Still mild compared to that lost weekend with Alan Greenspan

Gmail's spam filters having apparently taken the autumn off, I'm mostly inundated with offers for $1000 Wal-Mart gift cards or "CSI degrees" - which I assume mean forensic science, rather than cytoplasmic sperm injection - which is why Leonid Teytelman's (teytleman at g mail dot com, shared by permission) e-mail almost slipped right past me.

Dear Pandagon Authors:

This is an exchange that I had with Edward Prescott, one of the five Nobel economists whose endorsement Senator McCain is touting as proof of good economic policies...

Before we go into the exchange, let's meet Nobel Prizewinner Edward Prescott, courtesy of additional links from Mr. Teytelman, shall we? On tax cuts:

Edward Prescott, who picked up the Nobel Prize for Economics on Monday, said President George Bush's tax rate cuts were "pretty small" and should have been bigger.

"What Bush has done has been not very big, it's pretty small," Prescott said.

"Tax rates were not cut enough," said Prescott.

On Social Security:

The beauty of individual savings accounts is that each person decides how his money will be invested and, with the advent of the Internet, he can then monitor those

investments at any time and easily make changes to react to changing investment news. Individual savings accounts are transparency in practice...

That one's brilliant, because not only is he arguing for creating an entire workforce of daytraders and all the stability that implies, he also argues that individual retirement accounts will increase "participation in the labor force", thanks to the old Reaganite (or possibly Friedmanian?) argument that the only thing standing between Joe the actual Plumber and total lethargy is keeping the marginal tax rate under XX%. In place of Social Security he advocates - seriously - mandatory savings accounts. So instead of will-to-work-sapping social security tax, it's simply a highly motivating forced removal of money from one's income in order to fund one's retirement. Totally different.

Anyway, now that we know what Nobel Prizewinner Mr. Prescott has to say about the economy let's find out what he has to say about...the Ruyssians*:

----------------------------------

Forwarded Conversation

Subject: Soliciting your opinion on Obama's economic policies

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From: Leonid Teytelman

Date: Sat, Oct 11, 2008 at 12:00 PM

Dear Professor Prescott:

Two of my friends and myself have started a web site, www.obamaforeconomy.com. We would absolutely love to have a statement of support for Obama from you.

The inspiration for the site are the many conversations that we've had with supporters of McCain. Many people we know hesitate to vote for Obama because they are afraid that increasing taxes on the wealthy would derail the economy; some are concerned about their own income or capital gains taxes going up. The goal of the site is to dispel the illusion that Obama's economic policies are a form of class warfare or redistribution by displaying the reasons why affluent supporters and experts believe Obama would be better for the US economy.

Sincerely,

Leonid Teytelman

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From: Edward Prescott

Date: Sat, Oct 11, 2008 at 12:22 PM

Why is Western Europe by one-third depressed relative to the U.S. ? Answer is that they are following the policies that Obama is proposing. This is an established scientific finding.

All respectable students of public finance agree the taxing of capital income is bad policy. It distorts the inter temporal trade off between consumption today and consumption in the future.

The corrupt rich lawyers and Wall Street bankers support Obama. Obama caters to the special in interests. That is why the CEO's of the big companies support him and the people oppose him

Edward C. Prescott

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From: Leonid Teytelman

Date: Sat, Oct 11, 2008 at 12:35 PM

Dear Professor,

Thank you so much for the response. It is quite a forceful statement.

Given my former Soviet Union residence, I have a very strong revulsion when it comes to socialist or communist ideas. However, I do not see Obama's proposals as anything near the socialist economics. It seems to me that investment in infrastructure is sorely lacking in the US, and I think that is the main reason why Bloomberg and "Economist" laude Obama's infrastructure proposals. The overhead on our healthcare is an enormous drag on the US economy, and Obama's healthcare proposal seems to be on the right track to reducing it.

As for populist messages and protectionism, I see these as a sad reality of American politics. I think that Obama spews nonsense and panders to the base when talking about many economic issues (protectionism, biofuels, etc.). I view that as a sad political reality that both McCain and Obama face. McCain is locked into the lower-tax-cut theme (or the ridiculous gas tax holiday) just because of his party, even though he opposed the tax cuts before.

One other critical factor for me is John McCain's early support for the rush to Iraq. I have no respect left for politicians (including Biden), who supported this war.

Best,

Leonid

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From: Edward Prescott

Date: Sat, Oct 11, 2008 at 1:54 PM

Infrastructure investments are best made at the local and state level. The Army Core of Engineers and the levies in New Orleans were Bama in action.

Our health systemn was great until the federal government got involved. Mc Cain has made a serious proposal to improve the system. Obama's proposal is to make a bad system worse.

Edward C. Prescott

P.S. With people like you I understand why Ruyssians can not governed themselves.

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From: Leonid Teytelman

Date: Sat, Oct 11, 2008 at 2:31 PM

Dear Professor:

It is pretty obvious that we will never see eye-to-eye on these issues. There is a good reason why so many well-informed and educated people disagree on whether McCain or Obama would be better for this country. What I love about the United States is that such disagreements are welcome in public, and that in the upcoming presidential elections, there is a sort of a referendum on who has the better ideas.

While the elections are still far away and anything can happen, I do have to note that at this point, Obama is leading McCain by quite a margin in the polls. Particularly when it comes to the economy, overwhelming majority of the public thinks that Obama would do a better job of leading the country. I am not sure how that reconciles with your statement that "CEO's of the big companies support him [Obama] and the people oppose him."

Lastly, I must say that I am perplexed by your comment that it is because of people like me that the Russians cannot govern themselves. To be sure, the Russian government and political system is a mess, thanks to the communism and the botched transition out of it. There are a million causes of the Russian problems, but people like me being one of them? I am a socially-liberal and fiscally-conservative voter. I am not registered with either party (find both of them pretty disappointing). I tend to form my opinions based on much reading and thinking. My opinions may differ from yours, but isn't that the point of democracy and debate? Isn't that how the correct decisions are ultimately made? How am I the problem?

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From: Edward Prescott

Date: Sat, Oct 11, 2008 at 4:11 PM

Show some honesty. Facts are facts and you choose to ignore. Scientist collusions follow from their assumptions. It is not a matter of religious belief. Are you Russians goiung to getogether with the Germans again and split up Poland again? You invade Georgia.

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From: Leonid Teytelman

Date: Sat, Oct 11, 2008 at 4:22 PM

Dear Professor:

I am a scientist. Facts and the scientific method are what I go by; but as always is the case in science, same facts can lead to different and competing models. I think this is exactly what is happening in our exchange - we observe the same facts, but our interpretations differ.

By the way, I am a United States citizen and came to this wonderful country in 1990 as a refugee from the former Soviet Union. I don't think I bear much responsibility for the invasion of Georgia.

Leonid Teytelman

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From: Edward Prescott

Date: Sun, Oct 12, 2008 at 6:45 AM

In economics there is almost always one theory or no theory. You and your think a likes destroyed Russia and now are destroying the United States. Society needs religion to get around the time inconsistency problem. Your religion of Statism is a not a good religion. It is detrimental to the welfare of the people. A basic tenet of my religion is free to choose and to enter into mutually beneficial contracts.

I thought about finding pull quotes - I'm particularly fond of "Are you Russians goiung to getogether with the Germans again and split up Poland again? You invade Georgia" but also "Our health systemn was great until the federal government got involved." Oh, screw it, read the whole thing!

* Disclaimer: Leonid Teytelman is cofounder of obamaforeconomy.com and graduate student in genetics, UC Berkeley. This is his statement regarding this exchange:

I inadvertently e-mailed [Prescott] asking for support of Barack Obama, and the exchange that ensued is rather striking...I showed this exchange to the founder of "Economists for Obama" (https://econ4obama.blogspot.com/) and he said that this is most definitely Prescott and that I probably sent Prescott into a rage with the Heckman quote that appears on the first page of our site (www.obamaforeconomy.com).[Ed. update from followup e-mail: "[T]he founder of "Economist for Obama" just e-mailed me that he didn't say that my exchange was "definitely" with Prescott or that the Heckman quote was what pissed off Prescott.

What he actually e-mailed me about the exchange was:

"Lenny,

I'm just getting back to you now because I've just returned from a weekend offline in the Connecticut woods.

The Prescott response is not surprising. He got the Nobel for the real business cycle theory that Heckman mentioned. Within the theoretical battles within economics--which map imperfectly to American politics--this puts him on the "right wing."

The Heckman quote is very good and somewhat unexpected. He's not generally a political guy. I will write something on the blog about your site soon.

If you haven't already written them, it would be worth a try to contact Joseph Stiglitz and Dan McFadden, both Nobel prize winners, Obama supporters, and nice guys.

Regards,"

I had extrapolated from this that the Heckman quote must have enraged Prescott, as Heckman wrote for our site, "I do not think it's class warfare [Obama's economic policies], I think it's empirical economics. The real issue is the empirical content of the supply side economics dogma. It's pretty threadbare. The "real business cycle" theory is simply inconsistent with empirical evidence. That does not prevent it from being taught as gospel to students (it's really gospel not empirical evidence)."]

As for me, I have looked at the headers of the e-mails between Teytelman and Prescott and they certainly appear to be legitimate, but I am not an expert.