Michael Burgess and the Theory of Rational Expectations

Many of us who lean Progressive but live in Red States must constantly stay alert to the ways of conservative politicians who have professional wordsmiths help them disseminate a message that evokes a false sense of representative government.  Scratch the surface of any of these messages and underneath is a clear intent to promote self-serving corporate interests, NOT those of the voting public.

 

In a recent e-mail video to his constituents, Congressman Michael Burgess of Texas’ 26th District praised the work of recently selected Nobel Prize economist Thomas J. Sargent and found an expression in this man’s work that states “what’s going to happen is going to depend partly on what you think is going to happen”.  This is a part of Dr. Sargent’s “rational expectations” theory, a theory that he has also been very critical of himself after he he formulated it.  It’s kind of like the flip-flop actions of those politicians who claim they were for something before they were against it.

I’m not being critical of economist Thomas Sargent.  Economics is complex and too often a fallible discipline.  But I am disappointed that Mr. Burgess would try to extract something from a theory that it’s own creator has become critical of.  It gets even worse though as the congressman tries to expand on this dubious theory, asserting that “people do not respond passively to economic policy, instead they anticipate the future conditions and adjust according to their best interests”.

“I hope this look masks what I’m really thinking”

Congressman Michael Burgess

This conveniently segues into the Republican talking point that business uncertainty today is preventing economic recovery from happening and its all due to “the constant regulations and the lack of a long-term direction from President Obama”.  This creative piece that comes from the Party of NO may sound good but in fact provides “zero evidence to support this assertion” according to the Center for Economic and Policy Research.

“If firms were seeing demand for labor that would cause them to hire, except for their uncertainty, then we should expect to see large upticks in average hours per worker and increased hiring of temps. In fact, average weekly hours is still down from its pre-recession level. Temp employment is down almost 15 percent from its pre-recession level.”

Congressman Burgess then continues his pretense and tells us what he thinks Dr. Sargent’s theory intended.  “We need to tackle long term problems now, in the present, instead of waiting to solve our nations most important issues” Burgess claims.  Sorry, if you were expecting clarity on what those “long term problems” are and how we are “to solve our nations most important issues”, all you get is this: continue to strip the government of its oversight responsibilities, continue to cut spending, repeal the health care law, explore tax reform and domestic energy exploration.

 

Never mind that it was the lack of government oversight that allowed toxic assets to build up in financial institutions during the late housing bubble which spurred the recession that has seen millions of jobs disappear.  Never mind that spending cuts have  eliminated millions of jobs and threaten to undermine the social safety net that most of our seniors, children and handicapped citizens rely on.

Oh, and that awful health care reform bill that prevents health insurance companies from rejecting our applications because of preexisting conditions or canceling our coverage if needed treatments are deemed too expensive is something we can all do without, right?

Burgess also touts “market based solutions” as a remedy to alleviate high health care costs yet hopes we are oblivious to the fact that no action was ever taken in this area when the Republicans had complete control of the Congress and the White House for 8 years under Bush?  Not one bill was brought to the floor by the GOP to address our serious health care costs in this country.

And you can explore “our domestic energy production” until you’re blue in the face but we are still not going to find enough oil reserves to offset our demand and compete with the growing demand from other developing economies like China and India.  That notion is just another of those creative pieces that come from people whose primary interest lies with the fossil fuel industry and there depleting resources.  Instead of promoting exploration of clean, renewable energy sources, Michael Burgess and nearly every other Republican in political office has a record of voting against initiatives like this because they threaten to take federal funding away from Big Coal and Oil.

 

If Congressman Burgess was really interested in practicing what Dr. Sargent’s theory intended – tackling long term problems now – he wouldn’t undercut those efforts to generate job growth now, even if it means he’d have to divert from theoretical perspectives of the free market that support the belief that less spending and greater tax cuts will pull us out of this economic recession.  Never mind that the record of the Bush tax cuts coincided with the weakest economic expansion of the post-war period, blowing up the national deficit and debt, while not bringing any of the promised gains.

Our congressman is an ideological cowboy like the rest of the GOP is.  They utilize the conservative construction of ideas rearranged in a fashion intended to disguise their tired old worn policies that got us to this point to begin with.  They fully intend on repeating these talking points over and over again without any basis in fact, hoping that the lack of critical thinking within their constituencies is still below the level necessary to challenge their positions.

The doubt that he and his Party are fostering about causes that negatively affect economic recovery is a straw man argument, unlike the doubt they generate among thinking people that are not falling for a repackaged set of ideas that have helped create one of the greatest income gaps in our history.  If pulitzer prize winning economist Thomas Sargent’s theory suggest that “what’s going to happen is going to depend partly on what you think is going to happen”, many will be sorely disappointed if they think replacing the current administration with an even more corporate-friendly one will bring different results than it did under Bush/Cheney.

To his credit, Congressman Burgess didn’t quote Chris Sims, the other half of the duo that won the Pulitzer for Economics.  Had he, another Pulitzer prize winning economist would have busted him for this misstep.  From Paul Krugman’s column yesterday:

 Professor Sims doesn’t want to be pigeonholed. “I’m not ‘non-Keynesian,’ ” he said, adding that he has been an active “promoter of new Keynesian macroeconomic models,” because they “are the place in our profession where theory and data and policy decision-making are coming together.”

“It doesn’t really make much sense to stand on the sidelines and take potshots at them,” he said. “If you don’t like the way they’re working, you should try to do better.”

He and Professor Sargent have been “trying to do empirical macroeconomics using formal tools of statistics,” he said. “Those tools aren’t in themselves ideological.”

Professor Sims spoke favorably of the Obama administration’s fiscal stimulus programs, which are Keynesian in their countercyclical spending. “An expansionary fiscal policy is probably what we need right now,” he said

This new GOP/TeaParty gang will work diligently with for-profit interests to privatize social security and Medicare/Medicaid while keeping wages low so wealthy investors get a bigger bang for the buck and the middle class becomes assimilated in with lower-income working families.

Lest you think I exaggerate, let me remind you of what incoming House committee chairman in charge of bank oversight, Rep. Spencer Bachus, told voters shortly after the GOP regained control of the House last November: “In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve.”   And most recently House Majority leader Eric Cantor is heading to the Wharton School at the University of Pennsylvania Friday to talk about income disparity and how Republicans believe the government can “make sure the people at the top stay there”. 

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6 responses to “Michael Burgess and the Theory of Rational Expectations

  1. Wonderful, informative post, Larry.

    But when you mention the Fannie and Freddie mess and the subsequent housing bust, instinctively the Right screams, “Barney Frank.”

    How would you respond to that?

    • The Right brings up Barney Frank to conceal the failure of the free market. Barney Frank was instrumental in getting Fannie and Freddie to expand their lending to lower income people but they were still required to have some collateral and have a job. Fannie and Freddie started a booming rate of business so the private sector jumped in with both feet and as the Financial Crisis Inquiry Commission pointed out in their report, took eager borrowers’ qualifications on faith, often with a “willful disregard” for a borrower’s ability to pay.”

      Fannie and Freddie were responsible for only about 20% of the sub-prime mortgages that many would default on later. The other 80% were in the private sector. “68% of “option ARM” loans originated by Countrywide Financial and Washington Mutual had low- or no-documentation requirements”

      • Thanks. I could never figure out just what the hell that conservative argument was all about…But now it does seem like it’s much ado about nothing.

  2. When the states were passing legislation to end collective bargaining for unions, I constantly heard commentators saying the private sector pays so much more in benefits so why should union members get away with paying so much less.

    Instead of bringing forcing unions to pay more in benefits in an effort to bring them down to the private sectors level, we should be improving private sector’s benefits and have the amount we pay to match unions.

    It is a backwards argument that only conservatives would make.

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