Category Archives: Politics

The Welfare State, Europe and America

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Michael Tanner and Charles Hughes write,

In Austria, Croatia, and Denmark, the effective marginal tax rate for someone leaving welfare for work was nearly 100 percent, meaning that a person would gain virtually no additional income from working. In another 16 countries, individuals would face an effective marginal tax rate in excess of 50 percent.

Benefits in the United States fit comfortably into the mainstream of welfare states. Excluding Medicaid, the United States would rank 10th among the EU nations analyzed, more generous than France and slightly less generous than Sweden. Thirty-five states offer a package more generous than the mean benefit package offered in the European countries analyzed.

In my view, the key goal of reform should be reducing the marginal tax rate. This can be done either with a high level of benefits (in which case the budget cost is very high, and people with relatively high incomes will still be receiving benefits) or a low level of benefits (in which case we are looking for charities or local governments to fill in gaps). I prefer the latter approach.

You can look at my old posts on universal benefits or flexible benefits, often in the category “Setting Economic Priorities.” I once wanted to do a project that would try to put something like that on the agenda for the 2016 election campaign. That looks like something that would have been doomed, seeing how the campaign is actually shaping up. It looks as though the Republicans are going to have to spend so much time talking economic nationalism with respect to Mexico and China that even if they win the Presidency, they will have no economic policy mandate whatsoever.

Chris Edwards on Government Failure

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He writes,

Consider Medicare. Under Parts A and B, the government pays doctors and hospitals a set fee for
each service provided. That encourages them to deliver unnecessary services because they make more money the more services they bill. As an example, investigations have found that doctors are ordering many unneeded drug tests for seniors.

I think that someone with an opposing viewpoint would say that even though government initiatives are not executed flawlessly and that adverse side effects do occur, the intentions of the programs are good and the positive outcomes are sufficient to outweigh the problems. As Edwards puts it,

It is true, however, that just because a federal policy creates unintended collateral damage does not automatically mean that the overall policy is a failure. Some federal interventions do generate higher benefits than costs. The important thing is that policymakers look beyond the intended effects of their programs and consider how people and businesses may respond in negative ways over the longer term.

As I see it, those of us who are concerned about government failure have to get over the following hurdles with those who disagree.

1. Lead them to think beyond the intention heuristic. “Support for education” sounds good, but that does not automatically justify every government program intended to improve education.

2. Scrutinize the actual design and execution of government programs, rather than assume that both are flawless.

3. Track the cost of government programs. This includes the direct cost paid by taxes, but it also includes the indirect cost of market distortions, including (as Edwards points out) the deadweight loss from taxation.

4. Take into account the organizational dynamics of government programs. That is, agencies and programs tend to persist well beyond the point where they have served a useful purpose.

5. Take into account the public choice aspect of government programs.

Even so, I still do not think that we will get very far. I think that the supporters of Obamacare are aware to some extent of the way that each of these issues has affected the program (perhaps not so much with issue 3). And yet they are very enthusiastic about Obamacare, and they insist that it is working.

A Good Sentence on Foreign Policy

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From a commenter:

(Good) Foreign policy and military intervention is about figuring out actual intentions and capabilities without making self-fulfilling prophecies.

If each adversary judges the others’ intentions as hostile, then you get war as the self-fulfilling prophecy. So you want to err on the side of not judging others’ intentions as hostile. But when others’ intentions truly are hostile, judging them otherwise is a mistake.

This Might Change My Mind about Iran

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Awhile back, I wrote about the Iran deal. I do not see a sanctions program as stable, so I took a positive view of the deal. However, reading this piece by Amir Taheri, on a recent book by a key Iranian leader, gave me pause.

“The solution is a one-state formula,” he declares. That state, to be called Palestine, would be under Muslim rule but would allow non-Muslims, including some Israeli Jews who could prove “genuine roots” in the region, to stay as “protected minorities.”

Read the whole thing. All I could think was, “Another Mein Kampf.”

I do not know what one does about such a regime. I still think that sanctions are not a good answer. They are an act of war, and much of their pain is inflicted on innocent civilians.

But sitting down and negotiating does not seem like a solution, either.

I suppose that Taheri’s piece could be misleading (I have not read the book myself). If not, then I think that the probability of a real war is quite high, and I do not see the deal reducing that probability.

Politics is a Hate Crime

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1. Bernie Sanders is asked by Ezra Klein about the case for immigration as a tool to reduce international poverty. His response?

Open borders? No, that’s a Koch brothers proposal.

Sanders manages to appeal to xenophobia on two levels. For people who hate outsiders of color, he is offering policy support. For people who pride themselves on not hating outsiders of color, he appeals to hatred of wealthy capitalists associated with the political right.

2. As a commenter suggested, hatred of lower-middle-class whites, particular of religious southerners, keeps many affluent hipsters in the Democratic fold.

3. At dinner last night, a political scientist said that studies indicate that increased polarization has not been driven by greater positive attachment to the party people support but to greater hostility toward the party that they oppose.

4. Donald Trump. Paul Krugman. Whatever their accomplishments in other fields might be, their political talent is expressing hatred for others in a way that many people find appealing.

I would hardly be the first person to suggest that there seems to be a deep human need for designated villain-groups. Look at tribalism, religious wars, mechanized warfare, Nazism, modern genocides.

Observing heated political conflict in the U.S. today, one does not know whether to shake one’s head in sadness or to be thankful that it provides a relatively non-violent outlet for group hatred.

Academia: Was it Always Thus?

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In response to me, Devin Helton writes,

what these complaints ignore is that intellectual narrowness in academia has been a major problem for many decades. The devastating real world consequences have already happened.

His long post includes many citations, although he leaves out Allan Bloom, regarded by many as the ur-complainer on these matters. One of his links goes to a post put up almost exactly four years ago by Timothy Burke, a Swarthmore history professor, who wrote

the conversation about diversity usually boils down to fixed identarian formulas, to improving the percentage of recognized groups, not to diversifying the kinds of experience (and passions) that professionals can bring to intellectual work. I feel intuitively that the generation of faculty just ahead of me, people from their late 50s to 70s, are more diverse in this sense if not racially so. I know considerably more first-generation scholars whose passionate connection to intellectual work got them into academia in that generation than in any younger cohort.

That fits with my diagnosis. I think that as the pre-1960s-era professors (meaning professors who got their Ph.D’s before 1970) have aged out of academia, there has been an acceleration in the trend toward doctrinaire belief and away from rational thought.

The story as I am suggesting it is that starting around 1970, graduate programs in the humanities and social sciences started to filter out independent thinkers. By 1990, your chances of having a thesis adviser who was a Thinker rather than a Doctrinairian were somewhat low. They dwindled rapidly thereafter. So the cohort that is now entering into teaching positions is almost devoid of Thinkers, and they are replacing the few Thinkers from before 1970.

Of course, there remains the possibility that what has changed over the past 15-25 years is that I have become a right-wing nut job. Or that the biases in academia have remained approximately constant, and the increase has been in the amount of complaining and anecdote-recitation among conservatives and in conservative media.

Cooling Culture Wars

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Megan McArdle writes,

To take one obvious example, do you treat conservative Christians who say terrible things about gay rights activists the same as gay rights activists who say terrible things about conservative Christians? Men’s rights activists the same as feminists?

We are all more attuned to the offenses against our own beliefs than we are to what may seem terribly offensive to others.

I would make the following observations:

1. Criticizing aggression from the opposite side tends to heat up the culture war.

2. Criticizing aggression from your own side tends to cool down the culture war.

3. Failing to criticize obvious aggression from your own side tends to heat up the culture war.

4. Failing to criticize obvious aggression from the opposite side tends to cool down the culture war.

These are difficult thoughts to keep in mind.

Questions that came up at lunch yesterday

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Organized by Tim Kane, with John Cochrane, several GMU stalwarts, Tevi Troy, Brink Lindsey, and others. These were some of the questions I asked.

1. Are colleges deteriorating in quality as fast as I think they are? This was a side conversation, and several participants expressed the viewpoint (wishful thinking?) that all but the most well-endowed colleges could find themselves suddenly overwhelmed by alternative modes of education and credentialing.

2. In the 1950s, many of the large successful businesses (McDonalds, Holiday Inn) were founded by men who never attended college. Why does that seem unlikely today? One answer given was that in the 1950s, you could have only a high school education and still be well above average in terms of cognitive skills, self-control, and other traits.

3. There was a lot of talk about how things are not really as bad for the middle class as the left makes them out to be. I asked, if things are not so bad, then imagine giving a talk to people in a small town in Ohio or in rural Oklahoma. What sorts of advice about future jobs would you give? Some of the answers were glib (“Move to the city.”) Others suggested that the jobs would be in fields like nursing. But not everyone is cut out to be a nurse.

4. Think of a world with momentum investors (“the trend is your friend”) and contrarian investors “If something cannot go on forever, it will stop.”) Can we get bubbles when for a period of time momentum investors overwhelm contrarian investors? The response (I’ll take a risk that I am violating some implicit rules and give away that it was John Cochrane who gave it) is that this sort of thing is more likely to happen in real estate markets than in financial markets, because in real estate markets transaction costs are high. You cannot go short. It is hard to take a large long position (you buy one house at a time, not many houses).

One question that came up concerned the effect of Chinese exports on American wages. With manufacturing a relatively small share of GDP, it was argued that the effect on overall wages cannot be large. Still, the effect on some niches of workers seems to be large.

Someone else asked about the narrative that American workers are worse off than they were 50 years ago or 100 years ago. To those of us at lunch (all on the right side of the political spectrum), that seems ridiculously inaccurate. Yet it holds sway on the left, and it seems to work with the general public.

One answer is that people who take a pessimistic view of recent decades may be thinking in terms of the second derivative. That is, the standard of living is still increasing, but it is increasing much more slowly than it did 40 years ago, and thus it has disappointed expectations.

Another possible answer is that “average is over.” If you are poor and not always employed, then between government benefits and low-cost goods, you can get by. But if you work full time and aspire to be middle class, your consumption basket is more expensive and government is not helping you.

Later, it occurred to me that the left’s story has the advantage that there is a villain. The evil CEOs and capitalists have taken away something from ordinary workers. No matter how many facts you throw back at them, any story with a villain is more compelling than one without one.

Incidentally, that makes it pretty futile for conservatives to try to play the compassion card (sorry, Arthur Brooks). People respond to villains. To compassion, not so much.

Urban America and Public Policy

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Michael Evans and Andrew Hendrix write,

The Bay Area is not alone. Along with Boston, New York, and Washington, D.C., these four metro areas lost nearly 3 million people on net between 2000 and 2009 — even as cities became increasingly fashionable places to live. Meanwhile, the ten largest destinations for internal migration in the U.S. absorbed more than 3 million new residents. In these cities, the average newcomer found his wages to be 25% lower than at the job he left behind.

The cost of starting a business in coastal cities is high.

regulations won’t stop the next Facebook, but they may halt an immigrant hoping to set up a corner shop or an aspiring chef’s food truck. These mundane forms of entrepreneurship are the lifeblood of America’s cities, and they are slowly being choked by endless red tape. When an entrepreneur needs a miniature army of lobbyists to simply establish his business or develop a property, something is wrong.

It is unfortunate the there is so little political competition in these poorly-governed cities.