Musing on Right-Wing Affinity Fraud in Politics and Economics…

Live from Evans Hall: One reaction to the rise of Donald Trump in Republican presidential primary polls has been the extraordinary hurry with which many other candidates have fallen all over themselves to endorse self-deportation.

Note, however, that by “self-deportation” I do not mean what Mitt Romney meant by the phrase: make life so unpleasant for undocumented immigrants in the United States that they decide to leave. What I mean by “self-deportation” is candidates adopting policies that would deport themselves.

Piyush Jindal’s parents were Indian citizens in the United States on student visas. Ted Cruz was born in Canada to a Cuban-citizen father. Both of Marco Rubio’s parents were Cuban citizens when he was born. Columba Bush — wife of JEB! Bush — was born a Mexican citizen in Mexico, and Wikipedia at least claims that as of her wedding she did not speak English.

Yet all are now denouncing as unforgivably lax the birthright citizenship constitutional guarantee and the naturalization laws by which they or their spouse claim American citizenship.

This is affinity fraud: saying, “I’m just like you! I think as you do! I hate immigrants! Why, I’d have applauded if the U.S. were to have deported me as a baby!” And the very non-sensicality of the claim is what makes it more credible.

But the most interesting thing to me this morning is that this sort of affinity fraud — pretending to believe, or convincing even oneself that one does believe, patently unbelievable things in order to demonstrate group allegiance — is the way America’s right-wing is carrying on its internal and external discussion of economics. Paul Krugman provides three examples:

(1) Claiming to believe or actually convincing oneself that inflation is just around the corner:

Paul Krugman: Inflation Paranoia as a Tribal Marker: “As I said in a brief note on Ron Paul, it’s a form of Madoff-style affinity fraud…

…even if the perpetrator of the scam believes his own derp…. Awesomely, Richard Fisher, now retiring as president of the Dallas Fed, is apparently regarded as an intellectual giant — he ‘rose to the status of being a deity in Texas’ — despite a track record of being wrong again and again…. [Michael Derby and] the WSJ engages in a fairly common practice when describing inflationistas, namely that of whitewashing what they have actually spent year after year warning against. No, Fisher didn’t warn against ‘frothy financial markets’. He warned against inflation…. Within the conservative tribe issuing dire warnings against inflation is considered virtuous whether or not they are right; it’s a way of showing that you’re their kind of guy, that you belong to the tribe.

(2) Claiming to believe or even believing that recessions are outbreaks of collective laziness on the part of workers and collective forgetting on the part of entrepreneurs:

Paul Krugman: The Trouble With Being Abstruse: “In my field… the academics themselves don’t understand what they’re saying…

…Take real business cycle theory — I know it’s a horse I beat a lot, but it’s not dead…. I still want to spend at least some time explaining that theory to my undergrads, so I’ve been looking for a simple, intuitive explanation by an RBC theorist of what’s going on. And I haven’t been able to find one!… I could do it myself…. Fluctuations in the marginal productivity of labor… have a magnified impact on output because workers choose to work less when the technology is bad and more when the technology is good… the story of a farmer who stays inside when it’s raining and puts in extra hours when the sun is shining. But the RBC theorists never seem to go there; it’s right into calibration and statistical moments…. Math is good. Sometimes jargon is good, too. But plain language and simple intuition are important to keep you grounded.

(3) Claiming to believe or actually believing that doubling down on failed intellectual bets is the right strategy — that if statistical tests reject your models, so much the worse for statistical tests because the models are good:

Paul Krugman: Freshwater’s Wrong Turn: “In the beginning, [Robert] Lucas and disciples had a very clear statement of both the problem and their solution….

…Faced with a shock to nominal demand, producers couldn’t tell how much was just a money fluctuation and how much a real change in demand for their particular product…. So they would engage in signal extraction, making the best possible estimate; this would lead in aggregate to an upward-sloping aggregate supply curve, but only because of rational confusion. And this in turn had strong policy implications: you might see a relationship between money and output, but it would disappear if you tried to use it. It was a lovely, intellectually interesting and exciting approach. It was also quite wrong….
By the early 1980s, however, it was overwhelmingly clear that rational confusion couldn’t explain business cycles, either empirically or theoretically — business cycles last too long, rational agents should be able to tell real from nominal shocks using information like asset prices, and more…. The [progressive research program in the] profession… [went] back to sticky-price models, arguing that under imperfect competition… menu costs or slight deviations from perfect rationality… [could] make money very non-neutral in the short run. But Lucas and his school couldn’t do that, because they had burned their bridges….
It would have taken a lot of intellectual integrity to admit that they might have been premature, that their models weren’t working and that maybe there was something in that Keynesian stuff after all. And that kind of integrity did not manifest itself. Instead they went even further down the equilibrium rabbit hole, notably with real business cycle theory. And here is where the kind of willful obscurantism Romer is after became the norm…. What Romer is telling us, based on his discussion of growth models, is that this kind of thing is pervasive in that school. And no, everyone doesn’t do it…. Mike Woodford or Gauti Eggertsson or Ken Rogoff… all take pains to provide an intuition behind their models, and they don’t engage in false advertising…

We also have NYU’s Paul Romer reporting from inside the belly of the beast on how what matters are not intellectual standards but rather group allegiance:

Paul Romer: Feynman Integrity: “I had a twitter exchange with Luis Garicano…

…[that] illustrates what my private conversations have been like:
Paul, what many of us find bewildering is that Lucas is probably the most thoughtful,deep,transparent modeler in the profession. — Luis Garicano (@lugaricano)
I agree. There is a puzzle. At the beginning of the rational expectations revolution he was as you write. Something changed. — Paul Romer (@paulmromer)
Luis, pls look at presentation of bounded model in Lucas-Moll paper. Am I missing something? — Paul Romer (@paulmromer)
Sure unbounded support not a great assumption.But in whole career Lucas less guiltily of ‘mathiness’ than 99% of his peers. — Luis Garicano (@lugaricano)
OK to consider unbounded if done transparently. Problem is calling model with unbounded support for t != 0 a bounded model. — Paul Romer (@paulmromer)
agree that should have been transparently laid out. — Luis Garicano (@lugaricano) August 1, 2015
What freshwater sympathizers say: “everybody does it.” “Even more” But where are the examples from outside freshwater camp? — Paul Romer (@paulmromer)
OMG.You need to read some micro. Pick average GT piece. Watch your feet for the traps. 😉 — Luis Garicano (@lugaricano)
I don’t mean to be combative. Honestly interested in facts. Can you point me to something analogous to “bounded” in LM? — Paul Romer (@paulmromer)
My own experience (contra Krugman’s horrible NY Times Mag piece) Lucas et al. may be wrong but dead serious about science. — Luis Garicano (@lugaricano)
Note that you are responding exactly as I describe. First, “everybody does it.” Then “those guys” which apparently means PK. — Paul Romer (@paulmromer)
no, I deny the motive. My arg: [Lucas] has written transparently enough over lifetime that he has earned my trust on mathiness — Luis Garicano (@lugaricano) August 1, 2015
This exchange is useful because it is public and it illustrates the general pattern that I described.
Agreement that N did X: “agree that should have been transparently laid out” Response that others do the same thing: “Lucas less guiltily of ‘mathiness’ than 99% of his peers” Then the conversation always turns to “those guys”: “contra Krugman’s horrible NY Times Mag piece”
I am trying hard to keep lines of communication open with economist friends who are supporters of Lucas (or New Chicago, or freshwater macro, or however one might choose to describe this group.) It would be very useful if some of them were willing to respond publicly. As I will note below, even silence is a form of response. But to have any hope of keeping personal lines of communication open, I have to treat my conversations with them as private. And it is important for me to maintain these personal connections because people who know me and talk to me will have more trouble forcing me into a familiar narrative where I am one of “those guys” who are malevolent.
My conjecture is that the fundamental problem in macroeconomics, and the explanation for the puzzle I noted in my reply to Luis, is that a type of siege mentality encouraged people in this group to ignore criticism from the outside and fostered a definition of in-group loyalty that delegitimized the open criticism that is an essential part of the scientific method. Once this mentality got established, it fed on itself. If this conjecture is right, the best hope now is to get at least a few of the members of this group to recognize that criticism can be healthy and can spring from good intentions.

And we have the case of the very sharp Narayana Kocherlakota, who did not get the memo that you were supposed to believe or at least pretend to believe that the New Classical mass laziness, mass forgetting, must rusting shocks were in fact the sources of downturns:

Narayana Kocherlakota (2009): Why Do We Have Business Cycles: “Why do we have business cycles?…

…Why do asset prices move around so much? At this stage, macroeconomics has little to offer by way of answer…. The sources of disturbances in macroeconomic models are (to my taste) patently unrealistic… large quarterly movements in the technological frontier… collective shocks to the marginal utility of leisure…. to the depreciation rate in the capital stock…. None of these disturbances seem compelling, to put it mildly. Macroeconomists use them only as convenient short-cuts to generate the requisite levels of volatility in endogenous variables…

He was wrong. It really is the case that people really believe these just-so stories.

Ed Prescott of Arizona State University really does believe that large-scale recessions are caused by economy-wide episodes of the forgetting of the technological and organizational knowledge that underpins total factor productivity — with the exception of episodes like the Great Depression, which Prescott says was caused by the extraordinary pro-labor pro-union policies of that left-winger Herbert Hoover that pushed real wages far above equilibrium values.

Casey Mulligan of the University of Chicago really does appear to believe that large declines in the employment-to- population ratio are best seen as ‘great vacations’ — when they are not the side-effects of destructive government policies, like those in place today which are leading workers to quit their jobs so they can get higher government subsidies to refinance their mortgages. (Yes, I know, I know.)

And Robert Lucas of the University of Chicago really did say in his Nobel Prize lecture that the predominant shocks to the post-WWII American economy had been not monetary or financial or to investors’ “animal spirits”, but rather real shocks — to things like technology and labor supply.

Thus just-so stories that strike Kocherlakota as ‘patently unrealistic’ are not viewed as such by many of his Chicago peers, but rather as essential for ‘the best’ and for ‘the most practical’ macroeconomics.

Originally published at on August 1, 2015.