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Jonathan Chait: convenient fact finders
Posted by: Jon Henke on Monday, June 12, 2006

Jonathan Chait — last observed here discussing the William Niskanen counterintuitive thought piece on the problem with the 'starve the beast' hypothesis — is upset with Conservatives ...
A few weeks ago, I wrote a column about a paper that decimated the conservative worldview. The study, by William Niskanen of the Cato Institute, found that the conservative "starve the beast" strategy does not work. Indeed, since 1981, he found that tax cuts tend to produce more spending, while tax hikes produce less. I wrote that it would be interesting to see how conservatives reacted to having the factual basis for their entire domestic strategy exposed as a fraud.
[...]
Out of the reams of conservative commentary published over the last month, I have found exactly two items reacting to Niskanen's research. Given his paper's devastating implications, the response is quantitatively — and qualitatively — pathetic.
I like Chait, but this is very flimsy ground on which to demand a Conservative reevalution. The Niskanen paper [described in this pdf] was (a) quite a few years old, and (b) hardly a product of rigorous, robust research. Niskanen observed some correlations and speculated that there may be some degree of causation behind it. His paper was exceedingly limited in scope, and accounted poorly for time lag and other pressures.

Chait also appears to have missed at least one other Conservative response. Kevin Drum pointed out the time lag flaw of this hypothesis more than 2 years ago, which economist Mark Thoma discussed in greater detail, concluding that "this paper did not deserve the attention it received". (the text of Niskanen's 2004 revision is also at Thoma's entry) Greg Mankiw has more reasons to be skeptical.

Though not a believer in the Starve the Beast hypothesis, I pointed out still more problems with Niskanen's idea back when Chait's column came out. These problems didn't make Chait's radar, either...

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None of those appears to have mattered to Chait. Armed with an ideologically pleasing, but methodologically flawed old research paper, Chait wonders why Conservatives have not been persuaded. Liberals may or may not be, as Chait put it in February, "more receptive to empiricism", but they're certainly not above a bit of ideologically driven thinking.
 
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There was a Jonathan Rauch piece on this theory in the June Atlantic Monthly, available online to subsribers where Niskanen appears to very flatly state the inverse correlation between taxation and spending, where 19% of GDP is the "break even" point. That is, he states that spending tends to increase when taxes are lower than 19% of GDP and decrease when they are higher than 19% GDP. I’m not sure if this is represents updated research from the time the paper was released, but I found his argument persuasive, if only because the "discount" government (which is really credit card or "premium" government) seems to me to be one of the driving forces behind the current runaway spending. Nobody seems to care as long as they’re getting theirs at the moment. I have to say that I also find the "Democrats will meet you half-way" argument unconvincing, as the budget cutting under Clinton came from a GOP congress. It may be that a divided government has as much to do with budget cutting as the tax rate.
 
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