A Short Summary of Why We Can't Have Nice Things in this Country

Bruce Bartlett has a rather good post up at Economix about wealth and political economy. The part I want to point out is this:

Conservatives and libertarians generally do not believe that increased inequality is a political or economic problem. To a large extent, I think that is because they fear that acknowledging the problem would require the adoption of policies they find distasteful, immoral and economically counterproductive.
That is, income and wealth would have to be redistributed — taken via taxation from the wealthy and given to the poor. The higher taxes will reduce the incentive to work, save and invest among the wealthy, conservatives and libertarians believe, which will reduce economic growth and lead to the expatriation of the wealthy from the United States, while fostering a culture of dependency among the poor that will reduce their incentive to better themselves and escape poverty.

I see two big problems with this. First of all, there is growing evidence that inequality does cause economic problems and rather strong evidence that inequality matters a great deal for political problem.

The second big issue is that there is little evidence for any of the problems with redistribution mentioned (not that I don't see problems for individual redistributionist policies; I just don't believe any of the specific ones mentioned exist at any extent observable in aggregate economic evidence, while individuals may be motivated in this fashion, in aggregate, countervailing effects of the same policies overwhelm this). While there is a great deal of evidence for the wealthy shifting categories of income in response to taxes (reclassifying wages as capital income, shifting between investment categories, regular savings vs. retirement, etc.) there is little evidence of a strong income effect at high wages (though income effects can be powerful lower down the wage scale).* Expatriation pretty much doesn't happen beyond movie and sports stars (see France). And I've written a little bit about the notion of a culture of dependency, I see no evidence for it (though the idea of it is present in virtually all elites, from Confucian China to the medieval west, to the Paul Ryan; that the idea is so convenient and self-serving for the wealthy is explanation enough for its existence).

As Bruce Bartlett goes on to mention, the Founding Fathers certainly did believe there was a real threat that democracy would lead to [edit:widespread, endemic expropriation hat tip: jtf for correcting me]. However, there is no evidence they were right about this. It hasn't happened in any electoral democracy (it has occurred in a number of authoritarian states without the people's consent, but I can't think of a regime that could even generously be described as democratic that has approached widespread expropriation for any non-wingnut value of expropriation).

While there are a lot of good reasons to not like the policies proposed by Democrats, these are different reasons than those cited by Conservatives. Bruce Bartlett goes on to mention several ways of assuaging these concerns, but since the concerns are imaginary I don't see how these proposals would make policy better. As long as we're trying to solve the imaginary problems, while leaving the real problems left unsaid, we're not going to have nice things any time soon.

Getting Married!!!!!

Don't normally share too many personal details, but this is big enough to make an exception.

The engagement ring. The stone has been in the family for a very long time and the ring is exactly what she likes. Perfect combination.

Newspaper Coverage of American STEM Workers

Just a quick post on something I find odd. The Washington Post wrote a story on the Economic Policy Institute's study on STEM workers. It contains a fair amount of information but it never explicitly mentions that a motive for the push for more H-1B visas might be to lower the wages for these workers, though it's an obvious implication of increased competition. Surprisingly, enough, however, the Wall Street Journal does make explicit that companies are using the H-1B to drive down wages and that talk of a shortage is little more than a way to protect this dynamic.

I don't have anything to add, I just found it a curious example of how much coverage of the same story can differ. The Washington Post did strongly hint at the implication, without really making it explicit. Yet, the generally more right wing paper did bring it up directly. Curious.

To add at least some real content it's worth mentioning the tangential topic of how strongly the US restricts competition in high skill jobs compared to low skill. While the H-1B program does allow some competition, many other fields, health care related in particular, face little competition. This is something we need to pay more attention to, though even if recognized its hard to see how eroding the wages of the few wage earners still getting good money will help much of anything. The deeper problem is the increasing shift towards capital income, which is terrible for the long term prospects of society (and entirely tangential).

Competition, Choice and Health Insruance

Came across this chart on efficient selections and number of different plan options, found it interesting. I am drinking so I am not going to write much. Basically, more choices lead to worse outcomes.  However, I always find it fascinating when I see a concrete and accessible example of more choices  to worse outcomes (in a less controlled environment a freer market is generally seen as being more choices and assumed to lead to better outcomes). Observationally, I find this unsurprising; I see it happen all the time. Conceptually, however, I know a lot of people have problems wrapping their heads around this kind of thing. We need better conceptions of choice and economic reasoning.

Disability and Unemployment

I've been wanting to a write a deep post on this with some real numbers but haven't had the time. Still don't.

But given that there are a few memes floating around about how rising use of social programs is leading to a lower employment to population ratio I feel I need to say something.

Nowadays, with the Americans with Disabilities Act and a greater acceptance of disability in general the notion that Social Security Disability Insurance should be for those completely unable to work is completely outdated since we now know that there is virtually no one so disabled that they can't work. I've known people with very severe physical and mental disabilities that are able to engage in gainful employment. I know of people paralyzed from the neck down that have had paid jobs. There is no one that can't work.

However, our society creates a very limited number of jobs that these people can be hired for. And yes, I said society because our economy produces a vastly larger number of jobs that people with disabilities could do but our society has not caught up with this. So when you see unemployment and disability both increasing at the same time this is because companies are less willing to take a chance on a disabled person than they were in the past forcing people onto disability. And being on disability sucks, a lot. These programs are punitive. Very few people with a choice will be on these programs.

But I never see any of this brought up in these discussions. These issues aren't that hard to think through, but it does require to bother thinking about them. Few people do.

The Mortgage Interest Deduction Doesn't Pass the Smell Test

This of course isn't news, but I think it's worth reminding people of now and then. Jared Bernstein's On the Economy has a nice post on it, click through to the graph. Here's a taste (his criteria are a little more complex then my suggestion of just thinking about deductions as checks cut by the government, but it makes sense too):

The MID is widely believed to subsidize home purchases that would mostly have been made anyway, so it scores high on the inefficiency criterion.  And since it costs the Treasury about $70 billion a year in forgone revenue, it’s expensive.  As the figure shows, it’s distributionally upside down, so it scores no higher on fairness.   In fact, it’s a trifecta loser on my three original criteria.  Of course, once if you add in political feasibility, it’s a much tougher call, though Fischer points out that numerous analysts have proposed reforms that mend the MID without ending it.

Not that I see any changes being made any time soon. I hear adds supporting the deduction rather frequently on the radio when I check traffic in the morning (and Detroit is probably about the last place that needs the deduction, what we need are more generous and stable rent subsidies given the uncertainty of unemployment for many folks around here). I also here incessantly from lowers at BNIs and other networking groups about events to show support for this deduction and other inefficient housing policies. Supporters of this terrible policy are very well organized and it doesn't help that I've talked to an awful lot of intelligent, educated people who believe buying a house is essential to "stop throwing money away."*