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Tuesday, May 08, 2007

The Most Mendacious Man Alive?

Brad DeLong follows up on a recent post, but I am going to have to disagree a bit with what Brad says:

For Some Reason, Mark Thoma Feels He Has to Acknowledge Stanley Fish..., by Brad DeLong: And because Mark has acknowledged his existence, I feel impelled to do so too:

Economist's View: Interpreting Economic Statistics through Normative Lenses: Do economic statistics represent a value-free picture of the economy's performance, or are such judgments necessarily value laden? This is Stanley [Fish]:

The All-Spin Zone, by Stanley Fish: It all sounds so – well – rational: There’s a world of fact out there waiting to be accurately perceived, but the distorting power of words, abetted by the psychological disorders of passion and bias, tends to obscure it and lead us astray. And the remedy? Watch your words and watch your mental processes, paying particular attention to your “existing beliefs” lest they “reject evidence that challenges them.” In short, Jackson and Jamieson recommend, “practice active open-mindedness.”

But... a 2006 statement by Karl Rove to the effect that “Real disposable income has risen almost 14 percent since President Bush took office.” Jackson and Jamieson regard this claim as “so divorced from reality as to seem unhinged.” Why? Because the real disposable income Rove cited “was a statistic that measures the total increase in income, not how that income is distributed.” That is to say, the 14-percent increase did not benefit everyone, but went largely “to those in the upper half of society”; the disposable income of the lower half had “fallen by 3.6 percent.”

Does this prove spin? I don’t think so. What it proves is that in Rove’s view, the health of the economy is to be gauged by looking at how big investors and property owners are doing, while in Jackson’s and Jamieson’s view, an economy is not healthy unless the fruits of its growth are widely shared. This is a real difference, but it is a difference in beliefs about what conditions must obtain if an economy is to be pronounced healthy. It is not a difference between a clear-eyed view of the matter and a view colored by a partisan agenda...

Dierdre McCloskey assures me that Stanley Fish is smart, so I cannot acknowledge Fish's existence by nominating him for the Stupidest Man Alive. I can, however, nominate him for Most Mendacious Man Alive. Here's why: If Karl Rove believed that an economy is doing well when its super-rich are getting richer and that the economy is doing well, Rove would say so. Rove would say something like:

We see that President Bush's economic policies are successful because the Forbes 400 today are far richer than they used to be.

Labor Secretary Elaine Chao actually did say something similar: that the economy was doing well because the stock market was up, and the stock market is what matters.

But that's not what Rove says. He says "Real disposable income has risen almost 14 percent since President Bush took office." And then he is silent. And his subsequent silence speaks. His subsequent silence says that that 14% number is what you need to know--that there is no major qualification that needs to be made. And so Rove's subsequent silence is a loudly spoken lie: Rove agrees with Jackson and Jamieson that a healthy economy is one with large and broadly-distributed income gains. And he agrees with Jackson and Jamieson that that is not the case. But Rove wants his auditors to think that that is in fact the case--hence his one sentence, followed by silence.

Now Stanley Fish--whom Dierdre McCloskey assures me is very smart indeed--knows all this. But he doesn't say it.

So how are we to interpret Stanley Fish's false statement that Rove on the one hand and Jackson and Jamieson on the other have "a difference in beliefs about what conditions must obtain if an economy is to be pronounced healthy"?

I don't know what Karl Rove believes for sure, only what he says. Here's a speech he gave called "The Bush Economy." It was given at AEI almost exactly a year ago and it contains the quote above about the 14% growth rate. (which is followed by Rove saying "The Dow Jones industrial average is near its all-time high. And since the 2003 tax cuts have been passed, asset values, including homes and stocks, have grown by $13 trillion.")

Notice the focus on the stock market as a measure of the health of the economy in his speech and the focus on the income of wealthy Americans. Also watch for any signs that he believes a healthy economy depends upon how the gains are distributed - I couldn't find much:

The Bush Economy, by Karl Rove: (Note: The following remarks were delivered at the American Enterprise Institute in Washington, D.C.)

This morning I will focus my talk on the economy during the Bush presidency.

As President-elect, who does Bush meet with first, labor leaders or business leaders?:

You may recall that when Governor Bush was President-elect Bush in December of 2000, he met with ... American business leaders in Austin. They told him, in effect, "Congratulations, you ran a fine campaign, and, oh, by the way, you'll be inheriting a hurting economy." Their prognosis ... was grim, but they were right. ...

The stock market began its decline in mid-January 2000, dropping from an all-time high of more than 11,700 in the Dow to below 9,800 in early March 2000, on its way to its first calendar year loss since 1994.

The dot.com bubble also burst in 2000. The Nasdaq ... peaked on March 10th, 2000. And by December 2000, the time of our meeting in Austin, it had dropped by more than 50 percent.

The economy itself began slowing in the third quarter of 2000... And all of this took place before George W. Bush set foot in the Oval Office. ... March 2001 marked the recession's official start. Sluggish growth ... followed ...

Then, on a bright September morning, came the worst attack on the American homeland in our history. ... Airports were shut. Stock markets closed. The hospitality and the insurance industries hit especially hard.

Finally, after so much about growth and the stock market, something about employment:

The country suffered an estimated $100 billion in economic losses. And in the three months following 9/11, the American economy shed 1 million jobs.

But he goes right back to looking at the stock market to assess the health of the economy:

That fall, a series of corporate scandals began to come to light. ... Confidence in the markets was understandably shaken. And the Dow Jones dropped to below 7,300, a five-year low.

At the time, the Financial Times said, quote, "Forecasts of a Dow diving to 5,000, 3,000 and even below 1,000 have been receiving attention from investors who once could not believe the Dow would fall below 8,000." ...

In times like these, the principles and values of a president come into play. This president believes the government's role is to create an environment where the entrepreneurial spirit flourishes and where small businesses can grow, where people can dream about owning their own home and have it become a reality.

He doesn't say the a healthy economy is one where the gains are widely shared so that people can buy a home, the focus is on opportunity, not outcome (i.e. not on distribution). Success is merely being able to dream of owning a home. Big difference.

Next, he focuses on growth:

And he believes that economic growth is created largely on the economy's supply side. The best tax cuts create incentives for people to work and businesses to produce and companies to invest.

President Bush doesn't believe government creates wealth. He understands that's done by American workers, farmers and entrepreneurs. His economic policies, then, are tied to a view of human beings that understands the role of incentives... There are three important elements of these policies that I'd like to talk about today: the tax system, trade liberalization and budget discipline. ... Let me deal briefly with each...

In response to the economic challenges the country faced, President Bush provided Americans with the largest tax relief in a generation. With the help of the Republican Congress, he has secured ... five major tax relief bills. ... We've seen taxes cut on income, small businesses, dividends and capital gains. The child credit has been doubled, the marriage penalty has been reduced, and the death tax has been put on the road to extinction.

He nods his head at other kinds of taxes and he is hopeful about estate tax reform, but the focus is overwhelmingly on dividend and capital gains taxes. They even have signing ceremonies:

Taken together, these tax cuts have strengthened the economy ... Congress passed an extension of the capital gains and dividend tax cuts until the end of 2010, and a signing ceremony will take place on Wednesday.

Why is this so good? Because dividend payments are up (but what about wages?):

An important point about the impact of the capital gains and dividend tax cuts: ... the 500 leading U.S. companies on the S&P 500 have increased their dividend payments 725 times, and quarterly dividend payments averaged almost $47 billion a quarter. That is a 51 percent increase compared to the quarterly average for the 10 years previous to the tax cut. That's money that is going into retirement funds and IRAs and people's pocketbooks.

The last statement does talk about sharing the gains - if you have a retirement fund or IRA you will do well - but again it's about asset values.

He next discusses distribution a bit more directly:

President Bush's tax-cutting policies were not passed by unanimous consent. Some in Congress oppose any significant tax cut. ... One criticism was, quote, "the vast majority of its benefits were directed toward the wealthy," end quote.

If this were true, then logic tells you that the percentage of federal income taxes paid by the wealthy would be falling after the tax cuts. That is not the case.

The Bush tax cuts have shifted more of the burden onto the wealthy and those lower on the economic ladder have been relieved of a larger share of their tax burden.

Note that from here on, only the income and tax burden of the wealthy are discussed. We hear nothing about what happened at lower incomes:

The top 1 percent of the nation's earners, those making more than $317,000 a year, their share of income tax payments is up by 1.5 percent.

For the top 3 percent, those that have incomes are over $200,000, their share of the tax burden is up more than 5 percentage points...

In this next statement he connects policy changes to their impact on stock markets, i.e. tax policy is assessed by asking how it will affect stocks. This is a clear indication that he connects the health of the economy to the health of stock markets:

I'm not certain that most Americans would applaud returning to the end of 2000, when the Dow had just experienced its first calendar drop since 1994 and the Nasdaq had dropped by 50 percent a year.

It's not just that the critics predicted nearly the opposite of what happened after the tax cuts... The president's critics were not only wrong, they could not have been more wrong.

Okay, it looks like we are finally going to get away from the stock market and the income of wealthy Americans and discuss jobs:

Take the frequent claim that the president, quote, "failed to put forth a responsible economic plan to create jobs," end quote. We saw a lot of variations of this ... but the charge is simply not true.

The American economy has created more jobs than all the countries in the Euro zone and Japan combined, and our economy is growing today faster than that of any major industrialized nation in the world. ...

Employment is at near all-time high. Claims for unemployment insurance are at a five-year low. The unemployment rate is ... well below the average for each of the last three decades.

Core inflation remains low: just over 2.1 percent for the past 12 months. Mortgage interest rates remain near historic lows. And homeownership remains near a record high, with sales of new and existing homes reaching record levels in 2005.

He does leave out how the wages of lower income individuals have fared - it's not good news. But does that mean that his "silence is a loudly spoken lie: Rove agrees with Jackson and Jamieson that a healthy economy is one with large and broadly-distributed income gains"? Could be, but it could also be that he isn't all that concerned about how broadly the gains are distributed.

Now comes the statement Stanley Fish quoted:

Real disposable income has risen almost 14 percent since President Bush took office. The Dow Jones industrial average is near its all-time high. And since the 2003 tax cuts have been passed, asset values, including homes and stocks, have grown by $13 trillion.

The reality is that the tax cuts have helped make the American economy the strongest in the world.

After all that came before this, is Stanley Fish being mendacious when he says that Karl Rove assesses the health of the economy by looking at how those at the top are doing, i.e. by "looking at how big investors and property owners are doing"?

Maybe this is all "spin," that's possible, but the failure to make any strong statements about distribution in this speech makes you wonder. And while one wouldn't expect to much about redistributive policy at an AEI speech (though he does realize the remarks will be reported more widely), it does seem as though he connects a healthy economy with a healthy stock market, economic growth, and asset values rather than widely distributed economic gains.

On to trade:

A second component of the president's economic policy is free trade. President Bush believes trade is an important source of good jobs for our workers, higher growth for our economy, and bigger earnings for our farmers and our factories. For example, exports accounting for roughly one-quarter of all U.S. economic growth in the '90s...

A little bit on workers, but not much on sharing the gains from trade widely, and nothing at all on the losers from trade. His focus is on business and growth:

Free trade has a proven record of creating new opportunities for our entrepreneurs... America is once again, under this president, in the business of promoting free and open trade, to build our prosperity and to spur economic growth. ... Clearly, it is in our interests to tear down walls to the sale of American goods and services around the globe.

It's hard to find much concern in his remarks about trade for the distribution of benefits, or the losers from "tear[ing] down the walls."

Finally, on to the summary:

The president's tax cuts, trade liberalization and spending restraint helped strengthen the economy's foundation and added fuel to our economic recovery; not a bad record. ...

In closing, I suspect the temptation for some policymakers is to forget that beyond the economic statistics lie compelling human stories. This is a temptation that we must resist. We must remember that economic growth creates work which is the source of human dignity.

I suppose you could spin that last statement on "compelling human stories" as concern for the distribution of gains, but its' really growth he is worried about.

Was Stanley Fish mendacious? I'll leave that to you, but I have a hard time finding a basis in these remarks to support the claim that "Rove agrees with Jackson and Jamieson that a healthy economy is one with large and broadly-distributed income gains." It's much easier to make the case that Rove believes a healthy economy is one where "big investors and property owners" are realizing large gains.

I'm just not as ready as Brad is to believe that Karl Rove cares about how the gains are distributed rather than about how his core constituency is faring. But in his heart of hearts, he might.

Update: Kash sides with Brad.

Update: Another thought. I have this nagging feeling that I've missed an important nuance here, but I can't quite put my finger on it and I don' have time to think about it any more right now. Let me try it this way, but it still doesn't seem quite right. It's possible that what's best for Republicans, on average, isn't what's best overall (i.e. it might hurt Democrats on average, leave them with a small share of the gains, or come in place of policies that might benefit them more)  so that "spin" from someone like Rove might in fact deviate from a a broader definition of what's healthy for the economy that includes how well people are doing at all income levels, a definition he might agree to privately but cannot advocate in public forums.

    Posted by on Tuesday, May 8, 2007 at 01:23 PM in Economics, Income Distribution, Politics | Permalink  TrackBack (0)  Comments (21)


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