The Budget is Not an Appropriate Place to Try and Solve All the Country's Problems

The Washington Post's coverage of the budget, the debt, and the deficit has been overall pretty terrible, once you exclude Wonkblog at any rate.

A couple of posts today particularly stood out for for their awfulness.

First of all, the editorial board posted an editorial that hits some good points but really falls down hard in a couple of places.

The real doozy was this:

It is on the issue of entitlements that the Democrats’ document really disappoints. There is literally nothing — not a word — suggestive of trimming Social Security, whether through greater means-testing, a more realistic inflation adjustment or reforming disability benefits. The document’s fuzzy call for $275 billion in “health savings” is $125 billion less than the number President Obama has floated.

Does anyone recall that just a few years ago we spent a rather large amount of legislative time on health care reform? Does anyone really think that Social Security reform should use less time? Isn't it just as sensitive of a topic? Why in the world should this be done in a budget? Sure, Ryan's budget tries to do this, but that seems evidence against this approach rather than for. And nevermind that most economists seem to think that Social Security is basically in balance with only some minor adjustments needed. While minor, given how important this program is it deserves its own debate. As for health care, same thing. Remember PPACA? If we're going to fix health spending that was just the tip of the iceberg. The Democrats deserve points for separating this from the general budget, they shouldn't be berated for exercising common sense.

Employers Violation of Individual Privacy

Something I find bizarre is that Americans tend to accept impositions placed upon us by businesses but we scream bloody murder at impositions made upon us by government.

I was reflecting on this recently when my new job required rather typical employment screening, namely drug screens and a criminal background check. Now, this didn't really inconvenience me personally, my records free and I have no desire to do drugs, but it struck me as something that a business really shouldn't have any right to do.

On a really crude level we can introduce a lot of blather about free contract to justify this. However, realistically, if I did decide to object to this I can simply expect exactly the same treatment from any other employer. If my talents don't tend towards self-employment, and the majority of people's talents don't, this gives any employer practice the potential to be coercive; especially if it becomes standard practice.

How is this coercion, with the threat of unemployment, justifiable? I can see a narrow business need argument, if a position required me to be on call at any time or I was guilty of a crime that raised particular concerns for that position (or something like theft or fraud from a previous employer) but even within these lines why is an employer's right to gather this information unlimited? This isn't even getting into nonsense like firing someone for what they have on their Facebook page or firing a teacher for a previous job in adult film (heard this on morning radio; employer's certainly shouldn't have a right to discriminate based on previous employment).

The rights we permit employers in this country seem to me absurd on their face. They completely ignore power relationships implicit in the employee-employer relationship. Employers should have no right to care what I do in my free time, nor should they have any right to inquire into my past beyond what is directly pertinent to my job. Regarding criminal background checks, at a minimum businesses should be restricted to inquiring into specific criminal charges that are pertinent to the job (like fraud or theft from a previous employer) and even then, since people change there should be a limit on how far back they can go. Drug testing should also be limited, why do we permit this indignity as a matter of course for getting a job? If someone's performance suffers they can be fired for that; a separate test regarding drugs should be out of bounds.

I've heard even more absurd impositions from hospitals and admitting practices. Things like invasive inquiries about personal life, such as marriage status and other bits of personal information. What gives them the right?

Why do we not object to this but we freak out about criminal background checks on firearms? It's crazy.

I'll probably write letters to my representatives and the consumer protection bureau. I don't think it will do anything but I think we have an obligation to speak up against injustice.

The Tax Subsidy Smell Test

Thinking about tax advantaged retirement accounts has led me to ponder what is a quick and easy way to communicate why these, and other tax subsidy programs, rub me the wrong way.

I think a simple test is to think about these as straight subsidies. What if the program simply cut you a check instead of reducing your taxable income? Both would have an equivalent impact on deficits and the debt (well, to a rounding error since the withholding would apply at a different time than the check).

With a 401k what we'd have is many poorer people receiving no check at all, middle income people receiving small checks, and very wealthy people receiving rather large checks every year. Not only that but if someone makes $30,000 a year and puts $5000 into their 401k they'd receive a check at the end of the year for $750 while someone making $500,000 a year that puts in the same $5000 (they're not very financially savvy despite their income) would receive a check for $1980 (using income tax figures only for easy math).

Is this really the best way for the US government to spend its money?

If we're not comfortable with how a tax advantage would work as a direct subsidy, perhaps we should question the existence of that tax deduction (home mortgage deduction would look just as awful, if not worse).

Some 401k Links

401ks have recently been a subject of interest to me. In particular, while I love the program conceptually, using a Federal tax benefit seems like a great way to leverage private dollars, increase the income security of seniors, provide low cost financing to US corporations, and provide individuals greater control of their financial assets all at the same time, it seems to have failed to achieve all of these goals.

Now, something I've said more than once is that properly doing social science means paying attention to observations and not getting led astray through deductive reasoning from shaky priors. In the case of 401ks, no matter how rock solid they seem conceptually there seems to be little data that people are actually behaving as predicted. Not being an economist I'm not going to investigate this at length but I'll be posting links as I come across them to back up this argument. Reading more on the topic is what has led me from being a big fan of the program, it seemed like a great way to change people's habits and lead to more efficient outcomes in the abstract, to feeling that it is a regressive waste of Federal money that hurts the poor and benefits primarily the well off.

This isn't to say that a different forced savings program that involved private accounts wouldn't work, that's a separate subject, just that programs structured like the current 401k don't seem to achieve the results that justify this tax preference.

[For now, this is crude and unsorted; pretty much anything I could find in places I usually look. I'll organize and update it later.]

http://www.theatlantic.com/business/archive/2012/11/the-401k-is-a-240-billion-waste/265593/#

http://blogs.reuters.com/felix-salmon/2013/03/13/counterparties-retiring-the-401k/

http://www.usatoday.com/story/opinion/2013/02/05/social-security-retirement-benefits-column/1891155/

http://www.nakedcapitalism.com/2013/03/lynn-parramore-everything-youve-been-told-about-personal-finance-is-dead-wrong-heres-the-truth.html

http://www.cepr.net/index.php/blogs/beat-the-press/morning-edition-doesnt-know-about-financial-service-fees

http://www.forbes.com/forbes/2010/0118/investing-walmart-retirement-401k-paying-retail.html

http://baselinescenario.com/2012/08/06/bad-advice/

http://baselinescenario.com/2010/02/16/wal-mart-paying-retail/


http://www.motherjones.com/mojo/2009/10/ugly-truth-about-401ks

http://www.epi.org/publication/why_we_need_retirement_usa/

http://www.time.com/time/magazine/article/0,9171,1929233,00.html

Thinking About the Size of Government

Back in ancient times, when the public good wasn't really seen as part of the role of government, it went without saying that the extraction of income by private individuals with the blessing of the government was part of the revenue of government (even if it ended up in private coffers). Tax farmers, private customs officials, feudal lords, military contractors, and other parasites were obviously seen as being a part of the government even though they often acted primarily in a private role simply having bribed the government with a payment or loan in return for the right to extract rents from people just trying to get by in their day to day lives.

Today, however, it seems that we are supposed to believe that government is only whatever is on book and on budget. Outsourcing government function to the private sector is "privatization," not an expansion of the public sector. But how is the private sector extracting rents from the public materially different from the tax farmers of yore? How does outsourcing Medicare through vouchers, as in Paul Ryan's budget, create a smaller government when the bureaucracies of government adjacent private companies like health insurers taken into account? How are tax deductions, like the home mortgage interest deduction, not an expansion of government into the housing sector? How is the tax preparation industry not a creation of government's desire to make spending not look like spending?

This little outburst is the result of Paul Ryan's really silly budget and the growing evidence of the failure of 401ks as a retirement program. How is outsourcing Medicare to the private sector anything but an expansion of government? Due to higher administrative costs vastly more money will flow into the sector as a result of this action increasing the role of the government in the economy. Sure, much of it will be off books, but so was the excess taken by a tax farmer in the Roman Republic. What difference is there? The same goes for the 401k program. Government tax preference results in savings** going to more expensive private management, rather than to the very inexpensively managed Social Security program. How are the managers of these funds ultimately different from a Roman tax farmer? All these programs achieve is creating an opportunity for private individuals to extract rent from public programs; just like with the ancient practice of tax farming all that is achieved is a nominal reduction in the government's administrative cost but at the cost of greatly increasing the impact of government policy on the ground. The size of government is not simply that captured by government share of GDP, to properly assess the size and role of government leveraged private dollars, whether in housing, health care, retirement, education, tax preparation or other programs also need to be taken into account. Using this more accurate assessments, many programs advertized as reducing government would be seen as expanding it; which they do conceptually even if it is ideologically convenient to ignore this.

Now, I do see there being some sense in arguing if these programs are in some way better from direct government oversight; though as I like to say that is an empirical question. But I disagree that they reduce the size or scope of government, describe these programs in the terms we would use for ancient practices and the continued government role is obvious. Privatizing government functions does nothing to decrease the size or scope of government, it almost always does the opposite. It is simply an accounting trick and one that has significant costs.


*I've written enough on Paul Ryan that I don't feel any need to go beyond an ad hominem in addressing it. The man's an idiot that gives every appearance of being a true believer in his ideology and not really understanding either the empirical data or opposing views.

**While I don't read up a lot on this topic, what I have read indicates that the 401k program does little to increase savings. People don't seem to actually behave according to the economic assumptions these programs are based on; indicating a problem with the theory not people's behavior (I often here a blame the victim approach when people don't act as certain economists want them to, with a social science the purpose is to accurately model observations, if the behavior diverges from the theory your theory is bad, if you think otherwise you're engaging in moralizing, not science).

Breaking News: Fox News is Bad at Math

I tend to check Fox News at least once a day just to know what is being said over there. Then I saw this:

Tax Receipts on Pace to Hit Record $2.7 Trillion This Year, Congressional Report Says

What sort of daft, inept person thinks this is news? Since both population and the economy should be growing every year, this should happen every year. It's as worthy of a headline as News Flash: Sun Rises in East This Morning.

But the article then opens with, "as President Obama launches into the next phase of budget negotiations with Congress, recent estimates may lend credence to Republican claims that the federal coffers are well fed on taxes."

This hardly follows for those not math challenged, as the article goes on to say "According to historical figures from the White House, the last tax revenue record was set in 2007, when the government raked in nearly $2.6 trillion."


So, the government is raking in the dough with about a 0.4% increase in revenue? Come on, revenue growth like that over 6 years would get a manager of any business fired; especially when costs are rising. Now, noting that revenue has stalled since 2007 is meaningful, but calling 2007 a tax revenue record year is rather deceptive; I bet 2006 was before that.

Some credit is due because the article goes on to point out that "The CBO shows that, as a percentage of GDP, revenue is still below the 40-year average of 18 percent. The 2013 figure would represent 16.9 percent of GDP -- a full point higher than it was the year before."


Now we're getting somewhere. Revenue as percent of GDP is a meaningful economic statement, unlike the headline number. Per capita would be another meaningful way to present the data. But the headline, record setting $2.7 trillion is entirely without meaning.

Ugh, this is partisan hackery at its worst and anyone reading this for actual information, other than information about what is coming out of the fever swamps today, will be less well informed after reading it than before.

Very Interesting Study of Politicians Beliefs about Their Districts Vs. Survey Data

Wonkblog at the Washington Post has a fascinating post on a study which sought to show politician's estimates of conservatism in their district vs. actual measures of those attitudes.

What they found was that both Democratic and Republican politicians thought their district was more conservative than it is, Republicans estimating it more conservative by about 20 points.

The article is well worth reading, but what I want to do is launch into wild speculation about why.

The first thought, and probably the most accurate, is that politicians probably judge constituent interest by letters and phone calls they receive as well as volunteers and political donations. Since people engaging in these activities tend to be both older and richer, characteristics that skew conservative, this is likely to leave politicians misinformed about the true interests of their conservative.

A second issue is since the 1980s a belief has set in that America is a conservative country. While this perception is widespread self-identified conservatism doesn't match up conservatism measured by other metrics. Politicians are probably hearing from people identifying themselves as conservative, but who claim to diverge on just one issue, and feeling that these individuals are conservative on other issues as well, when they likely aren't.

A third issue is that many people just don't understand how each side is identifying with issues. The most popular example of this is the "get the government hands of my Medicare!" meme. People claim to hate entitlement programs while expressing support for Medicare, Social Security, Medicaid, and food stamps. Propaganda has led them to believe that someone, somewhere is getting an unfair deal and living high at the taxpayer's expense but they like and support the actual programs they have experience with, not realizing these are the programs meant when entitlements are talked about by the media; creating a further disconnect between politician's perception of their views and their actual views when surveyed.

A fourth reason is that movement conservatism is very well organized and has a long history of grass roots organization. This means that they tend to make themselves more visible and concerted campaigns make their numbers look larger and more popular than they actual are. Such are the benefits of political mobilization.

And a last reason, it seems there are more very loud people on the far right. While it adds little to the conversation people tend to remember those that shout loudest and make a scene. If these individuals are a bit more common on the right this would tend to shift perceptions as well.

As a closing note, I'd like to point out that this working paper is a great example of why political science funding is so important. It hints that even the most conscientious politician concerned with accurately representing his constituent's interests may lack the tools and training to assess what those interests may be. An obvious follow on to this study would be to find ways for politicians to more accurately assess their constituents positions on issues to make our government more functional and our citizen's lives better. While a skeptic may note than many politicians may care little beyond campaign contributions we would do better even if only a handful of politicians are motivated by their constituent interests.