Harry Stein on the Cultural Left

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from the article:

Joseph Stein’s comic circle and the transformation of American popular culture

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Even as these smart, deftly realized shows did their considerable bit in changing the American conversation about the kind of people we were and ought to be, they exercised enormous influence over later creators of mass entertainment. It’s hardly happenstance that in a country evenly split between left and right, in entertainment programming the left/liberal worldview today reigns virtually unchallenged. As Andrew Klavan observes, it is now “almost an unwritten law of Hollywood that any glancing reference to real-life politics in a film or television show must be slanted left.” Just as viewers can safely assume that the straightlaced businessman on contemporary crime shows will turn out to be a bad guy, it’s an excellent bet that, far from knowing best, today’s sitcom dad will be a hapless lunkhead, while his fictional kids will be gung-ho environmentalists.

Source: Harry Stein, "My Father, Fiddler, and the Left, City Journal, Summer 2014

Nye on Inequality

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from the article:

But ultimately, income is not a question of how many zeroes are in your bank account, but how much you can buy in goods and services. People have tried to circumvent this by measuring not just income but consumption.

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Our fixation on income inequality (which I am certain will not disappear under any feasible policies) will obscure the fact that trying to tax away or regulate those inequalities will give more play to inequalities that are even less tractable, like social or political connections.

Source: John Nye, "Real Inequality: Why Things Are Better Than They Seem and Will Almost Surely Get Worse," Mercatus Center, |July 17, 2014

R_Hass on the Potential for a New Thirty-Years War in the Middle East

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It is a region wracked by religious struggle between competing traditions of the faith. But the conflict is also between militants and moderates, fueled by neighboring rulers seeking to defend their interests and increase their influence. Conflicts take place within and between states; civil wars and proxy wars become impossible to distinguish. Governments often forfeit control to smaller groups – militias and the like – operating within and across borders. The loss of life is devastating, and millions are rendered homeless.

That could be a description of today’s Middle East. In fact, it describes Europe in the first half of the seventeenth century.

In the Middle East in 2011, change came after a humiliated Tunisian fruit vendor set himself alight in protest; in a matter of weeks, the region was aflame. In seventeenth-century Europe, a local religious uprising by Bohemian Protestants against the Catholic Habsburg Emperor Ferdinand II triggered that era’s conflagration.

Protestants and Catholics alike turned for support to their co-religionists within the territories that would one day become Germany. Many of the era’s major powers, including Spain, France, Sweden, and Austria, were drawn in. The result was the Thirty Years’ War, the most violent and destructive episode in European history until the two world wars of the twentieth century.

There are obvious differences between the events of 1618-1648 in Europe and those of 2011-2014 in the Middle East. But the similarities are many – and sobering. Three and a half years after the dawn of the “Arab Spring,” there is a real possibility that we are witnessing the early phase of a prolonged, costly, and deadly struggle; as bad as things are, they could well become worse.

The region is ripe for unrest. Most of its people are politically impotent and poor in terms of both wealth and prospects. Islam never experienced something akin to the Reformation in Europe; the lines between the sacred and the secular are unclear and contested.

Source: Richard N. Haass, "The New Thirty Years’ War," Project Syndicate, July 21, 2014

Shelton and McKenzie on measured Inequality

Here is the link:  http://www.ncpa.org/pub/st358

From Kathryn M. Shelton and Richard B. McKenzie, Why the "Rich" Can Get Richer Faster than the "Poor" NCPA Economic Study #358, July 10, 2014

President Barack Obama has tagged the growing inequality of income over the past three or four decades as "the defining challenge of our time," an often-repeated claim recently echoed by economist Thomas Piketty in Capital in the Twenty-First Century. Numerous social and economic factors explain why the income and wealth gaps have grown, from the rise in family breakdown to the incentives embedded in government welfare programs.

However, there are reasons for the gaps that have gone largely, if not completely, unrecognized. These explanations make the relative growth in the income (and wealth) of the rich practically inevitable - at least as officially measured.

According to official measures, the average and total income of people at the top of the income distribution is growing relative to the incomes of lower income groups. From 1979 to 2007, the inflation-adjusted income of the top 1 percent of households grew 275 percent, while the bottom fifth's income grew only 18 percent. However, if the incomes of household members are combined, if household income is adjusted to reflect reductions in tax rates and increases in government transfers and if household income is further adjusted to account for the declining number of people in the average household over nearly three decades, the 3.2 percent increase in median taxpayer earnings over the period rises to nearly 37 percent.

Much of the income inequality debate in the United States has focused on "fifths," "tenths" or "the top 1 percent" of households. Such divisions give the appearance of inequality, but there are far more people and workers in the top income brackets than in the lower ones. Indeed, there are 82 percent more people in the top fifth of households than in the bottom fifth. In 2006, 81 percent of households in the top quintile had two or more workers; but only 13 percent of households in the bottom fifth had two or more workers. In nearly 40 percent of these households, no one was working.

Further, people in different income divisions do not remain at those income levels throughout their lives. The Federal Reserve Bank of San Francisco found that absolute mobility - that is, the extent to which children earn more than their parents - is high:

Of all U.S. adults, 67 percent had higher incomes than their parents; and among those born into the lowest income bracket, 83 percent exceeded their parents' income.

About 40 percent of people in the lowest fifth of income earners in 1986 moved to a higher income bracket by 1996, and roughly half the people in the lowest income quintile in 1996 had moved to a higher income bracket by 2005.

Indeed, one study found that a majority of Americans reach the upper income brackets at some point during their lives. Over a 44-year period, 12 percent of 25- to 60-year-olds moved into the top 1 percent for at least one year; 39 percent reached the top 5 percent; over half reached the top 10 percent; and nearly three-fourths were in the top fifth of the income distribution.

Moreover, Americans are moving to the top of the income ladder without inheritances. Thus, an investigation into the 2013 Forbes list of the 400 wealthiest Americans found:

More than two-thirds (68 percent) of the billionaires were "self-made," which means they built their fortunes without the help of inheritance.

Furthermore, according to the Internal Revenue Service, between 1992 and 2009, only 2 percent of the people on the Forbes 400 list were on it for 10 or more consecutive years.

The success of people at the bottom of the income distribution can increase inequality, because their newfound success does not improve the average incomes of the lower income brackets they left behind; rather, their economic gains are treated as gains to the higher income and wealth brackets they reach.

An analysis of portfolio investment over time reveals an unheralded reason the "rich" have become richer absolutely and relative to the "poor." The top 1 percent of households hold over a third of the country's total wealth, while the bottom two quintiles hold a fraction of that wealth. As such, the rich are able to develop and maintain highly diversified portfolios of investments, including stocks, bonds, derivatives, insurance, precious metals, degrees, multiple homes and other real estate holdings. The ability of the rich to safely diversity their portfolios allows them to take on riskier investments without incurring the hazards associated with the far less diverse portfolios of lower income individuals.

Moreover, pundits often fail to appreciate the direct and indirect ties between the Federal Reserve's monetary policy and the distribution of wealth and income.

When the Great Recession emerged with force in 2007, the Federal Reserve pushed down interest rates drastically with the expectation of stimulating the economy. The drop in interest rates negatively affected many low-income people who relied on their small amount of interest income earned from bank savings accounts. At the same time, the Fed padded the pockets of firms deemed "too big to fail," giving the privileged firms a form of government-backed insurance for their future profit streams and adding upward pressure on stock prices. As a consequence, the wealth of rich people has escalated over the last several years.

Finally, family breakdown is a large contributor to poverty. Households in the top income brackets are far more likely to be married, stay married and have children after marriage, while households in the bottom income brackets are far more likely to be single-parent households. Wealth taxes, such as those proposed by Piketty, can retard the future accumulation of wealth, with negative consequences for people down the income ladder who depend on capital accumulation for growth in the number of income-producing jobs.    

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Cochrane on Restoring American Prosperity

John H. Cochrane, "Limit Government and Restore the Rule of Law," in Ideas for Renewing America's Prosperity, The Wall Street Journal, July 7, 2014

America doesn't need big new economic ideas to get going again. We need to address the hundreds of little common-sense economic problems that everyone agrees need to be fixed. Achieving that goal requires the revival of an old political idea: limited government and the rule of law.

Our tax code is a mess. The budget is a mess. Immigration is a mess. Energy policy is a mess. Much law is a mess. The schools are awful. Boondoggles abound. We still pay farmers not to grow crops. Social programs make work unproductive for many.  ObamaCare and Dodd-Frank are monstrous messes. These are self-inflicted wounds, not external problems.

Why are we so stuck? To blame "gridlock," "partisanship" or "obstructionism" for political immobility is as pointless as blaming "greed" for economic problems.

Washington is stuck because that serves its interests. Long laws and vague regulations amount to arbitrary power. The administration uses this power to buy off allies and to silence opponents. Big businesses, public-employee unions and the well-connected get subsidies and protection, in return for political support. And silence: No insurance company will speak out against ObamaCare or the Department of Health and Human Services. No bank will speak out against Dodd-Frank or the Securities and Exchange Commission. Agencies from the Environmental Protection Agency to the Internal Revenue Service wait in the wings to punish the unwary.

This is crony capitalism, far worse than bureaucratic socialism in many ways, and far more effective for generating money and political power. But it suffocates innovation and competition, the wellsprings of growth.

Not just our robust economy, but 250 years of hard-won liberty are at stake. Yes, courts, media and a few brave politicians can fight it. But in the end, only an outraged electorate will bring change—and growth.

Mr. Cochrane is a professor at the University of Chicago Booth School of Business and a Hoover Institution senior fellow.

Kling on the Innovation Process

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Schuck has an impressive grasp of neoclassical economics, but I think he gives it too much weight. Neoclassical economics is obsessed with the concept of equilibrium, and in turn it pays little attention to innovation. I believe that one of the biggest lessons of economics is the value of trial-and-error learning through entrepreneurial activity.

Incidentally, that is one of the important ideas that is, for all practical purposes, outside mainstream economics. The process of innovation has three steps: introducing experiments, learning from experiments, and evolving as a result of those experiments. The government is particularly inferior to the market when it comes to both experimentation and evolution. The government does not have the ability — or the will — to attempt as many experiments as private actors do. In the marketplace, when one organization won’t explore alternatives, another one often will.

Source:  Arnold Kling, "Schuck," askblong, July 9. 2014

Schermer on the Myth of Income Inequality

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The pie metaphor is deceptive because a pie is of a fixed size such that if your slice is larger, then someone else’s is smaller. But economies grow, and the pie gets larger such that you and I can both get a larger slice compared with the slices we got from last year’s pie, even if your slice increase is relatively larger than mine. A report released by the Federal Reserve in early 2014, for example, noted that the overall wealth of Americans hit the highest level ever, with the net worth of U.S. households rising 14 percent in 2013, which is an increase of almost $10 trillion to an almost unimaginable $80.7 trillion, the most ever recorded by the Fed. Of course, on a planet with finite resources such an expansion cannot continue indefinitely, but historically capital and wealth production shifts as industries change from, say, farming and agriculture to coal and steel to information and services.

What about income mobility, which President Obama also identified as a problem? Writing in the National Tax Journal, economists Gerald Auten and Geoffrey Gee analyzed individual income tax returns between 1987–1996 and 1996– 2005 and found that for individuals age 25 and up, “over half of taxpayers moved to a different income quintile and that roughly half of taxpayers who began in the bottom income quintile moved up to a higher income group by the end of each period” and that “those with the very highest incomes in the base year were more likely [than those in other quintiles] to drop to a lower income group.” In fact, they found that “60 percent of those in the top 1 percent in the beginning year of each period had dropped to a lower centile by the 10th year. Fewer than one fourth of the individuals in the top 1/100th percent in 1996 remained in that group in 2005.” In a follow-up study that included income data through 2010, the economists found that “approximately half of taxpayers in the first and fifth quintile remained in the same quintile 20 years later. About one-fourth of those in the bottom moved up one quintile, while 4.6 percent moved to the top quintile.”

Source: Michael Schermer, "The Myth of Income Inequality," Scientific American, July 2014

Reynolds on Piketty's Data

Alan Reynolds, "Why Piketty's Wealth Data Are Worthless," The Wall Street Journal, July 9, 2014

Private retirement plans rose to $12.4 trillion in 2012 from $875 billion in 1984. None of it is reported on tax returns.

No book on economics in recent times has received such a glowing initial reception as Thomas Piketty's "Capital in the Twenty-First Century." He remains a hero on the left, but the honeymoon may be drawing to a sour close as evidence mounts that his numbers don't add up.

Mr. Piketty's headline claim is that capitalism must result in wealth becoming increasingly concentrated in fewer hands to a "potentially terrifying" degree, on the grounds that the rate of return to capital exceeds the rate of economic growth. Is there any empirical evidence to back up this sweeping assertion? The data in his book—purporting to show a growing inequality of wealth in France, the U.K., Sweden and particularly the United States—have been challenged. And that's where the story gets interesting.

In late May, Financial Times economics editor Chris Giles published anessay that found numerous errors in Mr. Piketty's data. Mr. Piketty's online "Response to FT" was mostly about Europe, where the errors Mr. Giles caught seem minor. But what about the U.S.?

Mr. Piketty makes a startling statement: The data in his book should now be disregarded in favor of a March 2014 Power Point presentation, available online, by Mr. Piketty's protégé, Gabriel Zucman (at the London School of Economics) and his frequent co-author Emmanuel Saez (of the University of California, Berkeley). The Zucman-Saez estimates, Mr. Piketty says, are "much more systematic" and "more reliable" than the estimates in his book and therefore "should be used as reference series for wealth inequality in the United States. . . (rather than the series reported in my book)."

Zucman-Saez concludes that there was a "large increase in the top 0.1% wealth share" since the 1986 Tax Reform, but "no increase below the top 0.1%." In other words, all of the increase in the wealth share of the top 1% is attributed to the top one-tenth of 1%—those with estimated wealth above $20 million. This is quite different from the graph in Mr. Piketty's book, which showed the wealth share of the top 1% (which begins at about $8 million, according to the Federal Reserve's Survey of Consumer Finances) in the U.S. falling from 31.4% in 1960 to 28.2% in 1970, then rising to about 33% since 1990.

In any event, the Zucman-Saez data are so misleading as to be worthless. They attempt to estimate top U.S. wealth shares on the basis of that portion of capital income reported on individual income tax returns—interest, dividends, rent and capital gains.

This won't work because federal tax laws in 1981, 1986, 1997 and 2003 momentously changed (1) the rules about which sorts of capital income have to be reported, (2) the tax incentives to report business income on individual rather than corporate tax forms, and (3) the tax incentives for high-income taxpayers to respond to lower tax rates on capital gains and dividends by realizing more capital gains and holding more dividend-paying stocks. Let's consider each of these issues:

• Tax reporting. Tax laws were changed from 1981 to 1997 to require that more capital income of high-income taxpayers be reported on individual returns, while excluding most capital income of middle-income savers and homeowners. This skews any purported increase in the inequality of wealth.

For example, interest income from tax-exempt municipal bonds was unreported before 1987—so the subsequent reporting of income created an illusory increase in top incomes and wealth. Since 1997, by contrast, most capital gains on home sales have disappeared from the tax returns of middle-income couples, thanks to a $500,000 tax exemption. And since the mid-1980s, most capital income and capital gains of middle-income savers began to vanish from tax returns by migrating into IRAs, 401(k)s and other retirement and college savings plans.

Balances in private retirement plans rose to $12.4 trillion in 2012 from $875 billion in 1984. Much of that hidden savings will gradually begin to show up on tax returns as baby boomers draw them down to live on, but they will then be reported as ordinary income, not capital income.

Tax law changes, in summary, have increased capital income reported at the top and shifted business income from corporate to individual tax returns, while sheltering most capital income of middle-income savers and homeowners. Using reported capital income to estimate changing wealth patterns is hopeless.

• Switching from corporate to individual tax returns. When individual tax rates dropped from 70% in 1980 to 28% in 1988, this provoked a massive shift: from retaining private business income inside C-corporations to letting earnings pass through to the owners' individual tax returns via partnerships, LLCs and Subchapter S corporations. From 1980 to 2007, reports the Congressional Budget Office, "the share of receipts generated by pass-through entities more than doubled over the period—from 14 percent to 38 percent." Moving capital income from one tax form to another did not mean the wealth of the top 1% increased. It simply moved.

• Tax rates and capital gains. There were huge, sustained increases in reported capital gains among the top 1% after the capital-gains tax was reduced to 20% from 28% in 1997, and when it was further reduced to 15% in 2003. Although more frequent asset sales showed up as an increase in capital income, realized gains are no more valuable than unrealized gains so realization of gains tells us almost nothing about wealth. Similarly, a portfolio shift from municipal bonds, coins or cash into dividend-paying stocks after the tax on dividends fell to 15% in 2003 might look like more capital income when it was merely swapping an untaxed asset for a taxable one.

In his book, Mr. Piketty constructed estimates of top wealth shares, decade by decade, melding and massaging different kinds of data (estate tax records, the Federal Reserve's Survey of Consumer Finances). These estimates are suspect in their own right; but as we now learn from Mr. Piketty's response to Mr. Giles, we can ignore them.

Yet Mr. Piketty's preferred alternative, the Zucman-Saez slide show, is also irreparably flawed as a guide to wealth concentration. Mr. Piketty's premonition of soaring U.S. wealth shares for the top 1% finds no credible support in his book or elsewhere.

Mr. Reynolds, a senior fellow with the Cato Institute, is author of a 2012 Cato Institute paper, "The Misuse of Top 1 Percent Income Shares as a Measure of Inequality."

Robert Caprara on Computer Climate Models

Robert J. Caprara, "Confessions of a Computer Modeler," The Wall Street Journal, July 8, 2014

Any model, including those predicting climate doom, can be tweaked to yield a desired result. I should know.

The climate debate is heating up again as business leaders, politicians and academics bombard us with the results of computer models that predict costly and dramatic changes in the years ahead. I can offer some insight into the use of computer models for public-policy debates, and a recommendation for the general public.

After earning a master's degree in environmental engineering in 1982, I spent most of the next 10 years building large-scale environmental computer models. My first job was as a consultant to the Environmental Protection Agency. I was hired to build a model to assess the impact of its Construction Grants Program, a nationwide effort in the 1970s and 1980s to upgrade sewer-treatment plants.

The computer model was huge—it analyzed every river, sewer treatment plant and drinking-water intake (the places in rivers where municipalities draw their water) in the country. I'll spare you the details, but the model showed huge gains from the program as water quality improved dramatically. By the late 1980s, however, any gains from upgrading sewer treatments would be offset by the additional pollution load coming from people who moved from on-site septic tanks to public sewers, which dump the waste into rivers. Basically the model said we had hit the point of diminishing returns.

When I presented the results to the EPA official in charge, he said that I should go back and "sharpen my pencil." I did. I reviewed assumptions, tweaked coefficients and recalibrated data. But when I reran everything the numbers didn't change much. At our next meeting he told me to run the numbers again.

After three iterations I finally blurted out, "What number are you looking for?" He didn't miss a beat: He told me that he needed to show $2 billion of benefits to get the program renewed. I finally turned enough knobs to get the answer he wanted, and everyone was happy.

Was the EPA official asking me to lie? I have to give him the benefit of the doubt and assume he believed in the value of continuing the program. (Congress ended the grants in 1990.) He certainly didn't give any indications otherwise. I also assume he understood the inherent inaccuracies of these types of models. There are no exact values for the coefficients in models such as these. There are only ranges of potential values. By moving a bunch of these parameters to one side or the other you can usually get very different results, often (surprise) in line with your initial beliefs.

I realized that my work for the EPA wasn't that of a scientist, at least in the popular imagination of what a scientist does. It was more like that of a lawyer. My job, as a modeler, was to build the best case for my client's position. The opposition will build its best case for the counter argument and ultimately the truth should prevail.

If opponents don't like what I did with the coefficients, then they should challenge them. And during my decade as an environmental consultant, I was often hired to do just that to someone else's model. But there is no denying that anyone who makes a living building computer models likely does so for the cause of advocacy, not the search for truth.

Surely the scientific community wouldn't succumb to these pressures like us money-grabbing consultants. Aren't they laboring for knowledge instead of profit? If you believe that, boy do I have a computer model to sell you.

The academic community competes for grants, tenure and recognition; consultants compete for clients. And you should understand that the lines between academia and consultancy are very blurry as many professors moonlight as consultants, authors, talking heads, etc.

Let's be clear: I am not saying this is a bad thing. The legal system is adversarial and for the most part functions well. The same is true for science. So here is my advice: Those who are convinced that humans are drastically changing the climate for the worse and those who aren't should accept and welcome a vibrant, robust back-and-forth. Let each side make its best case and trust that the truth will emerge.

Those who do believe that humans are driving climate change retort that the science is "settled" and those who don't agree are "deniers" and "flat-earthers." Even the president mocks anyone who disagrees. But I have been doing this for a long time, and the one thing I have learned is how hard it is to convince people with a computer model. The vast majority of your audience will never, ever understand the math behind it. This does not mean people are dumb. They usually have great BS detectors, and when they see one side of a debate trying to shut down the other side, they will most likely assume it has something to hide, has the weaker argument, or both.

Eventually I got out of the environmental consulting business. In the 1990s I went into a completely different industry, one that was also data intensive and I thought couldn't be nearly as controversial: health care. But that's another story.

Mr. Caprara is chief methodologist for PSKW LLC, which provides marketing programs for pharmaceutical firms.

Kling on Duncan Watts and "Scientism"

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"... social theorists are people too, and so they make the same mistakes as planners, politicians, marketers, and business strategists make, which is to dramatically underestimate the difficulty of what they are trying to do. And just like planners, politicians, and so on, no matter how many times such grand theories fail, there is always someone who thinks that it can't be that difficult... social scientists, like everyone else, participate in social life and feel as if they can understand why people do what they do simply by thinking about it. It is not surprising, therefore, that many social scientific explanations suffer from the same weaknesses—ex post facto assertions of rationality, representative individuals, special people, and correlation substituting for causation—that pervade our commonsense explanations as well." — Duncan Watts, Everything is Obvious Once You Know the Answer

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In his book Everything is Obvious,1 sociologist Duncan Watts emphasizes the mismatch between the complexity of large-scale social processes and the simple heuristics that we readily apply with excessive confidence in trying to explain and predict the behavior and interactions of individuals and groups.
 
Watts' book can be regarded as an extended argument in favor of what I might term Epistemological Skepticism about Social Phenomena, or ESSP. Those of us with ESSP believe that we should be skeptical about how much we can know with certainty in the fields known as the social sciences. We may learn things that are true for a majority of cases under specific circumstances. But we are less likely to find perfectly reliable, broadly applicable laws comparable to those found by physicists.
The opposite of believing in ESSP is what Friedrich Hayek termed "scientism." Scientism is a belief that social phenomena can be understood in a scientific manner. It is the belief that we should be able to explain and predict social outcomes on the basis of simple, powerful, verifiable universal principles.

Source: Arnold Kling, "Do We Need ESSP?" the Library of Economics and Liberty, July 7, 2014

Cochrane on the Failure of Macroeconomics

John Cochrane, The Failure of Macroeconomics, The Wall Street Journal, July 2, 2014

When models don't yield the spending policies they want, some Keynesians abandon models—but not the spending.

Output per capita fell almost 10 percentage points below trend in the 2008 recession. It has since grown at less than 1.5%, and lost more ground relative to trend. Cumulative losses are many trillions of dollars, and growing. And the latest GDP report disappoints again, declining in the first quarter.

Sclerotic growth trumps every other economic problem. Without strong growth, our children and grandchildren will not see the great rise in health and living standards that we enjoy relative to our parents and grandparents. Without growth, our government's already questionable ability to pay for health care, retirement and its debt evaporate. Without growth, the lot of the unfortunate will not improve. Without growth, U.S. military strength and our influence abroad must fade.

Prominent macroeconomists of all stripes bemoan our slow growth. Stanford's Robert Hall calls the years since 2007 "a macroeconomic disaster for the United States of a magnitude unprecedented since the Great Depression." Describing our current situation, Harvard's Larry Summers (an Obama adviser) or Princeton's Paul Krugman sound a lot like Mr. Hall, Stanford's Ed Lazear and John Taylor (both of whom served in the George W. Bush administration) or Arizona State's Ed Prescott.

Where macroeconomists differ, sharply, is on the causes of the post-recession slump and which policies might cure it. Broadly speaking, is the slump a lack of "demand," which monetary or fiscal stimulus can address, or one of structural sand-in-the gears that stimulus won't fix?

The "demand" side initially cited New Keynesian macroeconomic models. In this view, the economy requires a sharply negative real (after inflation) rate of interest. But inflation is only 2%, and the Federal Reserve cannot lower interest rates below zero. Thus the current negative 2% real rate is too high, inducing people to save too much and spend too little.

New Keynesian models have also produced attractively magical policy predictions. Government spending, even if financed by taxes, and even if completely wasted, raises GDP. Larry Summers and Berkeley's Brad DeLong write of a multiplier so large that spending generates enough taxes to pay for itself. Paul Krugman writes that even the "broken windows fallacy ceases to be a fallacy," because replacing windows "can stimulate spending and raise employment."

If you look hard at New-Keynesian models, however, this diagnosis and these policy predictions are fragile. There are many ways to generate the models' predictions for GDP, employment and inflation from their underlying assumptions about how people behave. Some predict outsize multipliers and revive the broken-window fallacy. Others generate normal policy predictions—small multipliers and costly broken windows. None produces our steady low-inflation slump as a "demand" failure.

These problems are recognized, and now academics such as Brown University's Gauti Eggertsson and Neil Mehrotra are busy tweaking the models to address them. Good. But models that someone might get to work in the future are not ready to drive trillions of dollars of public expenditure.

The reaction in policy circles to these problems is instead a full-on retreat, not just from the admirable rigor of New Keynesian modeling, but from the attempt to make economics scientific at all.

Messrs. DeLong and Summers and Johns Hopkins's Laurence Ball capture this feeling well, writing in a recent paper that "the appropriate new thinking is largely old thinking: traditional Keynesian ideas of the 1930s to 1960s." That is, from before the 1960s when Keynesian thinking was quantified, fed into computers and checked against data; and before the 1970s, when that check failed, and other economists built new and more coherent models. Paul Krugman likewise rails against "generations of economists" who are "viewing the world through a haze of equations."

Well, maybe they're right. Social sciences can go off the rails for 50 years. I think Keynesian economics did just that. But if economics is as ephemeral as philosophy or literature, then it cannot don the mantle of scientific expertise to demand trillions of public expenditure.

The climate policy establishment also wants to spend trillions of dollars, and cites scientific literature, imperfect and contentious as that literature may be. Imagine how much less persuasive they would be if they instead denied published climate science since 1975 and bemoaned climate models' "haze of equations"; if they told us to go back to the complex writings of a weather guru from the 1930s Dustbowl, as they interpret his writings. That's the current argument for fiscal stimulus.

In the alternative view, a lack of "demand" is no longer the problem. Financial observers now worry about "reach for yield" and "asset bubbles." House prices are up. Inflation is steady. The Federal Reserve evidently agrees, since it is talking about taper and exit, not more stimulus. Even super-Keynesians note that five years of slump have let physical and human capital decay, which "demand" will not quickly reverse. But we are stuck in low gear. Though unemployment rates are returning to normal, many people are not even looking for work.

Where, instead, are the problems? John Taylor, Stanford's Nick Bloom and Chicago Booth's Steve Davis see the uncertainty induced by seat-of-the-pants policy at fault. Who wants to hire, lend or invest when the next stroke of the presidential pen or Justice Department witch hunt can undo all the hard work? Ed Prescott emphasizes large distorting taxes and intrusive regulations. The University of Chicago's Casey Mulligan deconstructs the unintended disincentives of social programs. And so forth. These problems did not cause the recession. But they are worse now, and they can impede recovery and retard growth.

These views are a lot less sexy than a unicausal "demand," fixable by simple, magic-bullet policies. They require us to do the hard work of fixing the things we all agree need fixing: our tax code, our cronyist regulatory state, our welter of anticompetitive and anti-innovative protections, education, immigration, social program disincentives, and so on. They require "structural reform," not "stimulus," in policy lingo.

But congratulate all sides for emphasizing that slow growth is the burning problem—though Washington seems to have forgotten about it—and that slow growth represents a self-inflicted wound, not an inevitability to be suffered.

Mr. Cochrane is professor of finance at the University of Chicago, a senior fellow of the Hoover Institution, and an adjunct scholar of the Cato Institute.