This Berean thinks so–so let me defend why. I was quite surprised when I heard the Biden Administration say that they had many Nobel economists* endorse the “Build Back Better” plan, but I was especially surprised that the Biden administration claimed these economists said the plan would ease inflationary pressures. I figured there had to be a catch, so I found the letter on the web, to find out I was wrong. These economists said:

The American economy appears set for a robust recovery in part due to active government interventions over the past year and a half, including President Biden’s American Rescue Plan. But, reversing years of disinvestment in public goods and addressing the country’s long- term needs—including building toward sustainable and inclusive growth and facilitating our clean energy transition—will require more.

Success in the 21st century will require building upon the bi-partisan infrastructure deal that has passed the Senate, which prioritizes investments in our nation’s “hard” infrastructure. The President’s Build Back Better agenda employs a broader conception of infrastructure by making critical investments in human capital, the care economy, research and development, public education, and more, which will reduce families’ costs.

While we all have different views on the particulars of various economic policies, we believe that key components of this broader agenda are critical—including tax reforms that make our tax system more equitable and that enable our system to raise the additional funds required to facilitate necessary public investments and achieve our collective goals. Because this agenda invests in long-term economic capacity and will enhance the ability of more Americans to participate productively in the economy, it will ease longer-term inflationary pressures. (emphasis added)

Now a couple of things I should say about Nobel economists. It really is a big deal; these guys are all towering intellects in their field of study. However, we should note a couple of things. First, there are very few economists worthy of a Nobel Prize. If they had one ~ every five years, we would be better served, as there really aren’t that many noteworthy accomplishments in economics. So I have less esteem than you might think of Nobel Laureates, even though I’m quite fond of many of them, especially James Buchanan and Vernon Smith, who I believe did revolutionize economics (Buchanan was the leader of the development of Public Choice and started the field of Constitutional Economics, and Vernon Smith developed the field of experimental economics). It was my great joy to take a class from James Buchanan, and it was my great regret that Vernon Smith only joined George Mason University the fall after I graduated in the spring of 2001. But much more importantly, economics, like most disciplines, is highly specialized. I would not begin to hold a candle intellectually to these men in their specific field of economic study. But in a discussion of economics generally, especially in the area of inflation (which I have studied more than a small amount), I feel quite comfortable challenging their conclusions. For example, I am quite sure that Mr. Kahneman has not had a careful study of inflation–he’s not had economic training really at all.** I say this not to put myself on a pedestal, as there are many more economists that might do this much more effectively than me, but that winning the Nobel prize in one area of economics does not make any of the signatories an eminent expert in completely different areas of economics. Their opine is fair game for challenging, so let us begin! The last sentence (emphasis above) is the key to their assertion, so let’s consider it.

The signatories of the letter argue that the agenda “invests in long-term economic capacity” which will “enhance the ability of more Americans to participate productively in the economy” and this additional productive capacity “will ease longer-term inflationary pressures.” Let’s take these one by one. First, we have to make a lot of assumptions about exactly what these economists were saying, since the “build back better” plan has many components, and this letter does not really address what they are referring to. So I’m going to give them the benefit of the doubt and say that they are arguing that the “investments” the government is going to spend on are going to increase the productive capacity of the US in the future, so they are not inflationary. Now I can see a few of the ways they might think this. You could argue, for example, that universal pre-k will free women (because it is mostly women) to enter the labor force a year or two earlier than they otherwise would, so there is more productive capacity. You could also argue that free community college would lead to more skilled workers, increasing the productive capacity of the nation. So they are looking at the outputs of the spending and assuming the spending will lead to great outcomes, and the outcomes will be greater than the cost. But these assumptions are dubious on multiple fronts. First, to credit these economists, they say it will ease “longer-term inflationary pressures”. Since most of them are Keynesians, let me remind them of Mr. Keynes dictum: in the long run, we’re all dead.” What the Biden Sanders-lite plan calls for is trillions in new spending today, for improvements in productivity tomorrow (even if you believe the plan, which I don’t). The problem is we are already having inflationary pressures from the previous government spending measures, and this will add fuel to the fire. Secondly, this is the typical Broken Window fallacy we see of most bad economists. As Henry Hazlitt said so well, and so much more wisely than any trained economist (Nobel Laureate or not):

In addition to these endless pleadings of self-interest, there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences. In this lies almost the whole difference between good economics and bad. The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups.

The Broken Window fallacy reminds us that the resources to do any government program have an opportunity cost–what those resources would have done had they not been used by the government. So you have to consider what those resources would have done, something the Nobel Laureates studiously ignore–which effectively means they are ignoring the first law of economics, scarcity, which necessitates true choices which come at a cost. Thirdly, the Biden administration is saying that this plan is “paid for” by their tax receipts on the rich, so let’s think about this. Even if the “paid for” claim is true (which it most assuredly is not), the Jeff Bezos and Elon Musks of the world have been very productive with their use of scarce capital. Are we really to believe the daily incompetence we see from the Biden Administration, the CDC and the myriad of other government bureaucracies is going to use scarce capital more productively than the private sector? For any of these Nobel Laureates, I ask you–what evidence do you have of incredibly efficient use of resources by the government? As I wrote a few years ago, the Obama administration’s own Education Department reported that the Head Start program was effectively a total failure at achieving its outcomes. Why again do we have even the slightest of hopes that universal pre-k will lead to great results?*** Surely the record of government spending in the past suggest these optimistic hopes of the Biden plan strain credulity.

Then we have the free community college push. Now I’m all in favor of technical training, and I think we need a lot more of it. But it’s not clear at all the lack of people pursuing degrees in plumbing and HVAC are because prospective students can’t afford the tuition. What we do know is that after decades of the US Government making higher ed more “affordable,” costs have exploded through the roof, and many students are getting worthless degrees. And we know that after years of propaganda suggesting that the only way someone can get ahead in America is to go to college, it is not surprising that the skilled trades are denigrated. Making it free does not put an end to that lie. It would be a far better proposal to convert more high schools to the German model of tracking students much earlier into college and vocational tracks. Again, to these Nobel Laureates, what evidence do you have that government spending on these community colleges will lead to increased level of productive outputs? Here is a suggestion: Each of you Nobel Laureates donate your Nobel Prize money to one local community college and give many students a “free” community college degree and then let’s track the outcome. All of you as trained economists can probably come up with a good experiment to test your hypothesis. When we have any level of data showing this might actually work, then we can think about it.

I don’t know where we are going to be with inflation in the short or medium term. But I have quite high confidence that in the long run, we’re looking at much higher prices. In the next few weeks I hope to write a series of posts to help us think through the inflationary question more deeply. Something I don’t think many of these Nobel Laureates have seriously done (or they wouldn’t have signed this letter). To be somewhat fair to them, having also signed some of these type letters as an economist, I’m fairly confident that few, if any, of them were directly involved in creating the statement they signed. Most of them probably had a little bit of misgiving at the last line. But hey, they signed it, so they own it–signing letters like this can come back to haunt you. We’ll consider several aspects that affect the productive capacity of the US that our Nobel Laureates conspicuously did not address, i.e., what will be the supply-side effects of increased taxation and regulation that is shaping up to be the hallmark of this administration, and yes, money, money, money! Stay with me for the next few weeks!

* Joseph Stiglitz, Professor, Columbia University; Peter Diamond, Professor, Massachusetts Institute of Technology; Daniel Kahneman, Professor, Princeton University; Oliver Hart, Professor, Harvard University; Paul Romer, Professor, New York University; Eric S. Maskin, Professor, Harvard University; Edmund S. Phelps, Professor and Director of the Center on Capitalism and Society, Columbia University; Robert Engle, Professor Emeritus and Co-Director of the Volatility and Risk Institute, New York University; George A. Akerlof, Professor, Georgetown University; Paul Milgrom, Professor, Stanford University; Christopher Sims, Professor, Princeton University; Sir Angus Deaton, Professor, Princeton University; Robert Solow, Professor Emeritus, Massachusetts Institute of Technology; Daniel McFadden, Professor, University of California, Berkley; Roger Myerson, Professor, University of Chicago

** Mr. Kahneman is a psychologist who was really the creator of the field of behaviorial economics. When I read his book Thinking Fast and Slow, I was struck by his superficial understanding of economics. He seems to believe the caricature of homoeconomicus (that rational human optimizing machine that never errs) is what economists think really drive human behavior. Even for neoclassical economists (which I am not), there is a whole lot more nuance than Mr. Kahneman seems to think.

*** It will have an unstated effect, but not unintended: it gives the left two more years to indoctrinate young minds in their America-hating propaganda. Do any of you seriously believe there won’t be “standards” of learning that we expect to see in the government regulatory apparatus? What kind of standards do you expect? Simply look at the kind of standards they are pushing throughout the rest of education. You can certainly be assured the whole gender identity question will be pushed down to 3 year olds. Do not underestimate this risk, or that this is part of their goal.