Intellectual decay By Scott Sumner

Tyler Cowen recently linked to a good article by Francis Fukuyama:

The two dominant American political parties have become more ideologically polarized than at any time since the late nineteenth century. There has been a partisan geographic sorting, with virtually the entire South moving from Democratic to Republican and Republicans becoming virtually extinct in the Northeast.

Fukuyama talks a lot about “political decay.” Here I’d like to focus on what I see as intellectual decay. At the risk of angering everyone, I’m going to try to be fair and balanced by picking 4 examples from each side. Let’s start with the left:

1. In 1987 the New York Times suggested that we abolish the minimum wage. Now the left seems almost totally united in favoring a higher minimum wage. And not just the left. Mitt Romney endorsed a higher minimum wage. Even the Economist magazine called opponents of a higher minimum wage “stingy.” One counterargument is that inequality has gotten worse. But the liberals who opposed the minimum wage back in the 1980s and 1990s did so primarily because they believed it hurt the poor. Another argument points to new research that suggests the minimum wage might not reduce employment. But you can find research on both sides of almost any social science question. Certainly Keynesians aren’t going to abandon their theories because a study shows fiscal stimulus doesn’t work. They think they have a model. But the supply and demand model that predicts minimum wages cause unemployment is far more firmly established that any macroeconomic model, especially Keynesianism. Or here’s another example—how many liberals stopped supporting Head Start when studies came in showing no long term effects?

2. Greg Mankiw recently suggested abolishing the corporate income tax. Younger readers might find this hard to believe, but many liberals used to make the same sorts of arguments. Liberals were especially fond of the idea of a progressive consumption tax. They understood that it’s pointless to redistribute income; the only way to help the poor was by redistributing consumption. Now they seem to be moving away from support of the progressive consumption tax, and when I read their explanations they aren’t even close to being persuasive.

3. Back in the 1980s lots of liberals like Ted Kennedy voted for a cut in the top income tax rate from 50% to 28%, along with closing loopholes. Many foreign countries ruled by the left also slashed their top income tax rates. Now liberals concoct absurd theories to justify high MTRs on the rich, even if those tax rates don’t raise any revenue at all. The models they rely on to justify these high rates are no more well established than the Laffer Curve theories they used to ridicule.

4. Back in the 1990s liberals had pretty much given up on fiscal policy, and instead favored using monetary policy. Now fiscal policy is all the rage. Again there is a superficial justification—the zero rate “problem.” But when I was in school the idea of a liquidity trap was treated as a big joke. I keep asking for some empirical evidence that would justify a change in the conventional wisdom. The number one money textbook used to say that monetary policy was “highly effective” at the zero bound. Has some new evidence suddenly appeared that shows this is not true? If so, I’d sure like to know what that evidence is. Instead when I ask people to explain their views they typical point to “examples” that don’t at all show what they claim.

And now 4 from the right:

1. Back when Reagan was president the right seemed to be supportive of more immigration. Now they have turned against immigration, but I can’t see any empirical data that would justify this shift.

2. I recall that when liberals favored lots of “command and control” regulation to address global warming, and conservatives favored a carbon tax. That was the “market solution” comparable to the market-based approach to reducing sulfur emissions from coal-fired power plants. Some conservatives now latch on to “contrarians” in the scientific community. OK, but how come when the shoe was on the other foot conservatives would talk about “scientific consensus.” For instance, conservatives used to criticize a lot of the excessive regulation of chemicals in the environment, by pointing to scientific studies that showed many of the pollutants that environmentalists were obsessing about did not have a statistically significant impact on health. When I read the Wall Street Journal in the 1970s it seemed like it was the clear thinking conservatives relying on science vs. the muddy-headed romantic environmentalists.

3. Conservatives used to have much more pragmatic views on health care reform. The plan adopted by Mitt Romney in Massachusetts was put together with input from the Heritage Foundation. Now the right seems to think that sort of approach is pure communism.

4. Conservatives used to have a pragmatic view of monetary policy. Milton Friedman thought money was too tight just about as often as he thought it was too easy. Now conservatives almost never seem to complain that money is too tight, even in situations where it clearly is, and where Friedman would have complained about tight money. Even worse, they have forgotten that Friedman warned them that low interest rates were not easy money; rather low rates are a sign that money had been tight. This is obviously the issue I have followed most closely, and don’t see any justification for conservatives changing their views on monetary policy.

I worry that readers might get the wrong message from this post. I’m not really trying to argue that I’m right about these 8 issues, I freely concede that my opponents might be right on all 8 points. They are complex problems. But that’s not the issue I’m raising. Rather I’m claiming that the left and right are moving ever further apart, taking ever more extreme views, without good reasons.

Once again, monetary policy is the issue I know best. What has shocked me about the debate is not so much that people disagreed with my views, but rather that the entire intellectual consensus on macro changed radically after 2007, and no one I talked to was able to provide any sort of intellectual justification. Indeed most people didn’t even realize that the previous consensus had collapsed.

A note to commenters. Before you mention some study that has the support of 5% of climate scientists, ask yourself how you’d feel if some massive liberal big government intervention was being proposed on the basis studies that 5% of scientists supported, and 95% thought were nuts. Wouldn’t you ridicule the heterodox view? And if you are a liberal, suppose someone as well known as Milton Friedman had claimed that 2013 would be a test of Keynesianism. And suppose the austerity had caused RGDP growth in 2013 to plunge sharply lower, contrary to what Friedman predicted. Do you seriously deny that you would be out there claiming monetarism was totally discredited?

PS. I will be traveling, and may be slow in responding to comments.