Monday, December 26, 2011

The Myth of the Culture of Dependency

I've posted a new page which has some bearing on my last few posts.  It is a paper I'm working on, hopefully one day to be published in a magazine somewhere.  It examines the idea of the culture of dependency that informs so much of Paul Ryan's policy proposals, I can find no evidence that such a thing actually exists.  I'd appreciate feedback on it so that I can improve it further, this is an issue that I believe needs to be examined very seriously by the public and there is too little discussion or criticism of the notion.  I will probably add some additional pieces to this, I do not yet examine international data which is a big part of my critique, to name just one piece still missing.

Entitlement vs. Opportunity? How about Merit vs. Wealth?

I ended up taking a bit of a vacation from blogging, but a recent Romney op-ed has sufficiently roused my ire to provoke me to get energized again.

In this op-ed, Romney attempts to claim that there is a choice between an entitlement society and an opportunity society.  He also goes on to claim that Obama has overseen a vast expansion of government, a claim which has been sufficiently debunked elsewhere (the short form, GDP plunged and automatic stabilizers increased under existing law, Obama's additional spending has almost all been temporary spending).  He also tries to link unemployment to this alleged increase, never mind that this is a worldwide phenomenon that seems worse in countries with weak entitlements than ones with stronger stabilizers. 

My big problem with all this is I can find no empirical evidence to back up Romney's claims.  I have been doing quite a bit of research on the topic, I am strongly considering researching dependency as the topic for my PhD thesis.  I can find no evidence in aggregate statistics that any of the impacts of this alleged creation of dependency.  It is true that government programs can reduce work, but they do this as a result of effective marginal tax rates, means testing, and the difficulty of enrollment (which makes someone reluctant to get off a program because they are unsure of their ability to succeed and are unwilling to go through all the hoops again if they fail).  The solutions I've heard from those that share some of Romney's beliefs, such as Paul Ryan, strike me as tending to increase rather than decrease these problems.  Reducing government spending through more means testing and tougher enrollment programs is likely to increase the number of the hardest cases, not decrease them.  It will likely lead to lower spending, but these efforts tend to reduce the numbers of temporary users of government assistance, not the numbers of people unable to find permanent employment.  This reduction in turn leads to an actual increase in the hard core of the most deprived, people that would have been prevented from sliding into permanent dependency with a bit of help slide down too far to get back up without it.

The biggest problem with Romney's statement is that I believe it presents a false dichotomy.  Increasingly, opportunity in our society seems to depend on wealth.  If we want a merit based society, it is necessary for public programs to seek to reduce the gap in opportunity between those with wealth and those without.  The idea that there was a strict separation between opportunity based interventions and general egalitarian interventions that was once present in American politics seems to have been increasingly falsified by the evidence.  Instead, the right has abandoned the idea that government can promote opportunity and merit entirely.

This doesn't seem to fit the evidence.  Instead, we've found that egalitarian benefits programs promote opportunity.  Countries that don't means test their benefits have some tendency towards lower gaps in performance between the poor and the rest, college completion rate gaps are not as wide and income mobility is higher.  The problem isn't that of entitlements vs. opportunity, it looks to be more like that between merit and wealth.  Without state intervention, the free market presents greatly varying opportunities to individuals with different families.  Competition may be more fierce within each income bracket, and the size of the penalty for falling a notch likely  makes this competition considerably more fierce and ruthlessly sorts those in the higher income brackets, but competition between income brackets becomes far less.  Today we see people in big cities complaining about things like needing to afford private school to be middle class, this is the kind of thing that indicates that it is increasingly opportunity and not just consumption that is unequal.  Increasingly the sins of the fathers, or the merits of the fathers if you're the glass half full type, are delivered onto the sons. 

Only the very best can rise above poverty, but being not actively incompetent is enough to keep you middle class or better.  As our society becomes more complicated and the need for training ever greater it becomes more difficult for our society to sort rewards by merit rather than wealth.  It is necessary to step in to overcome relative deprivation in order to combat this inequality of opportunity, the alternative is that merit will be something that matters only to the very best who can overcome all obstacles and those that are in the broad middle will be sorted not by their merit relative to each other but only by their wealth. 

This is what I fear Romeny's ideas will lead to.  It is things like this that make me so fascinated by decadence.  Something that strikes me about most civilizations is that their problems are widely known well before their collapse.  Some sort of moral belief tends to interfere with addressing these problems.  In our case, I think the moral belief that may bring us down is the belief in dependency and trying to sort the deserving from the undeserving poor.  It is widely held, despite a severe dearth in evidence.  If we follow the rhetoric being used by Romney into actual policy, the impacts are likely to be the opposite of the intent.  This is the kind of course that can easily become a downward spiral, the increase in the social problems as a result of the policies reinforces the moral force of the arguments that originally lead to the policies leading towards ever more extreme institutionalization of the failing policies.  This makes small problems big problems, if this continues for a long enough period of time, collapse follows.  This is one way civilizations can and do fall, morality takes the place of rational policy and what should have been minor problems increase in scale and severity as a result of irrational policy.  This is why I get so worked up about this particular issue, dependency is a very compelling argument to many people, but it lacks an empirical basis.  It is combating a bogeyman, but combating this bogeyman has the potential to create real monsters.

Saturday, December 10, 2011

Has Our Work Ethic Changed?

I just can't help but respond to a rather silly post I saw on CNN.  Looking at aggregate data, I see absolutely no sign that Americans have lost their work ethic.  It is true that hours worked per worker have declined by about 100 hours since 1950, from around 1900 to around 1800, but the difference isn't that large and likely primarily reflects better labor conditions.  (OECD data, dangit, it doesn't retain the changes I made to the chart, you'll need to alter the fields yourself to see back to 1950)  Furthermore, labor participation peaked in the late 1990s, labor force participation data shows quite clearly that the state of the economy is the primary determinant of the work ethic, rather than the other way around.    Better economy, means more people work for longer hours.  The poor are particularly sensitive to this.

Looking at other data, it is complete bullshit that young people have lost their labor ethic compared to the past.  Labor force participation among the 16 to 24 year old age group has increased from 59.9% in 1950 (and 56.4% in 1960) to 65.9% in 1998 (these numbers fluctuate with opportunities for higher education as well, so are rather variable). (BLS data)

Now, it is probably true that poor kids have less opportunities to make money when young.  But this is largely because they're poor, I doubt kids in housing projects get much in the way of allowance so parents can hardly require them to do chores for money (they may of course still require you do chores, but historically, something that separates capitalist societies from pre-capitalist societies is that in capitalist societies you get something from your work, in pre-capitalist societies you work but get nothing, teaching kids to work for the sake of working, while perhaps good for teaching them to maintain a household, doesn't reinforce capitalistic market habits any more than did the labor requirements that many pre-capitalist societies that never developed capitalist markets did, there's a difference between forcing people to work for whatever you deign to give them and teaching them the benefits of work, a distinction that I think is often lost in debates regarding work ethic).  If you're in the projects, there isn't anyone with the cash to pay you 5 bucks to shovel or mow a lawn/driveway (or a yard or driveway in most cases).  So there's not much you can do to promote work unless you first raise incomes, which isn't what I think Gingrich is talking about.

Behind all this rhetoric, I see nothing but an elitist attitude that people should accept what we're damn well willing to give them. Statements like this:

Whenever I write about young people and the jobs they won't do, I hear from dozens of employers with stories of their own. The common theme in all those e-mails is that we've been too soft on our kids and haven't demanded enough from them, something we hardly notice because we've allowed illegal immigrants to pick up the slack.
Have been recorded in countless variations since Sumer.  They're all bullshit, kids these days are no worse than they were before, there are a lot of indications that they are better, harder working, and more entrepreneurial.  What has disappeared is the institutions that used to exist to justify bad behavior, 50 years ago a teenager that got knocked up would have simply been married off, today it's recognized as a social problem we won't paper over by marrying them.  Kids these days work, and work hard, kids in poor neighborhoods don't have the same good influences but they never did have them.  A kid living in a 1950s era poor rural village wouldn't have had any better influences than a kid in today's housing project, but out their in the sticks they would have been out of sight and out of mind.  The only thing that is different is poverty, and its work ethic crushing effects on people, is more visible than 50 years ago.  Moral exhortation won't do a damn thing, no matter how many anecdotes are collected advocating for firmness, because the reality isn't that things were once better, the reality is that we are more aware of the problems.  Gingrich's statements on the subject aren't some bold revelation, they're tired, worn statements of an out of touch elitist trying to dismiss real social problems as the flaws of individuals.  It's based on not understanding our history and glorifying a past that never happened while simultaneously denigrating our own times which have revealed the problem, not caused it.

There's nothing bold about these statements, they do nothing but reinforce people's prejudices while doing nothing to point towards a solution.  They distract us from the real problems we face and provide easy answers that require us to do nothing as individuals, it's all in the hands of someone else to change, usually the poor and politically weak, while justifying our own success as due to our own inner moral goodness (well, I don't hire illegal immigrants to rake my leaves, I make my kid mow the lawn for his allowance, etc. so I've already done my part and don't have to give a damn about those lazy poor kids whose parents have gone and ruined them).  The fact that variables such as work force participation can and do vary with the economy and that it differs with social programs does show that Gingrich's attitude is nothing but self-justifying.  We can do something to change these factors, they just involve us doing something rather than sitting on our hands because I have done what I could and leave it up to someone else to do the rest.

Monday, December 5, 2011

The Tension Between Competition and Community

I have unfortunately not had enough time for a detailed post.  However, I found a recent NY Times article on some of the problems with school choice interesting.  It describes how the introduction of charter schools and school choice has undermined what were before community schools.  Now, these community schools weren't necessarily great but the evidence that the new schools are better is mixed.  This has come at the cost of having kids go to school with other kids from their own neighborhood.

This ultimately, illustrates my central disagreement with American Conservative thought.  I find myself increasingly sympathetic as I grow older to the Conservative philosophy's emphasis on community.  What I find myself questioning (aside from how community is defined, who the community should work for, and some other questions) is the Conservative belief that the best way to foster community is to withdraw government and let the market work.  I'm aware of the Libertarian, and particularly Hayekian, assertion that spontaneous coordination will emerge from market interaction.

While I agree that this provides a strong theory, what I am sceptical of is whether the evidence actually supports the theoretical argument.  This is ultimately an empirical question, as the state weakens do spontaneous community organizations grow more able to deliver needed social goods.

While the groups that do exist certainly grow more influential and powerful, supporting the growth and influence of local elites, my reading of the evidence I'm acquainted with is that this notion is basically wrong.  Studies of private social services show that they exist as a complement to stay spending, they tend to increase as the role of the state does (the one big exception being private transfers, studies of poor countries show that those achieving higher market incomes give a great deal to their poorer relations, I am sceptical that this is beneficial, it should have similar work discouraging effects as government giving and it should also serve to reduce the assets of the givers making them less likely to be entrepreneurial, resulting in non-merit selection of those without poor relatives over those with poor relatives in the marketplace, leading to inefficiency and loss, government action distributes the burden more equally, and can do more to eliminate work disincentives of social programs, resulting in not only a more competitive but also a more equitable society).  The state can be thought of as providing a baseline service that private non-profits build on top of.  Where they would be overwhelmed without the state, discouraging many, with the state those with the talents and energy see themselves making a real difference (it needs to be noted that the role of the church before the state showed that this type of organization was insufficient, while the church deserves credit for what it supplied its efforts were grossly inadequate to the needs and lacking the powers of the state it often delivered its services inefficiently as well as inadequately, still they were for a long time the only game in town).

We can also look at the decay of membership organizations, like the Elk club (to name one), relative to our past.  As workforce participation has risen and people have become more mobile such groups have declined in importance.  We have become more strongly connected with markets and this has made us far more atomized than we were in the past.  Government efforts to reverse this have been grossly inadequate (and efforts by both parties have been opposed by the other) but have at least served to slow this decay.

I could give more evidence, but to some up my point this is the critical part where I differ from the Conservative movement.  I don't really buy Hayek's spontaneous coordination argument, I believe the state reinforces these efforts not competes with them and that it is the market that erodes them.  All these forms of organization decayed rapidly with modernization and marketization, while the state was expanding at the same time there is a much clearer causal explanation involving labor markets and mobility for this decay than there is for the state (exempting totalitarian states such as Germany or the Soviet Union, in a democratic society however spontaneously organized groups provide large advantages and complement rather than compete with the state).

Friday, December 2, 2011

Some Examples of Why Income Immobility is Persistent

The NY Times has a nice article on using home equity loans to start a business.  I don't have much to add, except that this shows just how much of an advantage it is to having assets to leverage.  Some potential entrepreneurs have ideas that can be started with little money, most don't.  If someone has entrepreneurial talent, but no assets, they wouldn't be able to do what these people do.

The entrepreneurship angle is a fairly small part of this, educational issues are probably far larger, but it is worth giving some examples of some concrete ways that income inequality and mobility trends tend to be self-reinforcing.  Growth in income inequality is likely to accelerate over time if market forces are left to do their work, eventually lowering growth as we move further away from a meritocratic system where the person with an idea can start a new business as they will be increasingly unable to compete with the favorable access to credit of someone with greater existing assets.  This is why these issues are so important.

This is How They Lie to You: Paul Ryan Edition Pt. 4

First, thing I'd like to mention is that I skipped substantial parts of page three of Ryan's report that I think are deceptive. This is because it is addressed more fully under the section "The Impact of Government Policy on Inequality." Rather than addressing the same facts twice I will address it all at once.

The second thing I want to bring up before moving forward are some of the implications of the change of age distribution on inequality. As I had said before, this is largely irrelevant to the inequality discussion since there should be a more or less constant number of households at various points in the income distribution meaning that the movement up or down of individual households is irrelevant to aggregate changes in income inequality (meaning that we should expect roughly proportional numbers of people to be at each stage of the life cycle during any given snapshot so increases/decreases in inequality indicate that something is happening aside from normal life cycle changes since we expect the distribution of individuals at each stage of the life cycle to be roughly constant). Now, since these proportions are not precisely similar over time, largely due to the boomers, some portion of the increase in inequality is due to this (it needs to be noted however, that the demographic shift has been larger in most other countries so the relative portion of change in inequality due to demographic shifts should be lower than the US than in other developed nations, though non-zero).

Think about this for a minute, however. The argument is that a larger portion of individuals in the US is at a later stage of the life cycle and thus wealthier. As people age, they have higher assets and income making comparisons between the top and bottom quintiles more uneven since a greater portion of the top quintile will be older (this says nothing about the 1% however, far more than 1% of the population has always been in their top earning years so this segment shouldn't change). Fair enough, but shouldn't this also mean that the median income earner should be older and closer to their peak income years?

Here's an implication of Ryan's suggestion that is not properly put into context. He addresses the fact that part of the explanation for increased income inequality is age, however, this argument necessarily implies that part of the growth in median incomes is due to age since the median income earner is closer to their peak income years. I couldn't find data for the years in questions with a quick search, this particular data I've never needed before, but what I did find with a quick look is that between 1990 and 2000 median age increased from 32.9 years to 35.3 and to 36.9 years today. The already dismal growth rate in median income for the period from 1979 to 2007 appears even worse when you take into account that, just as the increase in income inequality is in some small part due to shifting demographics, the growth of median income is in some small part due to shifting demographics as well.*

Thursday, December 1, 2011

This is How They Lie to You: Paul Ryan Edition Pt. 3

Sorry about the long delay getting this post up.  The holidays took up more time than I expected and I had some projects that needed to get done that were somewhat higher priority than the blog.  Hopefully I'll be able to push through the analysis of this report over the next few days so I can move onto other topics.  Even though I'm now discussing a report that has sunk beneath the headlines for more than a week, I still believe a detailed analysis of it is useful, perhaps even necessary.

To continue from where I left off,
In attempting to draw conclusions from the CBO study, particularly in terms of how it might inform policy prescriptions, it is useful to contextualize the analysis, acknowledging the limitations that the CBO placed on the scope of its study, as well as alternative interpretations of similar data. Recent commentary on this issue 0ften draws sharply divergent conclusions based upon legitimate differences regarding how to frame the challenge. Proper context can help advance a more informed debate on how society can best secure the natural rights of all citizens to freely pursue their happiness.
 Love the sentiments, however, I feel that Ryan obscures the context rather than casts light on it.  This sham reasonableness is a characteristic of some of the most reactionary writing of our time, such as the widely discredited Losing Ground and The Bell Curve by Charles Murray.  It's easy to convince people of good intention by stating it, repeatedly, even if the data presented shows extremely biased analysis.  That's the problem with technical language, it strips away the verbal cues we usually use to assess the honesty/dishonesty of an argument making us suckers for charts, graphs, and arguments presented reasonably, even when the argument being made is far from reasonable.

So let me explain why this argument is unreasonable.

The CBO took static snapshots of the income distribution at two different points in time, in this case 1979 and 2007. In examining these snapshots, it is clear that real income has grown significantly more for those at the upper end of the distribution than for those at the lower end over the past 30 years.

Yet the CBO concedes that the dynamism of the American economy is not properly captured by this analytical approach. It is not the case that individual households remained fixed in the income distribution over this period. The CBO readily points this out: The study “does not reflect the experience of particular households. Individual households may have moved up or down the income scale if their income rose or fell more than the average for their initial group.”

This is an important distinction, as considerable empirical evidence has made clear that there is a significant amount of movement across income quintiles over time – in other words, there is a lot of income mobility in the U.S. economy. A person working his or her way through college in a relatively low-paying job in year one, for instance, may have climbed into a much higher earnings level by year five. Comparing the low-income point in year one with that same low-income point in year five does not speak to this particular individual’s experience, because the individual has moved up over that time. As the Federal Reserve Bank of St. Louis puts it, since “incomes are not constant over time, the same households do not necessarily remain in the same income quintiles. Thus, comparing income quintiles from different years is a proverbial apples-to-oranges comparison because the households compared are at different stages in their earnings profile.”2
This point doesn't deserve much discussion.  It's obvious that a poor college kid at one point in time might be a rich hedge-fund employee five years later.  The way this is presented it sounds really useless, the snapshot doesn't capture any dynamism because a poor household one year might be next year's rich household.

But, while there is a grain of truth here I'll get to in a bit, this is ultimately deceptive.  While an individual household may progress that's largely irrelevant, this year's college graduate is replaced by a next year's freshman.  While individual households will move, they have always done so.  If every poor person were a college Freshman, I would agree there is no problem.  But this simply isn't the case, there are a lot of poor 30 somethings as well, more than there are college Freshman that are going to be bankers after they graduate.

Of course, there is a grain of truth.  The age distribution has shifted and this has contributed to income inequality to some degree.  This portion we shouldn't worry about, but it's not that big a piece of the puzzle.  Here is an animation of changes in the age distribution since 1950 (this is from Calculated Risk and goes out till 2050 since it was created for a completely different purpose, but since health care is the usual reason people make these graphs it's too time consuming to find one made specifically for my purpose here that wouldn't include the extra years).  What is deceptive here is that the Commission makes a big deal out of this factor while it's a small contributor.  Also, it needs to be noted that other countries have faced far greater changes in their age distribution than the US (Japan comes to mind) without comparable increases in inequality.  While a legitimate piece of the puzzle, it's a really small one not worth the wordcount given to it in the Commission's report.

While household income mobility is high in the United States, other studies have attempted to gauge economic mobility by looking at a different measurement. Rather than looking at the movement of individuals or households over time, these studies measure the likelihood that a child will do better than his or her parents and then compare these statistics among developed countries. According to one such study by the Economic Mobility Project, by this measurement, economic mobility is higher in other developed nations than it is in the United States.
Lets look at what a more academic paper has to say on this (Beller and Hout 2006)*:

Although the United States occupies a middle ground in international comparisons of occupational mobility, its ranking in terms of income mobility is lower. Both the United States and Great Britain have significantly less economic mobility than Canada, Finland, Sweden, Norway, and possibly Germany; and the United States may be a less economically mobile society than Great Britain. Much of the higher intergenerational elasticity in the United States is due to greater income immobility at the top and bottom of the earnings distribution; the mobility of middle earners looks more similar to that in the other countries.

Eh, I'm out of time to work on this today.  Will pick this topic up tomorrow.

*Beller, Emily and Hout, Michael. Intergenerational Social Mobility: The United States in Comparative Perspective.   The Future of Children. Vol. 16. No.2 2006.