"what I consider to be a plausible range of economic outcomes is, at the moment, quite wide indeed"

From Felix Salmon:

"Can We Really Guide the Economy?

Ryan Avent says that he thinks the "plausible range of economic outcomes is, at the moment, quite wide indeed", and wonders whether "the size of this conceivable range is actually reflective of potential outcomes, rather than simple ignorance":

If it seems like things could go really well or really poorly, is it because outcomes are very dependent on our actions( TRUE ) or because we have no idea what's going on( BOTH ARE TRUE )? And I suppose that if you want to understand the different approaches to policy advocated by liberals relative to libertarians, that question, and its answer, is key( HOW SO? ).

The easy answer is that this is not "simple ignorance". Studies have shown repeatedly and convincingly that the range of possible outcomes is nearly always greater than you think, not smaller. Economically speaking, actual results regularly come out quite far away from even pretty near-term forecasts, which is one reason why asking economists (or journalists, for that matter) to predict when we're going to come out of recession is an exercise in futility( I AGREE ).

On the other hand, that doesn't necessarily mean that outcomes are very dependent on our actions. What action, for instance, did we take to send the price of oil plunging by $100 a barrel in the space of a few short months? That's the kind of thing which can only happen in a highly complex and therefore wholly unpredictable system( TRUE ).

So I don't think of liberals' policy approach as being deterministic( MECHANISTIC ) -- if we do this, then the economy will do that. Instead, I think of it as working the other way around: if the economy does this, then we should do( TRY ) that. Right now, the economy is tanking( A PROACTIVITY RUN), and so we should apply a large dose of stimulus( SPENDER OF LAST RESORT ). We can't predict with any accuracy what the results will be, but there's a very high chance that they will be better than if we did nothing( WE CAN'T DO NOTHING. A PROACTIVITY RUN NEEDS TO BE STOPPED BECAUSE THERE IS NO WAY OF TELLING HOW MUCH WEALTH COULD BE LOST OR HOW MANY JOBS COULD BE LOST UNTIL IT ENDS ON ITS OWN. WE CAN'T CHANCE THAT CATASTROPHIC OF A POSSIBILITY, WHICH COULD LEAD TO SERIOUS SOCIAL DISLOCATIONS AND DISRUPTIONS. ONLY THE GOVERNMENT HAS THE RESOURCES BEHIND IT STAND UP TO A CALLING OR PROACTIVITY OR BANKING RUN IN THIS AGE. NO OTHER INTERVENTION WOULD BE BELIEVED SUFFICIENT TO STOP THE RUN. )., which is the default libertarian position."

Here's Avent on The Bellows:

"Knife Edge

• Posted by ryan on January 8th, 2009 filed in Economics, Miscellany
• 
  

Watching Obama’s speech, it occurred to me that what I consider to be a plausible range of economic outcomes is, at the moment, quite wide indeed( I AGREE ). I can envision scenarios in which recovery is fairly rapid, believe it or not( THIS IS MY POSITION ). A number of economic statistics were trending positively toward late summer of last year — before the dramatic intensification of the financial crisis laid waste to the economy. If we’re able to get banks functioning again, then a quick, large stimulus might jolt us rapidly back to something near trend growth. I can also imagine some very dire scenarios, many of which involve instability abroad and negative feedback loops to the global economic system( VERY TRUE )."

I see Mechanistic Thinking in terms of the Democratic proposals in the specificity of the amounts chosen. In other words, if we plug in this number, this will be the consequence. The usual reason seems to be that we want to replace a recent consumption figure or some number like that. I don't see the problem that way at all. To me, the stimulus is intended to stop the Proactivity Run. The amount we should spend should be enough to accomplish that, as best we can tell. It might be more than some people want or less than some people want in the end. The stimulus should be spent over two years in order to assess how it is functioning. Otherwise, why not just spend enough money to happily employ everyone. Obviously there's a limit to the sense of this amount. As well, the amount we spend could have adverse consequences by spooking our creditors. Prudence here is necessary, as well as speed. Getting bogged down in debating the enormity of the eventual size of the stimulus doesn't seem wise to me.

"Conservatives and libertarians sometimes face a disadvantage in policy arguments."

Megan McArdle with an interesting post:

"Conor wrestles with Bastiat Beasts.

Conservatives and libertarians sometimes face a disadvantage in policy

arguments. We're attuned to the indirect effects and unintended
consequences of certain policies, whereas our liberal interlocutors
concern themselves primarily with direct effects. Why is this a
disadvantage? Because the liberal can say, "Look at David from Detroit,
who is going to lose his job, and his home, if GM goes bankrupt."
Whereas the best conservatives and libertarians can do is to say,
"Somewhere in America there is an unknown person who will lose their
job, and their home, if the automakers are bailed out, due to the
inevitable effect of egregious economic inefficiencies that will course
through the financial system."....

The person who is hurt in the
liberal narrative and the one hurt in the conservative narrative are
both real human beings. But the fact that the former is identifiable is
often used by liberals as an emotional bludgeon.

Freddie responds.

I'm still struggling with whether I think the tyranny of the specific hard case makes conservatives systematically worse off in argument; I think it does, but I'm not ready to commit on that yet. Surely on taxes, for example, it works the other way around."

Here's my response:

It's an interesting debate, but I was hoping the debate was between Conor Cruise O'Brien and Freddie Meadowes.

Posted by Don the libertarian Democrat | November 17, 2008 12:17 PM

"The new fusionism may well be fiscally conservative and socially tolerant "

Ilya Shapiro with a nice point on Cato:

"Indeed, this Tuesday’s election probably saw the highest-ever percentage of libertarians — depending on how you count them – vote for the Democratic presidential candidate (at least in the modern era, with the possible exception of the Nixon years). This despite that Democratic candidate being commonly seen as the most statist major-party candidate in history."

Makes sense to me.

"But this type of discussion may be beside the point; libertarian-conservative (in the sense of socially conservative, economically squishy) fusionism may have run its course, a relic of the Cold War. The new fusionism may well be fiscally conservative and socially tolerant (not necessarily liberal, just not wanting government to do anything about the way people live their private lives), including folks who might call themselves conservative cosmopolitans, crunchy cons, South Park conservatives, or indeed libertarians. Or they might eschew labels altogether but are sick of the rot coming from (or to) Washington. In other words: Purple America."

Goodbye Conservative/ GOP - libertarian fusion. Welcome to my world. Come on in.

"We have a presumption against government regulation, which can be rebutted by showing long-term social improvements"

Richard Epstein on Forbes about Jacob Weisberg on Slate. I actually posted on Slate about this, and received a few ludicrous comments. I have to admit that I took Weisberg to be indulging in a bit of over the top polemic, and my response was meant to be a little humorous and over the top as well. Others, a lot of other libertarians, have responded to Weisberg, taking him to be completely serious. Anyway, I like this quote from Epstein:

"Limited-government libertarians like me are not anarchists. We have a presumption against government regulation, which can be rebutted by showing long-term social improvements. We know not only about the virtues of competitive markets, but of the challenges posed by asymmetrical information, public goods, prisoner's dilemmas and market cascades.

Accordingly, we recognize that the specter of bank runs, illiquidity and credit freezes might justify some regulation. In dealing with the current crisis, we have to accept some role for the Federal Reserve as a lender of last resort under our current institutional arrangements. But we are equally adamant that bad regulation can wreck credit markets. And we insist that governments must mend their lending habits to reduce the odds of credit trains going off the rails yet again. We also strenuously oppose using the credit crisis as a lever for introducing all sorts of senseless gimmicks to disrupt labor and product markets."

I tend to agree with this statement, and my main arguments with Epstein would be about those long-term social improvements and how to get there.

On this, I totally agree:

"Alas, the financial rot started in the underlying home-mortgage market, with the government decision to subsidize home mortgages generally through low interest rates, and compounds the problem by offering special Fannie and Freddie guarantees at the low end of the market.

These foolish decisions prompted market actors to react just as libertarians fear: to profit privately from public foolishness. Savvy lenders looked less to the creditworthiness of their borrowers and more to unwise government guarantees that insulated them from risk. A high-risk loan of $1,000, without that guarantee, could be worth half that sum before the ink was dry. But who cares, if a government agency will pick up the slack?"

It's good to have his agreement on this.