Monday, December 31, 2012

Obama, A Bad Deal, and the Fiscal Cliff

There is a lot of rending of garments and gnashing of teeth, as well as criticism about Obama, among liberal pundits with regards to what we're hearing about tentative deals regarding the fiscal cliff.

I have a couple of thoughts. First, I largely agree it's a bad deal. Our current political culture and incentives probably make this necessarily so. Republicans have been pulling a bait and switch with regards to spending cuts since Obama took office, they are eager to talk about them in the abstract but refuse to vote on anything (Paul Ryan at least proposed cuts, but it is notable these weren't voted on) that would make large cuts to any major programs. They have managed to maintain public belief in large amounts of wasteful spending on programs that don't benefit anyone, while simultaneously attacking Democrats whenever Democrats propose spending controls on the three big budget busters, Medicare, Social Security, and the Defense Department. The only cuts that seem to pass is to programs to help the poor (which most analyses show increase economic growth by much higher margins than the taxes to pay for them decrease growth), and that's not where the money is at. So an impasse is somewhat necessary, everything we actually spend money on is sacrosanct in public opinion, while there remains a widespread belief that we are spending large amounts of money on things we aren't spending money on that could easily be cut.

That said, this doesn't matter very much to the current negotiation. There is no way to reach an agreement that is consistent with the public's priorities on taxing and spending, since the public is misinformed about what we spend on, so it is largely irrelevant.

What is relevant is who is going to agree to an unpopular deal and why. Here I think Obama's motivations differ from other actors. While having little control over the economy, many people do ascribe responsibility to the President for the economy's state. Given this, I think it is perfectly understandable that Obama will cave on the cliff, even if this weakens the Democrat's long term goals.

The reason is rather simple. While the odds may be low that the fiscal cliff will tip us into a major recession, there is some risk the economist's are wrong about this. We do know that austerity is bad for growth, we can' be certain that the austerity from the fiscal cliff (or austerity bomb or whatever your favored phrase is) won't be too much too soon and tip us into a self-reinforcing downward economic spiral, like the 2007-2008 recession. Since Obama likely feels a sense of responsibility for this, unlike other actors he has a strong incentive to avoid the possibility of a large downside tail risk. It may be that he is choosing a certain minor loss relative to what he should be getting given his relative negotiating position, but he is doing this because he is the individual that feels responsible for the outcome and given this, he has a responsibility to avoid even long odds on a nationwide catastrophe.

To sum up, I don't really like the deal, but given his position I think it makes perfect sense to take it. I think most any of us would if the responsibility for what happens lay with us, the small chance of a really bad outcome outweighs the certainty of a somewhat bad outcome.

Violent Media, Magic, and Homicide

One last post on gun control, I promise.

Something that always surprises me is why the contention that violent video games or movies are responsible for violence is given so much credence, both in the media and by otherwise intelligent and well grounded individuals, when there is so little data to back this belief up. The data on the subject is mixed, it would be safe to say that there is a lean in the literature towards concluding a relationship between violent media and aggression but this is a far from overwhelming lean, like we see with gun ownership and homicide/suicide.*

Even admitting this, however, the aggression correlated with video games tends to be relatively minor, hair pulling and minor scuffles among children, the link between violent media and criminal behavior is much less well established, and international correlations don't show a relationship specifically between violent video games and homicide, as with guns (state level was the best I could find). There is a stronger relationship between viewing media passively, like TV in general, and lower social capital which is associated with more violent crime. However, this relationship isn't what is being written about by those blaming violent media for violence.**

Friday, December 21, 2012

Organizing Our Thinking about Gun Control

Gun control is a topic which tends to elicit strong emotions as well as significant distortion and push back by powerful, concentrated interests. This gives the illusion of controversy where there is often none and allows a great deal of junk information to continue to circulate. Another factor is that complicating factors made analysis extremely difficult in the past, data from the 80s to mid 90s was a mess because of wild swings in homicides due to factors not bearing directly on firearms, such as disruption in the drug trade during this time period. However, over the past 10 years the data has become more stable and allowed many questions to be settled, this is not the 1990s when debates over the Brady Bill were forced to use very weak data on both sides allowing hot air to dominate over hard facts. To help sort this out, I am going to try to break out the various associated topics and address each one to the limited extent of my knowledge, I encourage you to get on Google Scholar, JStor, EBSCO, Lexis Nexus, and other sources to at least read the relevant abstracts, and papers where available, to asses my claims for yourself.

Gun Ownership and Suicides

Gun ownership has been shown to be highly correlated with suicides. There is little debate over this. Research has also shown that there is little substitution to other methods, guns make suicide easy and other methods involve significantly more pain and/or planning. Many suicide attempts are transient impulses linked to life events (estimates vary from about a third on up); the increased rate of suicide in households with firearms acts through this channel. Waiting periods have been shown to be very effective in reducing gun suicide rates. These findings hold in both US only and international comparisons.

Gun Ownership and Homicide

The link between gun ownership and homicide is also well established, though there remains well founded efforts to make this controversial and there remain many questions regarding the strength of the relationship and the influence of confounding factors. There are some observations that deserve to be made about these studies.

First of all, international comparisons show a stronger relationship than do studies that look solely within the US, this is likely due to the difficulty of controlling the flow of arms within a free trade area where gun control laws differ relative to controlling this flow across international boundaries.

There are also questions regarding calculating rates of firearms ownership. This does make any single study problematic (which is one reason I am not linking to specific studies, no one study is very compelling but look up gun ownership and homicide rates in Google Scholar and you an read the abstracts yourself) but the association between gun ownership and homicide is robust to virtually all methodologies used, though the strength of the relationship differs.

Finally, there are likely other factors at work aside from gun control, most notably the drug trade and how organized crime functions in a given country. These, and other factors, do make the data noisy, but the robustness of the link to different methodologies as well as to within country as well as international comparisons makes the link pretty definitive, even if it remains controversial.

Gun Ownership and Other Crimes

There is little relationship between gun ownership and any crime aside from homicide. Few studies find a statistically significant relationship, those that do tend towards finding an association between gun ownership and an increased rate of violent crimes that cause bodily harm, rapes and assaults, and a decrease in violent crime aimed at property, burglaries and robberies. But these associations are very weak and differ across studies. There is no evidence of a measurable deterrence effect at the population level, and studies that have tried to look at reports of guns deterring crimes tend to find that instances are vastly exaggerated relative to actual formal reports, that often defensive use of guns results from the escalation of heated arguments that likely would not have escalated without the presence of firearms (or resulted in simple fisticuffs), and property crimes that resulted in justifiable homicide, often involving insured property.

The major outlier was a well publicized paper by Lott and Mustard which found a strong association between concealed carry laws and reductions in violent crime. This paper has been widely, and repeatedly, discredited. It is criticized for a biased selection of years, other sets yield different results, for using county level data to assess state wide changes, for failing to use standardized robustness checks, and for other academic flaws including misrepresentation of the data. Most notably, no one has been able to replicate the study and its findings run contrary to other methodologies to assess gun control and parts of this study contradict well known facts about crime. The refutation of this paper does not appear to be partisan, there are academic gun control advocates who also claim strong connections between firearm ownership and non-homicide crimes, these papers have been exposed as deeply flawed as well and are also widely viewed as discredited. Since none of these papers have received anything like the strong promotion that the Lott study has received by motivated interests I will refrain from naming names.

Tuesday, December 18, 2012

Life is Not a Narrative

A recent Ezra Klein post on gun control opens,

I’ll tell you what scares me: I don’t think we know how to prevent a tragedy like the Newtown massacre. The more information that emerges on the killings, the less effective any of the potential policy remedies appear to be.

It then goes on to detail how each of the individual proposals for gun control, from assault weapon bans to better mental health care, would have done little to prevent this specific crime.

Something about this rubs me the wrong way. Specifically, it's the tendency to look at an individual's life as if it were a narrative in a novel, inevitably culminating in an earth shattering conclusion.

But real life isn't like this. Life is just one thing after another. Public policy doesn't work at the micro level by directly interrupting the chain of events that leads to the conclusion we want to change. Instead, public policy changes the context within which an action occurs.

What this means at the micro level is that any or all of these policies could have shifted the probability that Mr. Lanza took the actions he did. This is because Adam Lanza's life as experienced was not a novel culminating in his horrific action. Not to trivialize it, but if something like better mental health care was in place, perhaps this action could have been slightly delayed. Then a new game release could have captured his attention at the LAN parties he was said to attend in one article, which could have led to something else and so one, until this particular crisis was passed (it may be possible that this individual was so disturbed that a similar crisis point would have been reached in the future, however, it is also likely that several crisis points were already successfully navigated on the way to this individual attaining 20 years of age). The key element is to create space within which life can happen, the more space we create the more likely an action like this can be thwarted, with no one being the wiser. Similar things could be said about gun control, perhaps the high powered weapons in his home provided a focus of obsession, weakening this just a tiny bit could have changed things. The complexity of an individual's decision making makes it impossible to identify any particular intervention that would have prevented this, however, this complexity also means that most any intervention would have decreased the probability as the context for his decision making shifted.

The key thing to avoid here is treating these events as if they were the dominating feature of the individual's life. This is a flaw in our thinking that we apply all the time, some signature, newsworthy event dominates our perception of a public figure at the expense of that individual's much more complex and nuanced inner life. We can't prevent a tragedy by trying to use public policy as a novelistic plot device to thwart the protagonist's dominating motive; instead we create delays and obstacles that work by creating space for an individual's other priorities to dominate over the one that we want to discourage; unlike a novel individual's rarely have powerfully defining motives that overwhelm other characteristics. This is far less satisfying than the narrative we use to explain these things, but it is far more accurate to treat these things as probabilistic outcomes rather than as the outcome of a narrative.

[Alan Jacobs has a post at American Conservative talking about uncertainty in the context of this event. Where I differ from him is that I see this uncertainty as creating an opportunity for intervention in the aggregate, if not in specific cases. We have statistical evidence on factors which make these events less or more probable, and we can influence these factors. Trying to work backward as if an outcome was inevitable simply makes us powerless where we aren't. To use his example, if Israel had detected Syrian and Egyptian plans early and responded strongly, the 73 war would have been a false positive as well. What we need are policies that make actual events less likely, and this is possible]

Sunday, December 16, 2012

Fixing the Tax Codes Complexity Requires a Different Focus

Lawrence Summers has an excellent post up on the Financial Times on where the real complexity is in the tax code, what is and isn't counted as income. These are much bigger deals than the more familiar tax code debate topics, like the mortgage interest and charitable deductions (not that these are small). The estate tax is also a hugely inefficient wealth transfer between generations. I won't try to sum up the post, I strongly suggest reading it.

A Few Things on Gun Control

First of all, an article on how stricter gun control in Australia led to declining homicides and suicides.

Also, while it is true that gun control won't prevent mass assaults of the kind that recently happen here, it does seem to vastly reduce the casualties. China experienced a mass stabbing on the same day that we had a mass shooting occur in the US. A key difference is that in China, no one died, and there tends to be more wounded than fatalities in events of this type in China.

Unfortunately gun control is one of those issues where the US is deeply irrational. Gun control works, anyone denying this is either uninformed, lying, or exhibiting an extreme version of motivated reasoning. As long as we are weighing real benefits vs. imaginary benefits, like tyranny prevention, personal safety, and crime prevention (none of which firearms possession can be shown to contribute to statistically, though some people do appear to feel an increased feeling of personal security even though statistically their security declines through gun ownership) a mature conversation on this topic is impossible. For us to have an adult conversation on the topic will require that we admit the effectiveness of gun control measures, and then to decide how to weigh the public health (suicide prevention), crime prevention, and general personal safety benefits against the fact that some people have moral beliefs about the role guns play in our society and gain a feeling of personal safety from them.

Or to put it another way, gun control is a case where we are letting the moral and emotional concerns of a few prevent measurable, universally agreed upon benefits that would accrue to everyone. Maybe we believe that the concerns of these few should trump measurable benefits to the public at large, but if this is what we are doing we should admit to it, rather than continuing to repeat bullshit about guns which just isn't true.

A Monetary Model of Spending

Steve Roth has a great, simple economic model of spending and redistribution in a purely monetary economy. After reading this post, I realized that this is roughly how I've been picturing the economy for a long time. What matters is how people want to spend their money, investment is a response to human need, not some kind of heroic Galtian genius driving the economy through wise investment and sound management.

I urge you to go read the post, I won't try to reproduce it here. The major takeaway is that under this model, redistribution towards the poor leads to much faster economic growth, which matches well with the observed empirics on economic growth. Hopefully this will be developed further, the investment centric model of the economy normally employed both by economists and libertarians emphasizing the need to give high returns to individual risk takers always seemed to me to match very poorly with observed reality, though it fits really well with known biases towards motivated reasoning.

The big problem I always had with the heroic, investor centric model is that virtually any successful business plan seems to be independently arrived at by multiple people in multiple places (same goes for most major inventions, think Darwin and whats-his-name) rather than having a single origin point. That only one, or a few, of these originals survives is usually a story about uncontrollable, unforeseen complications (better known as luck) than it is a story about the superiority of one initiator over another; leading to survivorship bias. This leads me to believe that systemic factors are dominant, individual characteristics are usually secondary and non-determinative. Thinking about spending rather than investment would help align our thinking with how the world actually seems to be behaving, it is far easier to think of the great mass of consumers spending their money as a systemic factor than it is to think of investment, which generally leads to us thinking of individualistic capitalist investors rather than the systemic drivers of that investment behavior.

Friday, December 14, 2012

Elites Always Trying to Blame the Poor

The Washington Post published what I think is a rather muddled reading of the responsibility for our budget mess. I'll confess first of all that I'm not sure that non-military spending cuts would be efficient, my reading is increasingly leading me to believe that economic growth is bottom up, the constraining factor on productive investment is the business opportunities created by the disposable income of the citizenry, not the available investment income which tends to show overinvestment in most places in most periods (basically, there always seems to be a floating pool of money that people are trying to put into safe assets, like land or bonds, which there shouldn't be if there were ample opportunities to invest in increased capital investment, it seems that investors find a dearth of good customers able to pay, not a dearth of wealthy people to fund investments, but this is an aside I'll develop more in the future).

But even if you disagree with this, the Post's attempt to pin blame on Democratic resistance to spending cuts seems misplaced.

Nudging the Medicare eligibility age from 65 to 67, which President Obama supported last year? Unconscionable. Changing the way cost-of-living adjustments are calculated, which Mr. Obama also supported? Brutally unfair to veterans and seniors. Reform of Medicaid provider taxes, which liberal Senate Majority Whip Richard J. Durbin (D-Ill.) only days ago described as a “charade” used by states to jack up funding from Washington? Unthinkable, the White House now says:In fact, with the Supreme Court having struck down a facet of Mr. Obama’s Affordable Care Act involving Medicaid, nothing in that program can be touched. And, while they’re at it, put Social Security off the table, too. We’re asked to accept the mythology that, though the pension and disability program is facing ever-widening shortfalls, it isn’t contributing to the overall deficit.

First of all, it's very well established that Medicare is one of the most efficient payer of Medical services in the US, only the VA and Medicaid beat it. It makes no sense whatsoever to shift costs onto seniors to balance the budget. Aaron Carroll has a great post on the Incidental Economist on how raising the Medicare eligibility age will cost America a very significant sum of money. While there is an argument that the ACA is putting us on a long term path towards a managed insurance industry like the Netherlands or Switzerland and that it may be desirable to phase out Medicare in favor of this system, it doesn't make sense to do this as part of the budget negotiations before the ACA is even fully functioning. In 10 years it may be a great idea to look towards shifting towards a premium support system to reform the system as a whole, it is crazy to do so right now.

The other parts of the Post's argument make more sense, but have some issues. COLA changes generally involve poor current data on actual spending habits of the populations involved, this may be a good idea in the long run but do your damn homework first and start funding the bloody research before making blind cuts (a lot of government research got cut in the 90s as a result of Gingrich's priorities, I think this is a non-trivial aspect of why the conversation has devolved so much in Washington).  Medicaid provider taxes sound ok, not going to quibble with that.

But Social Security? Just, why? The projected shortfalls are well outside the 5 year window within which we can make fairly confident projections, and even well outside the 10 year window within which we can make roughly accurate guesses. For problems not hitting until the 2030s it's just daft to do more than very minor trimming today. We just don't have confidence in projections this far out, and we won't know what the priorities of the electorate will be 20 years out, this is a terrible time to make major changes. Given the increasing discrepancy in life expectancy between upper and lower incomes, and the generally less physical jobs at upper incomes, I wouldn't mind seeing some sort of cap on the maximum amount available at various age bands, but beyond minor trimming like this I don't think Social Security changes are justifiable.

Tuesday, November 27, 2012

Muddled Thinking on Small Business Taxes

I am currently taxed as an independent contractor, which while not really a small business makes up the majority of what are referred to as small businesses in political rhetoric. Having some direct experience of this is what made me look really derisively at this article from the Washington Post. Specifically, this claim:

What policymakers fail to realize is that most small business owners, who also employ most of the country’s workforce, declare their business profits on the owner’s personal income tax return and are taxed at the personal income tax rate. Given that the net income number for many will be over $250,000, the proposed tax hikes could have a dramatic effect on small businesses and the growth and hiring decisions they will make.

Another point policymakers overlook is that business owners will ultimately pass this cost on to the middle class by raising prices on goods and services, possibly triggering layoffs and stalling hiring. With the combined tax increases and the cut in spending, it equates to roughly half a trillion dollars being removed from our economy. The U.S. gross domestic product will fall, causing the U.S. to face a possible downgrade by Moody’s. If that happens, business lending will shrink to levels near or worse than those we experienced in 2008.

The technical term for this crap is bullshit. Taxes on profit only act as a cost to be passed on when assuming liquid investors comparing the investment versus a normal rate of return (not always a realistic assumption even in public corporations, and an assumption that only works if the business has the market power to do this, if it is already at the optimal price for its rate of return shifting from this can only lower net profits). This does not characterize small business owners heavily invested in illiquid assets and deriving a significant portion of that capital from their own labor. If a small business could raise its rate of return by raising prices it would have done so already, small business is competitive and can't afford to miss opportunities like this. Raising prices due to higher taxes would just result in that business losing sales and the owner possibly avoiding that tax hike through a lower net income; hardly the desired result.*

Since small businesses also face competition from other, newer, small businesses whose owners are not yet making over $250,000 net there is also no possibility of coordination; a wealthier small business owner that tried to raise prices would find themselves less competitive relative to a newer entrant still not facing the higher tax bracket.

There is also no reason to see how the tax hike could possibly impact hiring decisions, retaining 60.5% of profits vs. retaining 65% of profits from the marginal hire doesn't have any impact on whether or not that new hire is profitable at the margin. It does reduce the magnitude of the incentive, but the magnitude of the incentive only seems to matter with large swings or when relative incentives change (this does increase incentives to shift income to capital gains if the capital gains rate is not raised, but given the large existing discrepancy I believe this is largely baked in).

The rest of the article is much better when it discusses specific provisions regarding tax write offs for investment in new equipment. These provisions could be problematic. But the quoted paragraphs are the kind of ideological claptrap I come across in business books all the time whose purpose seems to be fluffing the egos of business owners rather than carefully thinking through making good business decisions. All this shows is that you don't really need to think through what is actually going on to make your business successful, all you need to do is focus on the narrow task you've set yourself rather than the wider world. Fair enough if this stuff helps sponsor entrepreneurs, but newspapers shouldn't be propagating obviously wrong, ideologically motivated nonsense.

*Alternately, this may also increase a business owners preference for tax deductible investments since the marginal cost to current consumption has become less with higher taxes. An owner may choose to spend more on creditable health care coverage or seek investments to raise long run profits to reach the former pre-tax income. The main individuals this hurts are those with highly volatile year on year income, but most business owners can shelter this money in business investments at least temporarily to smooth this; though this is a hassle no one really wants to bother with.

[Update: For clarifications sake, I am not arguing that firms generally can't pass on costs, such as the corporate tax. What I'm arguing is that passing on costs requires a degree of market power and sales volume that publicly traded corporations tend to have and small businesses tend not to. That Toyota can get away with raising the price on a Camry to reach a profitability target (and experience a trade off of market share vs. profitability with all the relevant consequences) does not mean that your local car wash or dry cleaner can do the same because the tax rate on individuals went up. This should be fairly obvious to anyone that formally studied economics and thought through the implications of the models, but I guess it gets skipped in the economics for business school courses.]

Friday, November 23, 2012

Minimum Wage vs. EITC

Trying to write from tablet so please forgive typos/grammar.

I've been mulling over a post on Am. Conservative on raising the minimum wage for a while now. My first impression is to largely agree with it. However, the problems this would cause small employers is nontrivial and I don't find Noah Millman's solution of a payroll tax cut all that convincing.

The essential problem I'm seeing is that any free market system necessarily institutionalizes so many advantages for large incumbents* that I fear this shift would primarily disadvantage newer challengers against less creative incumbents who would have advantages such as cheap financing and more short term flexibility in labor/capital tradeoffs.

A different way of achieving some, though not all, of the benefits of an increased minimum wage would be to increase the EITC, and smooth its phase out, and pay for this through increased taxation on high incomes(both corporate and individual). This strategy would reduce incumbency advantages while strengthening the position of those in weaker positions.

Thursday, November 8, 2012

The Real Problem for Republicans: Economics

There has been a lot of left wing concern trolling of Conservatives since the election. While this post will veer close to doing that, it is not my intent to ask Conservatives to jump on the bandwagon regarding some liberal issue due to demographics, cultural change, or because of fracturing coalitions.

Instead, my intent is to point out that for my generation and younger they are going to have to develop new arguments for their favored economic policies. This section of a David Frum post on health care reform brought this to my attention:

1) One of the worst things about the Democrats' plan is the method of financing: an increase in tax on high-income earners. At first that tax bites only a very small number, but the new taxes will surely be applied to larger and larger portions of the American population over time.
Republicans champion lower taxes and faster economic growth. We need to start thinking now about how to get rid of these new taxes on work, saving and investment -- if necessary by finding other sources of revenue, including carbon taxes.
I understand where this statement comes from, for anyone whose political development occurred in the 80s or 90s the link between taxes and economic growth is obvious. This is what we were taught in history and what little economics we were taught in high school, it was the mainstream view of undergraduate economics through the 90s and early 2000s, and it has become economic common wisdom.

However, for tax and national accounts economists this was by no means common wisdom for at least the past decade.* Over the past few years the field as a whole has moved away from the idea that tax cuts are strongly linked to economic growth, though economists from different fields who received their training earlier and members of certain schools of thought continue to hold out.

For younger people, or individuals that have chosen to try to do some reading on tax economics, lower taxes and faster economic growth aren't immediately linked in their minds. For the Occupy Wall Street generation lower taxes are primarily salient for increasing income inequality, economic stagnation, and a banking crash, while faster economic growth is associated with stimulus and the GM rescue. Since Obama will most likely be presiding over significant economic growth since we're finally getting to the expected years of recovery from a financial crisis, this generation is also likely to associate faster economic growth with health care expansion, bank regulation, and the consumer protection board rather than low inflation and the 86 tax reform.

If the Republicans wish to remain competitive they will need to learn to argue for lower taxes and faster economic growth as separate things. Younger people will simply not be linking these two things in their minds, if Republicans are to be the party of economic growth, which to me is the biggest single issue and the main reason I considered myself a Republican up until I observed them failing to update to the newer economic literature, they will have to actually develop an argument for why their policies will lead to faster growth rather than relying on the magic word taxes.

Wednesday, November 7, 2012

People Always Wanted Stuff

It always feels a little off sharing the truly terrible things people say, but I can't help commenting on Bill O'Reilly's little freakout last night.

Doesn't he realize when he says "Obama wins because it's not a traditional America anymore. The white establishment is the minority," "People want stuff," that traditional Americans wanted Social Security, Medicare, Medicaid, subsidized employer provided healthcare, subsidized home mortgages, the Works Progress Administration, Veteran's Pensions, Veteran's Administration health benefits, AFDC, NASA, the National Parks System, interstate highways, food stamps, and a bunch of other stuff that I could keep listing.

So why is it that all this stuff that was originally passed for the benefit of traditional Americans back in that time we refer to as traditional America is now a problem that "the white establishment is now a minority?" I'd add most of these programs weren't regarded as problematic during America's best years in mid-century, and seem to have only become problematic when demographics began to change.

Reader, I'll leave it to you to figure out a non-racist explanation for this, cause I can't.

The Most Important Winner of this Election: Data

Plenty has been written elsewhere about Nate Silver, along with other modellers and poll aggregators, so I have little to add regarding the question of which model was best or how much models added to poll aggregation.

What I do think is remarkable, however, is that the data based approach just got a very public win. This is important, I think that the social sciences took a very big hit to their public reputation with the inability of economists to predict the 2008 little-near-almost-semi-depression. I have no idea how much of a role this has played with the fantasy-land nonsense that has been infecting our politics for the last four years, but I do think it is non-negligible. One of the most important things I learned from studying politics was a healthy respect for how vulnerable the human race is to stories and thus the critical importance of keeping our eyes on the data whenever possible. Stories involving individual action, heroes grasping the true reality through their guts rather than their lying eyes, and academic villains distorting the data for their own gain are basically always false.

With this very public win, hopefully we can move back to focusing on data more and gut feeling a little less.

I have less hope that people will get a good grasp of what data can and can't add to policy, but a step towards grounding arguments in data will be a very big step forward.

Now if only Congress will stop trying to censor inconvenient facts regarding taxation, I might start believing there has been a real change.

Tuesday, November 6, 2012

A Different View from the Pews

Since I know that post-election coverage will inevitably dwell on the social-conservative religious vote, I thought I'd mention an anecdotal observation that paints a different picture.

A couple of weeks ago we were visiting my girlfriend's family near Detroit. We went to mass at their Catholic church in Detroit. The priest tastefully encouraged people to vote, including introducing a woman dressed up as Auntie Same, and emphasized that voting was important in part because in Christian doctrine, all men are important. He emphasized that this year this is especially important because of voter suppression efforts. The obvious subtext is that other people must also feel that our votes are important, if they are going to go to the effort to restrict them.

He never explicitly endorsed a candidate, which I also felt was very tasteful.

This is the side of religion and politics that is unlikely to gain widespread recognition in the press, though I fear that it is not the experience in the pews of all church attenders.

Re-election of Obama might represent a surprising and mature moment in American politics

Funny, but my favorite endorsement of Obama so far is over at American Conservative.

My favorite bits are:

In fact, the president’s re-election depends on a consensus around hard truths, the acknowledgment that immediately after the economic crisis, maybe we didn’t “deserve” to have the best years ever. Obama’s re-election, in a landscape hostile to any incumbent, would signify a certain reckoning, some actual grappling with the complexity of the crisis at hand, and a realization that neither Republican flag-waving nor sloganeering for “hope and change” are substitutes for hard choices.


At his best, Obama stands for understated stewardship and pragmatism in a time of global, structural economic shock, and in the face of a Republican opposition that hasn’t shown an interest in conservative policy outcomes. Even as a lame duck, Obama is more likely to strike a responsible deal on long-term deficit reduction, pursue a policy of restraint on Iran, address the immigration mess, and enact conservative-friendly changes to education policy and, yes, his own health care law.
Neither candidate for president offers a healthy, reality-based conservatism. But one candidate gives a fairer accounting of the realities we face. As a conservative, I opt for the familiar slog, even if it means stasis, and the “long rugged path” predicted by the current president four years ago.
The more I read this site, the more I like it. I continue to disagree on a few issues, they have a different view of the church-state relationship and in particular how individual religious autonomy should interact with large institutions, such as the Catholic church, as well as a view of debt and the role of the state that I find rather outdated. But on most other issues I tend towards either agreeing or at least feeling that they have a defensible position on the issue that I am happy to engage with on the other side.

Unlike movement Conservatism, and house Congressional Republicans,  and their tendency to censor uncomfortable truths about taxation; one of the biggest issue differences that this election will decide.

Wednesday, October 31, 2012

Texas is Trying Hard to Look Like an Authoritarian State

First, threatening election monitors. Second, there are attempts to intimidate voters trying to vote without a photo ID. Third, it arrested a Presidential candidate (Jill Stein of the Green Party, but still this is making Texas look like some central asian autocracy reminiscent of Borat's take on Kazakhstan).

My first impulse is to laugh this off, but I can't help thinking that if this happened in Mexico, Turkey, Brazil, or any other nation not fully in the developed nation inner circle that headlines would be screaming about a former democratic country falling into autocracy. My gut feeling is that this reaction is absurd, but still, I can't really think of a clear reason to worry about similar actions abroad and not at home.

Saturday, October 27, 2012

Why Is Capitalism So Efficient?

This is something that has been bouncing around in my head since reading David Graber's Debt: The First 5000 Years and Acemoglu and Robinson's Why Nations Fail. While the central themes of the books are rather different they have polar opposite takes on capitalism's impact on individuals. Graber sees debt (the parallel is imperfect here since Graber is more narrowly focused) as being rooted in exploitative practices and creating, to some degree, a form of bondage between lender and borrower that has become disconnected from other human relations. Acemoglu and Robinson, on the other hand, see the modern capitalist system as one that approaches being an open access system, instead of oppressing its participants it presents a contrast to the exploitative relationships of the past, particularly when combined with democratic political institutions.

This represents a long running divide between the far left and far right. There are two polar opposite ways of thinking about the market, on the far left it is described as having become disembedded from other social relationships, leading to alienated, exploited, and incomplete individuals. On the far right, there is the efficient markets hypothesis which holds that unfettered market interactions can maximize use of all available information to optimize outcomes.

I think both of these perspectives contains important insights. I agree with the left wing view pushed by anthropologists and sociologists, capitalism disembedded many interactions from the human context that they were previously embedded within. However, once disembedded these interactions became sufficiently simplified to allow for efficient maximization behavior. This is a key element that led to the spectacular increase in growth and human welfare.

A Simple Metaphor to Explain Austerity

I periodically see posts from left leaning economists decrying the ill effects of austerity followed by right leaning posts trying to deny that austerity is really happening because the government is spending more money.

I think a simple metaphor will serve to illustrate what I think is going on here. Imagine you are a church in the midst of the downturn. You have an extensive anti-poverty program that gives meals, retraining, and other services to the poor. Your receipts have fallen due to a great economic downturn. Your obligations have risen because you have an open door policy towards the poor.

To try to keep a balanced budget you engage in austerity measures. You don't replace some of your paid staffers when they leave. You cut down on perks like social outings for congregation members. You choose to forgo a scheduled update of the computer system as well as maintenance on the property. Small staff and volunteer perks are cut, like free lunches for volunteers. To try to meet obligations you pressure parish members for larger donations.

However, because of the growing poverty in your area and your well known open door policy the numbers of those seeking your services leads to ever higher expenses. The cost of providing so many with meals raises the food budget to unheard of levels. More parish members are asking for help with medical expenses, matching donations becomes a strain on the budget. Costs of job seeking help rise, providing transportation and other services to job seekers becomes a major drain.

On net, despite sharp cut backs in normal operating expenses and investments, the church is left with growing debt. But to any observer the church is obviously engaging in austerity, its parishioners are receiving less in the way of social activities, volunteers get less perks, and the physical infrastructure is visibly decaying. However, continuing to meet other obligations is proving very expensive and is leading to the church spending more on net.

This is essentially what is happening with most governments engaged in austerity. They have not only obligations to taxpayers and creditors but existing obligations promised by their programs. Engaging in austerity means cutting back on discretionary programs (which tend to have some of the largest positive marginal impacts, unfortunately), funds allocated to current employees, and to needed investment activities. A state engaging in this is obviously engaging in austerity. That expenses keep rising due to other obligations does not change this, though if someone believes that a smaller government sector is essential to growth than obviously austerity will seem insufficient. But that a state chooses to keep its obligations to the poor as well as its obligations to the relatively wealthy bondholders does not indicate that real austerity is occurring.* If an organization other than the state engaged in this form of austerity it would be obvious to us that it was, in fact, cutting back. It should be obvious when the state does this as well.**

Friday, October 26, 2012

Are We Belarus or Venezuala Now?

The linked article isn't quite as exciting as the top page headline of "Bring It" on FoxNews's front page, but I find it sad that a major news organization seems to celebrating Texas's intransigence towards international election monitors.

I find this section particularly disturbing:

Abbott had expressed concern that OSCE met with groups that have filed suit against voter laws in Texas -- including the ACORN-tied Project Vote. A number of left-leaning groups have challenged efforts to enact strict photo ID laws in Texas and other Republican-controlled states, claiming they're an effort to disenfranchise minority voters. Republican lawmakers say they're merely aimed at cracking down on voter fraud. 
This is positively medieval. Obviously only the authorities should be consulted regarding the authority's actions, those that have complaints to voice are obviously misguided souls unworthy of serious consideration and anyone who would give them a hearing obviously has a criminal and untrustworthy disposition as well.  Probably low born and a bastard to boot.

Is my country really sinking to these levels? Disgusting.

I Find Worker Voting Intimidation by Employers Very Disturbing

Just wanted to share this post at Lawyers, Guns, and Money. It is a listing of stories of employers threatening consequences against their employees if Obama is elected. This is a small example of how widening inequality makes the US less democratic and a clear example of how market results lead to political power and influence. I also find it more evidence that CEOs don't know a damn thing about how systemic level action effects growth, I find it highly implausible that Romney would be better for business in the long run than Obama, though it obviously seems so if you have crude, intuitive models of how the economy works in your head. No reason to expect most business owners would have anything else since they are used to acting within a given environment rather than thinking about how to construct the environment within which action takes places.

As a side note, I'd also like to note that this is a clear violation of classical liberal principles. Despite a long running propaganda campaign to reframe classical liberalism as a doctrine of unfettered markets, it is more accurately described as trying to create separate spheres within which action happens. So economic action should be distinct from political action. Since these spheres necessarily interact to some degree this is obviously a utopian vision but crude violations of it such as this show that power is increasingly weighing towards the side of strong economic actors being able to violate the separate spheres of everyone else.

Thursday, October 25, 2012

Whose on the Flat-Earth

I just read what is probably the daftest refutation of an article I have ever read. Robert Samuelson claims that a New York Times gets it wrong when the New York Times claims that government creates jobs.  This is a perfect example of what I was writing about yesterday, the upside down Marxism where there are scientific economic laws that must never be tampered with.

The Times claims:
Government does create jobs, including “teachers, police officers, firefighters, soldiers, sailors, astronauts, epidemiologists, antiterrorism agents, park rangers, diplomats. ...” There are 22 million federal, state and local workers, notes the Times.

Samuelson goes on to claim that:
Case closed, it asserts. And it’s true that, legally, government does expand employment. But economically, it doesn’t — and that’s what people usually mean when they say “government doesn’t create jobs.”
What the Times omits is the money to support all these government jobs. It must come from somewhere — generally, taxes or loans (bonds, bills). But if the people whose money is taken via taxation or borrowing had kept the money, they would have spent most or all of it on something — and that spending would have boosted employment.Job creation in the private sector is mostly a spontaneous and circular process. People buy things they need and want. Or businesses and private investors take risks by investing in new products, technologies and factories. All this spending, driven by self-interest and the profit motive, supports more jobs. In a smoothly functioning market economy, the process feeds on itself. By contrast, public-sector employment grows only when government claims some private-sector income to pay its workers. Government is not creating jobs. It’s substituting public-sector workers for private-sector workers.
This is the stupidest* thin I have read in a long time. In what possible way does the government taking money and spending it differ from an insurance company, bank, or other private business and then spending it? At worst, government job creation is no better than private job creation. Taken to its logical extension however, it is impossible to see how Samuelson's objection applies, after all, if government can't create jobs by participating in this completed loop, how can any other actor that takes money out of the system and puts it back in? Either the government is at least as good as other actors, or growth is impossible and it is all a closed loop that should exist in a static state.

However, this isn't the end of the problems with Samuelson's logic. Many jobs created by government spending are on behalf of people who are income constrained. Without government there would still be teachers, after all even as far back as Rome the wealthy were hiring tutors for their children. However, many people that are being taught today would not be being taught if it were up to market mechanisms (sure religious schools would partially fill the gap, but these never succeeded in creating universal private education before state intervention). These jobs would simply not exist if the market were not interfered with.

Perhaps the wealthy would be spending even more money if it wasn't taxed to pay for teachers for the poor, but it is impossible for me to see that we would have the same level of expenditure in the economy if the market were left to itself. I would also doubt that we would see the same level of growth or the same level of employment, not to even mention inequality. In short, looking at the education system alone, the government is simply not swapping teachers for goldsmiths; in addition to recycling the money in the same fashion the market does it provides goods for income constrained people leading to greater efficiencies and employment than could be provided through the market alone. Without this intervention income and market power would flow towards the top leaving a narrower sector to have its demands filled and thus lower overall transfers in society, leading to lower employment and growth as more money sits idle and less is spent on those that are income constrained and have more unmet demand.

This isn't even to get into other sectors that the market underinvests in like police, basic research, or fire fighters or sectors that are just more efficient if run by the state, like soldiers (absent government private armies continue to exist which can repel foreign invaders but it creates rather inefficient social dynamics). Without government spending to create jobs we would look like what most primitive economies look like, a market sector which only a narrow elite act within and a much larger subsistence sector (with some crossover into the market) which dominates most people's daily lives, think the poorer parts of Africa.

Now, it is of course true that at the margins during periods of high employment government spending can crowd out private investment, which seems to be what Samuelson is trying to get at in a very confused way,** but in reality this is the narrowly specific case, not the argument the NYT is advancing. This is the kind of stupidity that market fundamentalism gets you into, and it is just as bad as Marxism. Ideology leads people into saying things that are really stupid on the face of it, and not realizing this is so because they are so steeped in the logic of their cramped and narrow worldview.

* I generally don't like ad-hominems, but really this column is unbelievably absurd. If he hadn't packaged it as a refutation of a NYT op-ed (admittedly not a great one), and if I hadn't been writing about market fundamentalism yesterday, I probably wouldn't have bothered but this clear example of the kind of blind stupidity this kind of philosophy leads to forced me to comment. This is as daft a view as anything written by ardent communists, it makes the obviously absurd appear as obviously true to its adherents. I can't believe this guy got paid to write this drivel.

** In addition to having to assume 100% crowding out we would also have to assume strict Ricardian equivalence. To understate the case, these are not plausible assumptions.

[Update: I see someone else finds Robert Samuelson's hopeless confusion to be worth commenting on.]

Wednesday, October 24, 2012

Even Conservatives Accuse the Republican Party of Mirror-Image Marxism

Well, he calls it inverted Marxism but Mike Lofgren shares, somewhat more eloquently, a lot of the criticisms I've been making about the modern Republican party in his article "Revolt of the Rich" at the American Conservative.* Especially when he writes regarding Grover Norquist and a number of other so-called Conservatives:

They were quick to denounce as socialism any attempt to mitigate its impact on society. Yet their ideology is nothing more than an upside-down utopianism, an absolutist twin of Marxism. If millions of people’s interests get damaged in the process of implementing their ideology, it is a necessary outcome of scientific laws of economics that must never be tampered with, just as Lenin believed that his version of materialist laws were final and inexorable.

If a morally acceptable American conservatism is ever to extricate itself from a pseudo-scientific inverted Marxist economic theory, it must grasp that order, tradition, and stability are not coterminous with an uncritical worship of the Almighty Dollar, nor with obeisance to the demands of the wealthy. Conservatives need to think about the world they want: do they really desire a social Darwinist dystopia?
This pattern in their thinking, expressed by other writers as market fundamentalism (among other terms) is becoming increasingly obvious, even to those who should be fellow travelers. It is scary to see this philosophy as having a chance of winning another election, rather than being consigned to the dustbin of history which it deserves to share with its close cousin, orthodox Marxism.

*I've been liking this magazine more and more lately. I think some of what they say about debt and deficits are rather daft, and their isolationism can go a little far for my taste (I think Libya was worth it, but largely agree with Larison on Syria) but on the whole it's a perspective worth reading. Unlike National Review, which more often than not leads me to ranting about how baseless so many of its claims are. With American Conservative, I often disagree with their positions, but I feel their positions are baseless far less often.

Thursday, October 4, 2012

Why Romney Contributes to My Doubts About the Ability of Reputation Effects to Police Markets

My intent here really isn't specifically to bash Romney, but rather to observe how little potential reputation effects are altering the strategy of a man that spent most of his life at the top of the business world.

This seems to be a decent frame to me for several reasons. The Presidential race involves a great deal more information and transparency than is normally the case for most consumer product decisions in the market. Potential competitors have high incentives to distribute information about competitor's past actions and ability to adhere to promises. The impacts on a consumer of making a poor decision is potentially very large, consumers have a strong incentive to verify the accuracy of the information presented and base their judgments on past history. In addition, there is no clear price signal to induce consumers to take a gamble on one competitor over another, the decision must be made based on competing claims and the competitor's reputation.

Yet, we see no significant effort to build up a positive reputation (in the economic sense, not personal). Romney has not made any significant efforts to make credible claims (in the sense of claims he can be held to). He tries to promise everything to everyone. This is especially obvious with regards to his tax plan. It is certainly possible to lower rates for everyone, lower taxes on the middle class, keep the tax burden on the wealthy constant, and to keep this deficit neutral by eliminating deductions and credits; however, it is not possible to do this while keeping faith on earlier claims, such as a 20% rate reduction on all groups, lowering taxation on investments, and not increasing the corporate tax rate. Yet there is every sign that these inconsistencies are not hurting him.

Now, there isn't a perfect parallel between markets and an election, but it seems curious that a prominent businessman doesn't seem to be acting as if reputation effects were something that was normative for him. If markets were self-policing due to reputation effects, it is not a big jump to believe that someone that spent most of their lives in business would have internalized these norms. Instead, it seems that he feels that he can promise to act on principles with regards to tax policy, even if these principles as a whole are mutually contradictory.

Tuesday, October 2, 2012

Who is Rude Online?

An overall silly article on yahoo! regarding online rudeness led me to wondering who it is that is rude online? Most of the blogs and forums I frequent are relatively well behaved (with exceptions, of course), but then I click on the comments somewhere like the New York Times or Washington Post and see rather different behavior.

That anonymity brings out the worst in some people is so well established that I don't see it as worth commenting on anymore. However, I find it very interesting that this seems to afflict some people but not others. Are there any shared traits among those that morph into trolls once in front of a keyboard, or who just become plain rude vs. those that maintain their basic civility? Does this correlate with other anti-social behaviors that individuals usually choose to hide? I think there are a number of interesting questions regarding who it is that is showing this effect and what it might mean for other social traits. I haven't seen anything on this, but it is far more interesting to me to question why there is a variable response, and who it is that displays it, rather than that there seems to be a response.

Any thoughts?

Wednesday, September 26, 2012

Many Economists Question that Capital Taxes Should be Lower

Since I have belabored this point often in the past, I felt like I should share a link to a rather more prominent blogger on how many economists do not share the idea that capital taxes should be lower than other taxes. The post is framed as a critique of claims regarding Mitt Romney's taxes, which is something I don't really care about.

What interests me is this,

Matthews rests his case on some arguments in the literature concerning scenarios in which we both look to an infinite future horizon and we have identically situated individuals, meaning that we all have the same wealth and the same opportunity to gain income. When these assumptions are relaxed, the case for preferntial treatment of capital income becomes considerably weaker, as argued in a recent Journal of Economic Perspectives article by Peter Diamond and Emmanuel Saez, two of the most prominent public finance economists in the world.

I've mentioned this before, but had to reference fairly specialized economic literature that I couldn't link to. Having something I can share is a great improvement.

This did lead me to ponder something. In the public finance and taxation literature, it seems rather common to question the assumption about the benefits of low capital taxation, or at least to limit claims regarding those benefits. However, it remains common for economists, and even the educated public, to profess the idea that capital taxes should be lower as common knowledge.

My working explanation is based on when I was in grad school, though since I only went to a Masters degree take the following with a grain of salt. Something I heard from some professors was that graduate students were most up to date on some subjects, it just wasn't possible to keep up with everything when someone had a career and specialty to work on. My hypothesis is that many of today's academics were trained in the 80s and 90s when it was widely accepted that low rates of capital taxation were ideal. This particular specialty has moved on from those conclusions, however, those with other specialties are relatively unlikely to have kept up with a specialty not their own. This means the substantial dissent within those focused on tax policy hasn't spread widely, particularly not to economists being contacted by journalists newspaper articles.

Working hypothesis, of course, but it is interesting how an interested amateur like me can easily find references that question the common wisdom in the literature yet this doesn't trickle down to people with an actual platform to spread their views, like journalists. Of course, another explanation would be elite mobilization, those with opinions favored by elites are given a platform to spread their views, those with unfavorable views have to find work that doesn't involve disseminating their point of view.

An Excellent Diagram to Explain Behavioral Economics

A while back I got involved in a rather long discussion regarding limiting soda sizes. The basics are that how a good is presented can shape behavior, often to the benefit of the producer and detriment of the customer, partially as a result of power relationships (try going into a gas station and wanting to treat yourself to a small soda, it's rare a 12 oz. size is available). People often make choices in the short term that they dislike in the long term as a result of framing and limiting choices.

A very good graph of how this works is up at Worthwhile Canadian Initiative, which I suggest taking a look at.

I do want to quibble with one point. At the end of the post it reads:

While I am sympathetic to behavioural economics, I worry about the consequences of viewing all policies through the lens of health. Some of the best things in life are also somewhat dangerous - like swimming across a lake with only the moon and stars for company. At the same time, I want to live in a world where I'm nudged towards healthy choices - where it's easy to get around by bicycle, for example, and the university cafeteria serves reasonably nutritious meals.

Welfare economics teaches us to respect people's choices. Behavioural economics urges us to protect people from making dumb choices that they'll regret later. I don't know of any way of resolving these two views.
I have a few thoughts based on this. First of all, it makes it rather stark that standard economics is taking the revealed preference as ideal. While this makes a lot of sense for methodological concerns, it is rather philosophically weak. If you are trying to investigate whether or not the market, as currently instituted, does deliver ideal outcomes you won't get very far in that investigation if you simply take revealed preferences as your ideal starting point. It is important when thinking about economics to remember that revealed preferences are used primarily because it eases methodological investigations, philosophically, defenses of revealed preferences look a lot more like justifications than they do valid starting premises. For methodological purposes it is an ideal place to start from, and it makes optimizing choices clear. However, in the quest for the ideal it is rather limited since it creates a self-confirming loop.

Second, I do see a way of resolving the two views. Both serve as different ways of informing policy. But to decide which to use, it is necessary to recognize the importance of having different decision rules. Ultimately, this is why market economies and democracy works so well together. The market provides a space for optimizing behavior; democracy provides a different decision rule that allows other considerations to rule. Behavioral economics provides an explanation for why other considerations may influence people differently than welfare economics. Economic assumptions can simply only take you so far, after that it becomes necessary to pick up concerns that are not expressed at the moment of decision by a consumer through the price signal. The tension between the two is very healthy, it provides opposing viewpoints that can be resolved through the democratic system, rather than an elitist, optimizing and technocratic process. It is better that this tension exists to be negotiated through this means than it is to try to choose one or the other as the better view for decision making.

Tuesday, September 25, 2012

Some Thoughts on Ancient China

I was catching up on Noahpinion, and a post on Myths of Ancient China caught my eye. I strongly suggest reading it (and the comments, which contain some excellent discussion and data). First of all, I agree with the idea that long run comparisons of China with the rest of the world can be misleading, data is too uncertain and the physical landscape has changed too much.

What I'd like to add is that I strongly agree that there are flaws with a lot of the per capita GDP estimates from previous eras when used in current arguments. If your interest is solely in what the actual per capita GDP was, agricultural output is probably fairly accurate.

However, if your interest is in making a statement about the modern world, then the measure looks less adequate. Just about every history book that I've read on the subject mentions that according to both contemporary accounts and archaeological findings, there is a large variance in the material prosperity of individuals at different places in times. This and not the relatively greater contribution of agricultural resources to real per capita GDP is generally what is relevant to modern discussions which focus on access to material resources.

Agricultural resources in the pre-modern world largely fluctuated with availability of land, focusing on this gets really odd results of living standards rising when population is falling and living standards falling when population is rising and contemporaries are writing of great wealth and affluence. If the purpose is to draw comparisons about the economic system as we understand it than it is necessary to attempt to distinguish changing levels of access to goods from access to foodstuffs since these seemed to vary largely independently. Though to the person faced with a shortage, having better tools, more knick knacks in the home, and a greater variety of occupations available is likely little comfort for an empty belly. If however, the question is in regards to technological change, economic sophistication, market integration, and changing material wealth Maddison's approach is likely insufficient.

Since I've seen the supposed stagnation of pre-modern economies brought up on occasion I'm mostly just really happy to have a post by someone other than myself that addresses ancient Chinese economic history. I think it is a critically important subject to understanding actual economic changes to provide a contrast with western development, which is the used too uncritically as a sole reference point.

Now to find some blog posts on middle-eastern economic history...

Wednesday, September 19, 2012

Makers, Takers, and Marxists

By now, I'm sure that Romney's statements at a fundraiser need little further comment. However, I happened to be reading an anthropology/history book from 1982 and was struck by how the Marxist framework's use of producers and takers sounded remarkably similar. Of course, in the Marxist framework the roles are reversed, with Romney's makers being the takers of a Marxist perspective.

This made me reflect on something I've mentioned before, how much the modern right resembles a kind of mirror image Marxism. Make Marx's villains heroes, add a sprinkling of nationalism and religiosity for flavor, and you can pretty much predict what the far right appears to believe, even down to the withering away of the state. It's something I find interesting that I still believe is under-explored, but not having lived through the shifts I'm probably not the best to remark on it in detail. It's something that also frightens me, Marxist thought, while valuable for researching certain topics, really wasn't able to grapple well with material reality. There's no reason to believe its mirror image would either. However, both Marxism and its mirror image seem well able to provide emotional fulfillment for their target audience. Probably something about their shared teleology and the certainty this provides, which must provide comfort even as it makes it harder to grapple with empirical reality (I don't understand why someone would adopt a teleological viewpoint like Marxism or modern conservatism so I won't bother pretending to).

What is also interesting is that the right's ranting makes a lot more sense if you assume they're shouting at an empty chair inhabited by the ghost of a left-wing liberal circa 1980. They really did sound like that once. But somewhere along the line the left managed to learn a few things and move on past that chair on to new, better arguments. Even the left fringe sounds different today, like in the last chapter of David Graeber's otherwise excellent Debt:The First 5000 Years.

The entirety of the Presidential race is just beginning to seem like two sides talking past each other, one modern, the other stuck in a timewarp to 1980. Heck, Romney even seems to think he's running against Jimmy Carter. What worries me is that the current ideology of the right wing has a hold similarly strong to that Bolshevism held in the Soviet Union. It bears so many similar characteristics, particularly with its power to justify and explain the world on a theoretical level (and, unfortunately, with similar accuracy).

Its kinda scary to consider arguing with an empty chair might win.

Friday, September 14, 2012

Arggh!!!! How Hard is it to Look Up Facts People?!?!

I try to read news from both sides. But sometimes I get a little explosion of frustration over the unexamined assumptions that pass for conventional wisdom. Today's discontent comes from reading the National Review, particularly this piece of drivel from Thomas Sowell.

I've covered at some length the fact that there is no evidence that government assistance creates dependency. If anything, the evidence is that state supports, by increasing the rewards from work, increase employment and activity in the market sector (not surprising, since people respond more strongly to losing what they have than loss of potential gains, providing a floor, and thus something to lose, then increasing upside gains is more likely to be successful given people's psychological responses than trying to beat them until morale improves since people at rock bottom tend to just grow resigned and stay there, despite popular movie stories to the contrary).

But, there is a linked idea that receiving government handouts increase voting for the Democrats. However, a quick search for ungated papers on the subject reveals that receipt of means tested benefits (if an explanation is necessary, aid targeted at the poor rather than middle class) decreases civic participation and voting. Since assistance targeted at the poor has a stigmatizing effect, it would be a rather boneheaded move to target programs towards the poor if the goal was electoral success. While one is free to take this as another problem with the welfare state, it does contradict the idea that hand outs to the poor are meant to secure electoral success.

Sorry, but there must be another explanation.

Thursday, September 13, 2012

Seriously, More Carter Comparisons?!?!?

I don't really have many strong opinions to share on the US Presidential election so far. Most of the issues worth bringing up I have already brought up with regards to Paul Ryan months before he was a VP pick. I also can't say that I see the recent embassy attack has much worth commenting on (though I've been meaning to do a few posts contrasting Libya with Syria, I should probably get around to it).

But this Washington Post article stirred me enough to at least feel the need to point it out.

“There’s a pretty compelling story that if you had a President Romney, you’d be in a different situation,” Richard Williamson, a top Romney foreign policy adviser, said in an interview. “For the first time since Jimmy Carter, we’ve had an American ambassador assassinated.”

First, really? By what possible mechanism? Suspension of foreign aid? Sending a few ships to sit menacingly (and uselessly) off the coast? Bombing them? A stern talking to? What exactly is this unknown, but compelling, story?

Or should we be really pessimistic? Would Qaddafi still be in power and no US ambassadors on Libyan soil? That's the most plausible way to avoid this mess in alternate reality land.

Second, Carter? Sorry, but this isn't 1980. The closest parallel to that is the attack on bin Laden being compared to Carter's attempt to rescue the embassy personnel with special forces. And unlike Carter's helicopter mission, those birds flew.

This is about as forced as a narrative gets. Don't know who is advising Romney, but I'd be telling him to sweep this under the rug as soon as possible. I don't think these birds are gonna fly.

Monday, September 10, 2012

The Welfare State and Filial Duty

Something that I believe is not sufficiently acknowledged in public discourse but that is essential to understanding the function of the welfare state is that every welfare state was originally constructed when the voting block of the elderly was relatively weak. This means that large numbers of younger people necessarily had to have some incentive to be willing to pay more today, supposedly in return for some benefit. Now, it is possible that they had some future benefit in mind, but I find it hard to imagine most young people were that much more forward thinking in the 30s to 50s than they are today. Rather, there must have been some current benefit they had in mind (or they could have been far more altruistic, I find this implausible as well).

So what is this benefit? Two passages from this Economist article are instructive.

Some of the national leaders who unleashed those tiger economies would be shocked and disturbed by the development. To them the welfare state was a Western aberration that would serve only to undermine thrift, industry and filial duty. Those virtues, they argued, underpinned their economic miracles and won envious admiration abroad, not least in Western countries bent under the weight of their social obligations. That is not to say that Asia boomed in the complete absence of welfare provisions. But its arrangements took a distinctive form which Ian Holliday of Hong Kong University has termed “productivist”.
This welfare model assumed that Asia’s tightly knit families would take care of the social responsibilities its governments refused to shoulder. But asked to tutor their children, care for their parents and supplement their husband’s income, women have rebelled. The Singaporean women interviewed by Shirley Hsiao-Li Sun, a sociologist at Nanyang Technological University in Singapore, “want more direct and universal state subsidies, especially for education and health care,” she writes.
This is fine so far as it goes, but raises the question of why rebel now? These duties have been done by women as far back as we have recorded history, to stick with China, back when taxes were collected in kind (so before the Ming single whip reforms) there were separate tax requirements for the work men were engaged in, primarily grain, and women's work, such as silk. Child and elder care are central to the Confucian ethos, these are hardly new requirements.

In addition, the western social safety net came into being under similar pressures (Patterson's America's Struggle Against Poverty in the 20th Century is as good a place to start as any on the subject). Given the universality of these demands, that they occur even in system's such as China's that are not terribly responsive to public demands, and that they only seem effective at fairly high levels of development there must be something more going on here than the wealth effect.

Tuesday, September 4, 2012

Some Thoughts on "Why Nations Fail"

I recently finished Acemoglu and Robinson's Why Nations Fail. I also recently finished Graeber's Debt: The First 5000 Years (more on that later).

My reaction was similar to Fukuyama's (response from Acemoglu and Robinson).

I'd just like to add a few things.

First of all, the bit on Rome I found unconvincing. Building on what Fukuyama already said, it is also possible to look at the transition from Republic to Empire as being a result of new economic realities and creative destruction. Arguably, the "new men," such as Cicero, had interests in businesses different from those of the old Senatorial class and particularly in different areas, outside of the immediate area of Rome and out in the provinces. While the Roman Constitution gave at least some rights to those within Rome itself, it did a very poor job of representing the interests of provincials; the Imperial system may have provided more access.

This raises some important questions regarding putting inclusiveness on an axis. Can it really be represented this way, or are the questions of who is represented, to what extant, and how separate questions? For the Roman case, which was more inclusive; a system that opened elections (to some extent) to many different economic levels but was dominated by a largely closed class of aristocrats and excluded those that could not be present in the city itself, or a system that granted access to the elites throughout the provinces, providing at least some access to the provincials in those provinces, even if less access for all economic groups within the capital itself? How much did representation by tribes matter? How much does indirect vs. direct representation matter for putting a society on this access? I'm not convinced we can meaningfully get policy recommendations or enhance our understanding along such an undefined axis.

Friday, August 31, 2012

Paul Ryan is Lying, Like Always

As my readers know, I have been bashing Paul Ryan for about a year now. I find just about everything he has promoted to be tendentious at best, but more usually mendacious.

This time however, I don't have to go back and do a line by line take down of his most recent contribution to our public debate. Ezra Klein has done that for us, along with Dylan Mathews.

From Mathews piece we get:

The True:
Obama cut Medicare
Obama didn't solve the housing crisis

The False:
A GM plant in Ryan's district shut down on Obama's watch
The stimulus was the biggest expenditure in US history
The affordable care act increases taxes on millions of small businesses
The stimulus was full of fraud
The Affordable Care Act was a government takeover
Obama doesn't have a debt plan

The Misleading:
Obama didn't support the Bowles-Simpson report
Obama caused the debt downgrade
Obama added more to the deficit than any other President

Ezra Klein then says, "after rereading Ryan’s speech, I went back to Sarah Palin’s 2008 convention address. Perhaps, I thought, this is how these speeches always are. But Palin’s criticisms, agree or disagree, held up."

 Followed by,:

Quite simply, the Romney campaign isn’t adhering to the minimum standards required for a real policy conversation. Even if you bend over backward to be generous to them — as the Tax Policy Center did when they granted the Romney campaign a slew of essentially impossible premises in order to evaluate their tax plan — you often find yourself forced into the same conclusion: This doesn’t add up, this doesn’t have enough details to be evaluated, or this isn’t true.
I don’t like that conclusion. It doesn’t look “fair” when you say that. We’ve been conditioned to want to give both sides relatively equal praise and blame, and the fact of the matter is, I would like to give both sides relatively equal praise and blame. I’d personally feel better if our coverage didn’t look so lopsided. But first the campaigns have to be relatively equal. So far in this campaign, you can look fair, or you can be fair, but you can’t be both.

This should have been obvious as soon as Paul Ryan was picked for VP, if not sooner. It is obvious from anything more than a cursory glance that the world view espoused in any of his documents is detached from any kind of a grounding in empirical reality or recent research (sure, the tax recommendations follow Feldstein's groundbreaking 1980s paper on the subject, but computer analysis of the effects of taxes have come a very long way since then and show many of those initial conclusions to be based on standard Keynesian multipliers and the effect of recessions on revenue). It is an expression of how they wish the world would be and the kind of opponents they wished they had, not the world of actual soil, water, and air or their flesh and blood opponents. This election comes down to one party dealing with some kind of ivory-tower reality composed of Platonic forms and another party trying to deal with the dirt and grime of the everyday, though that party shows the flabbiness that comes from their ideas not going through the tempering fire of critique and competition. But at least those weak, flabby ideas are composed of more than ether and faerie-dust. We need to have a real conversation to get through our current problems, and the current political dynamic is preventing that from happening.

Thursday, August 30, 2012

Democrats as the Party of Austerity

A rather interesting post over at Crooked Timber argues that the Democratic Party has become the party of austerity and that the Republicans have become the wild, irresponsible kids. This is leading to a reversal of electoral fortunes, where before the Republicans were the mature party of sober thought and hence largely lost elections they have now become drug pushers handing out samples of addictive tax cuts at every opportunity (my words, not the linked post) while the Democrats are the sober minded party trying to deal with our problems in a balanced sustainable way, and are suffering the electoral consequence for simply not giving away things without paying for them.

An Economist Article on Obama I Really Didn't Like

The Economist remains my favorite news magazine. However, sometimes their need to cater to their main audience of wealthy business owners overwhelms their common sense.

This article really rubbed me the wrong way (an earlier article on the origins of money that gave outsize attention to the 19th century economist Menger and none to Graeber and little to the multiple other accounts of the origins of money did as well). Its main thesis I find fair, Obama really does need to make a case for his vision of the next four years rather than just pointing out that it could have been worse. However, since this is a British magazine I feel they should at least acknowledge the comparative international picture, the US is doing better than every other comparable economy (China, while large, is still undergoing catch up growth so isn't directly comparable, even they have seen substantial slowdown). It is hard to think this doesn't have something to do with Obama's leadership, though I grant it is about as convincing to the American electorate as a whole as an endorsement from my pet cat would be.

I have a few major problems. First, I disagree that American standing in the Muslim world is as low as it was under George Bush. They asked us to bomb a Muslim nation for Chrissakes, I couldn't imagine the Arab League endorsing another military adventure by the United States under the Bush administration. There certainly remains a lot of room for improvement, but our influence is certainly stronger than it has been in a long time; although newer regimes will inevitably be more difficult to work with than the older, authoritarian regimes were.

I also object to Paul Ryan being called a fount of bold ideas. To quote Ezra Klein, "it's much more courageous to propose taxes on the rich and powerful than spending cuts on the poor and disabled." There is nothing bold about Paul Ryan's ideas, they amount to buck passing to the states or to private charities and families (and for private charities and families there is a lot of research on the third world that shows these institutions are vastly less efficient than state sponsored programs, it's not a bold, untried area, these are well known and understood features of third world stagnation, though those specializing in developed economies are rarely even superficially conversant with this literature) along with a bunch of hand waving regarding the details. Just because the man is personally compelling doesn't mean his ideas are.

I also just have to say I hate the term radical center. As has been repeated ad nauseum, health care reform is basically RomneyCare, it was a right wing idea that was meant to counter left wing health care reform proposals. Given this, what other policies exactly will remain in the radical center once Obama endorses them? Wouldn't they then become labeled left wing socialist policies, which has so far been the result of Obama endorsing much anything? I found the ending two paragraphs entirely bone-headed, since Bill Clinton the Democrats have entirely endorsed pro-business objectives and the idea that economic growth and making the market work for individuals is essential to our nation. What radical center is there left to embrace that they don't already? Just because they refuse to endorse empirically unsupported notions regarding taxation of high incomes or unregulated finance doesn't mean they are anti-business. And pointing out the fact that individual merit tends to be a second order consideration in the success of business relative to structural factors is simply being realistic, even if it offends business people who like to stroke each others egos.

Wednesday, August 29, 2012

Rice's Speech at the RNC

I'm just really not liking her speech at all. Reminding me of everything that was wrong with the Bush administration's foreign policy. Also reminding me of how I felt that she reoriented State to support the military too much rather than being a separate track.

Whatever happened to Colin Powell? He was a real Secretary of State that really understood diplomacy's role. Rice always bought into the militarism too much, and it is really coming out in this speech.

Update: I felt the need to add that I liked the speech much more once she moved off foreign affairs. However, I feel that the Bush administration's emphasis on unconstrained, unilateral action was one of the biggest disasters for US policy, not just foreign policy, of the post-war period and seriously undermined our former advantage in using multilateral institutions to leverage our interests without high expenditure.

I also feel that the attitude expressed towards China was juvenile, at best (not that I feel the Democratic positions is any better). The trade bit really galled me, we are one of the most open of the large trading nations, China one of the most closed. It's rather easy for China to engage in trade treaties that improve on its current, very poor, trade openness. It is much more difficult for us to do the same, what remains to be ironed out for us are very difficult international areas, like intellectual property law, or are narrow trade barriers involving very powerful sectors either here in the US or in our potential treaty partner.

Of course, like most convention speeches the trade bit was really meaningless posturing, what really grated on me was that it came after a long section of the speech that reeked strongly of unilateralist thinking.

Stark Choices vs. Real Choices

Reading over this Economist piece on how inscrutable Romney's real views are and how his stated ideas have transformed since he was Governor of Massachusetts has made me reflect on how we're not having a real discussion of the problems facing this country (while this article inspired these thoughts, the rest of this post doesn't draw from the article much). Basically, I see the GOP mostly denying the inevitability of various challenges and the Democratic party's proposals showing the sloppiness that comes from their ideas not having any competing ideas that address the underlying challenge.

This is most obvious with climate change. The science is growing increasingly undeniable yet our political system refuses to grapple with it. The GOP largely denies that we should take action, while Democratic ideas are not exactly inspired.

But why should they be? Those ideas aren't going through the kind of competitive process that results in good ideas, instead all we have is two partisan sides shouting at each other about the reality of the problem, rather than about how we can address it. The big problem here is that there are many different approaches we could be taking, there is more than enough room for two parties to distinguish themselves from each other by proposing competing solutions. It is frustrating that we're not having this discussion.

The next major point is on how to deal with the inevitable growth of the state that comes with a shifting dependency ratio. I phrase the growing spending this way intentionally, there is no plausible way the state will not grow with shifting demographics.* The GOP mission to shrink the size of the state is denialism at its worst. This is unfortunate, our shifting demographics are going to put great strain on our political institutions, our economy, and on our communities. How we deal with this shift will play a significant part in deciding how economically successful our country is, how we can maintain our international leadership, and what kind of society we want to live in. Buck passing, by simply shifting responsibility to the states or community organizations through vouchers that don't keep up with inflation is just a way of ignoring an inconvenient reality. We need to accept the inevitability of the fiscal shift, though acknowledging this shift is potentially transient as demographics shift again in 20-30 years, then get on with the hard work of deciding how we want to deal with this as a nation. I find weak proposals on one side and outright denialism on the other a rather poor way forward.

The last is that taxes have to rise. This is separate from the size of the state since taxes have to rise even if expenditure is cut. There is a really good debate to be had here over which taxes will rise how much and how they will be distributed. But that is not the debate we're having. Both sides want to cut taxes, for only most people on the left vs. everyone on the right, but this is just fantasy. In this case both sides are in denialism, but the simple arithmetic says there is a conversation here we're going to have to have even though nobody wants to have it.

At the end of this little piece I find myself thinking that politics should be a lot more like an uncomfortable family conversation around the dinner table than it is now.

*I am exaggerating only slightly. Canada and Australia will likely be able maintain the size of their state at roughly the size of ours without radical changes (Japan likely will as well, but its economic challenges don't make it a very appealing model). The key difference here is lower military spending, state spending likely only has to increase a few percent to be sustainable, it would be possible to shrink the American security state (not just military but domestic security, such as the prison system, as well) to pay for inevitable increases in social spending thus keeping overall expenditure near current levels (I expect Canada's and Australia's to increase, but their model is more successful at controlling health care costs and other social expenditures than our system, and Australia has lower spending than we do, though social expenditure is higher in both). I find this scenario rather more implausible than I find the scenario of a small growth in total state expenditure.