A Land Under The Rule of Hillary


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I just had to laugh when I saw a progressive cite “the rule of law” as a compelling reason to vote for Hillary Clinton. First, while she might not be a policy clone of Barack Obama, you can bet that she’ll take a similarly dismissive view of Constitutional principles, subjugating our governing framework to her own brand of executive authority whenever and wherever possible. The rule of law hasn’t stopped the Clintons from proving their cronyist bona fides, using positions of power to reward friends, foundation contributors, and to accumulate personal wealth. The Clinton’s are inveterate liars, having misled the American public on numerous occasions, as well as Congress. In 1996, New York Times writer William Safire called Hillary Clinton a “congenital liar. The Clinton’s are also vindictive: they have done their level best to destroy the reputations of various enemies over the years, and there is widespread suspicion that much dirtier deeds have been perpetrated in order to protect their interests.

Foundation of Graft

I quote here the opening paragraph of a July post on Sacred Cow Chips entitled “Clinton Foundation Domain of Darkness“:

Hillary Clinton provides a fascinating case study in the art of graft, and the Clinton Foundation provides her with brilliant cover. The foundation masquerades as a legitimate charity, avoids taxes, and it provides a vehicle for what’s known as ‘pay-to-play’ influence-buying. It appears that Bill Clinton made a lucrative career of this while his wife was serving in public office. It was a sensitive issue when Hillary Clinton was Secretary of State, given the potential for compromising national objectives. It is still sensitive in view of the many gifts to the Clinton Foundation provided by foreign entities, not to mention the handsome speaking fees paid by foreign entities to the Clintons.

Now we know, thanks to Wikileaks, that certain Clinton Foundation (CF) contributors and “Friends of Bill” (FOBs) were given priority access to Hillary Clinton and other senior State Department officials.

The next few paragraphs contain information described more fully at the first link above. The first point is the Clinton’s cozy relationship with Russian interests. CF accepted contributions from individuals hoping to arrange a large deal giving Uranium One, a Russian company, control of one-fifth of all uranium production capacity in the U.S., a deal that Hillary Clinton’s State Department had to approve. Sounds like pay-for-play to me!

Also noteworthy is the relationship between CF and Laureate International Universities and Walden University Online, which have been accused of scamming earnest students. CF received substantial donations from Laureate‘s chairman, and Bill Clinton received millions as honorary chancellor of Laureate. In turn, Laureate received millions in State Department grants.

The devastating earthquake that struck Haiti in 2010 provided another avenue through which the Clinton’s were able to enrich their cronies. The complicated web of relationships included CF ties to organizations that received State Department funding. Here is Dinesh D’Souza:

… a number of companies that received contracts in Haiti happened to be entities that made large donations to the Clinton Foundation. The Haitian contracts appeared less tailored to the needs of Haiti than to the needs of the companies that were performing the services. In sum, Haitian deals appeared to be a quid pro quo for filling the coffers of the Clintons.

Gifts from foreign governments to CF are clearly red flags of potential influence buying. Many of the donors were Middle Eastern governments eager to acquire weapons from the U.S.  Hillary Clinton’s State Department, once again, was in a position to help them. Via Wikileaks, we know that Clinton’s campaign has been accepting contributions from lobbyists representing these governments. The Huffington Post‘s Senior Politics Editor, Sam Stein, says that Qatar’s $1 million birthday gift to Bill Clintonconfirms sort of the worst portraits of the Clintons and how they operated out of office.” What other favors could a Clinton presidency make possible?

As a charity, CF performs poorly, with less than 6% of its 2014 spending going to actual charitable causes, contrary to Hillary Clinton’s claims that 90% went to charity. The last link provides the following quote from The Federalist regarding historical totals from CF:

The Clinton Foundation’s three largest charitable ‘program service accomplishments,’ according to its tax reports, are the Clinton Global Initiative ($23.2 million), the Clinton Presidential Library ($12.3 million), and the Clinton Climate Initiative ($8.3 million).”

The article also quotes Ira Magaziner, once among the top executives at CF:

This is not charity. The whole thing is bankable. It’s a commercial proposition.

The Vengeful Touch

The Clinton’s have a reputation for being vindictive and for being fairly ruthless in dealing with those who cross them. Here is a story on a Clinton request to discredit Congressman Trey Gowdy, who was looking into her deleted emails:

Jennifer Palmieri, director of communications for the 2016 Hillary Clinton campaign, wrote an e-mail to staff where she says, ‘HRC asked me what offense we could do today to set up Gowdy for Face The Nation tomorrow.’

This story about a detailed list of Hillary Clinton’s enemies is instructive. Apparently, Claire McCaskill and John Kerry were at the top of the list after the 2008 presidential campaign.

Hillary is also known to be extremely ill-tempered. Check out this account of Hillary Clinton’s post-townhall tirade against moderator Matt Lauer, according to a female NBC producer and a cameraman. Hillary was enraged because Lauer had asked a pointed question about her private email server and her handling of classified documents, a question that did not appear on the pre-approved list provided to her in advance of the townhall. She threw a profanity-laced tantrum upon leaving the stage, according to these accounts. She promised to have Lauer fired threw a glass of water into the face of an assistant, and finally delivered an arguably racist insult to DNC Chair Donna Brazile’s face.

There are many accounts of Hillary Clinton’s abusive behavior toward staff, both at the White House during her tenure as First Lady and later at the State Department. Here is the latest, from an FBI summary of an interview with one of its own security officials:

CLINTON’s treatment of the DS [diplomatic security] agents assigned to protect her was so contemptuous that many of them sought reassignment or employment elsewhere. …by the end of CLINTON’s tenure, [her protective detail] was staffed largely with new agents because it was difficult to find senior agents willing to work for her.

The FBI’s summary of the interview also describes Clinton’s routine violation of standard security protocols.

It’s long been rumored that the Clinton’s have dealt quite harshly with enemies who pose legal threats. The number of mysterious deaths of individuals who were apparently dangerous to the Clintons could be a series of strange coincidences. However, the laws of probability don’t provide strong support for that theory. Perhaps many of the deceased individuals were involved in other dangerous activities, but that would not reflect well on the Clintons, either. There are web sites that keep track of the Clinton “body count”. Left-leaning sites such as Snopes.com routinely label that scorekeeping as pure speculation and false, but often do so even before investigations are complete. Three recent deaths, discussed here, involved individuals believed to have information damaging to the DNC and/or the Clintons.

Security and the Email Imbroglio

Hillary Clinton’s careless and criminal email practices should convince any American that she is unfit for the job of President. Her efforts to obstruct the investigation into those practices are nothing short of spectacular, and are themselves worthy of prosecution. It’s even more appalling and corrupt that she has Obama’s Justice Department and FBI Director James Comey in the tank, so prosecution is unlikely to proceed without extraordinary developments. Fortunately, Wikileaks and FOIA requests have uncovered some of the deleted emails. It’s also clear that the FBI is in a state of internal revolt over the questionable handling of the email investigation and Comey’s ultimate refusal to recommend prosecution. The revolt could lead to additional revelations having major consequences for Clinton, Comey and others inside the government.

Austin Bay condenses Clinton’s email scandal into a “Three-Headed Crime” and highlights the bastardized way in which Comey managed to compromise his agency:

  • The Server Head: the “rogue email server … that she controlled. … designed to evade laws regulating the retention of government documents and thus evade scrutiny and accountability.
  • The Loose Lips Head: “Hillary used her off-the-books and non-secure server system to transmit and analyze classified national security information ….
  • The Nixon Head: “Hillary and her aides tried to hide evidence the rogue server existed and evidence they routinely mishandled of classified information.

The email scandal came to light as a result of the Administration’s response to the terrorist attack on an American diplomatic compound in Benghazi, Libya. Here is Bay:

The House of Representatives began investigating the Benghazi attack and questioning the Obama Administration’s Great Benghazi Lie. Testimony wasn’t the only issue. The House had subpoena power. Providing inquisitive representatives and senators with Hillary’s Benghazi-related communications would expose the rogue email operation. Better start destroying evidence.

Bay notes that even Jonathan Turley, who had originally defended Comey’s decision not to refer the email case for prosecution, changed his mind as more details came to light. Apparently, the revelation that the Justice Department gave “immunity to the parties on both ends of those communications” struck Turley as a tactic wholly unsuitable for a serious investigation. He doesn’t quite say that Comey or the DOJ were acting on Hillary’s behalf, but the case certainly gives that appearance.

The Press In Her Pocket

My attempt to get a fix on the suspicious history and current state of the Clinton’s and their gang of operatives relies, to some extent, on nontraditional news sources. The mainstream media is willing to ignore Hillary Clinton’s many transgressions, with almost no mention of the latest Wikileaks dumps, FBI document releases, and other documented Clinton indiscretions. Kimberley Strassel is correct in saying that this is in no small part Donald Trump’s fault, as he manages to create a circus of distractions on an almost daily basis. Here is her conclusion:

Mrs. Clinton has been exposed to have no core, to be someone who constantly changes her position to maximize political gain. Leaked speeches prove that she has two positions (public and private) on banks; two positions on the wealthy; two positions on borders; two positions on energy. Her team had endless discussions about what positions she should adopt to appease ‘the Red Army’—i.e. ‘the base of the Democratic Party.’

Voters might not know any of this, because while both presidential candidates have plenty to answer for, the press has focused solely on taking out Mr. Trump. And the press is doing a diligent job of it.

It’s ironic that the press takes so little interest in the Clinton misadventures. Or rather, the truth is that many in the press intentionally omit reporting of these issues. That helps to maintain a solid base of low-information voters in Hillary’s thrall, under the misapprehension that she has any respect for the rule of law.

Saving Social Security


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Social Security benefit levels are anything but sure for current workers, given the likelihood of benefit cuts to preserve the long-term solvency of the system. In fact, even without those cuts, Social Security provides very poor yields for retirees on their lifetime contributions. Instead of a tradeoff between risk and return, the system offers bad outcomes along both dimensions: lousy benefit levels that are not at all “safe”.

To get a clear sense of just how bad the returns on Social Security contributions (i.e., FICA tax deductions) truly are, take a look at this Sacred Cow Chips post from late 2015: “Stock Crash At Retirement? Still Better Than Social Security“. According to the Social Security Administration’s own calculations, without any future changes in the program, a retiree can expect to get back 1 to 4 times their lifetime contributions (obviously, this is not discounted). If you think that’s acceptable, consider a real alternative:

Suppose you are given an option to invest your FICA taxes (and your employer’s [FICA] contributions) over your working life in a stock market index fund. After 40 years or so, based on historical returns, you’ll have stashed away about 12 – 18 times your total contributions (that range is conservative — 40 years through 2014 would have yielded 19x contributions). A horrible preretirement crash might leave you with half that much.

Allowing workers to self-direct their contributions over a lengthy working life, whether they invest in equities, government bonds, or other assets, holds much more promise  as a way to provide for their retirement needs.

As for risk, projected benefit levels are worse when possible program changes are considered. It’s widely accepted that changes must be made to the way contributions by current workers are handled and how future benefits are determined, or else the system’s value to them will be a greatly diminished. The Social Security Trust Fund, which once funded government deficits via FICA surpluses over benefit disbursements (while the demographics of the labor force allowed), has dwindled, and it has never been invested to earn the returns necessary for long-term solvency. Shall today’s workers face later eligibility? Reduced benefit levels? Or both? Or can we face up to the reality that workers will do better by choosing the way their funds are invested?

The contributions of today’s workers are paid out directly to current retirees. This practice must be modified, but the nation still faces a large and immediate liability to current retirees. How will it be paid if the system is overhauled to allow self-directed investment alternatives? Current workers must pay for some portion of that liability, but that portion could be phased out over several decades. The transition, however, would initially require additional taxes, borrowing, or voluntary conversion by some retirees to a discounted cash-balance equivalent, much as most private sector defined-benefit pensions have been converted to cash-balance equivalents.

Ultimately, workers should benefit from their own individual contributions. One objection is that self-directied investments and “privatization” of one’s own contributions would cause the system to lose its function as social insurance. Recall, however, that eligibility for benefits requires contributions, so it is not a general program of assistance. Nevertheless, there are several ways in which Social Security fulfills an insurance function. In a strong sense, it provides insurance against the risk of failure to save for retirement. More fundamentally, disabled workers can qualify for benefits, and the dependents of a deceased contributor are also eligible (survivors’ benefits). In addition, the current system provides greater returns to individuals with relatively low contributions. Under self-direction, these features could be retained via minor redistributional elements applied to investment returns, particularly given the superior returns available to equities over periods of sufficient length.

When U.S. politicians discuss the future of Social Security, they usually say they’ll fight against the dark intent of those who wish to take away hard-earned benefits from seniors. This despite the fact that few (if any) observers have suggested cutting benefits for current retirees, or even for those now approaching eligibility. The self-righteous proclamations about protecting retirees are a dodge that avoids the need to take a position on dealing with the system’s insolvency. But an easy answer is available: reform the system by allowing workers to self-direct their contributions into more promising investment vehicles.

Trumpist In a Taxpot


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The media narrative around Donald Trump’s 1995 tax deduction of a business loss would have you think it had been the crime of the century. Last weekend, the New York Times presented an analysis of a Trump tax return from 1995 showing a loss of $916 million, which was eligible for “carry forward” to reduce taxes on his business income in future years. The Times characterized it as something of a scandal, and the Clinton campaign was quick to jump on board. However, the ability to deduct losses or carry them forward to deduct in future years are basic features of the U.S. income tax code. Hillary Clinton used the same tax provisions as recently as 2015, albeit on a smaller scale than Trump, and the Clinton’s have engaged in other forms of tax avoidance. The point here is that if your business realizes gains from some winning investments, but suffers losses on a few others, a basic and reasonable feature of the tax code is to allow the losses to offset a like amount of gains for tax purposes. Similarly, your winnings at the casino (assuming you report them) are not taxed without first netting out the bad bet you made at the roulette table. So far, so good.

When you or your business suffers a loss in a given year, the income tax code allows that loss to be carried forward to offset taxable income in subsequent years. Since the Times article, the term “net operating loss” has been thrown around in some circles as if it’s an arcane tax loophole, but it’s simply good tax policy. John Cochrane provides an example of an entity which alternately reaps gains of $1,000,000 in one year and losses of $900,000 in the next, with an average pre-tax income of $50,000. Without loss carry-forward, this entity would be forced out of business in short order by the IRS. The use of this provision is not uncommon, and it prevents the tax code, such as it is, from being even more threatening to enterprises and jobs that are otherwise viable. Suggesting the elimination of this provision leaves tax experts in disbelief. The effects would be punitive to many businesses, not just corporate behemoths, and would be destructive to the economy.

Cochrane also puts the “blame” for this much-maligned deduction where it should be: the existence of the income tax itself! A consumption tax would not be as sensitive to changes in income, as people tend to smooth their consumption levels over time.

Another question related to the Trump tax revelations would be more controversial, if true: that he might have engaged in so-called “debt parking“. That’s unproven, but Bronte Capital Management‘s John Hempton blogged that it’s highly likely that he did. The alleged sequence of events is as follows: Trump borrowed money and invested it in assets that resulted in massive losses. The losses meant the debt held by Trump’s lender was nearly worthless. If that debt had been forgiven and written off by the original lender, Trump would have been forced to report a large gain, offsetting the tax benefit of the loss on his assets. But as Hempton’s story goes, the lender did not write it off. Rather, in the meantime, Trump created an entity that bought the debt from the lender for pennies on the dollar. After the sale, the write-down taken by the lender was not attributable to Trump as income. Trump’s “entity” simply served as a place to “park” the debt, protecting Trump’s tax benefits via loss carry-forward.

Megan McArdle addresses this issue, but she first reinforces the policy wisdom of the loss provisions in the tax code. McArdle ridicules the notion that businesses seek to generate losses in order to obtain tax deductions. She then  debunks the debt-parking theory of Donald Trump’s tax management:

“This theory seemed to have a lot of credibility among folks on social media. Among the tax professionals I spoke to, it had none: the IRS would treat this sort of structure just as it would if a third party had forgiven the debt.

‘Look,’ says [tax attorney Ron] Kovacev, ‘you put a $900 million loss on your tax return, that’s audit bait. The IRS is going to look into it. The notion that you could just move the money and the IRS wouldn’t ask questions?’ There was a sort of incredulous pause before he finally said: ‘That’s hard to fathom.’

One other question about the 1995 tax return is whether the $916 million loss proves that Trump is a lousy businessman. In fact, there is speculation that Trump’s losses around that time might well have been much larger than that. He suffered staggering failures in his casino business, his airline, and his investment in New York’s Plaza Hotel. It might not be so remarkable, however, to see a few losses on this scale for a developer investing in a variety of large projects. Big risk goes with the territory. Nevertheless, it doesn’t appear that Trump, having begun his business career with large amounts of family money, has achieved tremendous success with that capital over the years, on balance. Rather, it looks more like the kind of success an average investor would have achieved under the same initial circumstances. The losses claimed on his 1995 tax return obviously restrained his overall gains, but they don’t prove he’s a terrible businessman. He’s probably fairly average.

Both Trump and Clinton have exploited a rule in the income tax code that helps smooth after-tax profits and is a basic element of income tax rationality (given that it exists in the first place). It’s rather absurd for anyone to condemn them for it. Even more absurd for either of them to cast aspersions at the other on these grounds. Would Hillary Clinton do anything to restrict the longstanding ability to carry forward losses to deduct against future taxes? I’m thankful that I haven’t heard her say so!



Parks, Prisons and Profits


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One of my favorite pastimes is tallying the economic and social death wishes espoused by leftists, populists and other statists. A frequent theme of their entreaties is the presumed ugliness of profits sought by private businesses. Their expressed distaste is usually couched in terms suggesting that profits are a certainty, which of course they are not. Profits are always at risk unless protected by government. The critics are sometimes focused on lines of business that involve public assets or a supposed public purpose, such as education. Two other examples of that nature recently came up in my news feed: privately-operated prisons and private management of public parks.

The complaints heard about these kinds of business operations are based on ill-founded notions about the function of profit: that it is appropriate for resources to earn rewards only in some endeavors and not others, regardless of the property invested and the risks assumed by the enterprise. Another fallacy is that somehow, as if by magic, the motives and competence of public employees are beyond question. In fact, the ineffective and sometimes perverse incentives faced by public institutions and employees tend to undermine effective performance. That’s the underlying reason why privatization of services is often in the public interest. The detractors of profit usually rely on anecdotal evidence of poor performance by private managers without any objective basis of comparison.

Warren Meyer at Coyote Blog discusses the common misconception held by many regarding the relative morality of profits and wages. His comments are in the context of the company he owns and manages, which operates public parks under contract with the US Forest Service (USFS) and other public agencies, collecting revenue via entry and camping fees. Meyer (and I) find it astonishing that the aversion to private park operations is so common:

The most typical statement I hear from USFS employees that summarizes this opposition — and it is quite common to hear it — is that ‘It is wrong to make a profit on public lands.’ …. This general distaste for profit, which is seen as “dirty” in contrast to wages which are relatively ‘clean’ (at least up to some number beyond which they are dirty again), is not limited to the USFS or even to government agencies in general, but permeates much of the public.

Meyer goes on to describe a conversation he had with a USFS District Ranger. I provide a few excerpts below:

Me: If you think it’s wrong to make money on public lands, I assume you must volunteer, else you too would be making money on public lands.
Ranger: No, of course I get paid.
Me: Well, I know what I make for profit in your District, and I have a good guess what your salary probably is, and I can assure you that you make at least twice as much as me on these public lands.
Ranger: But that is totally different.
Me: How? … My profit is similar to your wage in that it is the way I get paid for my effort on this land — efforts that are generally entirely in harmony with yours as we are both trying to serve visitors and protect the natural resources here. But unlike your wage, my profit is also a return on the investment I have made. Every truck, uniform, and tool we use comes out of my profit, whereas you get all the tools you need paid for by your employer above and beyond your salary. Further, your salary is virtually guaranteed to you, short of some staggering malfeasance. Even if you do a bad job you likely would just get shunted to a less interesting staff position at the same salary, rather than fired. On the other hand if I do a bad job, or if one of my employees slips up, or even if some absolutely random occurrence entirely outside my control occurs (like, say, a flood that closes our operations) my profit can completely evaporate, or even turn into a loss. So like you, I get paid for my efforts here on public lands, but I have to take risk and make investments that aren’t required of you. So what about that makes my profit less honorable than your wage?
Ranger: Working on public lands should be a public service, not for profit
Me: Well, I think you are starting to make the argument again that you should be volunteering and not taking a salary. But leaving that aside, why is profit inconsistent with service to the public?”

Privatization is not inconsistent with service to the public except under one circumstance highlighted by Meyer in a postscript. The ranger might have asked:

How do we know your profits are not just the rents from a corrupt, cronyist government contracting process?

Of course, if that were true, it would not necessarily be worse than a park operated exclusively by a public agency with no incentive to operate efficiently. The key here is to have effective review of the contracting process and good performance incentives in place. Meyer notes that his company serves millions of visitors each year at high service levels for a cost that is low relative to government-operated parks, and the company receives excellent reviews. More power to him! Profits are not synonymous with graft. Unfortunately, the purely emotional “feeling” that profits are immoral or dishonorable is amplified by the public nature of park assets, and that idea won’t ever be purged from the populist mind.

Ann Althouse brought similar thoughts to mind in describing Hillary Clinton’s weakly-reasoned condemnation of privately-operated prisons. Here’s Hillary at the first presidential debate early this week, after expressing approval of the Obama Administration’s decision to phase out most privately-operated federal prisons:

You shouldn’t have a profit motivation to fill prison cells with young Americans.

You can almost hear Althouse, a law professor at the University of Wisconsin, laughing at the idea that operators of private correctional facilities have any ability “to fill prison cells”. That’s not how our justice system works, Hillary! Some argue that “occupancy guarantees” in private prison contracts give prosecutors an incentive to seek harsh sentences, but that is a tenuous argument, especially with prisons generally over-crowded as they are. And it isn’t as if private prisons are free of oversight. Althouse contends that Hillary Clinton’s position is a concession to the left made necessary by earlier outrage that the Clinton campaign had accepted contributions from the private prison industry, itself prompted by a Bernie Sanders’ attack on that point.

Reason Magazine commented on Sanders’ condemnation of private prisons last year, which then housed only about 12 percent of the federal prison population. Reason noted that closing private federal prisons would contribute to over-crowding at publicly-operated facilities. Sanders also proposed forcing state and local governments to close private prisons under their jurisdictions within two years. Not only would that action ignore objective measures of performance and cost, it would violate established contracts and constitute an outrageous overreach of federal authority.

The Administration’s decision to phase out private prisons was subjected to an even-handed critique by Sasha Volokh (younger brother of Eugene) in August. Volokh covers the evidence on costs and quality of private versus publicly-operated prisons. He finds that the DOJ memo announcing the decision to phase out private operators exaggerates cost and quality differences that favor government operations, and discounts evidence that favors private prisons. Reminiscent of Warren Meyer’s notes on privately-operated parks, Volokh stresses the importance of creating appropriate incentives for operators. Current quality incentives are weak, and he believes there is vast room for improvement:

It might seem surprising, but private prisons have almost never been evaluated on their performance and compensated on that basis. …. In light of that, maybe it’s even surprising that private prisons have done as well as they have in the comparative studies. Be that as it may, the advent of performance-based contracting could open up possibilities for substantial quality improvements. This could work in the public sector too (bonus payments for public prison wardens?), but the private sector is probably better situated to take advantage of monetary incentives.

The Reason Foundation published a report earlier this year entitled “Private Prisons: Quality Corrections at a Lower Cost“. The study reveals the leftist critique of private prisons to be a sham. Here are the two major takeaways:

Private prisons save money-10 to 15 percent average savings on operations costs, based on fourteen independent cost comparison studies.

Private prisons provide at least the same quality services that government prisons do-based on six independent quality comparison studies, rates of American Correctional Association accreditation, recidivism comparison studies, contract terminations, and prisoner and correctional officer lawsuits.

People often get their “facts” from questionable sources. As to privately-operated correctional facilities, I’ve heard critics state that people should watch the fictional Netflix serial “Orange Is the New Black” to gain a proper understanding of the horrors of private prisons. And many seem eager to accept that narrative without any knowledge of the facts. That’s probably because they have been taught that profits are “dirty”, that public purposes like the operations of parks and prisons are so pure of public purpose that private operators can have no legitimate role, and that government operation can be counted upon for quality and efficiency. Now doesn’t that sound oxymoronic?


May You Live For a Thousand Years


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What if human life expectancy doubles over the next 50 years? Triples? Mark Zuckerberg and many others with money to spend, such as Peter Theil and Larry Ellison, want to accomplish that and more. For example, Zuckerberg and his wife Priscilla Chan have pledged $3 billion over the next decade to “rid the world of disease”. The implications are fascinating to ponder. In developed countries, most of the life extension would come from reducing mortality in adulthood and late in life, simply because childhood mortality has already reached very low levels. Assuming that the additional years are healthful, the dynamics of population growth and the labor force would change. Family structure could take new directions, especially if extended fertility takes place along with life extension. The coexistence of six, nine, or more generations might make one’s descendants virtual strangers. And it might be possible for an individual to have children who are younger than the great-grandchildren of progeny conceived early in one’s adulthood. For love or money, your great-grandchild might couple with an individual a generation or more ahead of you. Scandalous!

Some pundits foresee dark implications for humanity. Alex Tabarrok comments on some musings in The Telegraph by Jemima Lewis, providing the following Lewis quote:

We’d better hope they don’t succeed. What would it do to the human race if we were granted eternal health, and therefore life? Without any deaths to offset all the births, we would have to make room on earth for an extra 208,400 people a day, or 76,066,000 a year – and that’s before those babies grow old enough to reproduce themselves.

Within a month of Mr Zuckerberg curing mortality, the first wars over water resources would break out. Within a year, the World Health Organisation would be embarking on an emergency sterilisation programme. Give it a decade and we’d all be dead from starvation, apart from a handful of straggle-bearded tech billionaires, living in well-stocked bunkers under San Francisco.

Of course, people will still die in accidents and from some illnesses that cannot be anticipated; some people will always engage in self-destructive behavior; and there will always be natural calamities that will take human life, such as earthquakes and hurricanes. Nevertheless, life-extending technologies will increase the human population, all else equal. I say bring it on! But Lewis’ attitude is that increasing life expectancy is a bad thing, contrary to our almost uniformly positive experience with longer lives thus far, including improvements in the quality of life for aging seniors. More fundamentally, her view is that people are a liability, a collection of helpless gobblers, rather than valuable resources with the promise of providing themselves with an increasingly rich existence.

Lewis’ article demonstrates a special brand of ignorance, now common to many on the left, going back at least to the time of Robert Malthus, at about the turn of the 19th century. Malthus’ pessimism about the world’s ability to provide for the needs of an expanding population is well known, and wrong. The Club of Rome‘s report “The Limits To Growth“, published in 1972, pretty much continued in the Malthusian tradition. That report predicted increasing shortages and mass starvation. Of course, the Club erred both empirically and theoretically, as Julian Simon forcefully argued in the 1980s and 1990s. The crux of Simon’s argument was the existence of a renewable resource of vast promise: human ingenuity:

Because of increases in knowledge, the earth’s ‘carrying capacity’ has been increasing throughout the decades and centuries and millennia to such an extent that the term ‘carrying capacity’ has by now no useful meaning. These trends strongly suggest a progressive improvement and enrichment of the earth’s natural resource base, and of mankind’s lot on earth.

There are certain conditions that must be in place for the planet to provide for ongoing advances in human well-being. Markets must be operative in order for prices to provide accurate signals about the relative scarcity of different resources. When particular resources become more scarce, their prices provide an incentive to use existing substitutes and innovative alternatives. Competition facilitates and helps perfect this process, as new producers continuously seek to introduce innovations. Needless to say, the more restrictions imposed by government, and the more the state gets involved in picking favorites and protecting incumbents, the less effective this process becomes.

From a global perspective, the human race has done quite well in eliminating poverty during the industrial era. Impressive measures of progress across many dimensions are chronicled at the Human Progress blog, where Marian Tupy writes of “Looking Forward To the Future“. These improvements fly in the face of predictions from the environmental left, and they demonstrate that humanity is likely to find many ways in which extended lifespans can be both enjoyed and contribute to the world’s productive potential.

Extended lifespans will bring changes in the way we think about our working years and retirement. Both parts of our lives are likely to be extended. Job experience utilizing incumbent technologies will become less scarce, and will thus command a lower premium. Continuing education will increase in importance with new waves of technology. There will be changes in the time patterns of saving and investment and the design of retirement benefits offered by employers, but long periods of compounding might reduce the pressure to save aggressively. Bequest motives would almost surely change. Mechanisms like family endowments benefitting members of an extended family via education funding, medical technology and end-of-life care might become common.

There will have to be many changes in our physical makeup to ensure that life extension buys mostly “quality time”. For example, it’s probably not possible for many parts of the human body to function reliably after a century of use. The technologies of skeletal, organ and muscle replacement, or rejuvenation, will have to advance significantly to ensure a reasonable quality of life in an older population. The bodies of older humans will either be cyborgized or freshly regenerated as life extension becomes a reality.

As more radical life extension begins in earnest, it’s likely to begin as the exclusive province  of the rich. However, like everything else, the technologies and benefits will eventually diffuse to the broader population as long as competitive pressures are present in the relevant markets. It will be a matter of choice, and perhaps the most unhappy among us will choose to forego these opportunities. However, such technologies, to the extent that they become a reality, would have the potential to improve the physical well- being of almost anyone.

Dramatically extending the human life span will bring dramatic change and many social challenges, but ending disease is a worthy goal, and one that most certainly will benefit mankind. Tabarrok casts Jenima Lewis as an Ayn Rand villain, though he must realize that she is simply ignorant of the forces that create growth and an improving existence. Unfortunately, she is one of many on the left enamored with a perspective that is “anti-mind, anti-man, anti-life” (to quote Tabarrok quoting Rand).

For additional reading on the left’s anti-human agenda, see this Fred Siegel piece in the City Journal, “Progressives Against Progress” (HT: Glenn Reynolds).


Rainfall, Individualism and Income


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Highly variable rainfall in a country is associated with less individualistic attitudes, according to a provocative paper by economist Lewis Davis (HT: Marginal Revolution). He leverages this relationship to estimate a positive impact of individual responsibility on economic development. Both results are potentially important, if somewhat controversial. Davis admits that he confronted a number of measurement issues and methodological complexities.

Davis notes that the variability of rainfall creates agricultural risk. He posits that countries having to deal with such recurrent, exogenous risks tend to develop institutions that might allow risk to be shared more broadly. In other words, such uncontrollable events as droughts, destructive flooding and uneven agricultural output lead to a social tendency toward collectivism, which is also reflected in the attitudes of individual citizens. He first builds a mathematical economic model with that implication:

… the model predicts the equilibrium level of collective responsibility will be greater where nature is more capricious.

Davis finds that the relationship holds up empirically using cross-country data on rainfall and surveys of social attitudes. His real interest, however, is to exploit that relationship to obtain estimates of the impact of individual responsibility on economic development. The complication he grapples with is that more favorable survey ratings of individual responsibility are themselves a function of economic development, so causation runs both ways. To tackle this problem, he uses rainfall variability to create an empirical “instrument” based on survey measures of individual responsibility, and in turn uses the exogenous variation in the instrument to explain differences in per capita income. Controls are used in the fitted equations for other social and economic factors. Again, he finds that his instrument for individual responsibility is positively related to income.

Another way to summarize Davis’ results is that natural risks are associated with greater acceptance of collectivism, but collectivist attitudes are associated with lower income levels. The empirical finding of a preference for heavy reliance on the state to insure against common risks is fascinating and it comports with the theory that the government has a legitimate role in the provision of public goods, social risk mitigation being among them. One should not place too much faith in the state as a reliable problem solver, however, or as an engine of economic growth. After all, there is a good reason for the second result: an economy dominated by the public sector is doomed to long-term decline. Individual initiative and capitalism, on the other hand, are more reliable in producing long-term economic gains and ending poverty, even when the rain is spotty. General prosperity might be more difficult to achieve when the weather is fickle, but prosperity is a much better cushion against risk than government.

Are The Native-Born Idle By Choice?


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Native-born Americans don’t seem to want low-skilled work, even when they have no skills. Immigrants, on the other hand, seem more than happy to take those jobs. The fact is that hours worked by native high-school dropouts have declined relative to the hours of immigrant dropouts, as noted by Robert Verbruggen in “When Young Men Don’t Work“.

Of course, American men in general are working less, with fewer jobs in occupations and sectors traditionally dominated by men, such as manufacturing. The total demand for manual labor may be decreasing due to automation. Among the youngest cohort, hours spent in educational activities have increased. However, another contributing factor may be that the supply of labor is held down by negative work incentives created by government policy. In any case, the changing composition of the low-skilled work force is a curiosity. Many of the native-born appear to be opting out of work, but not the foreign-born:

Native high-school dropouts of ‘prime age’ (25–54) work only about 35 weeks per year, on average; comparable immigrant dropouts work 49 weeks. Native dropouts are the outliers. Immigrant dropouts work roughly as much as both native and immigrant men with higher levels of education—and they do 60 percent of the work performed by dropouts in America, despite being less than half of the dropout population.

Clearly low-skilled work exists , and immigrants are doing a disproportionate share of it. Are some of these low-wage jobs simply inaccessible to the native-born? I doubt it. The argument that immigrants are taking low-wage jobs from Americans implies that immigrants have lower reservation wages. But if that’s so, it confirms the hypothesis that natives are less willing to take low-skilled jobs.

In fact, the native-born might have better leisure alternatives than many of the foreign-born. Verbruggen reviews the work of Erik Hurst of the University of Chicago, who argues that technology such as video games and the internet have increased the value of leisure relative to work. Perhaps natives are better situated than immigrants to draw on other resources to finance an idle, gaming existence. Whatever they do to occupy their time, those resources might include relationships with family having the means to support them, and even a familial tolerance for idleness.

It’s also possible that natives have better access to the bounty of the welfare state. Undocumented foreign workers are at a disadvantage in this regard, but that handicap is eroding. Whatever the reason, it appears that native-born Americans are spared the need to bid aggressively on work they consider undesirable. That decision will often be costly in the longer-run, given the lost opportunity to develop skills on the job.

Another possible explanation for the disparity in average working hours is that more immigrants are willing to work (illegally) in sub-minimum wage jobs. That might well be true for undocumented foreign workers, even in occupations that would otherwise be legal. One could argue that this is unlikely to reduce opportunities for work at or above the minimum wage because wage offers tend to align with skill level. However, sub-minimum wage offers to illegals are probably driven by the risk faced by the employer in making such hires. Just the same, illegal opportunities to work below minimum wage are not the exclusive domain of immigrants. Cash compensation can allow an employer to pay sub-minimum wages to anyone willing to work. Moreover, many natives work in the underground economy in areas such as illicit drug distribution, which might or might not involve sub-minimum wages.

Of course, an individual working at a lower wage must work more hours to earn the same income as one earning a higher wage. Subsistence for the immigrants might require the extra hours. That would explain the disparity in average hours if natives and immigrants truly can be sorted by wage rate, but if that is the case, then the natives must have less interest in low-wage jobs, as postulated, and the natives are content to live at the same subsistence level as the low-wage immigrants by working fewer hours.

Thus, it is difficult to escape the conclusion that native-born Americans are less willing to work in low-wage jobs than the foreign-born. Further increases in the minimum wage would have a tendency to create more idle time among the low-skilled, both native and immigrant. The total legal demand for low-skilled labor would decline. More natives might be willing to supply labor at the higher minimum, but incumbents have an advantage in holding onto jobs that remain after the increase. A higher minimum would certainly convert some formerly legal opportunities into illegal opportunities (at wages below the new minimum), attenuating the total increase in idleness.

Growth in the labor force is a fundamental driver of economic growth, and immigration has always been an important source of labor for the U.S. economy. Low-skilled, native-born Americans seem less willing to offer their services at wages matching their skill levels, but immigrants help to fill that gap and are usually happy for the opportunity. A higher minimum wage will not make their lives easier in the U.S. It should also be noted that greater tolerance for immigration at the low-end of the socioeconomic spectrum need not imply a sacrifice in border security or careful vetting, but it would provide a supply of able and willing workers eager to improve their standard of living.

On a related note, I add the following: James Pethokoukis points to an interesting irony with respect to Donald Trump’s policy positions: “Trump wants 4% (or higher) US growth. Easy. Just massively increase immigration“.

Valuing Water Properly


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The Western U.S. is dealing with its water crisis in a variety of ways, but the most promising solutions, and the least draconian, involve the creation of water ownership rights and markets in which they can be traded. This recent Vox interview with John Fleck, author of “Water Is for Fighting Over“, emphasizes the dramatic reductions in usage that have taken place over the past few decades. Unmentioned, however, is that without correct price incentives, much of this adaptation involves unnecessary costs. Many users are forced to restrict water use via coercive rules. Even when conservation entails the installation of relatively simple technologies like low-flow toilets and less water-intensive landscaping, mandates do not encourage water to flow to its highest-valued uses. Mandates force conservation on all uses regardless of the efficiency with which it can be accomplished, leading to higher costs. Of course, droughts induce changes in agricultural usage as well (and reduce yields), but those changes are always suboptimal to the extent that real price incentives for a crucial input are absent.

Fleck is highly supportive of a few cases of water trading within and between certain irrigation districts. Despite these cases, however, water is priced too low in most jurisdictions to reflect its actual scarcity, and the adjustments that do occur are generally indiscriminate in terms of economic efficiency.

The only way to bring rationality to water use is for all parties to have an interest in its long-term sustainability. Markets can do that much better than collective action or forms of regulation instigated by the state. But for markets to work, traders must have a secure right in the thing being traded. Water rights are controversial, to say the least. Some basics of water rights are discussed briefly in this review of a book called “Water Capitalism: The Case for Privatizing Oceans, Rivers, Lakes, and Aquifers“, by Walter Block and Peter Nelson.

First, the riparian system, which works only when water is plentiful:

‘The concept is that ownership of the adjacent land includes the riparian zone [the water frontage zone, i.e. shore] … typically to the centerline (unless he has holdings on both sides …) as well as the water [itself]. Pure riparian ownership gives the proprietor the privilege of drawing water … as long as there is any [to draw]’

The in-toto system requires that any body of water, or any independent source of water, be owned by one entity, whether that is an individual, a cooperative, or a corporation. In such a world, owners of water assets would have an economic interest in good stewardship, and would charge rates that would effectively limit drawdowns to a sustainable flow. That is the only way to preserve the long-term value of their asset. However, the idea of an “independent” source of water is often problematic or even superfluous, as many or even most sources of water are dependent on others to one degree or another.

The prior appropriation system of water rights is described by Peter Nelson in this quote:

‘This type of ownership both involves the water and measures it. The first user constructed the device(s) necessary to utilize and/or divert what he needed. In so doing, he mixed his labor with a natural resource. But what exactly does he own? It is not geometric in nature. The flow of water is what he possesses.’

In some respects, prior appropriation is similar to the concept of squatter’s rights. However, the author of the book review linked above, Ryan Griggs, claims that ownership in a rate of flow, a usage right, is fundamentally different than a property right. I disagree. There are other forms of property that constitute claims to future flows of income, such as shares of stock or bonds held in perpetuity, and those flows are valued and traded as property. In any case, I’m not sure why ownership in a rate of usage is problematic from the perspective of the resource allocation problem at hand.

Prior appropriation is a convenient way of addressing the problem of vesting users with rights. Those rights would necessarily be attached to the land or area on which usage occurs, rather than portable for users, but I will continue to refer to “users” in what follows, rather than “places”. To simplify, suppose that each user owns an annual allotment of water as a percentage of total availability. If total availability fluctuates, some users will find it easier than others to adjust their usage. Individual users would receive their allotments based on prior use. They would pay a fee for the infrastructure and technology needed to extract and distribute water to them, and they would pay an additional rate per unit for water used above their allotment. If they use less than their allotment, they receive a rebate at the same rate per unit (or a “feebate“, a term sometimes used in conservation circles). Thus, users are given a conservation incentive.

In a low-water year when total availability is down, the price of usage will rise as users requiring more water than allotted bid on the available supplies. Those able to adjust their usage downward might find it profitable take “feebates”, in effect selling part of their allotment to other users. In this sense, water will flow to those uses in which its value is highest. The price of these trades will reflect the actual scarcity of the resource, and the higher price leads to more intensive conservation efforts. In fact, depending on the going rate, it’s possible for a user to become a net water seller, in term of monetary value, in a given period. It is also possible to arrange trades of longer-term water transfers, future water transfers, and even contingent water transfers.

The initial allotments are relatively easy to measure, though the details surrounding the measurement of historical usage must be agreed upon. However, future adjustments must be based on changes in total availability. How is that measured? A first step is to determine the extent to which total water supply is above or below a range deemed acceptable from a natural perspective. This, in turn, depends upon the annual rate at which the stock is recharged or replenished from natural sources. These data allow the calculation of a flow of usage each year that is consistent with moving toward the acceptable range for the water level. Depending on initial conditions, the allotments might require adjustments in usage in subsequent years, but that depends on the type of water source and the response of usage to the new conservation incentive. The path to “sustainable” allocations might have to be gradual, requiring several years. This might also require water authorities to purchase flows from other basins to bridge the gap, with the cost passed on to users in the marginal water rate (and reflected in feebates to the suppliers).

This might sound suspiciously like a “cap and trade” system because that’s exactly what it is. The determination of the initial allotments is a relatively benign exercise. The process for determining later adjustments is described above as a strictly technological problem, but in truth, it would be fraught with controversy, requiring a series of of political compromises. Battles over changes to allotments are likely to recur during periods of severe drought. This has been the case in Australia, for example, where the development of water markets is at a fairly advanced stage.

Australia succeeded in developing extensive water markets in response to the severe scarcity faced by farmers and other users in certain water basins. The National Water Commission published this report on water markets in 2011, which provides something of a blueprint for their system. These markets are primarily for water used in irrigation. The details of allotments in Australia are discussed in the report. No feebate system as described above is mentioned. Their water markets are now overseen by the Department of Agriculture and Water Resources. There are water brokers and exchanges to facilitate trading. WaterExhange and Waterfind provide on-line platforms for water trades. This Reuters article from September 2015 is of interest for its description of how water markets can become highly politicized under certain circumstances. This recent Bloomberg piece makes essentially the same point.

Regardless of the political complexities, the growing scarcity of water in the American West demands innovative new approaches to conservation. Creating secure rights in water flows and allowing users to engage in mutually beneficial trades of water gives them the right incentives for rational water management. Traditional approaches such as usage restrictions, mandates, and large water storage infrastructure projects are all costly and do not promote the  efficiencies that come naturally by way of market solutions.


Further reading: A recent report from The Nature Conservancy is strongly supportive of markets to deal with water scarcity. This Hamilton Project paper on water markets is worth reading as well. Two previous posts on Sacred Cow Chips dealt with water markets: “Scarcity Scarcity Everywhere, And Water Pricing Stinks” and “Can Water Markets Drive the Nuts From California?



The Progressive Underclass


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The underclass has not fared well under government policies enacted in explicit efforts to improve its members’ well being. If there is any one point on which I agree with Donald Trump, it is his recent assertion that “progressive” policies have been disastrous for minorities. Indeed, there is evidence that many public programs have been abject failures, even in terms of achieving basic goals. Some programs have managed to improve the immediate lot of the impoverished, but they have done so without freeing the beneficiaries of long-term dependency,  and perhaps have encouraged it. An underlying question is whether there is something endemic to these public initiatives that guarantees failure.

Arguments that public programs have such weaknesses are often based on the negative incentives they create, either for the intended beneficiaries (certain anti-poverty programs) or for employers who might otherwise work with them (absent minimum or “living” wages or regulatory obstacles). Then, of course, there are public services that are effectively monopolized (public schools) because they are “too important” to leave in the hands of private enterprise, with little recognition of the shoddy performance that is typical of institutions operating free of competitive pressure. And government action such as environmental policy often has a regressive impact, costing the poor a far greater share of income than the rich, and causing direct job losses in certain targeted industries.

A post from The Federalist Papers on “The Top 5 Ways Liberal Policies Hurt The Poor” is instructive. In addition to the welfare incentive trap, it highlights the failure of public schools to serve the educational needs of the poor, the minimum wage as a system of marginalization, urban gun control as a sacrifice of defenseless victims, and the extension of rights to illegal immigrants at the expense of U.S. citizens, especially low-skilled workers.

A fine essay by Kurt Williamsen entitled “Do Progressive Policies Hurt Black Americans?” focuses on three general areas of failure: public education, the workplace and welfare. He notes that certain educational innovations have met with success, yet are ridiculed by the progressive left because they promote competition.  He cites the dismal consequences for blacks of various labor and employment laws: “prevailing wage rates, the minimum wage, union bargaining power, occupational and business licensing laws, and affirmative action laws to comply with federal and state contracting requirements“. Even more astonishing is that the original motive for some of these policies, such as minimum wages and prevailing wage laws, was to keep unskilled blacks from competing with white union labor. They still work that way. Williamsen also discusses the fact that the welfare state has essentially left low-income blacks running in place, rather than lifting them out of dependency. Unfortunately, those programs have also inflicted large social costs, such as the disintegration of family in the black community:

Welfare programs had an insidious effect on black culture — more so than white culture — because of the way they were designed. With dramatically more blacks than whites being in poverty and with less future prospects when the War on Poverty got started, young black women often had children out of wedlock, beginning a cycle of enduring poverty and welfare wherein they relied on welfare as a main source of income, as did their children. Welfare provided more money for young women with fatherless children, on average, than the same young women could have made if they were employed. If a woman became married, she would lose benefits, making it beneficial for her to either just hook up with men or cohabitate, rather than marry.

Redistributionist policies have long been criticized for creating incentive problems among recipients of aid. Some of those problems have been corrected with the Earned Income Tax Credit, which operates as something of a negative income tax, and Temporary Assistance for Needy Families (TANF), which incorporates work requirements. However, as Vanessa Brown Colder at the CATO Institute points out, there is a need for further reforms to the many underperforming programs.

Like any large government program, redistribution also damages incentives for those who must pay the tab, generally those at higher income levels. High taxes ultimately discourage investment in capital and in new businesses that could improve the employment and income prospects of low-income segments. Here is Andrew Lundeen at The Tax Foundation:

When fewer people are willing to invest, two things happen. First, the capital stock (i.e. the amount of computers, factories, equipment) shrinks over time, which makes workers less productive and decreases future wages.

Redistributionists do their intended beneficiaries no favor by advocating for steeply progressive tax structures, which simply discourage investment in productive risk capital, impairing growth in labor income. This chart from Dan Mitchell shows a cross-country comparison of capital per worker and labor compensation. Not surprisingly, the relationship is quite strong. The lesson is that we should do everything we can to improve investment incentives. Punitive taxes on those who earn capital income is counterproductive.

Mitchell emphasizes a few other statist obstacles to empowering the disadvantaged here, including a brief discussion of how land-use regulations harm the poor. He quotes Leigh Franke of The Urban Institute:

Restrictive land-use regulations, including zoning laws, are partially to blame for the stagnant growth… Land-use regulations may be intended to protect the environment or people’s health and safety, and even to enhance the supply of affordable housing, but in excess, they restrict housing supply, drive up home prices, and limit mobility. …More and more zoning restrictions meant less construction, fewer permits, and a restricted housing supply that drove up prices even further. …cities often have stringent zoning laws, a restricted housing supply, and high prices, making it nearly impossible for lower-income residents and newcomers, who would likely benefit most from the opportunities available, to find affordable housing.

On the topics of local housing, labor laws, services, and regulatory burdens, Scott Beyer covers the maladies of that most progressive of cities, San Francisco. The city’s policies have helped create one of the nation’s most expensive housing markets  and have made the city’s distribution of income highly unequal. It is no coincidence that the politics of most of our declining cities are dominated by the progressive left.

Here is another fascinating example of negative unintended consequences arising from intervention on behalf of a disadvantaged group: so-called “Ban the Box” (BTB) initiatives. These laws prevent employers from inquiring about a job applicant’s  crime record, at least until late in the hiring process. Mitchell recently cited a study finding that BTB laws are associated with a reduction in employment opportunities for minorities. This disparate impact might be the result of more subtle screening by employers, demonstrating a reluctance to interview individuals belonging to groups with high crime rates. Apparently, employers are willing to give minorities a better chance when information on crime history is disclosed up-front.

Deleterious forms of intervention may vary from one disadvantaged group to another. For example, Native Americans have long been handicapped by federal control of their lands and their natural resources. Regulation of activity taking place on reservations is particularly burdensome, including a rule under which title to land must:

… be passed in equal shares to multiple heirs. After several generations, these lands have become so fractionated that there are often hundreds of owners per parcel. Managing these fractionated lands is nearly impossible, and much of the land remains idle.

Progressives often vouch for interventionism on the belief that thpse policies are ethically beyond question, such as climate change regulation. Of course, the science of whether anthropomorphic climate change is serious enough to warrant drastic and costly action is far from settled. The existence of high costs is deemed virtually irrelevant by proponents of activist environmental laws. Those costs fall heavily on the poor by raising the cost of energy-intensive necessities and by raising business costs, in turn diminishing employment opportunities. This is more pronounced from a global perspective than it is for the U.S., as emphasized in “Protect the poor – from climate change policies“, at the Watts Up With That? blog.

The world’s poor secure massive benefits from trade, but progressive policies often seek to inhibit trade based on misguided notions of “fairness” to workers in low-wage countries. And trade restrictions tend to benefit relatively high-wage workers by shielding them from competitive pressure. Brian Doherty in Reason talks about the nationalism of the Bernie Sanders brand, and how it undermines the poor. Donald Trump’s trade agenda has roughly the same implications. Protectionism should be rejected by the under-privileged, as it increases the prices they pay and ultimately reduces employment opportunities.

Certainly progressives always hope to assist the disadvantaged, but their policies have created a permanent dependent class. The simple lessons are these: working, producing and hiring must be rewarded at the margin, not penalized; interfering with wages and prices is counterproductive; all forms of regulation are costly; programs must be neutral in their impact on personal decisions; and property rights must be secure. Historically, economic freedom has lifted humanity from the grips of poverty. In virtually every instance, government micro-management has done the opposite. Unfortunately, it is difficult for progressives to overcome their reflexive tendency to “do something” about the poor by invoking the ever-klutzy power of the state.

Robots and Tradeoffs


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The other day, a few colleagues were lamenting the incipient robot domination of the workplace. It is true that advances in automation and robotics are likely to displace workers in a variety of fields over the next few decades. However, the substitution of capital for labor is not a new phenomenon. It’s been happening since the start of the industrial age. At the same time, capital has been augmenting labor, making it more productive and freeing it up for higher-valued uses, many of which were previously unimagined. The large-scale addition of capital to the production process has succeeded in raising labor productivity dramatically, and labor income has soared as a consequence. That is likely to continue as increasingly sophisticated robots assume certain tasks entirely and collaborate with workers on others, even in the service sector.

Advanced forms of automation are another step in the progression of technology. The process itself, however, and the adoption of robotics, might well be hastened by public policy that pushes labor costs to levels not commensurate with productivity. I wrote about this process in “Automate No Job Before Its Time” on Sacred Cow Chips late last year. The point of that essay was that government-imposed wage floors create an incentive for automation. Because a wage floor has its impact at the bottom of the wage scale, at which workers are the least-skilled, this form of government intervention creates a regrettable and unnatural acceleration in the automation process. Other mandated benefits and workplace regulations can have similar effects.

Robert Samuelson makes the same points in “Our Robot Panic Is Overblown“. He notes the effectiveness of the U.S. economy in creating jobs over time in the presence of increasing capital-intensity. But he also warns of potential missteps, including the dangers of government activism:

There are two dangers for the future. One is that the new jobs created by new technologies will require knowledge and skills that are in short supply, leaving unskilled workers without income and the economy with skill scarcities. … The second danger is that government will damage or destroy the job creation process. We live in a profit-making economic system. Government’s main role is to maintain the conditions that make hiring profitable. … If we make it too costly for private firms to hire (through high minimum wages, mandated costs and expensive regulations) — or too difficult to fire — guess what? They won’t hire. That’s what ought to worry us, not the specter of more robots.

Historically, automation has actually created more jobs than it has destroyed. In general, however, the new jobs have required higher levels of skills than the jobs lost. In “Why Are There Still So Many Jobs? The History and Future of Workplace Automation“, David Autor of MIT says it this way:

Automation does indeed substitute for labor—as it is typically intended to do. However, automation also complements labor, raises output in ways that lead to higher demand for labor, and interacts with adjustments in labor supply. … journalists and even expert commentators tend to overstate the extent of machine substitution for human labor and ignore the strong complementarities between automation and labor that increase productivity, raise earnings, and augment demand for labor.

As with almost all automation, robots will replace workers in the most routine tasks. Tasks involving less routine will not be as readily assumed by robots. To a large degree, people misunderstand the nature of automation in the workplace. The introduction of robots often requires collaboration with humans, but again, these humans must have more highly-developed skills than a typical line worker.

Hal Varian, who is the chief economist at Google, describes the positive implications of the ongoing trend to automate (see the link in the last paragraph of this post), namely, less drudgery and more leisure:

If displace more jobs’ means ‘eliminate dull, repetitive, and unpleasant work,’ the answer would be yes. How unhappy are you that your dishwasher has replaced washing dishes by hand, or your vacuum cleaner has replaced hand cleaning? My guess is this ‘job displacement’ has been very welcome, as will the ‘job displacement’ that will occur over the next 10 years. The work week has fallen from 70 hours a week to about 37 hours now, and I expect that it will continue to fall. This is a good thing. Everyone wants more jobs and less work. Robots of various forms will result in less work, but the conventional work week will decrease, so there will be the same number of jobs (adjusted for demographics, of course).

An extreme version of the “robot domination” narrative is that one day in the not-too-distant future, human labor will be obsolete. Automation is not limited to repetitive or menial tasks by any means. A wide variety of jobs requiring advanced skills have the potential to be automated. Already, robots are performing certain tasks formerly done only by the likes of attorneys, surgeons, and computer programmers. Robots have the potential to repair each other, to self-replicate, to solve high-order analytical problems and to engage in self-improvement. With advances in artificial intelligence (AI), might humans one day become wholly obsolete for productive tasks? What does that portend for the future of so many human beings and their dependents who, heretofore, have relied only on their labor to earn a living?

There are any number of paths along which the evolution of technology, and its relationship to workers and consumers, might play out. The following paragraphs examine some of the details:

The Human Touch: There will probably always be consumers who prefer to transact with humans, as opposed machines. This might be limited to a subsegment of the population, and it might be limited to the manufacture of certain artisan goods, such as hand-rolled cigars, or certain services. Some of these services might require qualities that are more uniquely human, such as empathy, and the knowledge that one is dealing with a human would be paramount. This niche market might be willing to pay premium prices, much as consumers of organic foods are willing to pay an extra margin. However, it will be necessary to retain the perceived quality of the human touch and to remain reasonably competitive with automated alternatives on price.

Human Augmentation: Another path for the development of technology is the cyborgization of labor. This might seem rather distasteful to current sensibilities, but it’s a change that is probably inevitable. At least some will choose it. Here is an interesting definition offered by geir.org:

Cyborgization is the enhancement of a biological being with mechanical or non-genetically delivered biological devices or capabilities. It includes organ or limb replacements, internal electronics, advanced nanomachines, and enhanced or additional capabilities, limbs, or senses.

These types of modifications can make “enhanced” humans competitive with machines in all kinds of tasks. The development of these kinds of technologies is taking place within the context of rehabilitative medical care and even military technology, such as powerful exoskeletons, but the advances will make their way into normal civilian life. There is also development activity taking place among extreme hobbyists underground, such as “biohackers” who perform self-experimentation, embedding magnets or electronic chips in their bodies in attempts to develop a “sixth sense” or enhanced physical abilities. Even these informal efforts, while potentially risky to the biohackers themselves, might lead to changes that will benefit mankind, much like the many great garage tinkerers who have been important to innovation in the past.

Owning Machines: Ownership of capital will take on a greater role in providing for lifetime earnings. Can the distribution of capital ever be broadened to the extent needed to replace lost labor income? There are ways in which this can occur. The first thing to note is that the transition to a labor-free economy, were that to transpire, would play out over many years. Second, we have witnessed an impressive diffusion of advanced technologies in recent decades. Today, consumers across the income spectrum hold computers in their pockets that are more than the equivalent of the supercomputers that existed 50 years ago. Today’s little computers are far more useful in many ways, given wireless internet connectivity. There are many individuals for whom these devices are integral to earning an income. Thus, the rate of return on these machines can be quite impressive. The same is true of computers, software (sometimes viewed as capital) and printers, not to mention other “modern” contrivances with income-earning potential such as cars, trucks and a vast array of other tools and hardware. Machines with productive potential will continue to make their way into our lives, both as consumers and as individual producers. This also will include value-added production of goods at home, even for use or consumption within the household (think 3D printers, or backyard “farmbots”).

Saving Constructs: Most of the examples above involve machines that require some degree of human collaboration. Of course, even the act of consuming involves labor: I must lift the fork to my mouth for every bite! But in terms of earning income from machines, are there other ways in which ownership of capital can be broadened? The first answer is an old one: saving! But there is no way most individuals at the start of their “careers” can garner a significant share of income from capital. Other social arrangements are probably necessary. One of great importance is the family and family continuity. Many who have contemplated a zero-labor future imagine a world in which there are only two kinds of actors: individuals and the state. Stable families, however, hold the potential for accumulating capital over time to provide a flow of income for their members. Other forms of social organization can fill this role, but they must be able to accumulate capital endowments across generations. Of course, in an imagined world with minimal opportunities for labor, some have concluded that society must collectively provide a guaranteed income. To indulge that view for just a moment, a world of complete automation would almost certainly be a world of superabundance, so goods would be extremely cheap. That means a safety net could be provided at a very low cost. Nonetheless, it would be far preferable to do so by distributing a minimal number of shares of ownership in machines. These shares would have some value, and to improve resource allocation, it should be the individual’s responsibility to manage those shares.

Economic Transition: The dynamics of the transition to robot-dominated production raise some interesting economic questions. Should the advancement of robotics and artificial intelligence create a massive substitution away from labor, it will be spurred by 1) massive upward shifts in the productivity of capital relative to its cost; and 2) real wages that exceed labor’s marginal productivity. There will be stages of surging demand for the kinds of advanced labor skills that are complementary to robots. The demand for less advanced labor services does not have to fall to zero, however. There will be new opportunities that cannot be predicted today. Bidding for scarce capital resources and the flow of available saving will drive up capital costs, slowing the transition. And as long as materials, energy and replacement parts have a cost, and as long as savers demand a positive real return, there will be a margin along which it will be profitable to employ various forms of labor. But downward adjustment of real wages will be required. Government wage-floor policies must be abandoned. That will not be as difficult as it might sound: the kind of automation envisioned here would have profound effects on overall costs and the supply of goods, leading to deflation in the prices of consumables. As long as real factor prices can adjust, there will almost certainly remain a balance between the amounts of capital and labor employed.

In “Robots Are Nothing New“, Don Boudreaux passes along this comment from George Selgin:

I’ve always been aghast at finding many otherwise intelligent economists arguing as if technology had a mind of its own, developing willy-nilly, or even perversely, in relation to the relative scarcity of available factors, including labor. Only thus can it happen that labor-saving technology develops to a point where labor, instead of being relatively scarce, becomes superabundant!

The fundamental problem, I believe, is confusion of the role of technological change with that of government interference with the pricing of labor services that is among the things to which technology in turn responds. Labor-saving technology becomes associated with unemployment, not because the last is a consequence of the former, but because both are contemporaneous consequences of a common cause, to wit: minimum wage laws and other such interference that sets wage rates above their market-clearing levels.

There is much disagreement on the implications of automation. This excellent survey of experts by the Pew Research Center contains a number of insights. Also, visit Singularity Hub for a number of great articles on automation and AI, some of which are surprising. I believe that these technologies hold a great deal of promise for humanity. The process will not take place as suddenly as some fear, but ill-conceived policies such as a mandated “living wage” would put us on an unnaturally speedy trajectory. Opportunities for the least-skilled workers will be foreclosed too soon, before those individuals can develop skills and improve their odds of establishing a life free of dependency. Too rapid an adoption of advanced automation and AI would increase the likelihood of choosing suboptimal production methods that might be difficult to change later, and it would leave little time for education and training for workers who might otherwise leverage new technologies. The benefits of automation and their diffusion can be maximized by allowing advances to take a natural course, guided by market forces, with as little interference from government as possible.