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.