. As for the experts’ climate change models about the planet’s behavior a century hence, right.
Even so, expert government proceeds on an implied premise of omniscience. The intergovernmental committee that decides, under and pursuant to the Endangered Species Act, whether the One-Eyed Toad shall live or die is called, only semi-ironically, the “God Squad.” (That would have been a terrific title for IPAB, but it’s already taken.) The squad’s reasoned decision-making is one step up from shooting dice. We can live with that, even if the toad cannot. However, expert ignorance increases with the scale, scope, and complexity of the experts’ mandate; and when we’re taking about the U.S. economy or the planet, that’s biggish. Still, we’re supposed to believe that there’s nothing wrong with the attempt to predict and manage these systems—nothing, that is, that can’t be fixed by an econometrician in the Fed’s basement or perhaps the Mann Brothers’ Earth Band (Michael with the hockey stick and Manfred with the keyboards).
Hard to say, from where I sit, what’s worse: the dark suspicion that the experts may actually believe their own models, or the fact that they’re putting on a game face in public and, in so doing, impede a serious discussion over what the institutions can and cannot do.

I'm beginning to wonder if they have even the slightest idea

Back in January 2010 our economic policy was beginning its drive down a bold new path.  The Obama administration had enacted a $900 billion stimulus package the previous year, and was embarking on a transformation of the economy: Obamacare, wind and solar power, Keynesian stimulus ad infinitum, etc.  In the meantime, the Fed was continuing its loose-money policies and maintaing interest rates close to zero. 

The administration and the Fed were confident that their actions would set the economy on a path of prosperity, as evidenced by the rosy forecasts they made at the time.  Because neither has really strayed much from the path it set out on, it's fair to take a look at how their notion of the economy compares with the actual one.  Specifically, we can look back on the forecasts they made at the time to see how well their visions of the economy stack up against reality.

Here are two charts outlining the Obama administration's notion of how the economy works.  The forecasts are taken from the 2010 Economic Report of the President (Table 2-3):

Hmm.  According to the Obama administration, the economy was supposed to be booming by now as a result of all the great things that had been done.  But it turns out that real GDP growth in 2012 was only 1.7 percent rather than the 4.3 percent that was forecast.  And despite Joe Biden's declaration that the President would focus on one three-letter word, J-O-B-S, payroll employment is nowhere near where it is supposed to be.  In fact, there are about 4.8 million fewer jobs than were promised by these glorious policies. 

Perhaps the Fed was better at this than the administation.  After all, they're free from politics and have hundreds of PhD economists running around the place.  Well, it turns out that they know about as much about the economy as the President does.  Here are the forecasts from the FOMC in January 2010.  They are the central tendencies of members of the FOMC, and according to them, the economy should have seen its boom in 2011.

Forecasting is a notoriously tricky business, so one shouldn't bee too harsh when forecasts are off by a bit.  On the other hand, when you are grabbing the levers of the economy with both hands shouting that you're capable of driving this thing, you had better be somewhere in the neighborhood of where you said you were taking us. 

Yet another Obama failure, but a U.S. success

Despite his best efforts, our President has failed to kill off fossil fuels.  In fact, the United States has become the world's largest oil producer, having passed Saudi Arabia last November.

Wednesday, April 3, 2013

Marx has always been full of it

Having spent a lot of time on university campuses, it's easy to recognize Marx's acolytes. They tend to resemble him in many ways: dirty, smelly, hippy, anti-semites.

Tuesday, April 2, 2013

Macroeconomists have always been full of it

Olivier Blanchard, former MIT professor and current chief economist at the IMF, recently offered five lessons that economists should have learned from fhe recent financial crisis.  He should have said that "macroeconomists" should have learned the lessons, because many actual economists already knew them.
  1. Humility is in order: Yes, macroeconomists are full of it and it's shocking how arrogant they are given how little they know.
  2. The financial system matters - a lot:  Why yes, but the financial system is too difficult to put into little toy models.  It's best to assume the financial system away so that macroeconomists can focus on important things like attending conferences in exotic places.
  3. Interconnectedness matters: Why yes, the U.S. economy is connected to the rest of the world and models of closed economies might not be realistic enough.  But then again, that would make the math hard, and it's all about the math.
  4. We don't know if macro-prudential tools work: Actually, we do know that when the economy is in the hands of politicians whose objective is to inflate housing bubbles to curry favor with selected constituents, things will go wrong.  If anything, traditional tools of fiscal and monetary policy can wreak havoc in financial markets when they're in the wrong hands.
  5. Central bank independence wasn't designed for what central banks are now asked to do:  When politics trumps sound economics, it's left to central banks to pick up the pieces.  Central banks themselves were, and continue to be, a big part of the problem because they were instrumental in inflating the housing bubble and are now distorting financial markets so much that they are holding back what little recovery we might be able to have given our dire fiscal and regulatory regime.
Ricardo Caballero has an excellent update of Hayek's view that macroeconomists labor under a pretense of knowledge. He concurs with Blanchard about how macro has neglected financial markets.

Obama has always been full of himself

Our President's narcissism seems to know no end, to the extent that he is unable to see himself as others do.  We see him as the President who is responsible for the calamity that is our economy and for a government that borrows about 40 cents of every dollar it spends.  He sees himself as one who, on April Fools Day, can proclaim April to be
“National Financial Capability Month,” during which his administration will do things such as teach young people “how to budget responsibly." “I call upon all Americans to observe this month with programs and activities to improve their understanding of financial principles and practices."
You can't make this stuff up.