Must-Read: Smart thoughts from Nancy Cartwright and Angus Deaton:

Nancy Cartwright and Angus Deaton: The Limitations of Randomised Controlled Trials: “A well-conducted RCT can yield a credible estimate of an ATE in one specific population, namely the ‘study population’…

…Sometimes this is enough…. Yet the study population is often not the population that we are interested in…. More generally, demonstrating that a treatment works in one situation is exceedingly weak evidence that it will work in the same way elsewhere; this is the ‘transportation’ problem: what does it take to allow us to use the results in new contexts, whether policy contexts or in the development of theory? It can only be addressed by using previous knowledge and understanding, i.e. by interpreting the RCT within some structure, the structure that, somewhat paradoxically, the RCT gets its credibility from refusing to use. If we want to go from an RCT to policy, we need to build a bridge from the RCT to the policy. No matter how rigorous or careful the RCT, if the bridge is built by a hand-waving simile that the policy context is somehow similar to the experimental context, the rigor in the trial does nothing to support a policy; in any chain of evidence, it is the weakest link that determines the overall strength of the claim, not the strongest….

We have a better chance of transporting results if we recognise the issue when designing the experiment–which itself requires the commitment to some kind of structure–and try to investigate the effects of the factors that are likely to vary elsewhere. Without a structure, without an understanding of why the effects work, we not only cannot transport, but we cannot begin to do welfare economics; just because an intervention works, and because the investigator thinks the intervention makes people better off, is no guarantee that it actually does so. Without knowing why things happen and why people do things, we run the risk of worthless casual (‘fairy story’) causal theorising, and we have given up on one of the central tasks of economics.

Why I reacted badly to journalists who asked me to analyze Trump’s economic plans. The first, last, and only correct thing to say was that there never was any coherent plan. To say anything else was to try to normalize the unnormalizable. Everyone who wrote as if there was a plan should be deeply ashamed of themselves.

Here Alan Cole gets it… less wrong than most. He is still trying to normalize the unnormalizable. But he is honest about how difficult it was for him to attempt the task:

Alan Cole: _On Twitter: “This is my 407th (and, I expect, final) day covering Donald Trump’s tax proposals for @taxfoundation…

…Here’s what we’ve learned.

Donald Trump’s initial effort at tax reform this cycle came in September 2015. My analysis showed it reducing revenues by a huge amount. We put it at a $12 trillion tax cut. At first, the campaign disputed this number. I remember this day well. https://t.co/RuxyeYLiwZ:

This came back when John McKinnon was the WSJ’s tax reporter. (Since then, he has moved to other issues and @RichardRubinDC does tax.) John was going back and forth between us and Hope Hicks, essentially transcribing an argument between me and her that lasted all day.

The initial plan was a gigantic tax cut for both the rich and the middle class, but not all narratives in September 2015 got that right. For example, Trump claimed (wrongly) that his September 2015 tax plan would cost him a fortune https://t.co/ZvpXZlQ0pB.

Note what is going on here: Alan Cole is claiming to know more about Donald Trump’s tax plan than Donald Trump. Since Donald Trump’s tax plan is presumably what Donald Trump plans to do, if Donald Trump plans to do something other than his tax plan–if Donald Trump knows that his tax plan is not what he plans to do–attempts to analyze it have already collapsed into incoherence.

It wouldn’t.

But what is “it” here? Is it Donald Trump’s tax plan, which Alan Cole know better than Donald Trump? Or is it what Donald Trump plans to do on taxes? And how, metaphysically, can what Donald Trump plans to do on taxes be different from his tax plan? If Donald Trump plans to change the tax law in ways that cost him a fortune, it what sense can his tax plan offer him a tax cut?

Simultaneously, many liberals attacked him for cutting taxes on the rich and doing nothing for the middle class, which I thought unfair.

I wrote some analysis trying to set the narrative right. The loser from the 2015 Trump plan was the US Treasury https://t.co/s2KbFgPtVw.

Needless to say, “right” here has no meaning…

Eventually the deficit number became the main story (and rightly so.) @JebBush attacked the plan in the October debate. Unfortunately in the fiscal policy part of the debate, Bush also talked about giving “a warm kiss” to Democrats, which was weird.

By 2016, @larry_kudlow was looking at ways to reduce the revenue loss from the 2015 Trump tax plan https://t.co/Obm0wnUyrT. Whispers of a new tax plan kept on happening throughout the summer, without anything concrete happening. Trial balloons were floated. In some cases, the responses to the trial balloons actually made a difference, such as here: https://t.co/y38V6c6mH2. Tax experts like @lilybatch criticized the pairing of expensing with interest deductions. Apparently this had an impact!

In the end, the campaign made expensing/interest deductibility an either/or choice, probably because of the @RichardRubinDC article. A Detroit speech, still on Trump’s website, was the main source of info on the “new” tax plan for a while. https://t.co/X1w3MjFwPH Contained in the Detroit speech was this passage, including a key pledge to a major Republican constituency: pass-through businesses:

That pledge was one of the biggest tax stories. It was promised, un-promised, re-promised, and then collapsed into confusion.

All of that came to a head on the day of the release of the new tax plan, on a Thursday in September 2016. https://t.co/GRoCF0W8Vi. I was told this, which seemed to be backed up by the website at the time, mentioning only “corporate” rate:

Email response from Trump Deputy Policy Director: “the 15 percent rate only applies to businesses that are taxed as corporations.”

Key small-biz advocates were unhappy with the development, as reported by me:

Trump just quietly walked back the single best aspect of his tax plan to save a buck http://taxfoundation.org/blog/details-donald-trump-tax-reform-plan-september-2016

But eventually the NFIB “reacted” to the plan with this statement, praising it for keeping the promise: https://t.co/iISZMAKmHv.

Further, the website changed! As noted by this “baffled-tone” tweetstorm from the time:Alan Cole added,

Richard Rubin @RichardRubinDC: Campaign site https://twitter.com/RichardRubinDC/status/776586854720163840 says 15 is for big and small that “want to retain the profits within the business.” Whoa there…

The next day, Friday, @BCAppelbaum charged hard at the story and released this piece: https://t.co/ZjB4EJryxp.

The idea of the piece: Trump wanted tax analysts to keep the price tag of the plan low, but small biz to think the promise was kept. This line of argument eventually was used by Clinton campaign officials like @genebsperling:A

Sperling alleges that they’re touting the 15% rate for passthroughs on the campaign trail, and then scaling it back “in quiet rooms.”

I had to delay my analysis throughout the weekend while I tried to figure out what was going on:

I do not have any new information about the Trump tax plan today. Thank you for your questions!

But what was going on was that nothing was going on. They were not even coherent enough to try to keep two sets of books–an NFIB-pleasing set and a deficit-hawk set. It was just incoherent…

Finally, we released our analysis with two scores of the Trump plan that we set as a sort of upper and lower bound on the policy. We never got clear answers on this: other Trump mysteries were much the same way. What happened to that money for vets? Who knows?

There were no clear answers because there was no policy…

It was easy to get wrapped up in annoyance over the passthrough issue, but I tried to give Trump praise for his bold corporate proposal:

Why, in God’s name? There is no proposal–nothing coherent. Why praise him?

In the final days of the election, the main voices on the Trump tax plan shifted from Kudlow to Peter Navarro and Wilbur Ross. Kudlow and Navarro have differences on trade, and sadly, I think Navarro won the struggle over that part of the agenda. Eventually Navarro’s views on trade became the dominant topic of discussion even at tax policy events.

But that does not mean that Navarro “won” anything. Trump could still say anything on any day without being bound by any prior statements or position papers.

Nick Riccardi @NickRiccardi: That the Trump tax discussion at Tax Policy Center is largely about trade is basically all you need to know.

This was a turning point for some prominent tax cutters. They’re about free movement of goods/services. Navarro’s views just don’t fit. Grover Norquist now spends his days tweeting about vaping. Art Laffer watches documentaries about whales(!) https://t.co/40yjysWKOZ. The feeling of detachment and discouragement among the traditional free-market coalition is pretty palpable. I’d expect a brawler-style tax cutting candidate to be Norquist/Laffer’s best friend, but he’s not. There’s a story worth telling there.

There’s still a constituency in the U.S. for free market policy for as long as supply curves slope upwards. (Spoiler alert: they do.) But Trump is not a good avatar for the free market coalition, and it’s pretty obvious if you see how free marketers are reacting to him. This is a realigning election, without doubt. It has left powerful constituencies adrift. But most of them will be back in some form.

So I expect the presidential economic policy debates in the future to be just as “interesting” as the one we’ve just lived through.

So that’s what I’ve learned in the last 407 days covering Donald Trump’s tax plans. I can’t say it was dull. Happy election day!

Still, I look at things like: “The Taxes and Growth model says that the rate reductions alone would lead to a 4.1% increase in real GDP”. And I cannot help but think: Alan Cole is being unprofessional here. He implies that there is a coherent Trump plan, and that when all its moving parts are nailed down and estimates are made the model will say it leads to a greater than 4.1% increase in real GDP. But there is no coherent Trump plan. There are no moving parts that need to fit together. There are no estimates. And there never will be any estimates.

Thus, in my view, Alan Cole served his audience badly: he was not a trustworthy information intermediary. What he should have done was gone to Kudlow and said: This is an incoherent clusterf—. I’m going to report that this is an incoherent clusterf— unless you pull it, and bring back something coherent we can estimate and score.

Alan Cole did not do that. His failure shadows all of my understanding and evaluation of his work.

Branko Milanovic: The Long Shadow of 1989: “The [Eastern European] generation born around the early 1990s, which has now reached its maturity…

…has on average a height of about 1 cm less than the previous generation…. Plummeting incomes… parental stress, alcoholism and drug abuse…. The good news is that the happiness gap between Eastern and Western Europe has closed. East Europeans are no longer systematically unhappier (in terms of self-reported happiness) than their Western counterparts…. Both the height loss and the happiness stories illustrate well the importance to people’s lives of traumatic events like the economic collapse during the transition or the Great Recession….

I read Simon Kuper’s today’s piece in the Financial Times on the diverse fortunes of Merkel, Putin, Kaczynski and Orban who were all, in different places and positions in 1989, and whose 1989 experience very much influences their today’s beliefs and policies…. What I found interesting… are two points which were very seldom found in Western press…. The first is recognition that the 1989 revolutions were essentially… revolutions of national self-determination…. Even Yeltsin’s revolution was a peculiar nationalist revolution where the core nation decided it wanted to get out of a federation…. For the other leaders, from the Baltics to the Balkans, nationalism as the main ideology was self-evident….

The second interesting point… is the… diversity of experiences…. Sizeable minorities, who either were of mixed backgrounds or had identities associated with the country that was now divvied up, were left totally unmoored…. I know of many people, myself included, who for several decades had one national identity, and then within months had to start believing they had another one…. [We] cannot… forget not only how traumatic and bloody the process was, but also how many of the newly-created countries, from Ukraine to Bosnia, remain utterly fragile and, it seems, permanently suspended over the precipice of yet another war…

Must-Read: There are two big questions for the Federal Reserve:

1. Why, if you want to tighten monetary policy, are you doing so first by raising interest rates rather than by shrinking the balance sheet?
2. Why are you so sure that your models predicting inflation rising above 2% in 2018 are superior to market expectations which see inflation as remaining below 2% into the next decade?

The first remains a mystery to me. Nobody has yet set out for me how the Federal Reserve views the relationship among its four tools of interest on reserves, the Federal Funds rate, the size of its balance sheet, and forward guidance.

I think the answer to the second is: The Fed does not think that its forecasts are superior, but does think that if inflation gets above 2% it will be unable to nudge it down without triggering a recession. This belief that attempts to nudge inflation down will fail has turned 2% from a target to a ceiling. And the FT is not a happy camper:

FT: The Prevailing Case for Caution by Central Banks: “The US Federal Reserve signalled a high likelihood that interest rates will be raised when it meets next in December…

…The markets took the Fed at its word…. The Fed’s enthusiasm for raising interest rates at all remains something of a puzzle. Growth in the real economy, both gross domestic product and the labour market, remains strong. But given the uncertainties of recent years, and historically low labour market participation in the US, the size of the output gap and the exact location of full employment are a mystery. The Fed’s preferred measure of inflation, the personal consumption expenditure deflator with energy and food prices stripped out, remains below the 2 per cent target, as do expectations of future inflation…. Across most advanced economies, the underlying picture is the same: inflation remains historically low and there are few signs of a sustained rise caused by excessive demand. Central banks should err on the side of keeping monetary policy loose.

Must-Read: Richard Mayhew: County Level Inequities in the ACA: “Health wonks like to say that the ACA is not a single program but fifty-one programs… works well in some states (California) and poorly in others (Arizona) and muddles through in most…

…This is… good… but… incomplete….  The ACA as experienced has some state level components… Medicaid… risk pool/risk adjustment… but the Exchanges are… at the zip code and county level…. Tennessee is an extreme example…. Perry County… [has] an extreme Silver gap at $97.62… a single carrier, Blue Cross and Blue Shield of Tennessee that offers two Silver plans. Roane County… a single carrier… Humana. However Humana is offering only a single Silver plan…. There is no chance of a good deal for a Silver below benchmark….

In Perry county, a 40 year old earning $25,000 a year, which is slightly more than 200% Federal Poverty Level (FPL), saves $100 a month or roughly 5% of their income because of the Silver Gap compared to the same individual in Roane County…. From a risk pool perspective, Perry County should be extremely healthy. The subsidies are rich enough that almost everyone can afford a plan even if it is a minimal Bronze plan. Roane County will see good uptake among people who earn under 150% FPL and decent uptake to 200% FPL. Above those income levels, there will be significant adverse selection as the deals just aren’t too good for healthy people, so the population will be fairly sick and expensive…. People in Perry County who are getting subsidized will see the ACA working really well. They have good, cheap health insurance.  However their cousins across the state are getting a raw deal… especially… as we move up the income scale…