Monthly Archives: August 2015

A Farewell To Firearms Control

30 Sunday Aug 2015

Posted by in Gun Control

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Whatever you might think of gun rights, one should expect at least honest treatment of the issue from public officials like the President of the United States, not outright lies about the facts:

“... at some point, we as a country have to reckon with the fact that this type of mass violence does not happen in other advanced countries.“

Oh, yes it does! Mass shootings occur in many countries, though they remain statistically rare here and abroad. (Also see here and here.)

Mr. Obama wants to “... reduce the broader epidemic of gun violence in this country.”

But there is no gun violence epidemic! The rate of gun deaths in the U.S. is about half its rate of 20 years ago.

In the wake of the shooting of two TV journalists in Roanoke, VA this past week, a new spate of anti-gun memes has appeared. Some have used a collection of illustrations in Vox as a source, most of which suffer from conceptual problems discussed in this report by the Crime Prevention Research Center (CPRC): “Comparing Murder Rates and Gun Ownership Across Countries“. These issues are summarized below:

  • Homicides are not measured consistently across countries: For example, England counts only homicides for which there is a conviction, artificially deflating the number of homicides. In the U.S., homicides are counted even if there is no arrest. Counting only arrests would cut the reported U.S. murder rate by more than half. Counting only convictions would cut the rate still more.
  • A related issue is the number of defensive gun uses (DGUs — two posts that deal with DGUs and other topics related to gun violence appear at the link). DGUs are often non-fatal, but they undoubtedly increase the count of homicides in the U.S. That won’t hold in countries where official reporting of homicides differs. Here is John Stossel on the topic of DGUs:

“Often those guns are used to prevent crime. The homeowner pulls out the gun and the attacker flees. No one knows how often this happens because these prevented crimes don’t become news and don’t get reported to the government, but an estimate from the Violence Policy Center suggests crimes may be prevented by guns tens of thousands of times per year.”

  • Cross-country differences in gun homicides may not be reflected in total homicides because a percentage of the gun incidents would occur whether or not the perpetrator had access to a gun. Moreover, a number of countries with high total homicide rates do not report gun homicides.
  • “Mass shootings” can be defined in a variety of ways. Should they include acts of terrorism? Should they include only incidents involving a single shooter? Should they include gang shootouts? Should they include only incidents that occur “in public”? Should they include only incidents involving a death? Some implications of these definitional differences can be found here.
  • Comparing “civilian gun ownership” across countries can distort conclusions. Countries like Switzerland and Israel allow citizens to keep guns issued by the military in their homes, which reduces their official tallies. Both countries, like a number of others, have high rates of gun possession but very low firearm homicide rates.
  • The number of guns per capital is misleading because a relatively small number of individuals or households own multiple guns. Gun ownership rates are probably better for addressing the question of access to guns.
  • Comparing gun ownership across “civilized” countries introduces an arbitrary element, because there is no widely-accepted definition of “civilized”. Developed countries, as defined by the OECD, represents a better standard. Among developed countries, more gun ownership is associated with lower homicide rates.
  • Cross-sectional data may be confounded by endogenous influences. For example,  high crime leads to more homicides and to more DGUs, which inflates homicides based on the U.S. definition. Or, high crime and homicides might lead local governments to impose strict gun control laws. But do those laws lead to even more homicides? Controlling for confounding influences is difficult, but it is possible to address causality based on responses to significant events, such as changes in gun control laws.

Gun control advocates maintain that guns lead to violence, and that limiting access to firearms would reduce the number of violent homicides and deaths. There is much evidence to the contrary. For example, homicide rates have tended to increase after gun bans go into effect. That is true in both the U.S. and internationally. The experiences of Chicago and DC, mentioned at the last link, are instructive. The CPRC recently reported that murder rates have declined even as the number of concealed carry permits has soared over the past 15 years. And it is unlikely that stronger background checks would have made any difference in several high-profile mass shootings, including Sandy Hook and the one last week in Roanoke.

I maintain that gun control measures are more likely to give the appearance of effectiveness in the context of a history and culture of limited gun ownership. However, where gun ownership is historically extensive and deeply embedded in the culture, gun control measures may be counter-productive. Criminals can acquire guns on the black market, but bans prevent law-abiding citizens from using guns to defend themselves and undermine the prevention of gun violence.

Better to reform unproductive laws that criminalize harmless behavior, such as the drug trade and prostitution. Prohibitions create profit opportunities in underground activity and often lead to gangland violence. And it is better to reform laws and social policies that discourage or eliminate opportunities for legal work, such as many welfare programs and the minimum wage.

Fortunately, gun control is going nowhere politically. Gun ownership among the law abiding continues to grow, and most voters support Second Amendment rights, especially when security is tenuous. Smart Democrats know that gun control is a losing proposition for them, even if their left flank remains enamored with the idea. That’s a very good thing.

Statists and Stasis: The Dismal Solutions of Anti-Capitalists

26 Wednesday Aug 2015

Posted by in Capitalism, Markets, Socialism, Tyranny

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Thought Hanging

The anti-capitalist Left is quick to condemn private businesses of unfair practices and even unethical behavior. In their estimation, certain prices are not just and profits are somehow undeserved rewards to private property, risk-taking and entrepreneurial sweat. They somehow imagine that meeting market demands is an easy matter, or worse, that market demands are not “socially useful”. Few have ever attempted to run a business, or if they have, they were unsuccessful and resent it. They also cannot grasp the social function served by private markets, to which we owe our standard of living and much of our culture.

What alternatives do these deep thinkers suggest? A socialist utopia? Jonathan Newman discusses the many practical problems presented by socialism and why it always fails to achieve success comparable to societies that rely on free markets. Newman’s treatment covers the inability of administered pricing to convey accurate information and effective incentives, the waste induced by queuing, neglect of comparative advantage, waste induced by production quotas, retarded innovation and technological development, and a deeply embedded stasis in the face of changing conditions. Little wonder that poverty is a consequence.

Warren Meyer at Coyote Blog has written of the stasis seemingly promoted by the progressives. They are quite protective of the status quo. Ironically, and quite rightly, Meyer calls them “deeply conservative”, too conservative to accept the dynamism of a capitalistic society. From Meyer:

“Progressives want comfort and certainty. They want to lock things down the way they are. They want to know that such and such job will be there tomorrow and next decade, and will always pay at least X amount. Which is why, in the end, progressives are all statists, because only a government with totalitarian powers can bring the order and certainty and control of individual decision-making that they crave..

Progressive elements in this country have always tried to freeze commerce, to lock this country’s economy down in its then-current patterns. Progressives in the late 19th century were terrified the American economy was shifting from agriculture to industry. They wanted to stop this, to cement in place patterns where 80-90% of Americans worked on farms.“

Freezing the diffusion of technology and often the state of technology itself is a consequence of socialist policy. And technology may well be the enemy of the Left in another sense: An interesting twist is provided by Fred Foldvary of the Mercatus Center in “Government Intervention Is Becoming Obsolete“. He writes that technology is undermining all of the usual economic rationales for intervention: asymmetric information, external effects, public goods, and monopoly. The article is brief, but he refers the reader to more extensive treatments.

A good example of socialism’s perverse appeal is the rhetoric of Senator Bernie Sanders, now a candidate for the Democrat Presidential nomination. Sanders has criticized the “the dizzying (and socially useless) number of products in the deodorant category….” At Reason.com, A. Barton Hinkle wondered what Sanders might consider the appropriate number of deodorant choices in our society. Would he wish to dictate a limited number as a matter of policy? And what other “socially useless” choices might he choose to limit in his failure to grasp that these choices reflect the incredible health and vibrancy of a market economy. Here’s Hinkle:

“… central planners think they can allocate economic resources better than the unguided hand of individual free choice. Like any good scientific experiment, this one is easily replicated, and has been time and again. See, for example, Venezuela, which has now run out of toilet paper, tampons, and other basic necessities because some people there think they should make all the choices for other people. And yet for many, the repeated lesson still has not sunk in. In an unintentionally hilarious essay about Cuba not so long ago, one writer noted that “the people are hungry here. There are severe food shortages. I do not understand why a tropical island would lack fruits and vegetables . . . and my only assumption is that maybe they have to export it all.”

Never forget that government can only pursue policy objectives via coercive power. I don’t think socialists have forgotten at all. Without the power to coerce, nothing proposed or done by the state can be accomplished and enforced. This is the course that progressive, anti-capitalists must follow to achieve their collectivist vision. But Chris Edwards reminds us that “Coercion Is Bad Economics” with the following points about government:

  • When it “uses coercion, its actions are based on guesswork.“
  • Its “actions often destroy value because they [arbitrarily] create winners and losers.“
  • Its “activities fail to create value because the funding comes from a compulsory source: taxes.”
  • Its “programs often fail to generate value because the taxes to support them create “deadweight losses” or economic damage.“

By arranging voluntary, mutually beneficial trades, market forces avoid all of these problems. As Robert P Murphy explains in The Freeman, “Capitalists Have a Better Plan“.

The anti-capitalists do not hesitate to saddle private businesses with confiscatory tax and regulatory burdens in the name of their own vision of society. Want to live in a bleak world of decline? Then here’s your prescription, courtesy of the anti-capitalist Left: regulate heavily, monitor transactions, impose wage and price controls, dismantle markets, tax at punitive levels, confiscate property, censor “offensive” speech, extend dependence on the state, absorb private savings and crowd out private investment with government borrowing, and inflate the money stock. Smells like a crappy “utopia”.

White House Spins Weak Obamacare Enrollments

24 Monday Aug 2015

Posted by in Markets, Obamacare

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obamacare-humor-Screw

The Obama Administration is trying desperately to burnish the record of the President’s signature “achievement”, the Affordable Care Act (ACA), a.k.a. Obamacare.  That’s a tall order, unless the subject is the ACA’s remarkable triumph for excellence in high cronyism. Otherwise, little wonder that they tell only part of the Obamacare story. Robert Laszewski recently examined ACA’s enrollment in more detail and found the record rather dismal. He notes the following:

“… the Obama administration is just reporting the good news and a good share of the press appears to be happy to pass these numbers along–albeit in a technically correct but hardly complete way.“

Here are two examples provided by Laszewski:

  • The Rand Corporation reported that a net total of 16.9 million people were newly enrolled through February 2015. This was picked up by the press, which attributed the increase to Obamacare. But only 4.1 million of those newly insured came from the individual marketplaces (as noted by Rand). Most of those eligible for coverage through the marketplaces have not enrolled. Most of those who have enrolled were qualified for subsidies. Another 6.5 million came from Medicaid, which is free to those who qualify for that program. 9.6 million came from employer-provided plans, which has much to do with improved hiring over the past two years, as opposed to the ACA.
  • There were almost 950,000 new enrollees during the “special enrollment period” (after open enrollments ended) this year. This was heralded by the media, but little was said about the 1.3 million who dropped off the Obamacare rolls by the end of March. That number will grow once the administration comes clean on the number who have dropped coverage since then.

From Laszewski:

“The Obamacare insurance exchanges aren’t enrolling anywhere near the number of people they were supposed to. And, there is no proof Obamacare has grown since the close of open enrollment. In fact the anecdotal and historical evidence would suggest it is now shrinking.“

Going forward, the prospects for ACA enrollment are not good. As Slate belatedly reported last month, substantial premium increases are expected for 2016. The Heartland Institute‘s “Somewhat Reasonable” blog reports that “Millions of Americans Refuse to Buy Obamacare, Prefer to Pay Penalty“. The total who have refused is 7.5 million, much more than expected, while another 12 million people have claimed that they are exempt from the ACA’s requirements. Obamacare pricing and subsidies contain perverse incentives. It remains to be seen whether the insurers dominating the exchanges will have a sufficient number of young, healthy individuals enrolled and paying inflated premiums to offset the claims of more heavily-subsidized, high-risk enrollees.

There are many other problems plaguing Obamacare, including limited access to health care providers for many enrollees. Reason.com recently asked whether Obamacare is simply too complex to work, a question based largely on the findings of an HHS Inspector General’s report. There are massive issues related to verification of eligibility for subsidies and back-end payment systems for compensating insurers:

“Think of it this way: Before Obamacare, the U.S. health system was like a giant tangled knot. If you’ve ever tried to untangle a big knot, you know that it can take a while, and that the trick is to patiently loosen one bit at a time.

Obamacare’s designers, in contrast, saw that they couldn’t undo the knot, so they added more string, and tied it into the knot that was already there. Now it’s an even bigger mess.“

The so-called Obamacare success story is wishful thinking and shameless propaganda. It has failed to accomplish its goals in terms of coverage and especially cost, it has resulted in lost coverage to millions in the individual market who “liked their plans”, and it has caused millions of others who “liked their doctors” to lose their doctors. Things are not looking any rosier as we approach the implementation of the employer mandate (which was delayed twice) in 2016.

There are many ideas in play for improving health care coverage and access post-Obamacare. Here are summaries of the plans floated so far by Republican Presidential candidates Scott Walker and Marco Rubio. Though neither plan is a detailed as I’d like, some of the proposed high-level features are promising, at least relative to the ACA. There will be more proposals from other candidates before long. I’m hopeful that they will all remember to let markets work.

Carbon Farce Meets Negative Forcings

22 Saturday Aug 2015

Posted by in Global Warming, Technology

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NanoMan copy

A new technology is being refined that could reverse years of carbon forcings, given sufficiently wide application, and do so at a profit. That profit should not require the kind of costly subsidies that are now routinely paid to green crony capitalists. Instead, the profit should derive from real market demand for a valuable material. The MIT Technology Review covers the technology under “… How To Suck Carbon From The Air, Make Stuff From It“. It makes possible a form of carbon capture that produces carbon nanotubes, a promising material already in use but having much wider potential. From the second link above:

“Carbon nanotubes are a great example of how useful materials are being developed. This material is said to be one hundred times stronger than steel because of its ‘molecular perfection’ as explained in the paper ‘Year 2050: Cities in the Age of Nanotechnology’ by Peter Yeadon. In addition, because carbon atoms can bond with other matter; such material can be an ‘insulator, semi-conductor or conductor of electricity’”.

Carbon nanotubes have remarkable properties that will revolutionize fabrics and allow buildings to have incredible strength, “transient features” such as variable transparency, and shape shifting. The new technology is said to be more efficient than existing methods of producing carbon nanotubes, and probably much cheaper.

The first link above quotes the developers on the technology’s massive potential for carbon capture:

“They calculate that given an area less than 10 percent of the size of the Sahara Desert, the method could remove enough carbon dioxide to make global atmospheric levels return to preindustrial levels within 10 years, even if we keep emitting the greenhouse gas at a high rate during that period.“

That area is twice the size of California, but a much more modest deployment would certainly reduce the political pressure to decrease carbon emissions. The extent would depend upon the demand for nanotubes, which is expected to grow dramatically in the presence of declining costs. Perhaps we’ll want more carbon emissions if nanotube materials come into widespread use. That would be a welcome development in the developing world, where fossil fuels hold the potential to lift millions out of poverty, as they have for advanced countries in the past. However, such a change would require elites to acknowledge and yield to the supremacy of markets over politics.

A technology capable of such significant carbon capture obviously constitutes a negative carbon “forcer”. Therefore, another implication is that climate models with a heavy emphasis on carbon forcings may be rendered moot. Those models have persistently generated over-predictions of global temperatures, so a deemphasis is already long overdue.

Another hat tip to my buddy John Crawford, who recently has fed me some great information. John should accept my invitation to guest-blog on SCC sometime soon, or start his own blog!

Manipulating Temperatures, People & Policy

21 Friday Aug 2015

Posted by in Global Warming, Tyranny

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The heavily-manipulated global surface temperatures quoted by NOAA and NASA point to another “hottest month on record” in July, but the satellite temperature measurements do not agree. Nor do several other widely-followed global temperature series maintained elsewhere, such as the UK Meteorological Office (UK Met Office). I wrote about the manipulation of surface temperatures by NOAA and NASA in January in “Record Hot Baloney“, and in “Fitting Data To Models At NOAA” in June:

“If the facts don’t suit your agenda, change them! The 18-year “hiatus” in global warming, which has made a shambles of climate model predictions, is now said to have been based on “incorrect data”, according to researchers at National Oceanic and Atmospheric Administration (NOAA). Translation: they have created new data “adjustments” that tell a story more consistent with their preferred narrative, namely, that man-made carbon emissions are forcing global temperatures upward, more or less steadily.“

The last link provides detail on the nature of the manipulations. Perhaps surprisingly, rather large downward adjustments have been made to historical temperature data, reinforcing any upward trend in the late 20th century and hiding the current 18-year pause in that trend. Suffice it to say that the “adjustments” made by these agencies are at fairly detailed levels; some of the before-and-after comparisons shown by gifs at this link are rather astonishing. Some climate researchers have started to refer to the temperature series as “reconstructions” instead of “data”, out of respect for the legitimacy of actual data.

In the meantime, the “warmist” propaganda keeps flowing from NOAA and NASA, and it is hungrily swallowed and then regurgitated by media alarmists. The media love a good scare story. They are so complicit in reinforcing the warmist narrative they will ignore the revelation of a faulty temperature sensor at National Airport in Washington, D.C. (another hat tip to John Crawford). It has been recording temperatures averaging 1.7 degrees Fahrenheit too warm for the past 19 months. Now that the sensor has been changed, NOAA states that it will not make any adjustments to the past 19 months of recorded temperatures from the National weather station, despite the fact that they have routinely made many other changes, often without any real explanation.

Here is a recent opinion from Duke University Professor Robert Brown on the divergence of satellite and NASA/NOAA surface temperatures and the adjustments to the latter:

“The two data sets should not be diverging, period, unless everything we understand about atmospheric thermal dynamics is wrong. That is, I will add my “opinion” to Werner’s and point out that it is based on simple atmospheric physics taught in any relevant textbook. …

This does not mean that they cannot and are not systematically differing; it just means that the growing difference is strong evidence of bias in the computation of the surface record.“

Every new report issued by NOAA/NASA on record warm temperatures should be severely discounted. They are toiling in the service of a policy agenda; it will cost you dearly, and it will severely punish the less fortunate here and especially in less developed parts of the world; and it will reward the statist elite, bureaucrats and Green crony capitalists. Ronald Bailey in Reason recently weighed in on the consequences of this “apocalyptic anti-progress ideology“. Or read the wise words of Matt Ridley on “The recurrent problem of green scares that don’t live up to the hype“. Hey greens, relax! And don’t waste our resources and our well being on precautions against exaggerated risks.

Will ET Be a Socialist?

19 Wednesday Aug 2015

Posted by in Capitalism, Socialism, Space Travel

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If we are ever visited or contacted by agents from an extraterrestrial civilization, what kind of society will they come from? The issue is given scant attention, if any, in discussions of extraterrestrial life, at least according to this interesting piece in The Freeman by B.K. Marcus. The popular view, and that of many scientists, seems to be that the alien society will be dominated by an authoritarian central government. Must that be the case? Marcus notes the negative views taken by such scientific authorities as Neil deGrasse Tyson toward laissez faire capitalism, and even Carl Sagan “… could only imagine science funded by government.” Of course, Tyson and Sagan cannot be regarded as authorities on economic affairs. However, I admit that I have fallen into the same trap regarding extraterrestrial visitors: that they will come from a socialist society with strong central command. On reflection, like Marcus, I do not think this view is justified.

One explanation for the default view that extraterrestrial visitors will be socialists is that people uncritically accept the notion that an advanced society is a planned society.  This runs counter to mankind’s experience over the past few centuries: individual freedom, unfettered trade, capitalism and a spontaneous social order have created wealth and advancement beyond the wildest dreams of earlier monarchs. Anyone with a passing familiarity with data on world economic growth, or with F.A. Hayek, should know this, but it Is often overlooked. Central planners cannot know the infinitely detailed and dynamic information on technologies, resource availability, costs and preferences needed to plan a society with anything close to the success of one arranged through the voluntary cooperation of individual actors.

Many of us have a strong memory of government domination of space exploration, so we tend to think of such efforts as the natural province of government. Private contractors were heavily involved in those efforts, but the funding and high-level management of space missions (NASA in the U.S.) was dominated by government. Today, private space exploration is a growth industry, and it is likely that some of the greatest innovations and future space endeavors will originate in the private sector.

Another explanation for the popular view is the daunting social challenges that would be faced by crews in interstellar travel (IST). Given a relatively short life span, a colonizing mission would have to involve families and perhaps take multiple generations to reach its destination. There is a view that the mini-society on such a ship would require a command and control structure. Perhaps, but private property rights and a certain level of democratization would be advantageous. In any case, that carries no implication about the society on the home planet nor the eventual structure of a colony.

A better rationale for the default view of socialist ETs involves a public goods argument. The earth and mankind face infrequent but potentially catastrophic hazards, such as rogue asteroids and regions of strong radiation as the sun orbits the center of the Milky Way galaxy. These risks are shared, which implies that technological efforts to avert such hazards, or to perpetuate mankind by colonizing other worlds, are pure public goods. That means government has a classic role in providing for such efforts, as long as the expected benefits outweigh the costs. The standard production tradeoff discussed in introductory economics classes is “guns versus butter”, or national defense (a pure public good) versus private consumption. IST by an alien civilization could well require such a massive diversion of resources to the public sector that only an economically dominant central government could manage it. Or so it might seem.

As already noted, private entrepreneurs have debunked the presumed necessity that government must dominate space exploration. In fact, Elon Musk and his company SpaceX hope to colonize Mars. His motives sound altruistic, and in some sense the project sounds like the private provision of a public good. Here is an interpretation by Tim Urban quoted at the link (where I have inserted a substitute for the small time-scale analog used by the author):

“Now—if you owned a hard drive with an extraordinarily important Excel doc on it, and you knew that the hard drive pretty reliably tended to crash [from time to time] … what’s the very obvious thing you’d do?
You’d copy the document onto a second hard drive.
That’s why Elon Musk wants to put a million people on Mars.”

Musk has other incentives, however. The technology needed to colonize Mars will also pay handsome dividends in space mining applications. Moreover, if they are successful, there will come a time when Mars is a destination commanding a fare. Granted, this is not IST, but as technology advances through inter-planetary travel and colonization, there is a strong likelihood that future Elon Musks will be involved in the first steps outside of our solar system.

While SpaceX has raised its capital from private sources, it receives significant revenue from government contracts, so there is a level of dependence on public space initiatives. However, the argument made by Marcus at the first link above, that IST by ETs is less likely (or impossible) if they live under a socialist regime, is not based primarily on recent experience with private entrepreneurial efforts like Musk’s. Instead, it has to do with the inability of socialist regimes to generate wealth, especially the massive wealth necessary to accomplish IST.

Discussions of ETs (or the lack thereof) often center around a question known as the  Fermi Paradox, after the physicist Enrico Fermi. He basically asked: if the billions and billions of star systems, even in our own galaxy, are likely to harbor a respectable number of advanced civilizations, where are they? Why haven’t we heard from them? My friend John Crawford objects that this is no paradox at all, given the vastness of space and the difficulty and likely expense of IST. There may be advanced civilizations in the cosmos that simply have not been able to tackle the problem, at least beyond their own stellar neighborhood. No doubt about it, IST is hard!

I have argued to Crawford that there should be civilizations covering a wide range of development at any point in time. In only the past hundred years, humans have increased the speed at which they travel from less than 50 miles per hour (mph) to at least 9,600 mph. The speed of light is approximately 270,000 times faster that that! At our current top speed, it would take almost 50% longer to reach our nearest neighboring star, Alpha Centauri, than the entire span of human existence to-date. With that kind of limitation, there is no paradox at all! But I would not be surprised if, over the next 1,000 years, advances in propulsion technology bring our top speed to within one-tenth of the speed of light, and perhaps much more, making IST a more reasonable proposition, at least in our “neighborhood”. There may be civilizations that have already done so.

Answers to the Fermi Paradox often involve a concept called the Great Filter. This excellent HuffPo article by Tim Urban on the Fermi Paradox provides a good survey of theories on the Great Filter. The idea is that there are significant factors that prevent civilizations from advancing beyond certain points. Some of these are of natural origin, such as asteroids and radiation exposure. Others might be self-inflicted, such as a thermonuclear catastrophe or some other kind of technology gone bad. Some have suggested that the Large Hadron Collider in Switzerland could be a major hazard to our existence, though physicists insist otherwise. Another example is the singularity, when artificial intelligence overtakes human intelligence, creating a possibility that evil machines will do us in. The point of these examples is that some sudden or gradual development could prevent a civilization from surviving indefinitely. These kinds of filters provide an explanation for the Fermi Paradox.

More broadly, there could be less cataclysmic impediments to development that prevent a society from ever reaching an advanced stage. These would also qualify as filters of a sort. Perhaps the smart ETs lack, or failed to evolve, certain physical characteristics that are crucial for advancement or IST. Or their home planet might be light on certain kinds of resources. Or perhaps an inferior form of social organization has limited development, with inadequate wealth creation and technologies to transcend the physical limitations imposed by their world. On a smaller than planetary scale, we have witnessed such an impediment in action many times over: socialism. The inefficiencies of central planning place limits on economic growth, and while high authorities might dictate a massive dedication of resources toward science, technology and capital-intensive space initiatives, the shift away from personal consumption would come at a greater and greater cost. The end game may involve a collapse of production and a primitive existence. So the effort may be unsustainable and could lead to social upheaval; a more enlightened regime would attempt to move the society toward a more benign allocation of resources. Whether they can ever accomplish IST is at least contingent on their ability to create wealth.

Socialism is a filter on the advancement of societies. ETs capable of interstellar travel could not be spawned by a society dominated by socialism and central planning. While government might play a significant role in a successful ET civilization, one capable of IST, only a heavy reliance on free-market capitalism can improve the odds of advancing beyond a certain primitive state. Capitalism is a relatively easy ticket to the wealth required for an advanced and durable civilization, and conceivably to the reaches of the firmament.

Unfortunately, there is absolutely no guarantee that capitalistic ETs will be friendly  toward competing species, or that they will respect our property rights. They might be big, smart cats and find us mouse-like and quite tasty. Their children might make us perform circuses, like fleas. In any case, if ETs get this far, it’s probably because they want our world and our resources. My friend Crawford says that they won’t get here in any case. He believes that the difficulty of IST will force them to focus on their own neighborhood. Maybe, but on long enough time scales, who knows?

I would add a caveat to conclusions about the strength of the filters discussed above. A capitalistic society might reach a point at which it could send artificially intelligent, self-replicating machines into space to harvest resources. Those machines might well survive beyond the end of the civilization that created them. Conceivably, those machines could act autonomously or they could take coordinated action. But we haven’t heard from them either!

For a little more reading, here is SETI‘s description of the Fermi Paradox, and here is a post from io9 on the Great Filter.

Social Security: Saving or Tax? Proceeds or Aid?

17 Monday Aug 2015

Posted by in Big Government

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SOCSEC Negative Return

In general parlance, an entitlement is a thing to which one is entitled. If you have paid into Social Security (FICA payroll “contributions”), you should feel entitled to receive benefits one day. Why do I so often hear indignant complaints about the use of the term “entitlement” when applied to Social Security and Medicare? I’ve heard it from both ends of the political spectrum, but more often from the Left. It is usually accompanied by a statement about having “paid for those benefits!”. Exactly, you should feel entitled to them. You are not asking society to pay you alms!

Yet there seems to be resentment of an imagined implication that such “entitlements” are equivalent to “welfare” of some kind. That might be because the definition of an entitlement is somewhat different in the federal budget: it is a payment or benefit for which Congress sets eligibility rules with mandatory funding, as contrasted with discretionary budget items with explicit approval of funding. Because payments are based solely on eligibility, Social Security, Medicare and many forms of welfare benefits are all classified as entitlements in the federal budget. Obviously, those complaining about the use of the term in connection with Social Security believe there is a difference between their entitlement and welfare. But as long as they are willing to leave their “contributions” and future eligibility in the hands of politicians, their claim on future benefits is tenuous. Yes, you will pay FICA TAXES, and then you might be paid benefits (alms?) if you are eligible at that time. Certainly, the government has behaved as if the funds are fair game for use in the general budget.

Having made that minor rant, I can get to another point of this post: the Social Security retirement system offers terrible returns for its “beneficiaries”. Furthermore, it is insolvent, meaning that its long-term promises are, and will remain, unfunded under the current program design. However, there is a fairly easy fix for both problems from an economic perspective, if not from a political perspective.

The chart at the top of this post shows that Social Security benefits paid to eligible retirees are less than the payroll taxes those same individuals paid into the system. The chart is a couple of years old, but the facts haven’t changed. It’s boggling to realize that you’ll receive a negative return on the funds after a lifetime of “contributions”. That kind of investment performance should be condemned as unacceptable. However, you should know that the program is not “invested” in your retirement at all! Social Security’s so-called “trust fund” is almost a complete fiction. Most FICA tax revenue is not held “in trust”. Instead, it is paid out as an intergenerational transfer to current retirees. In the past, any surplus FICA tax revenue was invested in U.S. Treasury special purpose bonds, which funded part of the federal deficit. Here is a fairly good description of the process. The article quotes the Clinton Office of Management and Budget in the year 2000:

“These balances are available to finance future benefit payments … only in a bookkeeping sense. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits, or other expenditures.“

Unfortunately, for the past few years, instead of annual surpluses for the trust fund, deficits have been the rule and they are growing. Retiring baby boomers, longer life expectancies, slow income growth and declining labor force participation are taking a toll and will continue to do so. Something will have to change, but reform of any kind has been elusive. An important qualification is that almost any reform would have to be phased in as a matter of political necessity and fairness to current retirees. Unfortunately, just about every reform proposal I’ve heard has been greeted by distorted claims that it would harm either current retirees or those nearing retirement. In fact, leaving the program unaltered is likely to be a greater threat to everyone down the road.

There are three general categories of reform: higher payroll taxes, lower benefits, and at least partial privatization. Tax increases have obvious economic drawbacks, while straight benefit reductions would be harmful to future recipients even if that entailed means testing: the return on contributions is already negative, especially at the upper end of the income spectrum. Michael Tanner discusses specific options within each of these categories, including raising the normal and early retirement ages. None of the options close the funding gap, but at least higher retirement ages reflect the reality of longer life expectancies.

Early in his presidency, the George W. Bush administration offered a reform plan involving no tax increases or benefit cuts. Instead, the plan would have offered voluntary personal accounts for younger individuals. Needless to say, it was not adopted, but it would have kept the system in better shape than it is today. The key to success of any privatization is that unlike the Social Security Trust Fund, workers with private accounts can earn market returns on their contributions, which are in turn reinvested, allowing the accounts to grow faster over time. Tanner notes that 20 other countries have moved to private accounts including Chile, Australia, Mexico, Sweden, Poland, Latvia, Peru, and Uruguay. This sort of change does not preclude a separate social safety net for those who have been unable to accumulate a minimum threshold of assets, as Chile has done. Tanner’s article lays out details of a tiered plan that would allow participants a wider range of investments as their accumulated assets grow.

Economic research suggests that participants do not place a high value on their future benefits. From a 2007 National Bureau of Economic Research (NBER) paper by John Geanakoplos and Stephen Zeldes entitled “The Market Value of Social Security“:

“We find that the difference between market valuation and ‘actuarial’ valuation is large, especially when valuing the benefits of younger cohorts. … The market value of accrued benefits is only 2/3 of that implied by the actuarial approach.“

An implication is that younger workers who have already made contributions could be offered the choice of a future lump sum that is less than the actuarial present value of their benefits when they become eligible. Such a program could cut the long-term funding gap significantly, if the results found by Geanakoplos and Zeldes can be taken at face value, though it could create additional short-term funding pressure at the time of payment.

Qualified support for such a program seems apparent from another 2007 NBER paper by Jeffrey R. Brown, Marcus D. Casey and Olivia S. Mitchell entitled “Who Values the Social Security Annuity? New Evidence on the Annuity Puzzle“. They find that:

“Our first finding is that nearly three out of five respondents favor the lump-sum payment if it were approximately actuarially fair, a finding that casts doubt on several leading explanations for why more people do not annuitize. Second, there is some modest price sensitivity and evidence consistent with adverse selection; in particular, people in better health and having more optimistic longevity expectations are more likely to choose the annuity. Third, after controlling on education, more financially literate individuals prefer the annuity. Fourth, people anticipating future Social Security benefit reductions are more likely to choose the lump-sum, suggesting that political risk matters.“

Moreover, lump sums may offer an additional advantage from a funding perspective: a 2012 paper from the Michigan Retirement Research Center at the University of Michigan by Jingjing Chai, Raimond Maurer, Olivia S. Mitchell and Ralph Rogalla called “Exchanging Delayed Social Security Benefits for Lump Sums: Could This Incentivize Longer Work Careers?” found that “... workers given the chance to receive their delayed retirement credit as a lump sum payment would boost their average retirement age by l.5-2 years.”

Certainly, it would be difficult for private accounts to fare as badly in terms of returns on contributions than the system has managed to date. The future appears even less promising without reform. There are several advantages to privatization of Social Security accounts beyond the likelihood of higher returns mentioned above: it would avoid some of the labor market distortions that payroll taxes entail, and it would increase the pool of national savings. Perhaps most importantly, over time, it would release the assets (and future benefits) accumulated by workers from the clutches of the state and self-interested politicians. They are not entitled to pursue their political ends with those assets; they are yours!

Government Supplies a Cliff; Would you Jump?

14 Friday Aug 2015

Posted by in Big Government, Welfare State

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welfare cliff

People respond to incentives. That does not, in and of itself, make some people “energetic” and others “lazy”. To the contrary, it really means they are responsive and capable of calculating rewards. Critics of the welfare state are sometimes accused of labeling welfare recipients as “lazy”, which is absurd and a cop-out response to serious questions about the size, effectiveness, and even the fairness of means-tested benefits. The structure of welfare benefits in the U.S. often penalizes work effort and market earnings. That being the case, who can blame a recipient for minimizing work effort? From their perspective, that is what society wants them to do. Note that this has nothing to do with the provision of a social safety net for those who are unable to help themselves.

The welfare incentive phenomenon is explored by Zero Hedge under the Fight Club nom de guerre Tyler Durden in “When Work Is Punished: The Ongoing Tragedy Of America’s Welfare State“:

“At issue is the so-called “welfare cliff” beyond which families will literally become poorer the higher their wages, as the drop off in entitlements more than offsets the increase in earnings.“

The cliff looks different in different states and even differs by county. The chart at the top of this post is for Pennsylvania, from the state’s Secretary of Public Welfare, though I saw it on this post from LiberalForum. (Go to the link if the image is not clear). The Zero Hedge post linked above includes a dramatic illustration for Cook County in Illinois. Not many welfare recipients participate in all of the programs shown in the charts, but the point is that many of the programs create nasty incentives that tend to “trap” families at low income levels. Often, these workers and their families would be better off in the long-run if they were to suffer the consequences of the cliff in order to gain more work experience. Unfortunately, few have the resources to ride out a period of lower total income precipitated by the cliff. Another obvious implication is that increases in the minimum wage would actually harm some families by pushing them over the cliff.

Welfare cliffs differ by the recipients’ family structure (one- versus two-parent households, number of children) and do not apply to every welfare program. For example, the Earned Income Tax Credit (EITC) is very well-behaved in the sense that additional work and/or wage income flows through as a net gain the household. While most welfare programs involve a benefits cliff, incentives are undermined even before that point. A flattening in the level of total income as earned income rises indicates that the recipient faces an increasing marginal tax rate. The chart above shows that total income is relatively flat over a range of earned income below the income at which they’d encounter the cliff. This flat range starts at an earned income of $15,000 to $20,000 and extends up to the severe cliff at almost $30,000.

Zero Hedge quotes a report from the Illinois Policy Institute:

“We realize that this is a painful topic in a country in which the issue of welfare benefits and cutting (or not) the spending side of the fiscal cliff have become the two most sensitive social topics. Alas, none of that changes the matrix of incentives for Americans who find themselves facing a comparable dilemma: either remain on the left side of minimum US wage and rely on benefits, or move to the right side at far greater personal investment of work, and energy, and… have the same (or much lower) disposable income at the end of the day.“

Another interesting take on this issue is offered by Dan Mitchell, who cites a recent National Bureau of Economic Research (NBER) paper, which finds:

“…the decline in desire to work since the mid-90s lowered the unemployment rate by about 0.5 ppt and the participation rate by 1.75 ppt. This is a large effect…“

The findings suggest that the welfare reforms of the 1990s actually had positive effects on work effort, though even the EITC creates some incentive problems for second earners. Worst of all is the incentive impact of expanded disability benefits, which have undone some of the gains from reform. Newer programs like Mortgage Assistance and now, Obamacare, have added to the work disincentives. Mitchell cites other research that reinforce these conclusions.

The welfare cliff harms economic efficiency by distorting the offer price of labor, by increasing costs to taxpayers, and by reducing the availability of productive resources. It is grossly unfair because it consigns its intended beneficiaries to a life of dependency. What a waste! Here is Mitchell’s prescription:

“Regarding the broader issue of redistribution and dependency, I argue that federalism is the best approach, both because states will face competitive pressure to avoid excessively generous benefits and because states will learn from each other about the best ways to help the truly needy while minimizing the negative impact of handouts on incentives for productive behavior.“

A side effect of negative welfare incentives is that they increase the relative benefits of participating in illegal income-earning activity. The “War on Drugs” exacerbates this effect by driving up drug prices. Of course, this activity is untaxed, and because it is unreported, it does not push the recipient toward the benefits cliff. This is another example of different government policies working at cross purposes, which is all too common.

Ev’rybody’s Gone Serfin’, Serfdom USA

11 Tuesday Aug 2015

Posted by in Big Government, Regulation

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Any new or existing enterprise can be strangled with ease when regulatory coercion is brought to bear. Whole industries can be strangled. And the strangulation of freedoms is not limited to business concerns. Individuals are impacted as well by the loss of employment choices and opportunities, choices in the marketplace, and even more basic freedoms such as speech and assembly. In an excellent paper, “The Rule of Law in the Regulatory State“, John Cochrane of The University of Chicago highlights the negative consequences of growth in the scope and complexity of regulation. It looks like a working paper with a few items in need of editorial attention. Nevertheless, it contains several interesting ideas, some noteworthy examples of regulatory overreach, and useful dimensions along which to think about regulatory power and its application.

Cochrane’s first two paragraphs give an overview of the pernicious social effects of regulation gone wild, yet they only scratch the surface:

“The United States’ regulatory bureaucracy has vast power. Regulators can ruin your life, and your business, very quickly, and you have very little recourse. That this power is damaging the economy is a commonplace complaint. Less recognized, but perhaps even more important, the burgeoning regulatory state poses a new threat to our political freedom.

What banker dares to speak out against the Fed, or trader against the SEC? What hospital or health insurer dares to speak out against HHS or Obamacare? What business needing environmental approval for a project dares to speak out against the EPA? What drug company dares to challenge the FDA? Our problems are not just national. What real estate developer needing zoning approval dares to speak out against the local zoning board?“

The centerpiece of Cochrane’s paper is his elaboration on a list of bullet points, or dimensions for assessing a regulatory process. The list is given below in italics (without quote marks), and each bullet is followed by my own brief clarification:

  • Rule vs. Discretion? – Rules are better. How much latitude shall a regulator have?
  • Simple/precise or vague/complex? – Simple is better. Vague/complex ≈ discretion.
  • Knowable rules vs. ex-post prosecutions? – Surprise! You’re busted. Vague ≈ unknowable. 
  • Permission or rule book? – Don’t make me ask. Review my plans non-arbitrarily. 
  • Plain text or fixers? – Must I hire a specialist with agency connections?
  • Enforced commonly or arbitrarily? – Objective vs. motivated enforcement.
  • Right to discovery and challenge decisions. – Transparency of evidence & standards.
  • Right to appeal. – to courts, not the agency.
  • Insulation from political process. – Limit discretion and scope of powers.
  • Speed vs. delay. – six months or approve by default.
  • Consultation, consent of the governed. – Formal representation in rule-making.

Sorry if lists make you snooze, but I think it’s a good list, even if the bullets aren’t mutually exclusive. The items highlight the always-present choice between restraining government’s exercise of coercive power versus restraining and coercing the governed.

Cochrane then takes the reader on a “tour” of regulatory areas, including several aspects of financial regulation, health care, foods & drugs, the environment, the internet, campaign finance, national security, immigration and education. These sections are brief, but in each of these areas, Cochrane highlights negative consequences of regulation that illustrate government failure based on the dimensions given in his list of bullets. Here’s an anecdote from his section on environmental regulation:

“Already, anyone opposed to a project for other reasons — like, it will block my view — can use environmental review to stop it. Delay is as good as denial in any commercial project.

The small story of Al Armendariz, head of EPA region 6 who proposed ‘crucifying’ some oil companies as an example to the others is instructive. He was caught on tape saying:

‘The Romans used to conquer little villages in the Mediterranean. They’d go into a little Turkish town somewhere, they’d find the first five guys they saw and they would crucify them. And then you know that town was really easy to manage for the next few years.

…we do have some pretty effective enforcement tools. Compliance can get very high, very, very quickly.’

According to the story, Armendariz shut down Range Resources, one of the first fracking companies. Range fought back and eventually a Federal Judge found in its favor. But an agency that operates by “crucifying” a few exemplars, explicitly to impose compliance costs, is ripe to choose just which exemplars will be crucified on political bases.“

Cochrane closes by describing his vision of a “Magna Carta for the regulatory state” in order to protect “citizens from arbitrary power“:

“It is time for a Magna Carta for the regulatory state. Regulations need to be made in a way that obeys my earlier bullet list. People need the rights to challenge regulators — to see the evidence against them, to challenge decisions, to appeal decisions. Yes, this means in court. Everyone hates lawyers, except when they need one.

People need a right to speedy decision. A “habeas corpus” for regulation would work — if any decision has not been rendered in 6 months, it is automatically in your favor.“

Accomplishing great things is difficult, both in the physical world and in creating value in any form for which other free individuals will trade. By comparison, failure is easy, and so are regulatory decisions that precipitate failure. So often, so easily, so arbitrarily, and with little accountability, those decisions destroy freedom, value and our ability to improve human welfare.

Trump Tower of Babble

09 Sunday Aug 2015

Posted by in Big Government, Marketplace of Ideas, Obamacare

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Presidential candidate, Donald Trump, has been critical of fellow Replubicans including Sen. John McCain. Some voters are curious about his "daffy" behavior.

Here’s a post-debate follow-up on Donald Trump the Shape Shifter: I’m surprised to hear anyone praising his performance after that debacle. He came off as a dick, and that’s really The Donald. I thought so before I heard that he suggested Megyn Kelly was menstruating that evening. Megan was tough, but please…. Trump is a loud-mouthed, offensive, and often incoherent bully.

Two Trump moments that I thought were amazing were his exchange with Brett Baier about political donations and his dust-up with Rand Paul over a single-payer health care system.

On donations, Trump seemed to take satisfaction in the fact that Hillary Clinton “had no choice” but to attend his wedding after he gave to her Senate campaign. He then made the following statement, which made me laugh:

“I will tell you that our system is broken. I gave to many people. Before this, before two months ago, I was a businessman. I give to everybody. When they call, I give. And you know what? When I need something from them, two years later, three years later, I call them. They are there for me. And that’s a broken system.“

Should I love him or hate him for that statement? He admits with no shame that he participates in crony capitalism, and he realizes that it’s corrupt. Andrew Popkin at Vox has a good analysis:

“Something Trump identifies that doesn’t always get mentioned is the way transactional politics transcend partisanship and ideology. Trump gave to Democrats and he gave to Republicans. He didn’t care what they believed. He cared what they could do for him. He wasn’t supporting them — he was buying them, and that’s completely different.“

It’s convenient for Trump to brag that he doesn’t need donations from others when campaigning. When he’s on the other side of the table, he’s happy to participate in the corruption. Did Trump buy the politicians who helped him arrange eminent domain actions against property owners who were in the way of his developments? He’s also quite proud of his use of bankruptcy laws allowing him to stiff lenders and investors in his enterprises. By the way, in comparing his four corporate bankruptcies to the many “deals” he’s executed over the years, he’d have you believe that the “deal” is always the relevant unit for a bankruptcy proceeding. That’s loose and misleading jargon.

I have said that Trump’s supporters really don’t know what their getting. Perhaps he won’t tell anyone because he’d lose “leverage”. A prime example of Trump’s shiftiness was his response to the following question on single-payer health care systems, including his attempt to embarrass Rand Paul:

Baier: “Now, 15 years ago, you called yourself a liberal on health care. You were for a single-payer system, a Canadian-style system. Why were you for that then and why aren’t you for it now?“

As Peter Suderman noted, Trump’s response to this question about health care began with his views on the war in Iraq. Donald’s rules…. But eventually, he addressed the health care question with a stream of words that thinking people might have been tempted to process logically in order to divine a coherent “Trump” position on the issue, but that would have been a mistake:

“As far as single payer, it works in Canada. It works incredibly well in Scotland. It could have worked in a different age, which is the age you’re talking about here.

What I’d like to see is a private system without the artificial lines around every state. I have a big company with thousands and thousands of employees. And if I’m negotiating in New York or in New Jersey or in California, I have like one bidder. Nobody can bid. You know why? Because the insurance companies are making a fortune because they have control of the politicians, of course, with the exception of the politicians on this stage. But they have total control of the politicians. They’re making a fortune.“

This is not a great moment of clarity for Trump. We still don’t know what he has in mind. He demonstrates that he doesn’t quite understand the inherent flaws in single-payer. If his complaint is with consolidation of the health insurance industry, single-payer would imply an even greater consolidation, indeed, a monopoly. A “private system” does not rule out single-payer. While the insurance companies have undoubtedly influenced politicians, just as Trump has, why is he complaining about a lack of choice, having just asserted that single-payer could work so well? And artificial lines have to do with non-price rationing, a typical feature of government intervention in markets. Thus far, the profits of under-pricing insurers have been protected by so-called “risk corridors” built into Obamacare. Would Trump allow health care providers and insurers to reprice in order to eliminate “artificial lines”? Trump’s words did not settle any questions about his position.

The end of Trump’s response is this:

“And then we have to take care of the people that can’t take care of themselves. And I will do that through a different system.“

So… was Trump still talking about single-payer or not? I forgive Rand Paul for imagining that he was. It was the only solid statement that one could cling to in Trump’s ramble.

Here is Suderman’s summary of Trump’s response with an account of the exchange with Rand Paul that followed:

“What matters is that [Trump] would be different. Different how? So very, very different—and definitely not a moron/loser/dummy/incompetent (pick one) like this other guy.

This is how Trump responds to almost everything: By not answering the question, by babbling out some at-best semi-relevant references, by promising to somehow be different and better without explaining how or why, and then by lobbing an insult.

An insult is how Trump finishes the Obamacare exchange as well. After Trump finishes answering the question, Sen. Rand Paul cuts in, saying, ‘News flash, the Republican Party’s been fighting against a single-payer system for a decade. So I think you’re on the wrong side of this if you’re still arguing for a single-payer system.’ [SCC’s bolding]

Trump’s comeback: ‘I’m not—I’m not are—I don’t think you heard me. You’re having a hard time tonight.’

The gist, as always, is that someone else—indeed, practically everyone else—is a dummy, a loser, a politician. Trump is the only one who really gets it, whatever it is.“

While I thought Rand Paul’s interjectory approach to debating was unwise, his comment to Trump was on-target, and he even qualified it. Trump responded with snark. Trump has yet to take a real position on health care in this campaign, but he has supported single-payer in the past. He doesn’t want to go to the trouble of deciding or revealing a specific plan just yet. Perhaps he’s “maintaining leverage”, keeping his options open, because he’s such a smart businessman. If you want to treat politics like a business deal, fine, but smart voters should be your partners, and they will expect you to reveal your terms.