Monthly Archives: February 2016

Unequal Pay For Unequal Work

25 Thursday Feb 2016

Posted by in Labor Markets

≈ Leave a comment

Tags

, , , , , , , , , , , , , , , , , ,

equal-pay-cartoon

Debates on social issues are often plagued by facile comparisons that distort the underlying facts. The alleged gender pay gap involves such comparisons. The Obama Administration proposed new rules last month intended to address a difference in median earnings between men and women, demanding data reports on various demographics from firms with 100+ employees. Mark Perry points out that the pay gap in the Obama White House is about the same as the national difference. Can there be any reasonable explanation for these disparities?

One key to understanding the debate is that the difference in aggregate pay between men and women (17% in 2014, according to the Bureau of Labor Statistics) is not a divergence in pay for equal work! However, that is the gist of the fraudulent narrative so often heard from the White House and elsewhere. The truth: 17% is the difference in the medians of two large distributions of working adults, one for men, one for women, covering all occupational categories. The discrepancy, which has declined sharply over the past 35 years, is explained today by fewer hours worked among women and “differences in educational attainment, work experience, and occupational choice.” These differences are well known, but gender-gap warriors conveniently overlook the following facts, as established by the Department of Labor:

  • There is more part-time work among women;
  • Women lose more experience to childbirth, child care and elder care;
  • Women demand more job flexibility and non-wage benefits (and that costs);
  • Women are disproportionately under-represented in dangerous occupations;
  • Women are disproportionately under-represented in STEM fields (Science, Technology, Engineering, Math);

Interestingly, the last point may have more to do with a broader range of talents possessed by females who are skilled at math, relative to men, which leads to a greater variety of career options. An implication: non-STEM occupational choices by women are often voluntary and not the result of discrimination. And those choices are often driven by considerations other than cash remuneration.

As to the risk of physical danger, in 2010, men were almost 12 times as likely as women to suffer fatal injuries on the job. There is no question that high-risk occupations have higher wages. Apparently, women choose not to pursue opportunities in these occupations. An earlier study found that single parents, male and female, were the most risk averse in their choice of occupation, and that married women with children are more risk averse than married men with children. Of course, it is possible that some employers have requirements in terms of physical strength that favor men. Either way, the job-risk gap almost certainly contributes to the measured-wage gender gap, but it has little to do with gender discrimination per se.

Earnings are sensitive to factors such as full-time / part-time status, continuous job tenure, and the likelihood of extended leaves of absence. This is supported by a research finding cited in The Economist, that partners in lesbian relationships tend to out-earn married straight females. The division of responsibilities in the home is surely part of the story: lesbian couples tend to split chores more equally than straight couples. Millennial couples (ages 25-34) are also more likely to split household chores equally; the gender pay gap for millennials is much narrower than for older age cohorts, and it is nonexistent for childless millennials. Millennial women have more than closed the education gap as well.

When gender differences in hours, tenure, absences, education, and job hazards are considered, as well as the full menu of compensating non-wage benefits available, the wage gap is essentially nonexistent. Yet President Obama’s proposed data mandate would carry high compliance costs and likely cost jobs as well. The purpose of the regulation is to make it easier for various groups to sue employers on the basis of wage discrimination. But observation of such a gap, wherever it might exist, is not prime facie evidence of discrimination; it is more than likely to be the result of private, voluntary agreement.

Is it possible that certain attitudes or behavioral characteristics of women generalize to poorer outcomes, relative to men, in negotiations? Tyler Cowan reports on research that suggests as much, based on “laboratory” experiments in which participants played repeated games involving actual rewards. In one experiment, the rewards depended on the acceptance of an offer to share a pot, and both men and women made lower offers to female partners than to males. However, when the partner was a woman, females were markedly stingier in their offers than males. Those women are tough! But seldom are real-world “deals” so one-dimensional, and controlling for all considerations of value is often impossible. In any case, trades rarely take place when the parties don’t find them to be mutually beneficial.

Fortunately, in labor markets, when differentials in skills and experience matter, discrimination is practiced only under a self-inflicted penalty on the discriminator. In the case of wage-based gender discrimination, the employer will tend to overpay for equivalently-skilled male help. Discrimination of this sort impairs a firm’s ability to attract the best employees and harms its competitive position. Nevertheless, the extent to which the market’s self-regulation confers benefits on individual participants depends upon their vigilance: buyer beware (caveat emptor) and seller beware (caveat venditor) are keys to real economic freedom. Most importantly, in all things, beware government edicts. Markets are the best regulator.

Sidebar: I was referred to an article on FiveThirtyEight by my friend John Crawford. The main subject matter of the article is off-topic and its conclusions are incorrect (I might post on it soon), but many of the charts are interesting; the third chart is really fascinating! It shows that women, by age 30, tend to belong to households that are higher in the income distribution than men who come from the same point in the distribution of household-income in childhood. This is true at every point in the childhood household-income distribution! Are there advantage(s) for women that can account for this? A few guesses: a lower rate of incarceration of women by age 30; women have higher marriage rates by age 30; women “marry up” more than men, both in terms of the ages and incomes of their spouses; women who don’t marry live with their parents more than men do (?). There could be other explanations, and the relationship may not hold at later ages. Still, it’s noteworthy that such a reverse “gender gap” exists in the data.

I close with a quote from Harvard’s Claudia Golden, from “A Grand Gender Convergence: Its Last Chapter” (HT: Marginal Revolution):

“The gap is much lower than it had once been and the decline has been largely due to an increase in the productive human capital of women relative to men. Education at all levels increased for women relative to men and the fields that women pursue in college and beyond shifted to the more remunerative and career-oriented ones. Job experience of women also expanded with increased labor force participation. The portion of the difference in earnings by gender that was once due to differences in productive characteristics has largely been eliminated. 

What, then, is the cause of the remaining pay gap? Quite simply the gap exists because hours of work in many occupations are worth more when given at particular moments and when the hours are more continuous. That is, in many occupations earnings have a nonlinear relationship with respect to hours. A flexible schedule comes at a high price, particularly in the corporate, finance and legal worlds.“

The Inhumane Minimum Wage Fantasy

22 Monday Feb 2016

Posted by in Minimum Wage, Poverty

≈ Leave a comment

Tags

, , , , , , , , , , ,

min-wage ball n chain

An analysis by the Economic Policy Institute (EPI) is the basis for breathless claims by the Left that a substantial increase in the minimum wage would have “sweeping benefits for low-income families.” The EPI study purports to show that spending on public assistance will decline significantly with the increase in the minimum wage. Author David Cooper’s analysis is purely static, dressed up with a few linear regression equations relating participation in federal welfare programs to the wage distribution. However, his conclusion is preordained by the very design of the analysis, which relies on pooled data from public assistance programs across 2012 – 2014. This was a period over which wages were generally rising, but the federal minimum wage was constant (and only a few state minimum wages were increased).

It’s no surprise that higher wages are associated with a reduced likelihood of receiving needs-based public assistance in a cross section. That’s not quite the same as measuring the dynamic impact of an increase in the minimum wage. The adjustment to a higher wage floor involves more complex shifts in the structure of the economy, including higher prices, a higher incidence of small business failure and the substitution of automated systems for labor. And celebration would not be in order if the policy change prompted a deterioration in the employment prospects of the least-skilled workers, and it would.

There are a few gaping holes in the EPI analysis. One involves a data limitation whereby the distribution of public assistance by wage decile is related to individual workers or their families. It is one thing to say that most recipients of public assistance work for a living. It is quite another to say “Most recipients of public assistance work or have a family member who works.” Obviously, the latter does not imply the former, yet the analysis asks you to accept that the wage rates of family members who perform work during a year are the determining factor in welfare program participation, rather than the employment status and hours of all members of the household.

The analysis includes cross-sectional regressions relating the receipt of public assistance (yes or no) to wages imputed at the individual level, controlling for a complex function of age (polynomial terms), other demographic factors and part-time work status during the previous year. As stated above, the data are plagued by measurement issues. Furthermore (and this is a technical critique), linear regression is not an appropriate statistical methodology with a binary dependent variable. The author should have known better, but we’ll leave that aside.

Controlling for part-time status is intended to create a more reliable estimate of the effect of wages on program participation, as part-timers are more likely to earn low wage rates. But if hours matter in that way, then the regression is all the more suspect because hours of work are otherwise ignored (except in the imputation of wage rates).

The truth is that poverty is not a wage problem as much as a jobs and hours problem. A recent post by Angela Rachidi  of the American Enterprise Institute notes that “Only 11.7% of poor working-age adults worked full-time for the entire year in 2014.” Impoverished individuals who work full or part-time are concentrated in low-skilled occupations. Those are likely to be the same kinds of jobs for which impoverished non-workers might otherwise compete. Many of those jobs are at or near the minimum wage, but increasing the wage floor will only exacerbate the problem of unemployment or underemployment.

An increase in the minimum wage might help those workers who are able to keep their jobs. Unfortunately, if they remain employed, they are likely to suffer non-wage repercussions at their jobs. Therefore, the size of the net economic gain for those lucky enough to keep their jobs is open to question, though their measured income will rise. Still, keeping your job may be a big challenge.

The EPI analysis pays no heed to the negative employment effects of changes in the minimum wage. These stem from  employers’ efforts to control costs, hiring only when the skills and expected productivity of a worker exceed the cost. Growth and job opportunities are thus quashed by the intervention, including the gain in skills that comes with experience. If a business hikes price to defray higher labor costs, the negative impact on customers will induce them to buy less, reducing the need for labor. Another possible impact may be caused by the so-called “welfare cliff“, or the tendency of many program benefits to decline as income rises, which imposes a marginal tax rate on beneficiaries’ labor income. A higher wage floor might induce a worker to reduce hours to avoid the cliff, if their employer allows it, or it might induce another employed member of the same household to reduce hours.

Here is the extent of EPI’s treatment of the negative employment effects of a higher minimum wage, quoting the Congressional Budget Office (CBO):

“CBO predicts that federal expenses would initially go down, but could later increase if the higher minimum wage has a significant negative effect on employment. On net, they conclude that ‘it is unclear whether the effect for the coming decade as a whole would be a small increase or a small decrease in budget deficits.’ It is important to note that the CBO’s ambiguity on this point is driven by their atypically high estimates of the probability of significant employment loss stemming from such an increase. If employment loss is insignificant (as most research on a minimum-wage increase of this magnitude indicates), the budget savings would surely dominate.” [Emphasis added]

The parenthetical, bolded statement is offered by Cooper without any support whatsoever, and it is incorrect. First, the evidence that the wage floor has negative employment effects “has been piling up” of late. “Living wage” advocates should not be encouraged by the recent experience of six large cities that have increased their minimum wages. Here is further information on the District of Columbia and WalMart’s reaction to a recent wage hike. The long-run effects of minimum wages are the most destructive, according to a recent paper authored by David Neumark and Olena Nizalova:

“The evidence indicates that even as individuals reach their late 20’s, they earn less and perhaps work less the longer they were exposed to a higher minimum wage at younger ages. The adverse longer-run effects of facing high minimum wages at young ages are stronger for blacks. From a policy perspective, these longer-run effects of minimum wages are likely more significant than the contemporaneous effects of minimum wages on youths that are the focus of most research and policy debate.“

Other recent work shows that minimum wage increases during the Great Recession increased unemployment among workers age 16 – 30 with less than a high-school education. Another paper finds that minimum wage hikes are bad anti-poverty measures, poorly targeted and regressive in their effects on the poor due to higher prices. A couple of previous posts on Sacred Cow Chips include many links to other work on minimum wages: “Major Mistake: The Minimum Opportunity Wage“, and “Unintended Consequences: Living (Without a) Wage“. Today, many jobs are at risk of automation, so the responsiveness of employers might be greater than ever.

In a strong sense, EPI’s findings and conclusion are beside the point for the many low-skilled workers whose jobs would be at risk, as well as those who might never be given legitimate employment opportunities under a higher wage floor. Those erstwhile workers and job seekers are generally the least skilled and most in need of experience. But EPI, and unthinking living wage advocates, are all too eager to signal the humanity and virtue of their favored policies, foolishly ignoring the negative and inhumane employment consequences.

When Is Recycling Not Wasteful?

17 Wednesday Feb 2016

Posted by in Environment, Government, Markets

≈ 1 Comment

Tags

, , , , , , , , , , , ,

Recycle

Recycling is not wasteful when it makes economic sense to recycle, without government force brought to bear in the form of mandates, taxes or subsidies. The argument that private parties undertake recycling to a less-than-optimal extent is based on the notion that there are external benefits of recycling that go unrecognized. According to this line of thinking, government must mandate recycling and must tax or impose fees to provide recycling infrastructure. It must demand that producers of goods utilize a certain percentage of recycled materials. Children must be taught the sustainability, goodness, and sanctity of recycling. These positions are ill-founded and misdirect resources toward excessive, and yes, sometimes wasteful recycling.

In 2010, The Property and Environment Research Center (PERC) published an excellent paper by Daniel K. Benjamin entitled “Recycling Myths Revisited“. Benjamin begins by offering “a brief history of rubbish”, which recalls the great extent to which recycling efforts have always been made out of sheer self-interest. Scavenging is as old as civilization, and recycling efforts have generated inputs to production from the start of the industrial age. Some older recycling activities have become obsolete for various reasons; others have been spawned by new technology.

Benjamin’s history of rubbish recounts the history of landfill usage and development. He discusses one seminal event in the history of rubbish: the Mobro 4000 garbage barge from New York City. Rumors of hazardous waste  aboard the Mobro led to it’s rejection at various rubbish “ports of call”. However, inaccurate reports circulated that the issue was a shortage of landfill space, a narrative that certain parties were only too happy to encourage, including the EPA and certain trade groups. The episode is a fascinating example of rumor, misinformation and manipulation.

“Although the physical availability of landfill space was not an issue, that was not how the situation played out in the press. The Mobro, said a reporter on a live TV feed from the barge itself, “really dramatizes the nationwide crisis we face with garbage disposal”. A strange cast of characters went on to turn Mobro’s miseries into a national cause.    …

The result of this steady drumbeat of expressed concern was a growing fear that America was running out of places to put its garbage and that yesterday’s household trash could somehow become tomorrow’s toxic waste. By 1995, surveys revealed that Americans thought trash was the number one environmental problem, and 77 percent reported that increased recycling of household rubbish was the solution. Yet these claims and fears were based on errors and misinformation— myths of recycling.“

From there, Benjamin proceeds with an excellent discussion of eight recycling-related myths, which I attempt to summarize below:

  1. We are running out of space for our trash: no, the capacity of landfills in the U.S. has outpaced growth in refuse for years. At 500 feet deep, a century’s worth of trash in the U.S. would fit into an area of five square miles. There is no shortage at all.
  2. Trash threatens our health and ecosystem: actually, the EPA estimates that health dangers posed by landfills are close to zero. Older landfills sited on wetlands or containing any hazardous industrial waste are the only real threat, which has nothing to do with recycling today. Benjamin describes the superior design features of modern landfills.
  3. Packaging is our problem: packaging “amounts to about 30 percent of what goes into landfills, down from 36 percent in 1970“. Thanks to innovations, the thickness and weight of almost every kind of packaging has declined significantly over the years. Moreover, packaging actually reduces waste in many instances by minimizing breakage and spoilage. For example, with packaging you deal with much less waste in your kitchen every time you buy chicken. The producer is able to recycle the useable waste more efficiently than you ever could.
  4. Trade in trash is wasteful: no, trade in trash allows it to be placed where it costs the least, including dumping fees and transportation costs. Both parties to a trash transaction are likely to benefit, including those in areas that import trash by virtue of the local fees and taxes paid by landfills.
  5. We are running out of resources: no we’re not, but it’s not that the total stock of earthbound resources is infinite (though many resources like forests are renewable). Instead, as Benjamin asserts, it’s that proven reserves of many resources keep growing, and the effective known stocks of nonrenewable resources are continually stretched by human ingenuity. Even land! Within a few decades, some resources are likely be mined on extraterrestrial bodies, but only if it makes economic sense. This is not to deny that scarcity is real, but prices in well-functioning markets always convey the degree of scarcity, the value of conservation, the cost of substitutes, the value of  new exploration, and the value of new technological efficiencies. Right now, the world is awash in many commodities, and their prices reflect a relative lack of scarcity.
  6. Recycling always protects the environment: this is nonsense. “Recycling is a manufacturing process, and therefore it too has an environmental impact. … over the past 25 years, a large body of literature devoted to life-cycle analyses of products from their birth to death has repeatedly found that recycling can increase pollution as well as decrease it (EPA 2006, 2010).” Benjamin notes that curbside recycling may well have a negative environmental impact due to the resource costs of the extra trucks, fuel, and exhaust required to collect it. The point is that tradeoffs exist and should not be ignored.
  7. Recycling saves resources: not if the recycled material is inferior to virgin material, with attendant inefficiencies and lower-valued final products; not if the process absorbs more resources than it saves. These kinds of decisions are best left to rational market participants, for whom the question of recycling is a matter of self-interest. “Commercial and industrial recycling is a vibrant, profitable market that turns discards and scraps into marketable products. But collecting from consumers is far more costly, and it results in the collection of items that are far less valuable.” When low-value recycling is mandated or subsidized, the true cost of the activity is hidden.
  8. Without recycling mandates, there wouldn’t be recycling: “Another force behind mandatory recycling is ignorance about the extent of recycling in the private sector. Private sector recycling is as old as trash itself. For as long as humans have been discarding rubbish, other humans have sifted through it for items of value. Indeed, … scavenging may well be the oldest profession.” Recycling must make economic sense. If it doesn’t, it simply should not happen.

Benjamin’s paper is loaded with great illustrations of all these points. Here’s one of my own: Some years ago, a local municipality was revealed to be sending recyclables to a landfill due to the low market value of the material. Net of the costs of sorting, selling and transporting the materials to buyers, it was apparently better to pay the fees for normal waste disposal. Residents were justifiably furious, but the reality is that recycled materials have a value that fluctuates. That value reflects the real resources the recycled materials can save, if any. However, the value may not always cover the variable cost of collecting the recyclables, let alone the fixed costs of the process. That’s to say nothing of the costs imposed on individuals by mandates.

The eight points above demonstrate that there is little in the way of external benefits from recycling. There is nothing mystical here to justify government coercion. Recycling must make economic sense and it must be voluntary. When we allow government to force the decision, the sure result is an overallocation of resources to an endeavor presumed by its adherents to save resources. There is no paradox. It’s just more waste.

Pawning Growth For Redistribution

15 Monday Feb 2016

Posted by in Equality, Redistribution

≈ Leave a comment

Tags

, , , , , , , , , , , , , , , , , , , ,

govt here to help

The following is no mystery: if you want prosperity, steer clear of policies that inhibit production and physical investment. This too: if you want to lift people out of poverty and dependency, don’t promote policies that discourage hiring and work incentives. Yet those are exactly the implications of policies repeatedly advocated by so-called redistributionists. The ignorance flows, in large part, from a distraction, a mere byproduct of economic life that has no direct relation to economic welfare, but upon which followers of Bernie Sanders are absolutely transfixed: income and wealth inequality. Attempts to manipulate the degree of inequality via steeply progressive taxes, transfers and market intervention is a suckers game of short-termism. It ultimately reduces the value of the economy’s capital stock, chases away productive activity, destroys jobs, and leaves us all poorer.

Absolute income growth is a better goal, and encouraging production is the best way to raise incomes in the long-run. Unless envy is your thing, income inequality is largely irrelevant as a policy goal. In “Why and How We Care About Inequality“, John Cochrane emphasizes that inequality may be a symptom of other problems, or perhaps no problem at all. His point is that treating a symptom won’t fix the underlying problem:

“A segment of America is stuck in widespread single motherhood … terrible early-child experiences, awful education, substance abuse, and criminality. 70% of male black high school dropouts will end up in prison, hence essentially unemployable and poor marriage prospects. Less than half are even looking for legal work.

This is a social and economic disaster. And it has nothing to do with whether hedge fund managers fly private or commercial. It is immune to floods of Government cash, and, as Casey Mulligan reminded us, Government programs are arguably as much of the problem as the solution. So are drug laws….“

The writers of the center-left Third Way blog give some details on income growth that might disappoint some progressives. They agree that the emphasis on redistribution is misplaced. Solving economic problems requires a different approach:

“From 1980 to 2010, income gains (after taxes and government transfers are included) favored the wealthy but were still spread across all income brackets: a 53% increase for the bottom quintile; a 41% increase for the next two; a 49% increase for the 4th; and a 90% increase for the richest fifth. Thus, while income inequality may offend our sense of justice, its actual impact on the middle class may be small.

With a singular focus on income inequality, the left’s main solutions are greater re-distribution and a re-writing of the rules to ‘un-rig’ the system. But, however well motivated, some of the biggest ideas into which they are directing their energy do not remotely address the underlying ‘Kodak’ conundrum—how do Americans find their place in a rapidly changing world? In fact, some would actually make the task of increasing shared prosperity significantly harder.“

The hubbub over inequality and redistribution is fueled by misconceptions. One is that the rich face low tax burdens, often lower than the middle class, a mistaken notion that Alan D. Viard debunks using 2013 data from a report from the Congressional Budget Office. The CBO report accounts for double taxation of dividends and capital gains at the corporate level and at the personal level (though capital gains are taxed to individuals now, while the anticipated corporate income is taxed later). The CBO study also accounts for employers’ share of payroll taxes (because it reduces labor income) so as to avoid exaggerating the tax system’s progressivity. Before accounting for federal benefits, which offset the tax burden, the middle 20% of income earners paid an average tax rate of less than 15%, while “the 1%” paid more than 29%. However, after correcting for federal benefits, the middle quintile paid a negative average tax rate, while the top 1% still paid almost 29%. That is a steeply graduated impact.

Rising income inequality in the U.S. is more a matter of changes in household structure than in the distribution of rewards. This conclusion is based on the fact that income inequality has risen steadily over the past 50 years for households, but there has been no change in inequality across individuals. An increasing number of single-person households, primarily women over the age of 65, accounts for rising inequality at the household level. The greedy corporate CEOs of the “occupier” imagination are really not to blame for this trend, though I won’t defend corporate rent-seeking activities intended to insulate themselves from competition.

Measures of income inequality hide another important fact: one’s position in the income distribution is not static. Chelsea German notes that Americans have a high degree of economic mobility. According to a Cornell study, only 6% of individuals in the top 1% in a given year remain there in the following year. German adds that over half of income earners in the U.S. find themselves in the top 10% for at least one year of their working lives.

There are several reasons why redistributionist policies fail to meet objectives and instead reduce opportunities for the presumed beneficiaries to prosper. Dan Mitchell covers several of these issues, citing work on: the rational response of upper-income taxpayers to  punitive taxes; the insufficiency of funding an expanded welfare state by merely taxing “the rich”; the diversion of most anti-poverty funds to service providers (rather than directly to the poor); the meager valuation of benefits from recipients of Medicaid, and the fact that the program lacks any favorable impact on mortality and health measures. Mitchell features the “First Theorem of Government” in a sidebar:

“Above all else, the public sector is a racket for the enrichment of insiders, cronies, bureaucrats and interest groups.“

A few years back, the great Thomas Sowell explained “The Fallacy of Redistribution” thusly:

“You can only confiscate the wealth that exists at a given moment. You cannot confiscate future wealth — and that future wealth is less likely to be produced when people see that it is going to be confiscated.“

That future wealth can and should be enjoyed across the income spectrum, but punitive taxes destroy productive capital and jobs.

A great truth about poverty comes from Angela Ranchidi of the American Enterprise Institute: low wages are not at the root of poverty; it’s a lack of jobs. She quotes a Gallup report on this point, relative to the working-age poor in 2014:

“Census data show that, 61.7% did not work at all and another 26.6% worked less than full-time for the entire year. Only 11.7% of poor working-age adults worked full-time for the entire year in 2014. Low wages are not the primary cause of poverty; low work rates are. And if Gallup is correct, the full-time work rate may already be peaking.“

More than 88.3% of the working-age poor were either unemployed or underemployed! And here’s the kicker: redistributionists clamor for policies that would place an even higher floor on wage rates, yet the floor already in place has succeeded in compromising the ability of low-skilled workers to find full-time work.

Cochrane sums up the inequality debate by noting the obvious political motives of progressive redistributionists:

“Finally, why is “inequality” so strongly on the political agenda right now? Here I am not referring to academics. … All of economics has been studying various poverty traps for a generation…. 

[The] answer seems pretty clear. Because [the politicians and pundits] don’t want to talk about Obamacare, Dodd-Frank, bailouts, debt, the stimulus, the rotten cronyism of energy policy, denial of education to poor and minorities, the abject failure of their policies to help poor and middle class people, and especially sclerotic growth. Restarting a centuries-old fight about “inequality” and “tax the rich,” class envy resurrected from a Huey Long speech in the 1930s, is like throwing a puppy into a third grade math class that isn’t going well. You know you will make it to the bell.

That observation, together with the obvious incoherence of ideas the political inequality writers bring us leads me to a happy thought that this too will pass, and once a new set of talking points emerges we can go on to something else.“

Gagging On Campaign Finance Reform

10 Wednesday Feb 2016

Posted by in Big Government, Campaign Finance

≈ Leave a comment

Tags

, , , , , , , , , , , , , , , , , , , , , , , , ,

campaign-finance-reform

Campaign finance is an area of internal conflict for some libertarians. On one hand, they do not believe in restrictions of any kind on freedom of expression. That implies no limits on what an individual can spend in support of a political cause, by themselves or in association with others, and whether it merely promotes a point of view or supports a political candidate. At the same time, libertarians are strongly opposed to rent-seeking activity, or efforts to use government power to promote private interests. Political spending is seen by many as an avenue for rent seeking, which suggests to them a need for limits on campaign contributions.

In fact, full-throated support of free speech and opposition to campaign limits do not stand in conflict. The reasons are: 1) such limits are an assault on free speech; 2) campaign contributions represent “small change” in the larger scheme of rent-seeking pursuits; 3) contributions seldom represent direct efforts to influence policy; and 4) imposed limits have a detrimental effect on the ability of elected officials to do their jobs.

Speech

Free speech, long interpreted by the courts more broadly as free expression, is protected by the First Amendment to the U.S. Constitution. This includes political expression, but traditionally it included campaign contributions as well, the latter being an obvious mechanism by which one can express views. However, the Supreme Court has upheld statutory limits on individual contributions to specific campaigns, as well as disclosure rules, on the grounds that they prevent corruption (Buckley v. Valeo and more recently McCutcheon v. Federal Election Commission(FEC)). I view the contribution limits as a contravention of the First Amendment, denying an enumerated right on the grounds that it “might” lead to corruption. If preventing corruption is the sole rationale for these limits, then government itself should be sharply limited, as it most certainly leads to graft and corruption at the expense of relatively powerless taxpayers.

Citizens United

A well-known Supreme Court case decided in 2010 involved independent political speech, as opposed to expression of political preference revealed by campaign spending. This was Citizens United v FEC, in which the Court ruled that political speech cannot be restricted on any basis other than corruption. As described by Ilya Shapiro, the case is widely misunderstood. One point of interest here is that the case related to speech by an organization rather than an individual. The Court ruled that a corporation (a nonprofit in the case) could not be prevented from airing a film critical of Hillary Clinton, striking down provisions of the Bipartisan Campaign Reform Act of 1990 (McCain-Feingold) under the First Amendment.

The Citizens United decision was NOT about campaign contributions. As an interesting aside, in a search of cartoons related to campaign finance, a great many imply that the Supreme Court abolished such limits in Citizens United. It did not. Even given some level of disaffection, it is hard to account for the near-complete lack of understanding about the case.

More informed critics of the decision bemoan that fact that it allows speech by corporations (and unions and other associations) to go unlimited, though they don’t seem to mind the absence of limits on political speech by media corporations. (See Eugene Volokh’s view in the Brown Daily Herald and Michael McConnell’s reinterpretation of Citizen’s United as a Press Clause case in the Yale Law Journal.) The critics also fail to recognize that corporations are associations of individuals, who are otherwise subject to no restrictions on independent speech or on what they can spend to speak independent of any political candidate (as established in Speechnow.org v. FEC in 2010). The technical treatment of a corporation as a “person”, which many find objectionable, is beside the point. Only by distorting the meaning of the First Amendment can any limitation be placed on the freedom of individuals to speak in association with others.

Jacob Sullum covers the confused legal thinking of leading Democrats Hillary Clinton and Bernie Sanders on campaign finance reform, and on Citizens United in particular. Jeb Bush is no better. Most of the opposition to the decision centers around the notion of “balancing” speech, but Sullum offers a piece of wisdom from a 1996 quote of future Supreme Court Justice Elena Kagan: “the government may not restrict the speech of some to enhance the speech of others.”

Corporate Campaign Spending

Another point raised by Ilya Shapiro is that corporate spending growth has neither accelerated nor decelerated in the wake of Citizens United. Moreover, restrictions on direct campaign contributions are still in place. However, campaign contributions are a relatively small percentage of corporate “influence spending”, averaging roughly 10% of the total between 2007 and 2012 for 200 large “politically active” corporations. Thus, direct campaign contributions are unlikely to be the primary avenue for rent-seeking activity. They might help buy “access” to politicians, but they may not be especially effective in influencing policy. These points are supported by University of Missouri economist Jeffrey Milyo in “Politics Ain’t Broke, So Reforms Won’t Fix It“. Milyo marshals empirical evidence that should make us skeptical of campaign finance reform efforts.

Incapacitated Legislators

Jonathan Adler of Case Western emphasizes the legislative dysfunction created by campaign finance reforms. McCain-Feingold places limits on funds candidates can receive from their political parties and other sources, forcing them to spend a large proportion of their time on fundraising (and placing incumbents at a distinct advantage). If there is a shred of sincerity in the populist insistence that members of Congress be subject to tighter term limits, or that Congress is woefully unproductive, then full repeal of these limitations should be a priority.

Visibility Versus Effectiveness

The chief advantage of combatting corruption through regulating campaign finance is that it is a visible target. However, it is a target too rich with free speech implications. Disclosure requirements are one thing (through arguments can be made against infringements on the privacy of contributors as well). Limiting forms of expression outright is draconian, and reformers are unlikely to be satisfied until campaigns are funded entirely by taxpayers. Attacking “corruption” via limits on campaign contributions presumes a need to protect both contributor and recipient from their own guilt. Even if contributions help gain better access to an elected representative, it does not imply that the representative will act on motives counter to the perceived public merits of an issue. Moreover, the argument that limits on direct contributions to candidates “keep money out of politics” is flawed. Limits simply change the distribution of political spending, increasing the reliance on bundlers and organizations like Super PACs, and shifting the tables in favor of incumbents.

There are far better ways to combat corruption among legislators and others in government, some with more severe drawbacks than others. Term limits are one possibility, but would deny voters of legitimate choices. Another option is to allow candidates to have unrestricted access to campaign funds through central organizations, rather than forcing them to rely on independent Super PACs, which cannot always be relied upon to craft a candidate’s preferred messages. Immediate disclosure of contributors and amounts would help to bring more transparency to the campaign finance process. Stiffer disclosure requirements for “bundlers” would also help. Perhaps elected executives could be prohibited from appointing bundlers to positions of authority, though a precise definition of “bundler” might become contentious. There are other reform possibilities related to limiting permissible lobbying activity.

The libertarian’s dilemma with respect to campaign finance is easily resolved once the focus is placed squarely on protecting individual rights. In the end, the best defense of individual rights and against corruption in government is to limit government. It’s wise to place strong reigns on an institution that operates by virtue of coercive authority. The danger was well-acknowledged by the limits on government power enshrined in the Constitution.

Omnibusted: Make Congress Stick To Single-Subject Bills

04 Thursday Feb 2016

Posted by in Big Government, Legislative Branch

≈ 2 Comments

Tags

, , , , , , ,

Omnibus-Bill

Here’s a great idea for making the federal government more transparent and accountable: force Congress to stick to single-subject legislation. Every bill should focus on a single issue with a clear statement of that issue. There would be no last-minute, unrelated amendments to legislation, and no omnibus bills as thick as several phone directories. This is the purpose of a three-page bill to be introduced by Representative Mia Love (R-UT). Glenn Reynolds explains the bill in more detail in “Want To Know Why Voters Are So Mad? Mia Love Has The Answer“. I’ll quote Reynolds at length, but do read the whole thing:

“A bill that’s so long that nobody can read it is, naturally, pretty likely to escape scrutiny. With thousands of pages and hundreds or thousands of provisions in the bill, what’s the chance that any particular provision will be noticed or criticized?

And even if a few provisions are criticized, when they’re tied to a bill that rewards literally hundreds of constituencies, there’s not much chance they’ll be shot down. Legislators, and special interests, have a vested interest in sticking together and being sure that the whole bill passes. Individually, most of these lousy provisions wouldn’t pass, but when banded together for mutual protection they can.   .…

Often, most of the provisions are written by lobbyists and inserted by tame members of Congress. The public isn’t really represented at all. That’s not an accident — it’s by design.“

No wonder the federal government and the public debt have grown to outrageous proportions. Reynolds would prefer a constitutional amendment on this issue similar to some state constitutions, but he supports Love’s bill as a second-best solution. The bill would also enable judicial review of potentially unrelated provisions of legislation, should they be challenged as such. Reynolds notes that cronyism often relies on the ability to sneak provisions into legislation to avoid scrutiny. Love’s bill might even encourage a return to the older congressional practice of subjecting appropriations to more thorough review in committee before going to the floor.

The tendency for legislation to grow seemingly misplaced appendages is also one of the reasons for the confusing accusations heard in the debates for the presidential nominations. Apparently, it’s possible for sponsors of legislation to be unaware of certain provisions attached to their bills. At the very least, it facilitates a less transparent form of political “horse trading”: I’ll vote for your bill if you allow me to attach an unrelated  provision that won’t be noticed.

The Love single-issue bill is a great idea, but there is likely to be strong resistance given the extenuatory pressures faced by many members of Congress, and their predictable reluctance to change the status quo. Hmm, perhaps Love can get her bill attached to another piece of legislation. Wouldn’t that be sweet irony!

Leftist Ad Hominid Species Screams “White Racists!”

03 Wednesday Feb 2016

Posted by in Discrimination, Equality, racism

≈ Leave a comment

Tags

, , , , , , , , , , , , , , , , ,


Lately I hear that all white people are racists, and I feel compelled to examine the intellectual grounding of such an inflamatory claim. Consciousness of race is not racism, as some would suggest. Indeed, solutions to racial division offered by activists usually require that we bear race in mind as a primary differentiator. Insofar as one must consider the worth of another person in any context, people of good faith simply do not care about a person’s race. Rather, they care about traits that count, such as honesty, skills, work ethic and perhaps affability. Should they somehow care more? What would vindicate them?

Inflammatory Claims

There are probably several motives for the charge of universal white racism. On one level, it represents political agitation. Posts carrying the charge on social media always involve a measure of “virtue signaling” to like-minded friends, or perhaps before the Gods. (I’m sure the posters will be forgiven.) Such posts might represent acts of social contrition to allay deep-seated feelings of guilt. The posters might fancy that they are raising the consciousness of others, proudly imagining the important lesson they are teaching. The bad news for them is that most people of good faith are rightly skeptical of proselytization like this. In fact, the agitation probably does more to breed skepticism than anything else.

Voluntary Sorting Behavior

What some view as racial division is often an innocent consequence of voluntary sorting based upon the shared subcultures most compelling to individuals at a given time. There are many subcultures into which a person might fit: work, school, profession, sports, music, religion, politics, hobbies, geography, ancestry, ethnicity and race. And there are micro-cultures within all of these categories. These cultural segments differ in many respects, and they may overlap in many cases. The extent of sub-cultural overlap may be viewed as a gauge of assimilation.

In any given context, people tend to voluntarily sort themselves into the sub-culture they find most compelling. This voluntary sorting does not yield a fixed social distribution of individuals across groups. Individuals can choose to associate with different sub-cultures to which they belong on a day-to-day basis.

There is a pronounced tendency for sorting to occur within larger “populations”, such as cafeteria-goers in a large office or in a large school. People from particular work groups might sit together: there is some sorting by age, by gender, and by race. African-Americans often sit together. There is mixing of members of these subgroups as well. People are brought together by work or school, but the shared work or school culture is frequently less compelling to individuals in their choice of a lunch table than other sub-cultures to which they belong.

Isolation or Assimilation

Assimilation does not mean that cultural differences must disappear, but it does mean that subcultures must at least be tolerant of others. A key question is whether one subgroup would welcome a member of another subgroup to join them. There might be reasons to refuse in some circumstances, such as a group of accountants who wish to avoid economists. Lol. However, a group of Caucasians who prefer to remain exclusive, making African Americans feel unwelcome, are guilty of racism, and vice-versa. As for the converse, an African American individual who prefers not to join a group of Caucasians, and vice versa, there is usually a good rationale for presuming the individual to be innocent of racism: they are simply choosing a more compelling sub-culture.

Certain sub-cultures may be especially amenable to selection from across sub-groups. For example, team sports often foster racial mixing, as do music and various professions. Religion and economic stratum can be powerful shared sub-cultures, drawing members across racial groups. In other words, mixing of sub-cultures will occur when a compelling sub-culture is shared. That is a form of successful assimilation.

When voluntary sorting takes place, the parties seek commonalities. That’s a form of discrimination that may be quite healthy and not racist in any way. On the other hand, accepting diversity implies respect for other cultures and subcultures. Voluntary sorting allows those cultures to function, but it does not necessarily imply exclusion of others who might be curious and wish to learn and take part in a culture’s traditions, or who might even wish to become a part of a different community.

Counterproductive Compulsion

The insistence that racism is widespread is often an expression of support for compelled remedies or paying reparations of some kind to alleged victims. In a free society, the kind of voluntary sorting discussed above will always be a reality; any attempt to prevent it would require extreme coercion. Reparations for historical injustices, legal or economic, raise ethical questions about the treatment of those who must bear the costs. They also carry high administrative costs and tend to breed resentment and division. There are well-known downsides to quotas in hiring and in school admissions. Not only do quotas lead to reverse discrimination, they also can place the intended beneficiaries into situations of vulnerability to failure.

Markets Are Not Racist

Then there is the allegation that private markets are a source of “systemic racism”, having “disparate impacts” on certain minorities. However, it should be noted that the market mechanism tends to penalize racism. A consumer who chooses to avoid sellers of a different race will tend to pay a higher price for the privilege. An employer with a “taste for discrimination” must choose from a smaller labor pool and may lose the opportunity to hire the best talent. In other words, racists must pay for their preference. They also forego the creative benefits that diverse organizations tend to enjoy.

Certain minorities have struggled to achieve success in the private economy, but there are much better explanations for that difficulty than market forces, which provide the best opportunity for growth and assimilation. There is no question that institutional obstacles have had extremely harsh effects on groups starting from lower rungs of the socioeconomic ladder. A few examples: the failed public education has been especially burdensome for urban and rural minorities; various public policies have effectively excluded minorities from markets, including Jim Crow laws, the minimum wage and the Davis-Bacon Act; the so-called social safety net is rife with features that penalize work and reward fragmentation of families, making it as much a trap as a net; the drug war creates illicit market opportunities which present catastrophic but unappreciated risks for both the participants and their families; rent controls, zoning laws and restrictions on new construction limit the stock of affordable housing; heavy regulation makes starting a business difficult for those without the financial and legal resources to deal with it; and the ugly tradition of cronyism tends to reduce social mobility by entrenching privilege rather than rewarding economic value. The deck is stacked in many ways against economic mobility by public policy, and racial minirities have borne much of the burden.

Immigration Hotspot

Another controversy is whether racism is manifest in the negative views of many Americans toward immigrants. These claims allege ethnic and religious discrimination, including the hatred of Muslims. No doubt there are Americans who harbor racist attitudes toward immigrants. Some of this is grounded in unreasonable economic fears. There are also fears that terrorists may be among new immigrant populations, especially refugees, but that fear is hardly unreasonable given the recent experience of Europe and the difficulty of establishing reliable background information on some of these individuals.

Sharing Freedom

Racism still exists and it will never go away entirely. However, our dedication to freedom compels us to protect speech as long as it is not threatening. Racial discrimination by participants in markets can be difficult to detect, but racists must pay an economic price imposed by the market mechanism, and there are often legal remedies if racial discrimination in markets can be proven. Fortunately, racism today is not as widespread as the agitators would have you believe. The best policy for assimilation and acceptance is to promote a shared culture of freedom and economic opportunity.