Big shot, Nobel prize-winning, New York Times-op-ed-writing, Princeton-teaching economist vs. person-on-the-street

Paul Krugman, on the way to a rather funny punchline, takes an off-handed swipe at the irrational person-on-the-street. Apparently, Americans can’t decide how they want to make ends meet. They don’t want to cut spending and they don’t want to increase taxes. Krugman himself knows better. He is not worried about current deficits, but in the long run he thinks a VAT (a version of a sales tax, which he admits would be regressive but is not particularly concerned about this) would be the way to go.

This position is a classic noblesse oblige maneuver. While ostensibly attacking those other elite members – those who have no sense of social duty – Krugman is effectively asserting that policy should not be set by the irrational masses. And, sometime in the not too distant future, regressive taxes would be the solution.

Even a cursory look at Krugman’s case reveals how weak it is. To begin with, despite the constant drumming in elite media about deficits, the public places deficit reduction at a very distant second to “economy and jobs” as the top priorities on the public agenda. Where is Krugman’s praise for the public for supporting what he considers as being the correct economic policy?

Secondly, the data he cites shows that as of 2011, a large part of the public is ready to cut the “defense” budget and that support for this cut has grown dramatically over the last two years. Far from being irrational, then, the public is taking the most rational position conceivable: the U.S. military budget is about 55% of the entire discretionary budget, so that is where the money is. Furthermore, this huge budget enables the U.S. to pursue two unpopular wars (1, 2). What could be a better place to cut?

Third, about those taxes: people do not favor “taxes on businesses”, “sales taxes” (Krugman’s favorite), or “personal income taxes”, but they do support, consistently, and as Krugman himself knew back in December, increased taxes on the rich. Again, far from being irrational, then, the public is taking the most rational position conceivable: taxing the rich is effective because the that is where the money is. Furthermore, all that money is being used to tilt the government ever more in favor of the rich. What could be a better target for a tax raise?

Thus, Krugman’s facile argument is transparently faulty. It is a sad testimony as to the intellectual and moral state of the American establishment elite (in fact, of Western establishment elite) that Krugman is actually among the best specimens that elite can offer.

Interestingly, there is more to be said on this topic. The public’s policy choices as reflected by opinion polls, despite being obviously better than what either elite faction offers, can, of course, be expected to be severely under-informed and hurriedly considered. A representative decision-making body could be expected to make more informed and reasoned decisions. A preview – just a preview – of such a decision making process is provided by the Program for Public Consultation: American Public Shows How it Would Cut the Budget Deficit. Makes for illuminating reading – one of those opportunities to learn something new that the big shot Nobel prize-winning economist appreciates so:

A new study finds that when average Americans are presented the federal budget in some detail, most are able to dramatically reduce the budget deficit and resolve the Social Security shortfall.

In December the Chairs of the President’s Fiscal Commission released their proposal for addressing the budget deficit and the projected shortfalls for Social Security and Medicare. This new study shows how the American public would deal with these challenges.

Through a combination of spending cuts and tax increases, on average, respondents cut the discretionary budget deficit projected for 2015 by seventy percent. Six in ten solved the problem of the projected Social Security shortfall through adjustments in payroll taxes, premiums, and benefits. The projected Medicare shortfall was also dramatically reduced.

The study was conducted by the Program for Public Consultation (PPC), affiliated with the School of Public Policy at the University of Maryland, and fielded by Knowledge Networks. Unlike conventional polls PPC consults with the public by first presenting respondents with information on policy issues and a range of options for addressing them.

As an aside, the Program for Public Consultation study also puts to shame Fishkin’s Deliberative Polls(tm). The decision canvas is much grander, organizer control of the setup is much looser, no consent was requested from governing elites, and the results are at least as informed and informative. This is the area which experiments in sortition-based government should be exploring.

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10 Responses

  1. Yoram, your point is well-taken. But surely a fan of sortition can concede that mass opinion can often be irrational. That, after all, is the reason to rely on ACs rather than direct democracy/plebicites for everything. The foreign aid example is interesting. Fishkin makes much out of this. Many uninformed voters sincerely believe foreign aid is a huge item in the budget (largely due to know-nothing Republican yahoos). After engaging in deliberative opinion polls, 1) voters tend to have much more accurate beliefs about how little the U.S. spends on foreign aid, and 2) many more voters favor increasing, not decreasing, foreign aid.

    So recognizing the occasional irrationality of public opinion does not necessarily have elitist implications. If Krugman is making a mistake here, it’s surely that.

  2. > But surely a fan of sortition can concede that mass opinion can often be irrational.

    Irrational is probably not be the right word, but certainly (as I explicitly stated above) under-informed and under-considered. It is interesting that even under those severe constraints, the public offers better policy alternatives than the elite’s most enlightened speaker does.

    > The foreign aid example is interesting. Fishkin makes much out of this.

    As we’ve discussed before, I don’t think he demonstrates what he thinks he demonstrates. All he really demonstrates is that he was able to make the sample members accept the pre-conceptions of the study organizers.

    > So recognizing the occasional irrationality of public opinion does not necessarily have elitist implications. If Krugman is making a mistake here, it’s surely that.

    You are being too kind I think. I would be more willing to forgive his elitist rhetoric if his position didn’t boil down to backing the exploitative status quo and even increasing exploitation using policies such as the implementation of a VAT. Why doesn’t he use his exalted position in order to promote cutting the military budget significantly and increasing taxes on the rich?

  3. Yoram, I don’t quite see the difference between the Program for Public Consultation and what Fishkin does – they both do the job of informing the participants themselves, don’t they? And for low-stakes projects like polls, I think they more or less have to: the participants have little incentive to seek out information on their own when all they’re asked for is their opinion.

  4. By the way, a quick search on “Krugman tax the rich” shows some amusing rants from right-wingers who, at least, think Krugman is advocating that.

    At the very least, he strongly opposed extending the Bush tax cuts for the rich.

    His stance on VAT is more puzzling. I suppose if essentials of life are excluded, it makes sense as a crude environmental policy. But otherwise you’re right, it’s clearly regressive.

    (and, something which is surprisingly little talked about here in Europe where we have it: It’s also heavily prone to abuse by small businesses. People buy an expensive flat-screen TV “for the company”, put it down as expenses, get VAT refund, take it home. The amount illegally excluded from taxation this way for the Euro area was estimated at 60-100 billion € by one study I found. Still, the only activists I’ve found arguing against VAT are on the far left.)

  5. This guy’s merely a Bastard Keynesian. Sorry, if you ain’t at least a Post-Keynesian, I ain’t gonna take your economics seriously.

  6. > I don’t quite see the difference between the Program for Public Consultation and what Fishkin does

    I think the PPC study is better than DPs for quite a few reasons, both substantive reasons that have to do with the design and reasons that have to do with the way the studies are being conceived and used by the organizers, and presented to others.

    > they both do the job of informing the participants themselves, don’t they?

    This is an example of a substantive advantage of the PPC design over DPs. Yes – in both cases the sample members are being fed information by the organizers. However, in the case of DPs (I am specifically talking about the 2008 Zeguo DP about which I read Fishkin’s paper, but I have heard no reason to believe this DP was atypical), the information provided was essentially arbitrarily determined by the organizing elite. There was no objective rhyme or reason to determine what information was provided, there was no way for the participants – or for the readers of the report – to check the validity of the information provided, or to know what information was not provided. In his paper, Fishkin completely ignores these matters, implicitly expecting us to believe that the information his experts provide is ideal – unbiased, incontestable, objective and comprehensive.

    The situation with the PPC study is very different. It is very clear what information was provided, what the sources of the information were, why the information was provided, and why other types of information were excluded. There were, for example, no “advocacy” materials provided by “opposing experts”. One could still, of course, cast doubts – how reliable were the revenue estimates for the various taxes?, etc. But these are specific questions that can be asked, their importance can be considered, and maybe can be addressed. We are not dealing with a completely black box that we are being asked to treat as if it is a perfect device.

    > And for low-stakes projects like polls, I think they more or less have to: the participants have little incentive to seek out information on their own when all they’re asked for is their opinion.

    True – and yet it is quite evident that (like other aspects of the study) this can be done well, and can be done poorly.

  7. > People buy an expensive flat-screen TV “for the company”, put it down as expenses, get VAT refund, take it home.

    Wouldn’t that be a problem for income tax as well? The TV is a form of income for which no income tax is paid – it is put down as business expense.

    What’s more, this is true about various at-work perks that are perfectly legal. Those business meals, fancy office furniture, conferences and seminars in plush hotels in exotic locations, etc. These are all forms of income for which no income tax and no sales tax are paid, and they are, of course, enjoyed overwhelmingly by the rich.

  8. > At the very least, he strongly opposed extending the Bush tax cuts for the rich.

    And he was also against those cuts to begin with, making the case that they increased inequality. That is why I consider him the best of his bunch. The others I don’t even bother to read.

    BTW, his stance on China is rather pathetically amusing. You may also remember this. (Ok, call me obsessed.)

  9. “the information provided was essentially arbitrarily determined by the organizing elite.”

    But the outcome preferences were the opposite of those which the party (local elite) would have chosen (according to the local party chairman), so why do you find this DP problematic? Admittedly in the other DPs greater efforts might have been taken to ensure balanced advocacy but it would appear that even in the worst-case scenario the DP methodology proved robust. We should celebrate Jim Fishkin’s efforts rather than disparaging them.

  10. […] of the Program for Public Consultation (whose study about the public’s budgeting priorities was discussed here in the past), and Richard Parsons. Its advisory board is made of former elected officials and of […]

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