Tuesday, September 20, 2011

Beware of pundits bearing ADA arguments

Reading Paul Krugman (more a cumulative effect than any particular post) has gotten me thinking about how ADA arguments have come to dominate much of the Euro debate. ADA arguments (let me know if you have a better name) follow an Aggregate-Disaggregate-Aggregate pattern. Here's the classic example:

I. Ominous statement about Social Security and Medicare;

II. Frightening statistic about Medicare;

III. Draconian changes for Social Security and Medicare.

The troubling statistic never applied in any way to Social Security. It invariably referred to some aspect of Medicare that was completely different from the first program but those not listening carefully could easily come away with the impression that the statistic applied to both.

Now the most common example is the PIGS Austerity argument which goes like this:

I. Portugal, Ireland, Greece and Spain are in trouble;

II. Greece engaged in profligate spending and ran up a huge deficit;

III. Portugal, Ireland, Greece and Spain need to slash spending immediately.

In a way, Greece makes an even better D in the ADA than Medicare does. Both entitlement programs do, at least, share some common troubles (though not to comparable degrees). With PIGS, two of the countries were actually recognized models of fiscal restraint, displaying the exact opposite of the behavior that got Greece into trouble, but through the magic of ADA, a large portion of the pundit class is now convinced that all four countries partied their way to ruin.

1 comment:

  1. To comment somewhat more deeply on Ireland (as I am Irish), the irish problem arose from a property boom which was stoked further by low euro interest rates, and an overdependence on sale taxes on property to fund the government. This (once off) money was then put into extra wages for public servants and tax decreases, which caused a lot of problems when the property boom collapsed.

    Then, the government decided to guarentee all banking debts and one of those banks (Anglo Irish) was completely insolvent, which meant that the EU refused to allow the money to be put into it to be treated as an investment, adding 20 billion to the debt in one year, thus spooking the bond markets and triggering IMF/EU intervention.