Monthly Archives: November 2018

Human Potential Exceeds the Human Burden

30 Friday Nov 2018

Posted by in Abortion, Mobility, Redistribution

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Are human beings a burden, and in what way? Between two camps of opinion on this question are many shades of thought, and some inconsistencies. But whether the discussion is centered on the macro-societal level or the family level, the view of people and population growth as burdensome promotes centralized social control and authoritarian rule, with an attendant imposition of burdens on human freedom and productive effort.

Naysaying Greens

The environmental Left views people as a net burden on resources while failing to recognize their resource value, without which our world would yield little in the way of food and other comforts. It is mankind’s ability to process and transform raw materials that makes the planet so hospitable.

The world’s human population has increased by a factor of 18 times in the last 400 years, but food supplies have grown even faster. Each person has potential as a resource capable of a net positive contribution to societal and global well being. If we wrongly conclude that people are burdensome, however, it offers a rationale to statists for regulating the lives of individuals, preventing them from producing and consuming as they would otherwise choose.

Sirens of Dependency

There will always be individuals who cannot provide for themselves, sometimes due to temporary circumstances and sometimes as a permanent condition. If the latter, these individuals find themselves in the lower tail of the distribution of human productive capacity. The undeniable burden of this lower tail for humanity can be dealt with through various social support structures, including family, religious organizations, private social organizations, and the public safety net.

People of true compassion have always helped to fill this need privately and voluntarily, but “compassionate” motives can be a false and corrupting when the public sector becomes the tool of choice. Actual and potential beneficiaries of public largess can vote for their alms at the expense of others, along with those well-meaning partisans who confuse forced redistribution with compassion. And benefits and taxes often create disincentives that undermine a society’s productive dynamic. Under such circumstances, the lower tail and its burden of dependency grows larger than necessary, and society’s ability to carry that burden is diminished.

Burdensome Children

Children are unable to provide for themselves up to varying ages, so they do create an economic burden for their parents. That burden might loom large in the event of an unexpected pregnancy, but most parents find the burden well worth bearing, whether planned or unplanned, ex ante and ex post, and for reasons that often have little to do with material concerns. But many individuals and families in the lower tail simply cannot bear the economic burden on their own; others not in the lower tail might simply find the prospective burden of an unexpected pregnancy a bit too heavy or inconvenient for non-economic reasons.

Solutions are available, of course. They range from sexual abstinence and prophylactics to adoption services, as well as hard sacrifice by new parents. And then there is abortion. The pro-choice Left makes the argument that children are so burdensome as to justify the termination of pregnancies at almost any stage. The ease with which they make that argument and traffic in the imposition of that burden upon the innocent is horrific. Furthermore, regimes dominated by the Left have often instituted formal population control measures, and Western leftists such as the late Margaret Sanger, founder of Planned Parenthood, have advocated strenuously for eugenics.

Burdens at the Border

Are migrants a burden or a blessing? In general, the latter, because mobility allows individuals to exploit economic opportunities, with consequent gains to themselves and to those who demand their services. This is generally true from the perspective of nations; it is the basis of the traditional economic argument in favor of liberalized, legal immigration to which I subscribe. But some partisans on both sides of the immigration debate accept the idea that immigrants impose a burden. That may be correct under some circumstances.

Opponents of immigration reform certainly identify immigrants as a burden to productive citizens and taxpayers. Critics of border control, on the other hand, are motivated by compassion for political refugees or economically disadvantaged immigrants, whether employment opportunities exist for them or not. In fact, would-be immigrants are often attracted by generous public benefits in the receiving country, and so they are likely to add to a country’s lower-tail burden, as I’ve described it. But the no-borders crowd insists that society must shoulder any burden created by the combined effect of an open border with generous public benefits, and even immediate voting rights.

The Burdens of Overbearance

The Left imagines that people create many burdens, but the Left is happy to impose many burdens in pursuit of their “ideal” society: planned by experts, egalitarian, highly regulated, profit-free, and green. They wish to “save the planet” by imposing burdens, regulating and restricting economic growth and sparing no expense to minimize the human “footprint”. They wish to fund redistributive social programs by burdening productive resources with taxes, while crowding-out private efforts to provide charitable relief. They wish to prevent the perceived burden of children by offering, and even funding publicly, the “choice” to impose an ultimate burden on those too weak to register a protest. And they wish to burden taxpayers by availing all potential migrants, without question, of generous public benefits.

Burdens are a fact of life, but people with the freedom to exploit their own effort and ingenuity for gain have increasingly shouldered their own burdens and much more. Over the last few centuries, human ingenuity has expanded the effective quantity of all resources by many orders of magnitude. In so doing, the scale and scope of real poverty have been reduced dramatically. But those who would deign to manage our burdens for us, under the authority of the state, are more threatening to our well being than beneficent.

The Disastrous Boomerang Effect of Fire Suppression

15 Thursday Nov 2018

Posted by in Environment, Wildfires

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We can lament the tragic forest fires burning in California, but a discussion of contributing hazards and causes is urgent if we are to minimize future conflagrations. The Left points the finger at climate change. Donald Trump, along with many forestry experts, point at forest mismanagement. Whether you believe in climate change or not, Trump is correct on this point. However, he blames the state of California when in fact a good deal of the responsibility falls on the federal government. And as usual, Trump has inflamed passions with unnecessarily aggressive rhetoric and threats:

“There is no reason for these massive, deadly and costly forest fires in California except that forest management is so poor. Billions of dollars are given each year, with so many lives lost, all because of gross mismanagement of the forests. Remedy now or no more Fed payments.”

Trump was condemned for his tone, of course, but also for the mere temerity to discuss the relationship between policy and fire hazards at such a tragic moment. Apparently, it’s a fine time to allege causes that conform to the accepted wisdom of the environmental Left, but misguided forest management strategy is off-limits.

The image at the top of this post is from the cover of a book by wildlife biologist George E. Gruell, published in 2001. The author includes hundreds of historical photos of forests in the Sierra Nevada range from as early as 1849. He pairs them with photos of the same views in the late 20th century, such as the photo inset on the cover shown above. The remarkable thing is that the old forests were quite thin by comparison. The following quote is from a review of the book on Amazon:

“Even the famed floor of Yosemite is now mostly forested with conifers. I myself love conifers but George makes an interesting point that these forests are “man made” and in many ways are unhealthy from the standpoint that they lead to canopy firestorms that normally don’t exsist when fires are allowed to naturally burn themselves out. Fire ecology is important and our fear of forest fires has led to an ever worsening situation in the Sierra Nevada.”

I posted this piece on forest fires and climate change three months ago. There is ample reason to attribute the recent magnitude of wildfires to conditions influenced by forest management policy. The contribution of a relatively modest change in average temperatures over the past several decades (but primarily during the 1990s) is rather doubtful. And the evidence that warming-induced drought is the real problem is weakened considerably by the fact that the 20th century was wetter than normal in California. In other words, recent dry conditions represent something of a return to normal, making today’s policy-induced overgrowth untenable.

Wildfires are a natural phenomenon and have occurred historically from various causes such as lightning strikes and even spontaneous combustion of dry biomass. They are also caused by human activity, both accidental and intentional. In centuries past, Native Americans used so-called controlled or prescribed burns to preserve and restore grazing areas used by game. In the late 19th and early 20th centuries, fire suppression became official U.S. policy, leading to an unhealthy accumulation of overgrowth and debris in American forests over several decades. This trend, combined with a hot, dry spell in the 1930s, led to sprawling wildfires. However, Warren Meyer says the data on burnt acreage during that era was exaggerated because the U.S. Forest Service insisted on counting acres burned by prescribed burns in states that did not follow its guidance against the practice.

The total acreage burned by wildfires in the U.S. was minimal from the late 1950s to the end of the century, when a modest uptrend began. In California, while the number of fires continued to decline over the past 30 years, the trend in burnt acreage has been slightly positive. Certainly this year’s mega-fires will reinforce that trend. So the state is experiencing fewer but larger fires.

The prior success in containing fires was due in part to active logging and other good forest management policies, including prescribed burns. However, the timber harvest declined through most of this period under federal fire suppression policies, California state policies that increased harvesting fees, and pressure from environmentalists. The last link shows that the annual “fuel removed” from forests in the state has declined by 80% since the 1950s. But attitudes could be changing, as both the state government and environmentalists (WSJ, link could be gated) are beginning to praise biomass harvesting as a way to reduce wildfire risk. Well, yes!

The reason wildfire control ever became a priority is the presence of people in forest lands, and human infrastructure as well. Otherwise, the fires would burn as they always have. Needless to say, homes or communities surrounded by overgrown forests are at great risk. In fact, it’s been reported that the massive Camp Fire in Northern California was caused by a PG&E power line. If so, it’s possible that the existing right-of-way was not properly maintained by PG&E, but it may also be that rights-of-way are of insufficient width to prevent electrical sparks from blowing into adjacent forests, and that’s an especially dangerous situation if those forests are overgrown.

Apparently Donald Trump is under the impression that state policies are largely responsible for overgrown and debris-choked forests. In fact, both federal and state environmental regulations have played a major role in discouraging timber harvesting and prescribed burns. After all, the federal government owns about 57% of the forested land in California. Much of the rest is owned privately or is tribal land. Trump’s threat to withhold federal dollars was his way of attempting to influence state policy, but the vast bulk of federal funds devoted to forest management is dedicated to national forests. A relatively small share subsidizes state and community efforts. Disaster-related funding is and should be a separate matter, but Trump made the unfortunate suggestion that those funds are at issue. Nevertheless, he was correct to identify the tremendous fire hazard posed by overgrown forests and excessive debris on the forest floor. Changes to both federal and state policy must address these conditions.

For additional reading, I found this article to give a balanced treatment of the issues.

If You’re Already Eligible, Your Benefits Are Safe

06 Tuesday Nov 2018

Posted by in Medicare, Social Security

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I’m always hearing fearful whines from several left-of-center retirees in my circle of my acquaintances: they say the GOP wants to cut their Social Security and Medicare benefits. That expression of angst was reprised as a talking point just before the midterm election, and some of these people actually believe it. Now, I’m as big a critic of these entitlement programs as anyone. They are in very poor financial shape and in dire need of reform. However, I know of no proposal for broad reductions in Social Security and Medicare benefits for now-eligible retirees. In fact, thus far President Trump has refused to consider substantive changes to these programs. And let’s not forget: it was President Obama who signed into law the budget agreement that ended spousal benefits for “file and suspend” Social Security claimants.

Both Social Security (SS) and Medicare are technically insolvent and reform of some kind should happen sooner rather than later. It does not matter that their respective trust funds still have positive balances — balances that the federal government owes to these programs. The trust fund balances are declining, and every dollar of decline is a dollar the government pays back to the programs with new borrowing! So the trust funds should give no comfort to anyone concerned with the health of either of these programs or federal finances.

Members of both houses of Congress have proposed steps to shore up SS and Medicare. A number of the bills are summarized and linked here. The range of policy changes put forward can be divided into several categories: tax hikes, deferred benefit cuts, and other, creative reforms. Future retirees will face lower benefits under many of these plans, but benefit cuts for current retirees are not on the table, except perhaps for expedient victims at high income levels.

There is some overlap in the kinds of proposals put forward by the two parties. One bipartisan proposal in 2016 called for reduced benefits for newly-eligible retired workers starting in 2022, among a number of other steps. Republicans have proposed other types of deferred benefit cuts. These include increasing the age of full eligibility for individuals reaching initial (and partial) eligibility in some future year. Generally, if these kinds of changes were to become law now, they would have their first effects on workers now in their mid-to-late fifties.

Another provision would switch the basis of the cost-of-living adjustment (COLA) to an index that more accurately reflects how consumers shift their purchases in response to price changes (see the last link). The COLA change would cause a small reduction in the annual adjustment for a typical retiree, but that is not a future benefit reduction: it is a reduction in the size of an annual benefit increase. However, one Republican proposal would eliminate the COLA entirely for high-income beneficiaries (see the last link) beginning in several years. A few other proposals, including the bipartisan one linked above, would switch to an index that would yield slightly more generous COLAs.

Democrats have favored increased payroll taxes on current high earners and higher taxes on the benefits of wealthy retirees. Republicans, on the other hand, seem more willing to entertain creative reforms. For example, one recent bill would have allowed eligible new parents to take benefits during a period of leave after childbirth, with a corresponding reduction in their retirement benefits (in present value terms) via increases in their retirement eligibility ages. That would have almost no impact on long-term solvency, however. Another proposal would have allowed retirees a choice to take a portion of any deferred retirement credits (for declining immediate benefits) as a lump sum. According to government actuaries, the structure of that plan had little impact on the system’s insolvency, but there are ways to present workers with attractive tradeoffs between immediate cash balances and future benefits that would reduce insolvency.

The important point is that enhanced choice can be in the best interests of both future retirees and long-term solvency. That might include private account balances with self-directed investment of contributions or a voluntary conversion to a defined contribution system, rather than the defined benefits we have now. The change to defined contributions appears to have worked well in Sweden, for example. And thus far, Republicans seem more amenable to these creative alternatives than Democrats.

As for Medicare, the only truth to the contention that the GOP, or anyone else, has designs on reducing the benefits of current retirees is confined the to the possibility of trimming benefits for the wealthy. The thrust of every proposal of which I am aware is for programmatic changes for future beneficiaries. This snippet from the Administration’s 2018 budget proposal is indicative:

“Traditional fee-for-service Medicare would always be an option available to current seniors, those near retirement, and future generations of beneficiaries. Fee-for-service Medicare, along with private plans providing the same level of health coverage, would compete for seniors’ business, just as Medicare Advantage does today. The new program, however, would also adopt the competitive structure of Medicare Part D, the prescription drug benefit program, to deliver savings for seniors in the form of lower monthly premium costs.”

There was a bogus claim last year that pay-as-you-go (Paygo) rules would force large reductions in Medicare spending, but Medicare is subject to cuts affecting only 4% of the budgeted amounts under the Paygo rules, and Congress waived the rules in any case. Privatization of Medicare has provoked shrieks from certain quarters, but that is merely the expansion of Medicare Advantage, which has been wildly popular among retirees.

Both Social Security and Medicare are in desperate need of reform, and while rethinking the fundamental structures of these programs is advisable, the immediate solutions offered tend toward reduced benefits for future retirees, later eligibility ages,  and higher payroll taxes from current workers. The benefits of currently eligible retirees are generally “grandfathered” under these proposals, the exception being certain changes related to COLAs and Medicare benefits for high-income retirees. The tendency of politicians to rely on redistributive elements to enhance solvency is unfortunate, but with that qualification, my retiree friends need not worry so much about their benefits. I suspect at least some of them know that already.

Missouri Prop B: the Unintended Consequences of Wishful Thinking

04 Sunday Nov 2018

Posted by in Labor Markets, Living Wage, Minimum Wage, Uncategorized

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Proposition B sounds really good to many Missouri voters: all we have to do to help low-wage workers is declare that they must be paid a higher wage. That’s the pitch, of course. But voters should hear the cruel truth about the unintended consequences of this well-intentioned and ill-considered proposition on the ballot this week:

  1. Businesses are likely to increase prices to compensate for a higher mandated wage, which hurts all consumers, but especially the poor.
  2. Some low-skilled job losses or lost hours are assured, and they will hit the very least-skilled the hardest. No matter the legal minimum, the real minimum wage is always zero.
  3. Such job losses have long-term consequences: lost job experience that the least-skilled desperately need to get ahead.
  4. The harms will have a disparate impact on minorities.
  5. Large employers can substitute capital for low-skilled labor: automated kiosks to take orders and increasingly sophisticated robots to perform tasks. Again, the real minimum wage is always zero. As I’ve said before on this blog, automate no job before its time. But that’s what Prop B will encourage.
  6. Employers can make other compensatory changes. That includes reduced fringe benefits and break times, increased production quotas, and less desirable shifts for minimum wage workers.
  7. A large share of the presumed beneficiaries of a higher minimum wage are not impoverished. Many are teenagers or young adults living with their parents.
  8. All of the preceding points argue that an increase in the minimum wage is not an effective method of targeting poverty reduction. In fact, the harm it inflicts is targeted at the most needy. 
  9. Small employers have less flexibility than large employers, and Prop B would place them at a competitive disadvantage. To that extent, a higher wage floor is most damaging to “mom & pop”, locally-owned businesses, and their employees. Again, the real minimum wage is always zero.

At least 24 earlier posts appear on this blog covering the topic of minimum wages. You can see most of them here. The points above are explored in more detail in those posts.

William Evan and David MacPherson of the Show-Me Institute have estimated the magnitude of the harms that are likely to result if Prop B is approved by voters on November 6, and they are significant. The voters of Missouri should not be seeking ways to make the state’s business environment less competitive.

Voters should keep in mind that wages in an unfettered market reflect the realities of labor demand and labor supply. Wages and other forms of compensation reflect the actual quantity, quality and productivity of available labor supplies. And for unskilled labor, which is often supplied by those who lack experience, a wage that matches their marginal productivity is one that provides that valuable experience. The last thing they need is for tasks requiring little skill to be performed by more experienced employees, or by machines. We cannot wish away these realities, and we cannot declare them suspended by law. Such efforts will have winners and losers, of course, though the former might not ever recognize the ephemeral nature of their gains. And as long as there is freedom of private decision-making, the consequences of such legal efforts will cause harm to those least able to withstand it.

Economic Freedom and Mobility Reduce Poverty; Alms Are Impotent

02 Friday Nov 2018

Posted by in Free markets, Immigration, Property Rights

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It’s very difficult to lift people out of poverty via redistribution or philanthropy. Small gains in income can be expected at best, but there are far more powerful ways to improve well being. These have to do with expanding the fundamental freedoms, rights and rewards available to private individuals. Harvard’s Lant Pritchard divides these efforts into two broad categories: policies that improve labor mobility, and those that lead to gains in-place via economic growth. His working paper, “Alleviating Global Poverty: Labor Mobility, Direct Assistance, and Economic Growth”, is available here.

Economic Benefits of Migration 

Pritchard first explains that the freedom to migrate across borders in pursuit of economic opportunity allows workers from low-productivity countries to contribute much greater output in high productivity countries. In so doing, the workers gain far more than can be practically accomplished via direct aid, and according to Pritchard, at zero or little cost. So granting this freedom is a much more effective anti-poverty measure than aid payments.

Pritchard seems to imply that this is a persuasive economic argument for open borders. On that question, I take the position that countries are sovereign entities and that their citizens possess the right to determine the extent of immigration flows. And in fact, there are real costs of immigration flows that must be considered. Pritchard’s paper offers a powerful rationale for liberalizing immigration quotas, but here again, he dismisses certain issues that limit even that more narrow argument.

The prospective economic gains of the immigrants themselves are important, of course, but the economic needs of the destination country matter too. In the U.S., employers in many markets face a shortage of low-skilled labor, so immigration quotas bind on those markets. Making them less binding would certainly encourage economic growth. A greater influx of younger workers from abroad would also help America weather its demographic crisis, narrowing the shortfall in funding entitlement programs like Social Security and Medicare. Unfortunately, to those who do not already recognize these needs, Pritchard’s contribution is likely to carry little weight.

Still, Pritchard’s assertion that the cost of liberalized immigration is zero needs further examination. First, there are the very real costs of vetting and processing new immigrants. Second, unless all immigrants and employers are matched ex ante, which is virtually impossible, there will be adjustment costs that continue at least until the matching is complete. In the interim, and even post-employment, new immigrants might well require public aid to support themselves and their families. It is also quite likely that new tax revenue generated by immigrants will be insufficient to pay the full incremental costs of public resources consumed in providing marginal infrastructure, education, and other public subsidies.

Pritchard employs static calculations of the net benefits to be gained through greater labor mobility “at the margin”, but as the absorption of new immigrants into the workforce takes place, excess demands for low-skilled workers may turn into excess supplies, creating downward pressure on wages. In the presence of a minimum wage, that implies unemployment and a probable drain on public resources. So the source of the benefits discussed by Pritchard should not be viewed as limitless. He offers some mild rebuttals of this point and references one of his own papers in so doing, but the possibility cannot and should not be dismissed.

Economic Benefits of Economic Freedom

Pritchard’ second major point of emphasis involves the effectiveness of different kinds of private and public direct assistance, or “treatments”, in producing income gains over time. He offers evidence that the gains are relatively weak. He contrasts this with the potential gains from “growth accelerations” stemming from a variety of causes. The upside of a normal business cycle is one form, but that doesn’t really count if the gains are lost on the downside.

The most profound form of growth acceleration occurs upon the advent of a liberalized social order. This may accompany the downfall of an authoritarian government, the stabilization of a formerly unsound monetary regime, or as more sophisticated market institutions take hold in a formerly primitive economy. The main point is that there are fundamental social underpinnings of growth. These are the many dimensions of economic freedom: secure property rights, freedom of contract, minimal regulatory interference, low taxes, and competitive markets for goods and capital. These conditions are so straightforward that in developed economies we take many of them for granted, through they are threatened even there. But these conditions are sadly lacking in much of the under-developed world.

Conclusion

Allowing workers to migrate freely in search of the best opportunities is undoubtedly more powerful in improving their welfare than any form of direct assistance. That is a fundamental truth put forward by Lant Pritchard. However, in-migration can come with significant costs for the destination country. Therefore, immigration laws should allow sufficient flexibility with respect to flows to enable the capture of economic gains from immigration when they exist. Pritchard also emphasizes that economic freedom and the growth acceleration it makes possible do far more to reduce poverty than massive private and public efforts at direct assistance, however well-intentioned. Several earlier posts on Sacred Cow Chips have highlighted the impotency of redistribution for eliminating poverty. The Left has a tendency to dismiss such views as mere ideological assertion, but it is much more than that: it is the difference between penury and prosperity.