I just did a quick Chow test to see if there is a structural break in per capita GDP growth between 1935 and 2009 and there is not.
This is just a growth over time model (log GDP on time), and I also checked consumption and disposable income. If I did it right, there are no breaks - not even close. So you are right about Wallison, but one can't draw the opposite conclusion either.
I think in general it is difficult to draw casual inferences about macroeconomic data. More specifically, I agree with David that there is not sufficient statistical evidence to ascribe a cause to the relatively weak performance in growth after 1980. I do think rampant deregulation of financial institutions has been on net harmful (we seem to have financial crises more frequently now), but we haven't sufficient numbers of data points to establish that fact scientifically.
But it is also true that what Wallison wrote is demonstrably false. Life was not barren in the pre-Reagan years, and it has not been the land of milk-and-honey since. The evidence, limited thought it may be, is consistent with the idea that the New Deal was a good thing. On the other hand, Wallison wears very nice suits.
I've wanted to comment on that Barker comment too (but as usual oh so busy). Quickly, you of course have to be careful about interpreting statistics. The Chow test assumes an underlying distribution that has a lot longer tails than are reasonable to assume here.
ReplyDeleteAnd, very importantly, the evidence for Democratic administrations (or a lot more left than today's Republicans) and economics is far more extensive and strong than just the time series dots. There's a lot of logic and other evidence that goes with it. If I might illustrate this point with a fable:
Three economists are hiking, a high level thinking one, named Paul Klugman, an overly literal, mechanical thinking one named Chi Cago, and some other dude named Fred. They get hungry. So Fred eats a berry from a bush. He immediately keels over and dies. Then, Chi Cago grabs a berry. Paul Klugman says, stop don’t eat that, but Chi says why not, the berry that killed Fred was only a sample of one. You can’t tell anything from a sample of one.
The moral: You should consider far more about your conclusions to the real world than just the formal information in your model. You can construct completely solid logic chains with additional information about the real world both formal and informal, logic chains that are anchored to much more realistic, or less strong assumptions.
a lack of evidence for a statistical break in economic growth, combined with clear evidence of growing income inequality, seems to indicate that under Reaganomics we have sacrificed equality without gains in total wealth. Holding equality constant, almost everyone would prefer more growth. Holding growth constant, many people would prefer more equality. It seems logical that the pre-1980 social contract would be preferable.
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ReplyDeleteLook at log real per capita consumption since 1933 - is it really possible to believe elections matter for macroeconomic outcomes?
ReplyDeleteDifferences between the parties are greatly exaggerated. One wants high tax rates with loopholes, the other wants low rates. One wants lots of captured regulators, the other wants incompentent regulators who are fewer in number. It really makes no difference which we choose.
The U.S. Gini coefficient has risen fairly steadily since it was first reported in 1967. Larger forces than politics are at work. We can observe, but we cannot control these forces.
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