Wessel on Frank on Economists:

A quick post script to my previous post on David Wessel’s economics column in today’s WSJ concerning the stimulus. Wessel quotes Barney Frank in passing:

Not for the first time, as an elected official, I envy economists. Economists have available to them, in an analytical approach, the counterfactual. Economists can explain that a given decision was the best one that could be made, because they can show what would have happened in the counterfactual situation. They can contrast what happened to what would have happened. No one has ever gotten reelected where the bumper sticker said, “It would have been worse without me.” You probably can get tenure with that. But you can’t win office.

I didn’t include this in my discussion, as I found it a bit tangential. However, when I saw that Professor Mankiw had linked to it, I decided to revisit it.

Leave aside as too ad hominem whether Congressman Frank’s own statements regarding his role in Fannie and Freddie have any element of counterfactual. I understand that what some people, certainly in his Congressional district, find clever, I find too clever by half, but okay – that is really not my interest here, and please, not in the comments.

Is it really true, as a general proposition, that politicians have no recourse to counterfactuals? What about, for example, the famous claim of “saved or created” four million jobs? As accounts of the President’s February 9, 2009 press conference had it:

Question: The American people have seen hundreds of billions of dollars spent already, and still the economy continues to free-fall. Beyond avoiding the national catastrophe that you’ve warned about, once all the legs of your stool are in place, how can the American people gauge whether or not your programs are working? Can they — should they be looking at the metric of the stock market, home foreclosures, unemployment? What metric should they use? When? And how will they know if it’s working, or whether or not we need to go to a plan B?

Answer: I think my initial measure of success is creating or saving 4 million jobs. That’s bottom line No. 1, because if people are working, then they’ve got enough confidence to make purchases, to make investments. Businesses start seeing that consumers are out there with a little more confidence, and they start making investments, which means they start hiring workers. So step No. 1, job creation.

Jobs “created” is a factual. Jobs “saved,” on the other hand, poses a counterfactual. Professor Mankiw has an excellent quick discussion of why:

The expression “create or save,” which has been used regularly by the President and his economic team, is an act of political genius. You can measure how many jobs are created between two points in time. But there is no way to measure how many jobs are saved. Even if things get much, much worse, the President can say that there would have been 4 million fewer jobs without the stimulus.

An actual answer to the question “What metric?” could have taken the form: “If the unemployment rate on [insert date] is below [insert threshold], I will judge the plan to be a success.” Given the uncertainties inherent in the economy, however, no sensible politician would hold himself to such a measurable standard. But the President also wanted to avoid sounding like he was avoiding accountability. So he gave us a non-measurable metric. A clear and specific benchmark, without any way of ever knowing whether it has been reached.

A completely honest (but perhaps politically ill-advised) response to the question would have been, “Geez. I am only President of the United States. I cannot be held responsible for everything that what happens with the economy!” If he had said that, I would have agreed with him.

Update: A regular reader of this blog (who deserves anonymity) misinterpreted my meaning, so let me clarify: The 4 million job number is a counterfactual policy simulation of what the stimulus will do based on a particular model of the economy. As such, I have no objection to someone citing it in a policy discussion. In fact, macroeconomists use models to generate figures like this all the time. I have even done it myself.

But as an answer to the question “how can the American people gauge whether or not your programs are working?… What metric should they use?”, citing the 4 million job figure is a non sequitur, or more likely a diversion. A metric has to be measurable, and the actual number of jobs “created or saved” by the policy will never be measurable from any data source.

The more I think about it, the more I think, contra Frank, that politicians of all ideological stripes get elected on counterfactuals all the time. Am I right about that – not about Barney Frank, please – or not? Other examples of politicians offering counterfactuals? And are counterfactual arguments always bad, while we’re taking up the abstract category? When and how, or not?

Update: While I am at it, let me ask what the abstract nature of counterfactual argument is. What makes a counterfactual argument a counterfactual? I usually think of them as “but for” arguments – but maybe that is too quick. What is the abstract structure of a counterfactual? And what, in that case, makes for a good as opposed to bad counterfactual argument? Finally, does this bear any relationship to argument from analogy, and if so, how?

Powered by WordPress. Designed by Woo Themes