The CBO Report on Inequality Should have Gone Back Further than 1979

There is a lot being written about the CBO report, even though there is nothing really new in it.  I do consider it a pity though that they didn't take the analysis back further, you can't really get a grip on what has changed without that information.

The big missing piece is that growth previous to 1979 occurred at a faster rate and was more even distributed across income categories, post WWII income growth was somewhat faster for the 99% than it was for the 1%.  Also, the share the 1% paid in taxes relative to their share of income was larger before the 80s, the 99% has seen their share of income decline faster than their share of taxes.  This would be far clearer if the CBO report had gone back further.  Data sets like those of Saez do this, however, to my knowledge, all of these are behind paywalls which leads to the annoying obstacle of not being able to reproduce them to share.

The exact same arguments above could be made about international data, other countries have seen similar growth rates without the concentration of income.  Where the American middle class has seen their share of the pie shrink faster than their share of the tax burden, in most other developed nations the share of both the pie and the tax burden have remained mostly constant.  It's hard to identify a structural reason for this, leaving policy or perhaps elite culture.  Likely a mix of the two.

The comparative data is also necessary to refute spurious claims, such as the changing age ratio being the cause, as this has not happened to similar countries undergoing demographic transition.  Still, what data is presented is excellent, even if the necessary historical and comparative evidence to grapple with the policy implications are lacking.

The Personhood Amendment Really Bothers Me

Amendment 26 in Mississippi would declare a fertilized human egg to be a legal person.  This really bothers me.  People talk a lot about liberty in this country but few seem to have any real understanding what it means or what the basic roots of our rights are.  Fundamentally, liberty begins with our spiritual and moral autonomy.  We each have an intrinsic right to discover for ourselves what is moral and decide on fundamental questions such as when life begins, what is our purpose here, what happens when we die, etc.  Freedom of conscience, freedom to decide for ourselves moral and religious truth, is the wellspring from which all other rights flow.  Seeking to define the fundamental questions through law cuts off liberty and autonomy at its source.  That anyone would seek to cut off one of the central mysteries that defines moral and spiritual liberty in the country that first instituted political liberty is something that I find absolutely appalling.

While it is true that questions like this do need to be decided by law, the only way to do this that does not infringe on extent rights and liberty is to allow traditional norms to persist unaltered, in this case, life begins at birth.  An individual is of course free to decide for themselves that this is wrong, but seeking to change the legal status is a sin of commission rather than omission.  Tradition must hold on these matters because there is no alternative, the question must be decided but no human being has sufficient spiritual and moral insight to decide these questions for another.  To me, this is as much a violation of intrinsic liberty as banning all faiths in favor of one and the establishment of a national church would be.  Deciding impossible questions such as one life begins is the root of moral and spiritual maturity, having someone else decide these things for us condemns us to being children.

This may sound strong, but I see this as evil.  There's simply no other word for it.  This would get me out in the streets if this were proposed here.  It's vile, it's a threat to intrinsic liberty and rights, and it threatens the very foundation of an individual's right to seek to live a moral and spiritual life.  These questions are part of the fundamental journey towards enlightenment we are all on, no one has the right or insight to impose answers to these questions on another, much less the state.

If someone wants to ban abortion, ban abortion.  Don't tell me that I don't have the right to decide basic spiritual and moral questions for myself though, I find it deeply insulting, tyrannical, and a violation of the basic principles of liberty, democracy, and religious faith.

What to do about the Debt Overhang

I've been reading a bit about the expansion of the mortgage program.  We definitely need to do something about debt, but the resistance to lowering principle makes little sense to me.

What keeps nagging me though, is that while mortgage debt is the biggest problem it's also the most costly and at the lowest interest rate.  What about people that have racked up large credit card balances?  Especially people that also have mortgages, they need the credit card paid down more than they need the mortgage.

What I'd like to see, though there isn't a snowball's chance in hell of this even getting proposed, is a plan that would tackle all kinds of debt but that would include some sticks as well.  What I've got in mind is a low interest government loan as a one shot deal for debt consolidation.  The stick would be that these loans carry the same kind of provisions student loans do, once you have them, there's no way out.  But if this could slash your 12% a year credit card debt down to something like the prime rate (variable so real value doesn't decrease do to inflation, but prime is still always going to be a big step up) this would help a lot of people out, but doesn't exactly reward people for bad behavior (which is an overblown risk, the behavioral response to bailing people out isn't nonexistent but neither is it large as long as it's not frequent) because there's a downside.

This would also make some long term profit for the government, since it is still above the government's long term interest rate, though some may see this as a negative.

Haven't seen anyone even suggest this, but I couldn't help mentioning it when I see the kind of contortions going on with the loan program.  Obviously there would have to be limits on the program, like limited to debts incurred before 2010, maximum limit that can be refinanced, perhaps an asset ceiling (while I normally don't like means testing, due to the short term, non safety net nature of this suggestion I don't see most of my usual objections applying), etc.  Anyway, I just felt like dreaming out loud.

The CLASS Act and the Individual Mandate

The CLASS Act failure displays all of the main reasons that the individual mandate is necessary.  The problems with providing long term care and the difficulty of convincing currently healthy people to sign up for the plans are the exact same problems the individual mandate is needed to solve.  Long term care, like most conditions you need health insurance for, is simply beyond the ability of most people to pay for.  Under current legislation, private plans are often ineffective at dealing with these problems, too many people have insurance with payout limits or that might be terminated if they lose their job due to their illness.  Many conditions that afflict young people, such as certain cancers or mental illness such as schizophrenia, are chronic and require long term treatment.  How can anything but a mandate bring in enough money to pay for the long term costs of the costliest patients, those who were young and healthy but unexpectedly acquired a long term illness that will impact the rest of their lives?

Now, as a separate issue, we definitely need some form of long term care plans in the US.  Home health aids are generally far more efficient than nursing home care, altering Medicare and Medicaid rules to help people stay in their own homes would be a good first step forward (this isn't to ignore scandals like home health aide programs in NYC, even with these problems this approach is more cost-effective in aggregate).  More comprehensive long term care would probably be easier to get off the ground once existing programs are altered to support it, CLASS was getting ahead of itself.  It's also notable that most long term care plans offered in the private sector fail for the same reasons the government plan did.

Americans Have an Unfortunate Tendency to Mistake Disagreements about Policy for Disagreements about Principles

The title is simply a paraphrase of a line in Gordon S. Wood's Empire of Liberty, which was a good book about the early republic.  He was mainly referring to a tendency that both the Federalists and Democrat-Republicans shared in lifting their disputes over policy matters into Constitutional disputes, even when the still living writers of that document were on both sides of the debate.

While this tendency has a long history in the US, it is a history marred by its emphasis in the periods of our greatest polarization and the damage this polarization did to our country in these times.

It's important to remember that it is very rare that anyone in our national dialogue is actually going outside of what at least some of the Constitution's writers believed was a reasonable interpretation.  Almost all disputes are about policy, not principle.  History also shows that human beings virtually never follow a line of thought to its ultimate conclusion, while sophists delight in this form of argumentation, actual human polities seem to adhere closer to Aristotle's Golden Mean.  Since policy is generally evolutionary, barring cases where an ideologue gains power, such as the Russian Revolution or Hitler (and universally these societies suffer disastrous collapses), societies are punished for tending towards any extreme interpretation and revert back to a more centrist policy (though sometimes this takes decades).

This post is just a reminder to be sceptical of any claims that a given policy is either necessary or contrary to political principle.  Americans have historically been suckers for appeal to political principle, absolutist interpretations, and slippery slope arguments.  We should be self-aware of this flaw in our political culture which I have no doubt will be exploited mercilessly by both parties as the Presidential campaign heats up.  Real political change has almost always been evolutionary in nature, barring the odd armed rebellion, so we should keep in mind what a partial, imperfectly executed policy would look like when assessing political claims.  The pure, absolute expression of starting political principles taken to their logical extreme bears greater resemblance to a child's fear of a monster under the bed than it does political action in the real world.

Why Americans Don't Work and Mexicans and Chinese Do

I'm going to try to keep this short.  I get annoyed with the meme that Americans have lost their work ethic and that other countries have developed or retained some kind of amazing cultural affinity for work.  The difference observed in these cases has basically nothing to do with culture, to the extent that culture has does influence this America has an amazingly pro-work culture and has higher than expected labor force participation, hours worked, and entrepreneurship, and a lot to do with economic opportunity.

The problem is the belief that people should work hard, just because well, people should work hard.  The corollary of this is often that people should damn well do what they're told for what I want to pay them or go to work for themselves (which ain't easy, even if you're sitting on your rear sending article after article to publishers).  I could present this view more sympathetically, but I find it elitist and classist with no real supporting evidence so won't bother (the most recent article to make me think about this was in the Economist, which discusses immigration and the difficulty of finding Americans willing to do the work immigrants did).

The real reason people work is that they aspire to something better.  People generally have a pretty good idea of what their opportunities are and will generally act on them.  If people aren't taking jobs like vegetable picking in Alabama it's probably because they have a good idea that they won't get anywhere by doing it.  Even poor people realize that spending a summer picking veggies in a scorching field won't do much to bolster their resume to get a better job later one, they're not stupid.*  There's no upward potential, so they won't do the work.

Now, of course, many of my educated fellows can share stories about how they did unpleasant or backbreaking work to get through college or in between jobs.  Hell, I can share a few of my own.

But there's usually a difference here, almost all of us with these stories were young, most often single, and had some kind of in kind supports that allowed us to save from these jobs.  In these circumstances, most people can and do work.  They do this because they know it's a stepping stone to somewhere better.  I used to spend 8 hours a day getting yelled at in a call center to save for graduate school, while perhaps not as bad as working in an Alabama field it's pretty depressing and I got through it by telling myself I'd never have to do that kind of work again.

But for your average down on their luck unemployed person, this work doesn't look so good.  That time in the fields means not applying to jobs that might get you out of your situation, people don't do this kind of work to simply tread water.  At one point in time there may have been a path up the ladder, do good, get recognized, become a foreman.  There's probably still some cases like this, but these days you're more likely to be passed over in favor of someone with a 2 year business or 4 year agriculture degree.  You don't suffer through a crummy job with no prospects for another year at a crummy job with no prospects.

Looking at countries like Mexico or China, the situation is different.  The Chinese maintain, at considerable expense both in terms of state dollars and economic distortion, a range of state owned companies that give vastly inflated wages and benefits.  People swarm into their cities and take crummy jobs in hopes of eventually being able to qualify for one of these posts.  Without them, it's unlikely that people would work for the wages and conditions they are given in Chinese factories, but people have a rational expectation of being able to move up and out.  This won't come true for many, but it comes true for enough to keep the dream alive.  Mexicans immigrating here have similar ideas, they may eventually learn English and move up, or at least their children will.

This simply isn't the case in the US right now, most low wage jobs are insecure, often seasonal.  You don't move up the ranks if turnover is less than 3 years or so, which is the reality for most low wage employment.  Unions once made up for this by negotiating scheduled wages, this had its downside but people will put up with a lot if they know things are getting better every year.  But we've gutted unions, we demand degrees for most positions of responsibility, and wages are too low to save for school if you either have dependents or can't rely on family or a buddy to let you sleep on their couch and save for school.  In this situation, why bother with a crummy job?  It gets you nowhere, doesn't build a resume for a more responsible position, and barely covers a subsistence level of income.

Of course people don't do these jobs.  Society is never, and will never be, set up in a way that people will work hard without prospects.  When people did back-breaking farm work it was because they knew the economy was growing and more responsible, better paying positions were opening up.  People will work for that hope, even if it doesn't come true for everyone doing it.  But that isn't our modern economy, it's very rare that someone can take a labor or retail job and move up.  Who would spend their lives stuck in a low wage, insecure job?  No one would, surveys taken show that both the poor and middle class have remarkably identical opinions on what they consider the minimum wage they'd work, the same could likely be said of opportunities.  This is simply a reality that we'll have to deal with, people won't stand for the scraps thrown to them by the rich and the only solution is to create better expectations, not to lecture people to become resigned to having none.

* The exception to this is the recent graduate who has never held a full-time job.  Most managers have dealt with enough bozos that skipped shifts and called in "sick" (hungover) to be somewhat leery of taking a chance on a middle of the road student with 0 work experience.  In this case, an entry level crummy job is pretty much a prerequisite for something better later on.  It's always been thus, and recent graduates have always moaned about it.  This, however, doesn't seem to be the case with much of the unemployed, particularly in the low wage sector.

Why Small Business Always Loses in the US: A Two Stage Approach

I thought of what is perhaps a better way of explaining why small businesses are consistently betrayed by both parties in our political system.

Think of passing a bill as consisting of two stages.  Stage one is deciding whether or not we'll enact a policy and its overall cost.

Stage two is apportioning that cost, whether by linking it explicitly to taxes or by indirect factors such as compliance costs.

In stage one, there is a natural alliance among business interests, they want spending to be as low as possible because they know that costs will fall disproportionally on them, for the simple fact that the money is there.  Other welfare state beneficiaries will benefit more relative to the cost of an intervention than a business owner will so they are united in their opposition to spending.

In stage two however, big business has a number of advantages over small business.  Small business knows that historically they have consistently had more of the costs fall on them, they will try to force policy to stay at stage one as long as possible in hopes of lowering the total cost of welfare state policies.  There is also a substantial coordination problem in that small business is unlikely to be able to carve out specific exceptions for its interests, they're optimal outcome is evenly distributed costs.

Big business however is in a very different situation in stage two.  They know that they have consistently been able to shift costs away from them, once they know a welfare state policy will be instituted they have every incentive to accelerate its passage in return for shifting compliance costs away from themselves and onto either small business or consumers.  Having fewer individual corporations involved makes it easier to negotiate carve-outs with welfare state supporters.  They can consistently apportion costs to other actors, so they will always defect to side with welfare state supporters in stage two.

Our political institutions serve to create substantial opportunities for these behaviors.  Civilians tend to be quite committed at stage one, they'll write their Congressmen and tend to be moderately well informed about the basics of major legislation.  However, once a bill gets into committee and reconciliation between the two chambers we tend to see policy drift away from universal provisions, which would lower the relative costs for individuals and small businesses, in favor of more specific provisions that exempt certain favored entities though tax breaks or through moving away from general provisions such as a simple auction for cap and trade in favor of giving out limited numbers of permits to key industries.  At this stage the public is uninvolved and small business rarely is able to get away from calling for lower costs overall to instead shift to bargaining in favor of equal costs for all, resulting in small business getting nothing and bearing a disproportionate share of costs since big business got its carve outs.

For small business to become more competitive those that represent it in Washington will have to realize that they need to preempt big business by defecting first in favor of universal provision.  Small businesses don't have the political weight to seek business specific carve-outs, the best they can hope for is equal costs.  The incentives in favor of this are weaker on individual issues, however consistently losing in these bargains is very costly over time even if it is not in regards to specific policy losses.  This displays the limits of self-interest, however, since it is very difficult to act on long run systemic disadvantages when the relative gains/losses from individual interactions are so small.

But they add up.

[Edit: I realize this is very similar to a typical collective action problem.  The main difference I'm observing is that small business can overcome the collective action problem to oppose welfare state policies but it can't overcome the problem to negotiate welfare policies more favorable to their interests once the passage of these policies becomes inevitable.  Small business certainly does effectively organize itself to oppose laws such as the ACA and to pressure their legislators to oppose the passage of these bills, the government as a whole seems quite responsive to this particular income bracket and its interests.  However, once the horse-trading starts happening, costs are almost always shifted away from big business to fall most strongly on this group.  This corollary of the standard collective action problem is what I'm trying to tackle with these posts.]