This is How They Lie to You: Paul Ryan Edition Pt. 2

The introduction has little wrong with it, but I will touch briefly on two key points that I disagree with.  The reasons why will be argued more fully with data when I come to them in the report.

The question for policymakers is not how best to redistribute a shrinking economic pie. The focus ought to be on increasing living standards, expanding economic opportunity, and promoting upward mobility for all.

This displays rules of propaganda two and three, discrediting the opposition by a parody and manipulating the consensus values of the target audience.  No one in American politics is discussing redistributing a shrinking economic pie, there are disagreements over the causes of growth and over how to share the burden of expenses that have been democratically agreed upon.  This statement radically manipulates the opposition's position into something distinctly unAmerican and portrays them as opposed to the universal values of better living standards, opportunity, and upward mobility while portraying Ryan and the Budget Committee as its champions.  My disagreement with Ryan is that I think his proposals degrade all three of these, not that I believe there is a shrinking economic pie to cut up.  It is also true that expenses simply are a pie that needs to be distributed, our debt isn't going to go away by wishing it would so that particular pie does need to be shared out, confusing this with wanting to share out the economic pie, rather than the debt pie, is just transparently manipulative.

My second issue with the first page is this:

Conventional wisdom on government’s role in inequality often has it backwards: tax reforms have resulted in a more progressive federal income tax; government transfer payments have become less progressive (due in large part to growing entitlement payments to wealthier seniors).

 Explaining what is manipulative about this will take some length, I'll get into it in more detail in the relevant sections of the report.  It will become apparent as we proceed that much of the increased progressivity of the tax code is due to shifting anti-poverty measures from other departments to the IRS, this has also made transfers less progressive as the more progressive transfers are the ones that have been shifted to the IRS.  I don't really understand why shifting government assistance from Health and Human Services to the IRS should be understood as having changed the overall progressivity of American transfer programs, it is simply pedantic hair splitting meant to score political points.

This is How They Lie to You: Paul Ryan Edition Pt. 1

The House Budget Committee, under Chairman Paul Ryan, has put out a report on income inequality that basically seems like a rebuke of the CBO report on inequality.  Reading over the Budget Committee report, I was struck by how dishonest it was.  It is my purpose to expose this dishonesty.

To do that, it is my purpose to go over the report with a fine toothed comb.  Where it is inaccurate, I will point this out.  This will be rare, blatant dishonesty is generally avoided with this kind of publication.

What I will be focusing on instead is a few things.  First of all, lies of omission.  In a number of places information that should be known to any budget analyst that would cast doubt on the commission's conclusions is withheld.  Inequality is a topic I've done a significant amount of writing and research on, when possible I will provide exact information to show how deceptive the selective information in this report is.  Unfortunately, however, I am not an expert on this.  Where I do not have a current citation on a specific piece of information I will be forced to more generally direct you to a set of works that deals with the topic, rather than provide a specific citation.

The second major focus will be on deceptive manipulation of the numbers.  There are a number of places where changes in type of expenditure are presented as if they were reductions in expenditure and other abuses of trust such as this.  I will discuss these at some length.

The third focus will be on the rhetoric, which has been a topic of great interest to may lately.  This report displays a number of the rules of propaganda (summarized in Europe by Norman Davies on pages 500 - 501 for an easy reference).  In particular, the report tries to drive home a narrative that I see as dominating far right discourse, that individual responsibility and social responsibility are mutually antagonistic.  Also, that equity concerns are necessarily in competition with efficiency concerns.  Neither of these narratives have empirical supports, I will be showing where they are simply assumed.  This flaw in reasoning falls under "the rule of unanimity: presenting one's viewpoint as if it were the unanimous opinion of all right thinking people" (in this case, it is displayed as a self-evident fact of the world, with no alternative conceptions even being addressed).  The other main rule is the rule of simplification, for instance whereby the Budget Committee expresses the choices facing us as pie-growing vs redistribution, rather than differing views on how best to grow the pie (this also falls under rule 2, "the rule of disfiguration: discrediting the opposition by crude parodies).

I expect the analysis of this to take quite some time and a number of posts.  Hopefully I'll be able to drive my point home of just how deceptive ideologues like Ryan are being in reports such as this.  I believe that a primary cause of our current polarization is that manipulation such as this has inserted memes into our culture that have served to corrode what was a previous since of the country sharing our burdens at all levels, individual responsibility reinforced family responsibilities which reinforced community responsibility all the way up to the national level.  By contrasting individual responsibility with social responsibility the far right corroded this basic consensus breaking down the bonds of trust that linked shared responsibility into a circle with each stage reinforcing the next.  This was achieved not through the content of what was being argued but rather by framing and by controlling the narrative, my focus is on exposing the frame and narrative for what it is to expose the weakness of the content of these arguments.

I do wish to briefly address why I think inequality matters so much.  It's not because of fairness, or even because I think inequality threatens growth and stability (which I think it does).  It's because growing inequality has not been met by a corresponding increase in responsibility, for a given burden of costs the share of taxes paid by the wealthy has increased more slowly than their share of income.  This means that the rest of us pay relatively more with a relatively lower share.  Not only has income median income growth been comparable to 18th century rates of growth, we've seen our share of the burden of government increase proportionately faster than our share of incomes has declined.  There is also the social problems that income inequality has historically led to, but fundamentally the issue is that the growing inequality has resulted in a real increased per capita burden on the rest of us.

I will also state that I come from an intellectually different universe than Ryan.  His economics starts with an assumption that all economic growth is essentially consumption driven, the tendency to invest is ultimately driven by people deferring present for future consumption at a discount rate.  From this view, increasing the gains to be had by success and the penalties to be had by success will motivate people strongly because their consumption function will alter more drastically.

I believe this is hogwash, I see people as being primarily status driven with a secondary concern of maximizing security.  Investment and growth occurs because people strive for a greater relative position, when they see the path to this broken because all their efforts are taken up by necessary consumption, whether status consumption or the fulfillment of physical needs, they cut back on work and investment because they fail to see the point, they're not motivated by the potential future consumption but by instead the prospects for relative gain.  In highly unequal societies people see their efforts as being insufficient to compete with others with so many advantages so they stop trying.  The secondary goal is security, lacking a secure means of subsistence (which has expanded with expectations to include goods such as healthcare) means that people will fail to act on opportunities or take risks for fear of losing what little they have.  People with a family based safety net tend not to consider this, the worst prospect of failure they face is moving home with the parents.  This makes them believe that long term payoffs and risk taking are natural, having never had to face the prospects of living on the street they don't fully understand how this would shape their behavior if faced with this scenario.

As per usual, this introduction expanded beyond my original intention.  I will now begin to dig into Ryan's report in earnest for future posts.  I'm not sure how long this will be, but I can promise several posts for the level of detail I intend.

Why the Last Post was So Strongly Worded

After a bit of thought, I realized that the last post was rather strongly worded and I should explain why.

I have no problem with the basic observation that family is more important than teachers in determining a child's success.  If Friedman's post had simply been a laudatory shout out to parent's of every socio-economic status that were doing things right, since it doesn't take money to follow your kid's academic performance and read to them, this would have been a good column.  These factors are a powerful observation of how individual and family traits matter and an explanation for how upward economic mobility occurs.  A parent that discovers late in life the importance of education and learning, or that is an immigrant who never received the opportunities, can pass good habits onto their children so they have far more opportunities than their parents had.

The problem is when the focus is on changing these kinds of characteristics.  I tend to believe there is a hierarchy of what determines success, the first is individual level traits, the second is family, and the third is social constructs such as culture and institutions.  The third is by far the weakest, but its the one that has proven historically malleable to concerted action.  The first two interact with the third, thus we get far more people participating meaningfully in society and making large contributions than occurred in earlier eras.

For an example of this interaction, think about modern disability policy compared to that of the past.  Today, we have people in wheelchairs in our office building and blind people teaching our college courses.  This would have been very infrequent in the past.  In one time period, these individual level traits would have been basically the sole determinants of the success of an individual that had them, today, these individual traits are secondary to other because of changed cultural and institutional circumstances.  For a less extreme example, think of someone with strong leadership but weak academic skills.  Today, such an individual's participation in student council, athletic teams, and other activities will give them a shot at college and later a good job that will emphasize their leadership traits over their weaker academics.  In previous generations, this individual may never have risen above a laborer because their lack of ability in school may have never presented them with opportunities to display their traits, which modern society now does.

And this is the problem with Friedman's column.  We can do very little to change individual characteristics such as how good of a parent someone is directly.  However, we can create cultural shifts and institutions that will change these things.  Focusing on the individual level trait however, perpetuates inequality of opportunity, someone whose parent's don't read to them probably won't read to their children.  However, better schools that seek to compensate for the child's lack of parental guidance can help improve that child's chances somewhat and perhaps even more likely create new opportunities for that child's children by teaching them to read to their children, thus breaking the cycle of poverty.

This is the contribution that studies that emphasize the parental role make.  They show that interventions to help one generation are something that creates a virtuous circle, intervention at one point pays off for future generations as well.  It also shows that vicious circles are just as potentially determinative, a child with bad parent's will likely be a bad parent themselves.  This doesn't lesson individual responsibility, it broadens it.  We are to some degree what our parent's made us, and our parent's are to some degree what society made them.  As a society we can intervene only at the third, and least influential, point.  However, investments will be paid off with ever greater returns across a generation, teaching a kid to read, even too late, may lead to them reading to their children, breaking the vicious cycle a generation down.

However, this also shows how reactionary and regressive column's such as Friedman's are.  It justifies existing inequalities, since even a poor parent can read to their children they become responsible for the failures of their children, who in turn will be responsible for their children's failures.  The rest of us get a pass, bad parents ruin their kids chances just as good parents help their kids chances.  This focus is ultimately destructive, society and mobility has quite obviously changed over the centuries and this didn't happen as a result of some sort of moral evolution or genetic shift, it happened because of policy changes.  Sure, we can do far less for a kid's chances than their parents can, this has always been known.  This doesn't change the fact that we can't choose a kid's parents, but we do have some influence over a kid's teachers.  Focusing on what can be changed, rather than what can't, holds the promise of a better world.  Wishing people were better does nothing but make our problems permanent and delivers onto the son the sins of the father.

This isn't a world I'm willing to live in and I'll speak out against it every time I encounter it.

How Exactly Do We Get Better Parents?

Thomas Friedman has a column today that is in the genre of advice that is utterly useless because it is not something that can be changed.  He cites a bunch of data that indicates that parental involvement, and more particularly the right kind of parental involvement, has a major impact on test scores.

Well, duh.

This is so widely known, even without the study, that it doesn't really need to be pointed out.  This falls in the category of stating the obvious.

Friedman states this, which is one of the most useless statements I have ever heard:

To be sure, there is no substitute for a good teacher. There is nothing more valuable than great classroom instruction. But let’s stop putting the whole burden on teachers. We also need better parents. Better parents can make every teacher more effective.

The problem with these types of columns is that how good a parent is isn't really subject to change.  People have known this for so long that it's implausible that any amount of moral exhortation will get more parents reading to their children, this is a cultural habit that would have been known in a rough form in ancient Rome or China.  We don't really know of any reliable way to make better parents, though redistributive policies like income supports, child care subsidies, and better transportation policies do help indirectly.  This kind of statement is like saying the solution to our health care problems is for people to become healthier.  No shit.  Where's the magic wand that will achieve this?  We could also stop war if people were less violent, church attendance would go up if people were more godly, and our political system would be less of a mess if people were more trustworthy and less selfish.  But they aren't.

The world has problems because people aren't perfect.  The question is how do we deal with imperfect people who aren't perfect.  Wishing people were better is worse than useless, it is actively harmful because it attempts to shift the locus of change from things we actually have some control over, like the incentives to attract good teachers and policies like the length of the school day, to things we have absolutely no power over, like how good parents are.  How good of parents the people having kids are isn't really a manipulable variable, unless you're an advocate of draconian social darwinism (or willing to embark on widespread redistribution that wouldn't otherwise be embarked on as a result of it spurring better parenting, which seems implausible).  The purpose of this research is to help understand which kids are going to have difficulties so that we can focus research on those kids which have the biggest deficits.

Indirectly, it does also emphasize the importance of non-educational factors leading to social breakdown on education and thus upward mobility.  But we know with certainty that simply pointing out individual's failings does little to spur better behavior.  Its best we focus on what we can control with social action and policy rather than getting distracted by factors that, while powerful, are completely outside our realm of control.  Of course, this kind of dialogue does seek to shift things towards individual responsibility, but this does little but reinforce existing inequality of opportunity because we know with some certainty that people have always been about the same.  Knowing that many people aren't good parents, and doing nothing about it because things would be better if more people were good parents, is simply an abdication of our individual responsibility to seek to grapple with or world as it is, rather than as we wish it would be.  Everything would be great if everyone was good at everything they did and thus raised children that would be great at everything they did too, but this isn't Lake Wobegone, so we need to focus on things like better teachers and schools that can make up the deficits for bad parents.  Change the things we can, rather than wish our troubles away by pushing responsibility for them off on someone else.

Bundling and the Importance of Standardization

I have done more than a few posts discussing how concentrated medical expenditure in the US is.  Ezekial J. Emmanuel does a good job discussing one way to focus on this problem, bundling payments.

What I want to bring up in particular, is this:

The last big barrier to switching from fee-for-service is to get Medicare as well as the other insurers to change how they pay in unison. It is extraordinarily difficult for doctors and hospitals to change how they practice if they are partially paid via fee-for-service and partially through bundling — especially if the bundles differ between insurers. The incentives pull in opposite directions — fee-for-service to deliver more services for sick patients, bundled payments to be efficient and keep patients healthy. But if Medicare and private insurance agreed to coordinate a switch to bundled payments, doctors and hospitals could follow suit. This will not be easy, but it is absolutely necessary if we want to save real money and improve care.

This brings up one of the big issues for people that like to argue health care should be more decentralized.  The lack of standardization in payment systems is one of the big inefficiencies in our health care system.  Bundled payments aren't the kind of reform that is likely to happen spontaneously across the US, it takes someone with coercive powers to make all of the actors move together.  A decentralized system is highly unlikely to be able to institute the kinds of reforms that we need on a broad scale.  While individual institutions can pursue this, it only takes one powerful actor, such as a hospital group, to prevent this kind of reform in an area.  The reality of the economic system is that in complex markets like health care, a number of actors serve as veto holders.  To get them in line requires a centralized coordinating body.

While this example is specific to health care, it can also be applied more generally.  Some systems require greater specialization and competition, others require greater coordination and standardization.  Areas requiring standardization virtually always require a degree of coercion to be able to reach an efficient equilibrium.  Properly identifying which is which is a critical challenge for every society.  Insisting that all situations are one or the other is just plain unhelpful, both kinds of problems exist and require an evolutionary case by case response.  Ideologues, either those that insist that everything requires competition and unique solution or those that insist everything is reducible to basic principles to be determined by centralized planning (rare today but a significant historical viewpoint) both threaten one of the fundamental tasks of society and social evolution.

What the Story of the Four Little PIGS Tells Us about the Welfare State

I often hear that the European debt crisis is an example of the evils of government spending and the welfare state.  However, something shared by at least three of these little PIGS (I don't know about Portugal) is that all had fairly rough transitions to democracy and retain some powerful clientelist features.  A recent Economist article reminded me of these features, which to be completely honest, I've been waiting for an excuse to blog about.

Italy, especially, has been used for a comparative case of a remarkably poorly functioning public sector and state spending that bears the form of rents more than it does characteristic welfare state features (Greece is probably an even starker example of this, but for various reasons, it is less frequently used for comparisons).  In all three of these countries, and perhaps Portugal, state spending serves largely to create political support for the existing regime and to support the legitimacy of the state.  These features largely date from the transition to democracy from their autocratic regimes, it was necessary to win over powerful constituencies that otherwise posed significant threats to the democratic transition.  While this was likely a necessary aspect of their transition, unfortunately none of these states managed to unwind these features while they had the freedom to do so.

It is undeniable that state spending used for clientelistic purposes is extremely damaging, the situation in Europe only confirms this.  However, it is a huge stretch to generalize from these cases to the idea that all state spending is unsustainable or a negative risk.  The main lesson to be drawn is that most mature democracies don't look anything like this, in most democracies most state spending is widely shared with its skewness being towards the poor generally, not towards specific privileged groups.  Attempts to say that all state spending leads to clientelism or to buying support from beneficiaries runs aground on the fact that benefits in states such as France, Germany, or Sweden are widely shared while other states, like Greece or Italy, have far more of their spending going to privileged groups and in particular highly paid and pensioned public employees.

The lesson here is about particularism and clientelism vs the welfare state, not one about spending vs. austerity.  Particularistic spending and benefits tends to lead towards imbalances and a higher possibility of economic stagnation (Spain certainly took off for a while despite these problems, if the crisis had been delayed for another decade or two things may have been very different), broad based policy and spending tends to be far more effective.

On top of this, of course, are the usual labor and business rigidities that plague Europe.  But this is shared across Europe, what is different in the experiences has a lot to do with the relative maturity of the democracies, their ability to rely on broad based legitimacy for their governments as opposed to particularistic interest groups, and the method they use to disburse state spending, broad based benefits vs. jobs.

This theme is worth developing further, I see it brought up far too much despite being a variable that occurs a lot in the political science literature regarding Italy especially.

How I Think about Nature vs. Nurture

The last post may have raised some questions about how I am conceiving of the timeless debate of nature vs. nurture, I seem to be claiming that providing income can change individual behavior.  This isn't entirely how I see it, I see providing income as changing aggregate but not necessarily individual behavior.  The distinction is important.

How I see this working basically goes like this.  Assume the population has a normal distribution (or other kind of distribution, it doesn't really matter as long as an assumption of unequal talents is used) of traits that lead to what most would recognize as success.  This doesn't mean just the success of wealth, few would consider a lottery winner to possess any particularly meritorious traits and most would consider astronauts or Olympic gold medal winners to possess traits leading to success, even if they aren't at the top of the income distribution.

Now, we'll assume that a certain portion of these people will always succeed in life under any conditions, it doesn't really matter if it's 1% or 5% as long as we assume it is a minority (since the majority was oppressed throughout most of history it has to be a minority, I'm assuming success in any institutional environment).  Also, we'll assume that a certain portion of people will be unsuccessful in any institutional environment.  Doesn't really matter how many, but since some European countries have achieved poverty rates of below 5% it probably isn't a large proportion.

These people we can ignore.  They'll do well under any setup, so who really cares?

What matters is the roughly 90% of people that are responsive to policy.  This is what we have to focus on.  That there are Bill Gates or Steve Jobs out there who probably would have had incredible ideas that would have made them money, whether born as medieval peasants or where they were, doesn't really matter for policy.  These stories get trotted out, but upward social mobility existed in ancient Persia or Sumer, that these people exist isn't an argument against policy since they've been present even in the most oppressive of social circumstances.

For most of the people, most of the time, the environment is a better predictor of behavior than individual level traits.  In previous eras it was believed that few people had the mental faculties to be literate and participate in politics, it should be obvious nowadays that instituting policies to open up these advantages to the masses have proven these prejudices wrong.  For these people, institutional circumstances matter very much, if they feel relatively deprived they may become depressed and not invest themselves and become upwardly mobile.  However, a simple windfall, whether something random like the lottery or a social reform such as the EITC, can spur a portion of these individuals to greater efforts.

Theoretically, of course, the question exists of what motivates more people to succeed.  Doubtless, there are some people that given a basic income will become indolent and lazy and not work.  There are others that will do well only if deprived, they feel the need to overcome adversity and this is what drives them to success.  The question is really, what is the proportion of the types of people that respond to different incentive structures?  This is an empirical question, providing more supports will motivate some people while reducing the motivations of others.  There is no way to target these interventions.

The data points really strongly to the idea that the portion of people that respond more strongly to having their relative deprivation lowered, rather than raised, is quite a bit higher.  Comparative evidence regarding Europe points to this, give people more support and income mobility increases (of course, make it harder to work and unemployment increases, I'd really like to separate European style income supports from their labor market and financial policies which I think are atrocious).  Also, looking at US mobility supports this, easy access to land and high wages rates promoted upward mobility.  As relative wage rates fell, so did upward mobility.  We can also look at workforce participation, incentives such as the EITC lead more people to work and out of poverty, before we had most modern social programs poverty rates were vastly higher and many people, particularly in rural areas, had very limited contact with labor markets.  Give them some supports, and they integrate with markets and start becoming upwardly mobile.  They weren't like this however when they were at their poorest and most deprived, it was only after something was done about it that things change.

I kinda went on a tangent, but my basic point is that I think of the population as a distribution.  Any reform will help some people and hurt others, and stasis should also be though of as helping some people and hurting others, it's better to think of a menu of potential policies in order to not introduce status quo bias, this isn't a reason not to engage in change.  The question is, what is our data of the portion of people that will be helped relative to those that will be hurt, to the best of our knowledge.  Both individual level traits and the social environment matter, however, since policy doesn't generally impact individual level traits these traits are essentially irrelevant for policy purposes.  The question is how the broad majority that is more responsive to environment in regards to their economic success responds to policy changes.  This matters not only for some conceptions of social justice but also for economic growth.  It matters very much for the capitalistic process of creative destruction that new ideas and challengers are constantly rising to challenge old notions, promoting the chances of a greater range of individuals will enhance this process and thus economic growth.