Archive for August, 2011

It’s Not the Stimulus It’s the Regulation

Saturday, August 13th, 2011

Marco economics is an observational science. It is difficult to construct controlled experiments. There always seems to be enough differences from situation to situation to introduce doubt. Nonetheless, sometimes unfair, or at least unsupported, conclusions can enter the conventional wisdom. The concept of a Keynesian stimulus may suffer this fate.

The Keynesian approach suggests that during a recession the government can stimulate the economy via spending to replace economic demand from private markets. An alternative approach championed by Milton Friedman suggests that monetary policy is more important than fiscal policy.

Democrats have traditionally favored a Keynesian approach, in no small part because it provides an additional excuse for the government to initiate spending programs to address Democratic priorities.

When President Barack Obama came into office, it was natural for the progressive to institute a massive, nearly trillion-dollar stimulus. So confident were Democrats in the efficacy of the stimulus that they promised that unemployment would not exceed 8%. We were warned that if no stimulus were instituted, unemployment would reach 9%. We now know that following the stimulus, unemployment blasted past 10%. Moreover, growth remains anemic and unemployment two-and-half years after the stimulus still exceeds 9%. More disappointing is that the officialunemployment value would be far higher if so many people had not given up hope of finding a job. The lack of growth and employment has reduced revenues exacerbating the deficit.

It is rhetorically convenient to declare in the face of these facts that Keynesism is dead, believe by only those immune to the evidence. I lend far more weight to the Friedman approach and would love to offer our current situation as definitive proof.

However, let me offer a slightly heretical view. While the current situation lends no support to the Keynesian idea of stimulus, the regulatory anchor on growth makes it impossible to tell whether the stimulus has indeed failed. Perhaps It is economic uncertainty that is restraining the economy irrespective of the stimulus.

Companies are uncertain because of a massive influx of regulations. Obamacare has passed, and mountains of rules based on the legislation are still being written. Companies, particularly small ones, are reluctant to hire uncertain of what Obamacare would require of them. The Dodd-Frank bill to regulate financial markets has introduced new banking regulations. Until these are finalized and better understood, there will be a backward tug restraining lending. This is not to mention the new regulatory aggressiveness of the the EPA anxious to implement policies bureaucratically that could never be passed legislatively. The EPA has more regulatory actions pending that the Department of Human Services which is responsible for implementing Obamacare.

Imagine the metaphor of the stimulus package being a foot on the accelerator of the economic car, with a chain of regulations strapped to the bumper. The stimulus accelerator may or may not work, but the regulatory chains make it impossible to diagnose whether the accelerator is functioning properly. The Keynesian approach may deserve death, but the current situation cannot be said to have inflicted the true final blow.

Liberal Bias in the Media: A Study

Saturday, August 6th, 2011

Recently and justifiably, Jonah Goldberg of National Review suffered barely controllable exasperation at the most recent example of the liberal bias in the main stream media. The proximate cause of Goldberg’s pique was the media acquiesce and perhaps complicity in the extreme language used against Tea Party members who used their political power to block an increase in the debt ceiling without significant spending cuts. These politicians where referred to as “Hezbollah faction,’’ “terrorists,’’ and “traitors’’ by liberal politicians and political pundits. These, in some cases, are the same people are the same who argued that the rhetoric employed in criticism of Obama is too extreme.

Liberal bias is hard to continue to muster anger about. It is an unfortunate calamity of nature, like high humidity in a Washington summer. It may be unhealthy and uncomfortable, but it seems as useless to complain about liberal bias as it is to shake a fist an an approaching high pressure system.

Nonetheless, it does bring to mind a sever year-old empirical study on liberal bias. We all feel we know bias when we see it, but it is hard to separate this assessment from personal biases. Tim Groseclose, professor of political science, published a clever technique to quantify such bias in the Quarterly Journal of Economics The study used the ranking of voting records by the liberal group Americans for Democratic Action to determine which legislators are the most and least liberal. The study then correlated these rankings with the number of times these legislators cited various think tanks and policy groups in their writing and speaking. To rank the liberal or conservative bias of news organizations, they determined the extent to which the citation patterns of different news organizations mimiced those of liberal or conservative legislators.

The final ranking was represented by a scored form 0 to 100, from least to most liberal. The political scores of legislators and think tanks were consistent with common wisdom.. The Heritage Foundation ranked 20, while the Children’ s Defense Fund scored an 80. There were a couple of surprises. The American Civil Liberties Union ranked a relatively moderate 49.8 and the National Rifle Association earned a 45.9. Representative Maxine Walters from California scored a very liberal 99.6, complemented by the very conservative Tom Delay (4.7) from Texas. Pretty much in the exact center was former Senator Arelin Spector (51.3) when he was Republican.

The study showed that the most liberal news organization study was the New York Times with a score of 73.7 (23.7 from an unbiased score). Most news sources scored distinctly liberal scores above 60. Fox News Special Report with Brit Hume ranked 39.7. The Washington Times score of 35.4, was still closer from an unbiased score than the New York Times. The most centrist news organization from this measure from the Newshour with Jim Lehrer with a score of 55.8.

Studies like this are interesting, but are not dispositive to those who religiously cling to the view that the main stream media are not titled toward the left. There are probably other metrics that one could devise that would demonstrated similar results. The value of studies such as these is that it gives news organizations a chance for introspection. Perhaps the New York Times could examine if they are ignoring conservative think tanks and policy institutions. The Washington Times could see if is are too insular. It is a shame that news organizations will find in necessary to attack such studies, rather than use them as a chance for self improvement.