President Obama clearly has closed his mind to any radical change of direction over the duration of his term of office in the White House. By replacing Austan Goolsbee with Alan Kreuger as chairman of the Council of Economic Advisers, the President has brought back into his administration a Princeton economist who served an entirely undistinguished term as chief economist at the Treasury Department, advising Treasury Secretary Timothy Geithner thoughout the first two years of the Obama administration.
Alan Kreuger is a left- of- center mainstream economist much in the same mould as Larry Summers, motivated by progresssive ideology to push economic policy in the direction of state capitalism. He is more focused on the numbers than Summers, but typically – though not always – finds the numbers to be supportive of bigger rather than smaller government. As a left-leaning specialist on labor market economics, Kreuger constitutes a real threat to Obama’s re-election prospects; and for that, those of us who are not already out of work must be truly thankful.
Kreuger’s policy contributions at Treasury were simply dreadful:
He was the architect of the $3 billion subsidy designed to permanently boost auto sales by removing auto clunkers from the road in return for new vehicle sales. Designed to bail-out Government Motors and Chrysler – the two nationalized automobile corporations – the subsidy served beautifully to advance car sales by one quarter, in return for a next quarter’s equivalent decline! He was also the architect of a program of tax credits for employers who took on extra staff during the recession. This program also had no net impact, as employers laid off workers in order to rehire them at a reduced cost. In both cases, taxpayer monies were flushed down the Obama administration’s toilet. Rational expectations economists come back, all is forgiven!
Hey! Princeton Department of Economics, have you thought recently about hiring Robert Barro or John P. Taylor to your distinguished faculty? Your intellectually-under-nourished students would clearly benefit enormously from a rational expectations enlightenment!
Sometimes the numbers have led Alan Kreuger in the right direction, but not when serving in a left-of-center administration. For example, in 2002 and in 2008, Kreuger determined that paying people more not to work increases the incentive not to work, thus increasing the time that the unemployed spend out of work. Any chance of bringing that result to President Obama? Not a snowflakes chance in Hell! Kreuger will rerun the numbers and discover that increasing/extending unemployment benefit in 2011 will drive the unemployed more quickly back into the workforce. For, times they are a changin’.
On one famous occasion, Alan Kreuger has been accused of fudging the numbers. In 1992, New Jersey hiked its minimum wage by 18 per cent while its neighbor, Pennsylvania, left its minimum wage untouched. Standard economic theory suggests that unemployment should have advanced in New Jersey relative to Pennsylvania. Alan Kreuger and David Card gathered information on fast food restaurants in the two states, using an employer questionnaire methodology, and determined that, by hiking the minimum wage, New Jersey had actually increased employment in New Jersey fast food restaurants, both absolutely and relative to those in Pennsylvania.
The paper garnered quite a response, with a number of eminent economists- -including Gary Becker and James Buchanan – suggesting that the result was more a reflection of fast fingers than of the hiring practices of fast food restaurants. A major issue of concern was that no one could replicate the Card/Kreuger empirical results. Another was that the results of the paper ran counter to a large number of other studies on the minimum wage, and, yet, contained no theory to explain why low-skilled New Jersey labor might exhibit a backward-sloping supply curve in 1992.
James Buchanan (Nobel Laureate in Economic Sciences 1986) leveled a devastating charge against the two alleged sharpsters:
“no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent, to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores.” James M. Buchanan, ‘Minimum wage addendum’, The Wall Street Journal April 25, 1996.
It may well be that the bevy of camp-following whores has expanded significantly in the 15 years since James Buchanan threw down that scientific gauntlet. In any event, it is likely to do so now, since one of its alleged founding fathers is about to serve right inside President Obama’s White House.
