Month: January 2011

My Daughter Will Be Republican Majority Leader Someday

By James Kwak

Or perhaps a leading candidate for the Republican presidential nomination.

When it comes to deficits and government spending, the strategy of Republicans in Congress is to assert things that are simply not true or that defy economic logic. Ezra Klein nails House Majority Leader Eric Cantor misstating the CBO’s ten-year projection for health care reform so he can make a false claim about its longer-term effects (ignoring the fact that the CBO explicitly said health care reform would be deficit-reducing in the second decade). The same Republican leadership that rails against deficits is introducing rules that will make it easier to increase the deficit, since tax cuts will no longer have to be paired with offsetting spending cuts.

Apparently, the ability to say things that are not true is something that is learned quite early.

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Tax-Exempt Bonds for Beginners

By James Kwak

Felix Salmon linked to an article by David Kotok on Build America Bonds (BAB), which reminded me that I’ve been meaning to write about them (now that they no longer exist). BAB were introduced in the 2009 stimulus bill. If a state or local government issues BAB, the federal government pays 35 percent of the interest on the bonds; the bondholder pays tax on all the interest, as usual for corporate bonds — but not for traditional state or local government bonds (“munis”). BAB were initially only authorized for two years, and were not extended in the recent tax cut compromise.

The Republican attack line on BAB is that they “subsidize states in more imprudent-type budget and debt scenarios” (Rick Santelli, quoted in Kotok’s article) or they are “a back-door handout for profligate state and local governments, allowing them to borrow more money while shifting some of the resulting interest costs to the federal government” (Daniel Mitchell). Well yes, BAB are a subsidy for state and local borrowing. But to criticize them for that without even mentioning the alternative is either uninformed or irresponsible.

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Disclosure Rules for Economists

By James Kwak

In October, Gerald Epstein and Jessica Carrick-Hagenbarth released a paper documenting potential conflicts of interests among academic economists writing about the financial crisis and financial reform. Focusing on the Squam Lake Working Group on Financial Regulation and the Pew Economic Policy Group Financial Reform Project, they found that a majority of the economists involved had affiliations with private financial institutions, yet few of them disclosed those affiliations even in academic publications (where they do not face the word constraints imposed by print newspaper editors), preferring to identify themselves by their universities and as members of prestigious institutions such as NBER. To be fair, they did not find a strong relationship between economists’ affiliations and their positions on financial reform, perhaps because of the small sample and the limited amount of variation in the positions of members of these groups.

Epstein and Carrick-Hagenbarth called in their paper for economists to disclose any potential conflicts of interest, especially when writing for a general audience. This proposal has picked up some steam, first in the blogs (me; Nancy Folbre in Economix; Felix Salmon (“it’s not going to happen: there’s too much money riding on the continuation of the status quo”); Mark Thoma; Mike Konczal; Planet Money) and, more recently, thanks in part to the movie Inside Job, in the mainstream press. According to Sewell Chan in The New York Times, the AEA claims that it will consider a new ethical code or at least disclosure rules for economists — although, in a forthcoming book, “[George] DeMartino describes concerns dating to the 1920s about the influence of business on economic research, and cites multiple calls within the association for a code of conduct — all of which have been rebuffed.”

Epstein and Carrick-Hagenbarth have drafted a letter to the president of the AEA asking for the adoption of a code that requires economists to avoid conflicts of interest and to disclose ties that could create the appearance of a conflict of interest. If you are an economist and would like to sign on, you can email Debbie Zeidenberg (peri at econs dot umass dot edu) by Sunday evening. The full text follows.

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