Glaeser on Austan Goolsbee

Principle 6 in Manikiw’s Principles of Economics is “markets are usually a good way to organize economic activity.”  This is not a point of contention in the economics profession.  Economists on the political right and left tend to trust markets more than non-economists.  Edward Glaeser offers evidence that a politically left of center economists like Austan Goolsbee, President Obama’s new chairman of the White House Council of Economic Advisers, finds markets a good mechanism for organizing economic activity in “Sizing Up Obama’s Nominee as Chief Economist.”

While his abundant practical talents brought him to Washington,…he was known for research that used new innovations — like the Internet — to answer old questions.

His most cited paper, which he wrote with Jeffrey Brown, looks at the value of the economic competition created by the Internet. Comparing groups with more and less Internet usage, the authors find that “a 10 percent increase in the share of individuals in a group using the Internet reduces average insurance prices for the group by as much as 5 percent.” On one level, the paper produced an interesting new fact about an emerging technology, but on a more basic level, it illustrates a timeless economic truth: competition is better for consumers than monopoly.

Professor Goolsbee’s work on direct-broadcast satellite television pushes further along this line. Using elegant econometrics, he concludes that “without DBS, entry cable prices would be about 15 percent higher and cable quality would fall.”


He also illustrated the power of competition in the airline industry, where he found that Southwest didn’t even need to fly somewhere to lower fares. Just the threat of the low-cost airline’s entry into a market spurred incumbent airlines to cut their prices…


Professor Goolsbee’s pregovernmental career was technically sophisticated but still grounded in the real world. His research shows a nuanced understanding of public policy that exaggerates neither the upside nor the downside of public action. He can apply the logic of economics in settings far from his core areas of scholarship – and on top of that, he is very, very funny.

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Goolsbee and the Electorate

President Obama has named Austan Goolsbee to replace Christina Romer as chairman of the White House Council of Economic Advisers.  He has been a long time economic adviser to the president and is well qualified for the position.

Phil Izo of the Wall Street Journal writes on Goolsbee and his background in “Who Is Austan Goolsbee?”  It is not easy being an adviser.  As I observed in “Experts Vs. Partisans (Repost II)” an economist might show loyalty to her political employer rather than economic science.  One paragraph caught my attention because it highlights a second problem that advisers might face and that is loyalty to the president rather than the American people.

Goolsbee has been an advocate of free trade. During 2008, he took some lumps when a Canadian government memo surfaced, citing Goolsbee saying that Obama statements on scaling back the North American Free Trade Agreement amounted to “political positioning.” Obama took a hit from then-opponent Hilary Clinton, but many economists were relieved.

What a web of deceit.  Here is my interpretation.  The Canadian government was concerned about trade policy statements made by candidate Obama.  Goolsbee, Obama’s economic adviser informs Canadian officials that Obama’s rhetoric is “political positioning,” or lying to the American electorate for political gain.  That’s nothing new, but it is wrong and it isn’t endearing and thus the hit from Hilary.  Many economists were relieved that Obama was lying to the electorate rather than adopting protectionist policy.  That paints economists as elitist who prefer good policy to an honest description of their candidate’s true beliefs. 

In “The Views of Economists and Non Economists on the Economy (Repost I),” I describe four biases about the economy held by the public.  One is antiforeign bias, a systematic undervaluation of the value of trade.  It is logical for politicians who know that trade is good for the economic wellbeing of a country to lie, feigning to support protectionist policies.  The lying and demagoguery will end when voters better understand the benefits of trade.
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Menzie Chinn Sounds Off

Menzie Chinn, a former Senior Economist for International Finance on the President's Council of Economic Advisers serving President Clinton from 2000-2001, who blogs at Econbrowser adds his voice to those who believe the Bush administration listens less to professional advisors than past administrations. His criticisms sounds very similar to those made by Stephen J. Dunbar writing for Freakonomics and cited in my earlier posting, Economic Advisors and the Presidency. Menzie uses the appointment of General Eric Shinseki to lead the U.S. Department of Veterans Affairs as a springboard to write

While this is not an economics issue in and of itself, it does relate to economic policymaking. Many of the critics of Obama's choices for his economics team have centered on the fact that some of the choices were in the Clinton Administration, or have been associated with the centrist wing of the Democratic party, and hence could not represent "change" (e.g., [0]). But I think this all misses the point. The "change" we need is not so much ideological in nature, but the return to policy authority of people who have expertise, and are willing to look to past experience and (most importantly to me) analysis to make their judgments about how best to proceed -- in economics as well as in issues of war and peace. So I'm happy with the developments thus far (on my previous posts on Shinseki vs. Rumsfeld and the Iraq debacle...

Unlike Menzie, I have never advised a president, but I do know that there is little reason to conduct analysis if it will not affect prior belief.

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Economic Advisors and the Presidency

Students sometimes ask if the presidents of one party have better economic advise than those of the other. Paul Krugman incorrectly makes this claim in a recent post for the New York Times, referring the outgoing economic advisors to President Bush as hacks and those of the incoming advisors as grownups. Krugman, whose economics are sublime, discredits only himself by insulting colleagues so unfairly.

In a post made December November 27, 2008, Greg Mankiw defends himself and other advisors to President Bush writing,

But are they really in a different class than those in the previous administration? Based a standard ranking of economists' academic accomplishments as of October 2008, here is where these three stand (out of more than 18,000 economists), together with the rankings of all the CEA chairmen appointed by President Bush:

11. Larry Summers
21. Greg Mankiw
35. Ben Bernanke
99. Eddie Lazear
132. Glenn Hubbard
249. Harvey Rosen
391. Christy Romer
653. Austan Goolsbee

Judging by this objective criterion, it looks like the two adminstrations are drawing economists from roughly the same talent pool.

The real question is do presidents and their political advisors listen to the good economic advise that they receive? Stephen J. Dunbar deals with this question writing for Freakonomics. Dunbar provides solid evidence that President Clinton, and President Elect Obama place economists in more prominent positions than President Bush and opines that the bad economy may force the incoming administration to listen more closely to their economists.

Dunbar then quotes Steve Levitt who offers a hypothesis as to why economists off all administrations seem to get short shrift,

Politicians don’t listen to academic economists because the solutions economists favor are rarely politically popular. Although Obama is one of the most intellectual presidents that we have had in a long time — which might predispose him to listen to economists — the policies that economists favor tend to be free-market oriented, which likely won’t sit well with his inner circle.

Presidents and their non-economic advisors, or more likely, the people who elect them may suffer from what Brian Caplan in his book, The Myth of the Rational Voter, calls the antimarket bias, "a tendency to underestimate the economic benefits of the market mechanism.

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