Category Archives: Economics

Blogging Made Very, Very Easy (Political Economy Edition)

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I could just quote Paul Krugman. With appropriate attribution, of course:

But how can the effects of redistribution on growth be benign? Doesn’t generous aid to the poor reduce their incentive to work? Don’t taxes on the rich reduce their incentive to get even richer? Yes and yes — but incentives aren’t the only things that matter. Resources matter too — and in a highly unequal society, many people don’t have them.

Think, in particular, about the ever-popular slogan that we should seek equality of opportunity, not equality of outcomes. That may sound good to people with no idea what life is like for tens of millions of Americans; but for those with any reality sense, it’s a cruel joke. Almost 40 percent of American children live in poverty or near-poverty. Do you really think they have the same access to education and jobs as the children of the affluent?

… This isn’t just bad for those unlucky enough to be born to the wrong parents; it represents a huge and growing waste of human potential — a waste that surely acts as a powerful if invisible drag on economic growth.

Now, I don’t want to claim that addressing income inequality would help everyone. The very affluent would lose more from higher taxes than they gained from better economic growth. But it’s pretty clear that taking on inequality would be good, not just for the poor, but for the middle class….

In short, what’s good for the 1 percent isn’t good for America. And we don’t have to keep living in a new Gilded Age if we don’t want to.

One of the comments at the Times website suggested we should stop talking about equality and talk about fairness instead. When we talk about equality, the right-wing response is “but people aren’t all the same  — what you want to do is punish success”. That’s not true but it’s a clever response. The natural response to talking about fairness is “life isn’t fair”. No, but we could and should make it more fair than it is. Not just for ethical reasons, but, as Krugman points out, for pragmatic reasons as well.

Us, Them and Incentives Again, But Briefly

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Remember when Clinton was President and the federal government briefly ran a surplus? The Republican response was: “Cut taxes!” Their justification was: “It’s our money, not the government’s!”. Since then, the surplus having been eliminated, the Republican response has been: “Cut taxes! That will lead to growth and reduce the deficit!” Which isn’t completely relevant to “Us, Them and Incentives”, but I’m getting there. It’s another example of how adherence to a political ideology can lead to inconsistency, especially when you try to justify what you already want to do. 

In writing about the Republican approach to incentives this week (less income for the rich will make them less productive, but less income for the poor will make them more productive), I may have been unfair. Maybe the Republican position makes sense based on the relative economic success of the rich and the poor.

After all, rich people are doing well, you might say, so they must be doing things right. Therefore, let’s reward them. That way they won’t get discouraged and stop doing things right. Poor people, however, aren’t doing well, so they must be doing things wrong. Obviously, we shouldn’t reward them for doing things wrong. And, if we don’t reward them, maybe they’ll start doing things right. In a capitalist nutshell, economic incentives should be given to productive people, and economic disincentives should be given to unproductive people.

This approach sounds an awful lot like social engineering, which the Republicans are supposed to be against. Putting that aside, however, the question is whether it’s a good idea to make life harder for people who are struggling and make it easier for people who aren’t. If you view life as a total morality play, in which good people prosper and bad people don’t, maybe it does makes sense. That is, we all know, the reason for heaven and hell (which St. Thomas Aquinas understood so perfectly).

But people are doing well or badly these days, economically-speaking, for lots of different reasons: skills, health, age, location, connections, work ethic, luck, education, competition and so on. In fact, one major hindrance to doing well economically is being poor to begin with (when you’re poor, it’s harder to get around, harder to fit in, harder to stay healthy, and so on). Once we view our fellow Americans as individuals with actual, often difficult lives, not simply as Us and Them, the reasonable response is to help the ones who are struggling, not the ones who are already getting ahead.

(Coming soon, “A Guide to Reality, Part 11”, I hope.)

Us and Them Again

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As noted in an update to the post below, the Conservative Political Action Conference (CPAC) is having their annual convention, which means leading Republican politicians are getting the chance to express their deepest thoughts. So Senator Rubio of Florida got the opportunity to explain why Franklin Roosevelt had it all wrong — we should be very, very afraid.

Also today, Congressman Paul Ryan highlighted the difference between the right and the left by telling the story of a Wisconsin kid who’d prefer bringing his own lunch to school instead of mooching off the rest of us by getting a lunch at taxpayer expense.

Juliet Lapidos of the New York Times points out Congressman Ryan’s underlying, contradictory assumption:

[Ryan] argued that Americans want to work — every bit as much as the Republican Party wants them to work. “People don’t just want a life of comfort,” he said. “They want a life of dignity. They want a life of self-determination”….

In Mr. Ryan’s view, Americans would rather depend on themselves, or their families, than on the government. And yet, in Mr. Ryan’s view, if these same Americans gain access to government programs, they’ll jump at the chance to abandon their responsibilities, effectively exchanging a “life of dignity” for a “life of comfort.”

That doesn’t make sense. If all or most Americans, like the kid in Wisconsin, want their own lunch rather than a government lunch, then the prospect of a government lunch won’t change their behavior.

Ryan doesn’t notice the contradiction, since he thinks of his fellow citizens as Us and Them. On one hand, there are the honorable, hard-working Americans who hate the idea of getting help from the government (you know who they are). On the other hand, there are the dishonorable, lazy Americans who want nothing more than to live off government handouts (you know who they are too).

This is the same point I tried to make recently in a comment on another blog. There is a strange dichotomy between how Republicans expect poor people and rich people to respond to financial incentives:

— People who are struggling should receive as little financial assistance as possible, because helping them will only discourage them from becoming productive members of society. After all, they’re not really motivated to increase their incomes beyond the bare minimum. In their case, therefore, less income will translate into more work, and more income will translate into less work.

— People who aren’t struggling should receive as much financial assistance as possible, especially in the form of lower taxes, because helping them will encourage them to become even more productive members of society. In their case, more income will translate into more work, while less income will translate into less work!

It isn’t fun at all being poor or unemployed, but Republicans believe that making life as difficult as possible for the economy’s losers will convince them to do better. That’s because they’re not like us. They don’t care about improving their situations and they don’t respond to economic incentives the way normal people do.

Less money for the poor, so they will work harder; more money for the rich, so they will work harder. It makes perfect sense!

(Note: I’m going to try to lay off writing about right-wingers for a while. Maybe I’ll try fashion reporting. Or poetry! “There once was a girl from Nantucket, …”)

Republicans and Liberty, Part 2

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In yesterday’s post, I asked whether libertarian Republicans support the work of the American Civil Liberties Union and decided that they generally don’t. That’s because libertarian Republicans are generally “economic” libertarians, not “civil” libertarians.

One way to understand the difference is to consider controversies like the recent one in Arizona. Should business people be allowed to refuse service because of a customer’s sexual orientation? A strict economic libertarian would say yes, arguing that the government shouldn’t compel one group of people to associate with any other group, while a civil libertarian would argue that everyone has an equal right to purchase goods and services regardless of their sexual orientation.

To better understand what economic libertarianism amounts to in practice, I visited the official website of Senator RP, today’s most famous Republican libertarian and a contender for the 2016 Republican presidential nomination.

Some of RP’s positions are simple platitudes. For example, he thinks we should only go to war if it’s necessary and the tax system should be simplified. The Senator may have interesting libertarian views on these subjects, but doesn’t mention them.   

Some of his other positions are clearly consistent with libertarian principles, although any economic libertarianism is muted. As expected, he thinks the federal government is too big (he also claims the federal government has doubled in size in the past decade — a statement that is ridiculously untrue; the real numbers are provided in a note at the bottom of this post).

In addition, he thinks the government has become too powerful and intrusive (apparently since 9/11). This opinion is the only one included under the category “Civil Liberties”. Lastly, he says the Affordable Care Act is bad because it expands the role of government. He doesn’t mention an alternative, although an economic libertarian would presumably prefer a completely private system in which healthcare is just another product, either freely donated or sold to people who could afford it. 

I’m obviously no expert on economic libertarianism, but his other positions seem questionable from that perspective: 

Life begins at conception, so abortion is unconstitutional – Even if we grant for the sake of argument that a fertilized egg is a person with constitutional rights, this would still be a case in which one individual’s single right take precedence over another individual’s various rights (without, of course, the latter’s consent). It’s certainly arguable that in this case, RP wants to impose his religious views on pregnant women, regardless of their own beliefs.

Our schools are suffering from too much government spending and interference – Some economic libertarians think mandatory public education is wrong. RP merely favors spending less money and exerting more local control. It isn’t clear in this context whether RP thinks school-age children have any rights at all, for example, the equal right to an education that will allow them to properly compete in the free market. 

We should increase domestic energy production even more than we already have – Encouraging energy efficiency (that would be government interference in the marketplace) and discouraging pollution (which affects us all, not just polluters) aren’t mentioned.

Illegal immigration is a threat to our national security – It isn’t explained why it’s dangerous for foreigners to participate in our free market. Some economic libertarians favor immigrant rights, apparently holding that people should be able to live and work where they want without government interference.

There should be no restrictions on gun ownership, except by irresponsible people and criminals – In practice, this means there should be very few restrictions and conflicts with other people’s right to be protected from violence (the main reason we have a government, according to economic libertarians).

Social Security covers more people than in the past and they’re living longer – No policy position is stated, although it’s implied that something is wrong. In particular, there is no mention of reducing benefits or cutting Social Security taxes, which would seem to be the obvious economic libertarian position.

Nobody should be allowed to serve in the Senate or the House for more than 12 years – This is despite the obvious fact that term limits infringe upon an individual’s fundamental right to engage in a law-abiding career of his or her choice for as long as he or she chooses.

Veterans should be given special assistance – It isn’t clear whether this means veterans should receive benefits beyond what was promised when they freely chose to enlist.

Based on the above, Senator RP’s libertarianism seems rather limited, perhaps because taking stronger libertarian positions would scare away voters. Cutting Social Security benefits and allowing more foreigners into the country aren’t popular positions. Legalizing drugs, which isn’t mentioned, is controversial, especially among Republicans. On the other hand, most Republicans favor forcing pregnant women to give birth, term limits and special benefits for veterans, none of which are clear libertarian positions.  

So, the impression I get from RP’s website is that he has some libertarian tendencies, but is just another right-wing politician. He’s found a home in the Republican Party even though Republicans tend to favor things like prayer and creationism in public schools, a worldwide military presence, government surveillance, harsh drug laws, farm subsidies and vote suppression, despite the fact that those positions seem to conflict with libertarianism of any kind.

I was planning to include some general thoughts on economic libertarianism today, but for now I’ll end with a related observation (author unknown) and that promised footnote):

There are two novels that can change a bookish fourteen-year old’s life: Tolkien’s “The Lord of the Rings” and Ayn Rand’s “Atlas Shrugged”. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs.

 

That promised (long) footnote: Has the federal government doubled in size in the past decade, as RP’s website claims?

The precise decade isn’t specified, but that’s not important, since the numbers are clear whichever recent 10-year period we choose. For example, starting in 2002 and ignoring inflation, total federal spending was 2.0 trillion dollars. In 2012, it was 3.5 trillion, a truly large increase of 75% (although less than 100%). However, corrected for inflation (using constant 2005 dollars), total spending went from 2.0 trillion to 3.0 trillion, an increase of 50% (well, it was a rough decade, what with the wars and the free-market financial crisis and the resulting unemployment).

Alternatively, as a percentage of the country’s Gross Domestic Product (a measure commonly used by economists, because it reflects the nation’s increasing economic activity), federal spending rose from 19% of GDP in 2002 to 24% of GDP in 2012, an increase of 26%.

Finally, there were 4.15 million people working for the federal government in 2002. In 2012, there were 4.31 million, an increase of only 3%.

So much for the size of the federal government doubling in the last decade. 

By the way, the other statistic cited to help us understand this supposed astonishing growth of more than 100% is an increase of roughly 40%. Quote: “To put this in perspective, the federal government spends more than $10,280 per person, over $3,000 more per individual than what we were spending in 2001”.

Republicans and Liberty, Part 1

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It’s one of those enduring questions: why are there Republicans?

I don’t know the answer, but I’ve been thinking about the existence of one kind of Republican lately: the Libertarian. The principal libertarian Republican in the news these days is a Senator from Kentucky whose initials are RP. Some of the people who spend their time on Earth guessing about such things think RP is the front-runner for the 2016 Republican presidential nomination (even though the primaries and caucuses are still two years away). 

I started thinking about RP and other Republican libertarians when this question popped into my head: do Republican libertarians support the American Civil Liberties Union? The ACLU famously devotes itself to protecting various rights and liberties, especially those enumerated in the Bill of Rights. Shouldn’t Republican libertarians be in favor of their work? Yet that seemed unlikely, since the ACLU is a well-known “liberal” organization and we all know how Republicans feel about liberals.

A little bit of research suggests that Republican libertarians support some of the ACLU’s work, but definitely not all of it. The reason for this mixed attitude is that Republican libertarians are generally “economic” libertarians, while the libertarians at the ACLU are (as you might suppose) “civil” libertarians.

Economic libertarians believe the individual is supremely important, especially when it comes to private property and the fruits of one’s labor.They hold that government’s principal purpose is to protect the rest of us from criminals and foreign aggressors, not to provide for the general welfare. They believe we should all be allowed to do what we want so long as we don’t infringe on other people’s rights.

Hence, economic libertarians favor laissez-faire, the principle that private parties should be allowed to engage in economic activity with minimal government interference, involvement or assistance. The government should only tax, regulate or subsidize economic activity in order to insure the existence of a free market, in which all of us, being responsible for our own success or failure, can fairly compete.

The basic argument for economic libertarianism was strongly stated by the philosopher Robert Nozick (who borrowed some of it from Immanuel Kant) in his classic book Anarchy, State and Utopia: all human beings should be treated as ends, not means, so it’s wrong to take from one person to help another. Basically, my tax dollars should not benefit you without my consent. Otherwise I’ve been made a kind of slave.

To sum up, in the words of one self-described libertarian: “Real libertarians understand that freedom of speech and other civil liberties depend on the sanctity of private property – not its violation by anti-discrimination laws and other forms of government intervention.”

So, economic libertarians endorse some of the ACLU’s work, such as supporting freedom of speech and the right of assembly, but oppose a lot of it, such as the ACLU’s support for anti-discrimination laws (because an employer should be able to discriminate against potential employees on the basis of race or gender) and the supposed right of all children to an equal public education at taxpayer expense. 

Economic libertarians appear to disagree among themselves on other issues. One troublesome example is abortion rights, which the ACLU obviously supports. Economic libertarians would presumably support abortion rights too (it’s my body) but not if they think a fetus is already a person (in which case, the fetus already has rights that need to be protected). Voting rights is another interesting case. The ACLU strongly favors voting rights for all Americans, including ex-prisoners, but some economic libertarians think that committing a felony means you’ve forfeited your right to vote.

To test my understanding of the difference between economic and civil libertarians, and to see what that famous libertarian Republican has to say, I spent some time on Senator LP’s website. More about that tomorrow, as well as some thoughts on economic libertarianism in general.