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.

Trump Flaunts Shape-Shifting Powers

06 Thursday Aug 2015

Posted by in Government, Liberty, Tyranny

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trump characature

Donald Trump could take just about any position on any issue and defend it with conviction and blustery passion… until he changes his mind. At this point in his presidential bid, there is nothing on his campaign web site in the way of specific policy statements. Here is an “On The Issues” post showing the evolution of Trump’s positions in a number of policy areas. Just about anyone on the left or the right should be able to get a few chuckles out of this list. It’s truly astonishing.

A few of Trump’s current policy positions are discussed below, but before getting into that, it’s interesting to consider the overall tenor of his rhetoric. Most observers will happily admit that they find his bombast entertaining, and I do too. He’s outspoken and unapologetic, confronting his critics head-on, often to powerful effect. Many are drawn to this sort of candidate, and his popular image as a skilled businessman doesn’t hurt. But while all politicians are capable of disappointing supporters, Trump fans do not know, and cannot know, what they’re getting.

Trump is almost always critical but rarely suggests actual solutions, making it difficult to discern whether he really has policy positions. So much so that it’s incredible to hear praise for his “clarity”. For a more sober take, read Andy Kroll’s account of frustrated attempts to get direct responses on a few policy issues from the Trump campaign, and of Trump’s bizarre tour of Laredo, Texas. A related piece by Peter Suderman appears at Reason.com. Politico has emphasized the same point in “Will the real Donald Trump please stand up?“. Kroll says this:

“I have zero to report about Trump’s plans for actually being president—except that, from all available evidence, he hasn’t given it a moment’s thought.“

An interesting piece on Trump comes from Jeffrey Tucker in “What is Trumpism?“. A longer version appeared as “Trumpism: The Ideology“. Here is one bit from Tucker, written after hearing “The Donald” speak at FreedomFest:

“The speech lasted an hour, and my jaw was on the floor most of the time. I’ve never before witnessed such a brazen display of nativistic jingoism, along with a complete disregard for economic reality. It was an awesome experience, a perfect repudiation of all good sense and intellectual sobriety. …

His speech was like an interwar séance of once-powerful dictators who inspired multitudes, drove countries into the ground, and died grim deaths.“

Here are a few examples of Trump’s “nativism”, as described by Tucker:

“I did laugh as he denounced the existence of tech support in India that serves American companies (‘how can it be cheaper to call people there than here?’ — as if he still thinks that long-distance charges apply). 

When a Hispanic man asked a question, Trump interrupted him and asked if he had been sent by the Mexican government. He took it a step further, dividing blacks from Hispanics by inviting a black man to the microphone to tell how his own son was killed by an illegal immigrant.“

Two issues on which Trump has been outspoken are international trade and immigration. As an aside, I note that he is always quick to qualify any aggressive statements he makes on these topics with a quick “I love the Chinese”, or “I love the Mexicans”. Tucker, at the link above, highlights Trump’s backward views on trade, which focus almost exclusively on U.S. producers without considering the benefits of trade to U.S. consumers. He sees big ships coming into port, and thinks only of cash flowing abroad: “What do we get?” Well, we get nice foreign goods, thank you very much. But Trump blames foreign trading partners for many ills, despite the fact that his Trump-label ties are made in China! Are we somehow being cheated on those ties? Trump says we need smarter people negotiating “these deals”. Okay… is that a policy?

We don’t need trade wars if we want to avoid a much weaker economy. Yet Trump’s trade rhetoric suggests that he would be tempted to employ trade restrictions like tariffs as a bludgeon. For example, consider one of his other big talking points: illegal immigration (despite the fact that the inflow of illegals has slowed to a trickle over the past few years). Trump wants to build a wall across the length of the U.S.-Mexican border, and he says he’ll make Mexico pay for it. To get a wall built, Trump might well decide that he can raise tariffs on Mexican goods to prohibitive levels as a way of twisting Mexican arms. That sort of action is likely to be very costly for U.S. consumers, and ultimately producers as well.

Trump’s latest pronouncements on immigration policy have been described as confusing. In a nutshell, he wants to deport “the criminals” (and not just those already doing time) and deport all other undocumented aliens; create an expedited process whereby we can let “the good ones” back into the country with legal status; “maybe” create some sort of path to citizenship (because “who knows what’s going to happen”), but not right away; and “we’re going to do something” for the “DREAMers”. Trump says he’ll know how to identify the “good ones”. If he’s so confident of that, then why would he, a smart “business guy”, allow the country to incur the expense of deporting millions of them?

Who knows what Trump will propose in terms of tax reform, health care and gun control? Ditto on welfare policy, defense, the drug war, foreign policy and energy. He wisely spoke against the drug war in 1990, but I’m not aware of any recent statements on the issue. Also in his favor, he does not accept the “consensus” on climate change and opposes Common Core. He has criticized crony capitalism but has undoubtedly benefited from cronyism, enlisting governments in the pursuit of eminent domain action. He is said to favor cuts in federal spending, but he has opposed cuts in Social Security and Medicare. He opposes an increase in the minimum wage, but he has proposed a wealth tax in the past.

Trump has not offered many specifics in this campaign, and the GOP debate this Thursday night will not provide a decent forum for articulating policy. In general, his positioning is a very mixed bag. One gets the sense that he is doing his best to appeal to a sort of populist conservatism. Unfortunately, his signature “positioning” on trade and immigration qualify him as something of a statist. He has certainly held a number of other statist views in the past, though he has disavowed at least some of those.

In closing, here are two more quotes from Jeffrey Tucker about Trump that I found both ominous and plausible:

“What’s distinct about Trumpism, and the tradition of thought it represents, is that it is not leftist in its cultural and political outlook (see how he is praised for rejecting “political correctness”), and yet still totalitarian in the sense that it seeks total control of society and economy and demands no limits on state power.“

“These people are all the same. They purport to be populists, while loathing the decisions people actually make in the marketplace (such as buying Chinese goods or hiring Mexican employees).“

Hillary’s Got Some Promises and a Rat’s Nest

03 Monday Aug 2015

Posted by in Big Government, Central Planning

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Hillary

Hillary Clinton is an advocate for governmentalizing the social order, and asks America to trust that central control, under her command, will accomplish great things such as upward mobility for the middle class, a rising standard of living, green energy for all, a “fix” for Obamacare, and much else. Jeffrey Tucker writes of Hillary’s delusions in “Hillary Clinton’s Ideological Vortex of Power and Planning” and her assurances that she’ll take measures with predictable impacts on the global climate, measures that will direct all details of energy production and use.

Tucker throws cold water on Hillary’s promises by viewing them in the context of F.A. Hayek warnings about the ruinous effects of central planning and control:

“That brilliant economist spent 50 years explaining, in book after book, that the greatest danger humanity faced, now and always, was a presumption on the part of intellectuals, politicians, and bureaucrats that they know better than the emergent and evolving wisdom of social forces.

This presumption might seem like science but it is really pretense. Civilization arises from, is protected by, and advances through the dispersed knowledge of billions of individual decision makers and the institutions that arise from them.

Hayek called the issue he was investigating the knowledge problem. Society needs to know how to use scarce resources, how to navigate a world of uncertainty, how to form rules that turn struggle into peace. It is a problem solved through freedom alone. No ruler, no scientist, no intellectual can substitute for the evolving process of decentralized decision making and trial and error.“

I discussed the fatuous presumptions of the left in an earlier SCC post entitled: “Conscious Design, the Collective Mind and Social Decline“. In that post, I used the wonderful Hayek quote:

“We flatter ourselves undeservedly if we represent human civilization as entirely the product of conscious reason or as the product of human design, or when we assume that it is necessarily in our power deliberately to re-create or to maintain what we have built without knowing what we were doing.“

More specifically, on energy policy, Clinton says she will set an agenda for the country to produce enough renewable energy within 10 years to power every American home, and to install half a billion solar panels across the country by the end of her first term. As Ira Stoll says at Reason.com, this is “central planning at its worst“.

“Clinton assumes that man-made climate change is a risk serious enough to try to mitigate, and that America should try to mitigate it by reducing its carbon emissions. These are big ‘ifs,’ but ones I will grant for argument’s sake. Even granting those assumptions, there is a humongous logical leap to the conclusion that the appropriate policy response is setting a national target for the number of solar panels installed.

For one thing, it’s a classic error of measuring inputs rather than outputs. If the goal is the reduction of dangerous emissions, why not set a goal for that, and support any energy method—solar, wind, algae, hydroelectric, nuclear, hydrofracturing—that gets America closer to that goal? Why privilege solar over all the other technologies, including some that may not even be invented yet?“

Certainly, proposals like this create tremendous opportunities for rewarding cronies. Stoll also notes that solar technology will improve over time, but rushing to install millions of panels, undoubtedly encouraged by heavy subsidies, would saddle users in the long-term with less efficient versions. With future improvements in efficiency and cost, the technology will gradually draw users in without the need for subsidies. That’s what rational economic decision-making looks like!

A specific economic proposal from the Clinton camp would increase the capital gains tax rate on asset sales held from 364 days up to six years. The rate would double if the asset was held up to two years. The increases become gradually smaller for two-to-six year holding periods. Hillary’s is somehow unaware that the government has already made it incredibly difficult for businesses to raise capital to invest in new buildings, equipment, and technology. Capital gains taxes are punitive: they represent double taxation of income to investors and they further distort rates of return by taxing assets on inflationary increases in value, which diminish their real value. Larry Kudlow wrote a good opinion piece on this proposal, called “Hillary’s Inconceivably Stupid Capital-Gains Tax Scheme“. He focuses on Hillary’s attack on the alleged “short-termism” in the economy, but this is a little odd, because her plan essentially discourages saving.

On health care, Clinton has pledged to “improve” Obamacare, but not repeal it. Too bad. It is similar to the plan she put forward as a Senator, including the individual mandate. The only piece of good news here is that she has discussed eliminating the employer mandate, which has been deferred by the Obama Administration twice already. However, some effects of the employer mandate have been felt, as it has tended to discourage employers from taking on full-time employees.

On foreign policy, Clinton is probably more hawkish than President Obama. Her stint as Obama’s Secretary of State was not marked by any noteworthy accomplishment.

Then there is the question of Clinton’s integrity. She’s been tainted by scandals before (e.g., Whitewater). She told a Brian Williams-like lie about being fired upon in Bosnia. The role of the Clinton Foundation, and whether it served as a mechanism for influence-buying, has also been in question, not to mention its seeming role as a personal slush fund for the Clintons. Her ties to Wall Street probably exceed Obama’s. And she maintained a private email server while Secretary of State, which was imprudent at best, and depending on the the classification of what went through that server, criminal at worst. Finally, her involvement in the Benghazi tragedy has been in question from the beginning. On some events related to Benghazi, including Hillary’s potential involvement in suspicious arms trading activity, Andrew Napolitano insists that “Hillary Keeps Lying“.

And here is Jeffrey Tucker waxing sarcastic about Hillary in another context: “Just trust her. Truly, just trust her …” 

The Banality of Evil Is No Defense

31 Friday Jul 2015

Posted by in Tyranny

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Psychology is not my usual bailiwick, but this article “questioning the banality of evil” caught my interest. A long-accepted view in the field is that ordinary people are willing to commit heinous acts under authoritative instructions or when they find themselves in certain kinds of roles. Does that view somehow imply that such a perpetrator is less accountable because they were “just following orders”, or because they were overwhelmed by the pressure imposed by their role?

The authors of the article, S. Alexander Haslam and Stephen D. Reicher, cite recent research challenging the standard view. They argue that even when individuals are tasked with doing evil, they are often fully engaged and even creative in the execution of their assignments. They discuss the case of the Nazi tyranny and especially Adolf Eichmann, who was one of the chief architects of the Holocaust. His trial on war crimes, however, originally reinforced the “banality of evil” narrative:

“… Eichmann worked hard to undermine the charge that he was a dangerous fanatic by presenting himself as an inoffensive pen-pusher. … [but] Eichmann [was] a man who identified strongly with anti-semitism and Nazi ideology; a man who did not simply follow orders but who pioneered creative new policies; a man who was well aware of what he was doing and was proud of his murderous ‘achievements’.“

This reminds me of a great film called “Conspiracy“, in which Stanley Tucci is brilliant in the role of Eichmann. The film depicts a meeting of the top echelon of the Nazi bureaucracy, based on actual meeting notes, at which the “Jewish question” is addressed. Anyone who has ever attended a fairly large corporate meeting will experience an eerie familiarity with the banality of the proceedings, at least until a certain point. These are bureaucrats. Soon enough, however, it becomes clear that the participants are discussing something horrific, despite the opaque jargon and their hesitation to give voice to the plain meaning of the agenda. First, a consensus has to be established. But like so many corporate meetings, the consensus and the outcome are preordained. There are objections, and some of the participants voice them more strongly than others. They are ultimately either cajoled or bullied into submission. But those objectors do not blindly accept the evil they are being asked to do. On the other hand, the monsters putting forward the killing agenda, including Eichmann, know exactly what they are doing and believe in it.

Haslam and Reicher insist that “ingenuity” is more descriptive of evil actions performed by individuals under tyranny than “banality”; that’s a takeaway from “Conspiracy” as well. However, Haslam and Reicher present these competing characterizations of evil-doing as if they are mutually exclusive hypotheses. In fact, it’s likely that these two “kinds” of evil coexist and are almost certainly complementary in their effects. Is there any reason to rule out the possibility that some individuals are simply “good” soldiers who faithfully follow orders? Who, like the timid Mr. Twimble in “How To Succeed…”, always play it “the company way”?  They might not be the most intelligent members of society, but there are certainly those who will do as they are told, and there are others who might need motivation to act. In fact, the authors admit as much in their discussion of leadership as a catalyst for action by others:

“… people are surrounded by would-be leaders who tell them what to make of the world around them. For this reason, the study of leadership must be a central component of any analysis of tyranny and outgroup hostility. Indeed, tyrannical leaders only thrive by convincing us that we are in crisis, that we face threat and that we need their strong decisive action to surmount it.“

This is where the distinctions get muddy. I’m no psychologist, but to my way of thinking, further action and support for tyrannical evil by the members of a motivated in-group may be quite banal. Even a conscious decision to follow abhorrent orders in one’s own self-interest may qualify as an act of banality.

A group may well be convinced by their leaders that their actions are right, and that is frightening. Some will act consciously and viciously. Some will attempt to resist. Under great pressure, not all are capable of marshaling sufficient moral or intellectual resistance to the call to participate in evil acts, but none of that that offers justification. Banal or otherwise, participation in heinous acts against an out-group cannot be forgiven by mankind.

Don’t Call Leftists “Liberal”; They’re Not!

29 Wednesday Jul 2015

Posted by in Liberty

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Lenin_Got_Rope_Capitalists

Nor are statists, collectivists and socialists, but I repeat myself. The simple plea above is made by Daniel Klein in an essay appearing in the Intercollegiate Review and in Modern Age. He asserts that libertarians (and conservatives) fall into a semantic trap when they use the term as a pejorative for leftists. I have touched on the mangled, modern usage of “liberalism” several times on Sacred Cow Chips, but Klein brings some interesting empiricism into consideration and makes several points worth emphasizing.

First, Klein traces the historical record of appearances of certain words related to liberalism in published literature using the “n-gram viewer” on Google. He shows that the political use of “liberal” began around 1770. For the next 110 years, liberalism referred to a philosophy and policies associated with small government and individual autonomy. In the U.S., however, the term began to be co-opted by the political left in the late 1800s. Around the turn of the twentieth century, references to “New Liberalism” and “Old Liberalism” became more frequent. So the term was subverted in that time frame, a decade or two before the term “left-wing” came into use.

“The literature of the so-called New Liberals declaimed openly against individual liberty and in favor of state collectivism and socialistic reform.“

Today, the association of “liberalism” with the left is confined mostly to the U.S. and Canada:

“…when we step outside North America, we see that, by and large, liberal still means liberal (in the UK, usage is in-between). …

Where liberal still means liberal, such as in Europe and Latin America, leftists have no reluctance in calling their imaginary bogeyman ‘neoliberalism.’“

By way of suggestion, Klein reviews a few alternative labels for the left. In doing so, he notes that in general, the left supports the “governmentalization of social affairs”. For that reason, one of my favorite labels is “statism”. Oddly, Klein never mentions this as a possibility. (Klein concedes that the left supports liberty on a few issues, which happen to be issues upon which most libertarians are in agreement.) He does refer to the old standby “collectivists” in passing.

Klein likes the label “Progressivism” for the left, despite the positive associations some might make with that term. He argues with some merit that progressivism implies activist, goal-directed policy, as opposed to non-intervention and the spontaneous social order favored by true liberals.

“That collectivists should join together for what they imagine to be progress is perfectly fitting. For them the term progressive is suitable. By contrast, conservatives and libertarians look to, not progress, but improvement. …

Another fitting term for leftism is social democracy, which is standard in Europe. Social democracy is a compromise between democratic socialism and a tepid liberalism. The socialistic penchant is foremost, but a vacillating liberalism gnaws at the social democrat’s conscience.”

I fully agree with Klein that we should never refer to leftists as liberals. They are completely undeserving of the description, and doing so concedes a glaringly false premise. Every leftist I know advocates the increasing governmentalization of social affairs and a naive acceptance of an impossible proposition: that government can ever possess the detailed knowledge necessary to successfully regulate individual actors from above. And leftists are foolishly willing to place faith in the benevolence and wisdom of political agents and central controllers. Klein mentions a recent editorial by Kevin Williamson in National Review:

“Williamson ends the piece by quoting two leftist authors writing in The Nation, one decrying ‘unbridled individualism,’ the other ‘unfettered capitalism.’ Williamson concludes: ‘A ‘liberalism’ that is chiefly concerned with the many clever uses of bridles and fetters does not deserve the name. It never has.’”

Would Heterosexuals Select For Gay Genes?

26 Sunday Jul 2015

Posted by in Biotechnology, Progressivism

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Economic and social planning by the state can mean many things, but a planned society is always held in some form as a progressive goal. This is at the very heart of  “statism”. As Hayek noted, the fascination with planning is rooted in a belief that conscious, central direction is necessary in order for society to advance. This stands in stark contrast to the abysmal failure and monstrous cruelty of social planning historically, and the unmatched success of markets and a free, spontaneous social order at improving human welfare.

The faith in central direction has always been conjoined with a belief in the ability of scientific methods to address social issues. This line of thinking is flawed in many respects, but 80 to 100 years ago, an extremely perverse manifestation of this statist philosophy was a fascination with eugenics, or the intentional selection and rejection of various traits in offspring at the state’s direction. Sterilization of the “unfit”, and selective breeding of the most fit, were weirdly popular notions among progressives in that era. In 2012, Jonathan Freedland in The Guardian called eugenics “the skeleton that rattles loudest in the left’s closet”.

“Most alarming, many of its leading advocates were found among the luminaries of the Fabian and socialist left, men and women revered to this day. Thus George Bernard Shaw could insist that ‘the only fundamental and possible socialism is the socialisation of the selective breeding of man’, even suggesting, in a phrase that chills the blood, that defectives be dealt with by means of a ‘lethal chamber’. …

According to Dennis Sewell, whose book The Political Gene charts the impact of Darwinian ideas on politics, the eugenics movement’s definition of ‘unfit’ was not limited to the physically or mentally impaired. It held, he writes, ‘that most of the behavioural traits that led to poverty were inherited. In short, that the poor were genetically inferior to the educated middle class.’ It was not poverty that had to be reduced or even eliminated: it was the poor.

Hence the enthusiasm of John Maynard Keynes, director of the Eugenics Society from 1937 to 1944, for contraception, essential because the working class was too ‘drunken and ignorant’ to keep its numbers down.“

This post on the historical allure of eugenics to progressives is also informative. Of course, the National Socialists in Germany took the idea and ran with it, which ultimately led to a rejection of eugenics in the West. Yet the idea lives on today through various mechanisms, such as sex-selective abortion and screening for certain genetic disorders. Of course there is a widespread insistence on abortion as a “woman’s right” on the progressive left, but certain questions are seldom asked. For example, does that include women who wish not to bear children with disorders such as Down’s Syndrome? There is less unanimity on that issue.

Bruce Carroll, aka, The Gay Patriot, asks a different question: “What Happens When Science Allows Us to Abort A Baby If It Has the ‘Gay Gene’?” The mapping of the human genome has advanced to the point that it might be possible to identify the precise genetics determining certain social and personality characteristics. There is some research suggesting that regions on two different chromosomes might allow geneticists to home-in on the identification of specific “gay genes”.

The first question this raises is whether a woman (or a couple) has the right to know everything predicted about a child from its pre-natal genetic testing. I assume that all test results are private. Should the information about sexual-preference genes be off-limits to a parent? Information about gender is not off-limits, and you can be certain that even in the U.S., an occasional woman or couple decides to terminate a pregnancy for reasons of gender, whatever the motive. If the sexual preference genes are off-limits, then the inescapable conclusion is that sexual preference is “protected” in the womb by society, but gender and a whole range of disabilities are not protected. Really? Carroll takes a dim view of the LGBT politics on this matter:

“I wonder if gay activists realize that their slobbering devotion to pro-abortion political organizations, and the multi-million dollar abortion industry itself, may ultimately lead to the destruction of LGBT babies before they are born within my lifetime. It truly is Sophie’s Choice for the progressive gay activists; thus far, they wave off the question with derision.“

The question can be put in less drastic terms, if genetic selection can really ever be less drastic. Technologies to create “designer babies” through genetic selection are already here. That implies both positive selection and deselection of various traits. Obviously, this is not a simple subject from a either a scientific or ethical standpoint, but to zero in on our hypothetical question, I assume for now, for the sake of argument, that parents are legally empowered “to give their children the best start possible“. That would be the “best start” in the parents’ opinion, not the state’s! One wonders how the LGBT community, and the Left in general, would react to a service allowing couples, or a mother, to select for heterosexual genes in their “designer offspring”, consequently selecting against gay genes. Should such options be “off the table” as a matter of public policy? But again, if so, then what about gender? What about disabilities?

Involving the state in these decisions will lead to either bizarre contradictions or restrictions on autonomy that both Left and Right might find unacceptable.

Government Wants To Gut Your Gig

24 Friday Jul 2015

Posted by in Big Government, Regulation

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Big government is an inherently conservative enterprise when it comes to protecting  the economic status quo. It frequently acts on behalf of entrenched interests by quashing innovation and competition. This is well illustrated by resistance to the “gig economy” (or “sharing economy”) and companies like Uber and Taskrabbit. The gig economy is growing rapidly because it is often more affordable than traditional channels and it offers tremendous convenience. Enabled by the internet, customized tasks or “gigs” can be performed anywhere for anyone demanding them. My son in New York City just found a talented carpenter through an on-line app, who stopped by his apartment in the evening and mounted a big-screen TV on the wall. The service he provided was not new, but the deal was facilitated and even enhanced by technology in a way that in some cases is reordering economic relationships. The competitive pressure this can create is drawing resistance with the aid of government power.

In St. Louis, there is an ongoing conflict between the Taxicab Commission and Uber, which has not yet gained entry to the market. Three of eight members of the commission own cab companies. They have succeeded in keeping Uber and Lyft out of the market for over a year. A resolution might be possible soon, but the commission is still haggling with Uber over insurance coverage levels, fingerprints and background checks.

On the national stage, the biggest issue surrounding the gig economy is the formal relationship between workers and any company they might represent. Should those workers be treated as independent contractors or employees? Companies like Uber insist that their drivers are independent, but the government would prefer that they be treated as employees. In some cases, that would oblige employers to offer certain benefits. Erik Sherman covers this issue in “How the U.S. Just Knee-Capped the ‘Gig Economy’“. According to Uber, most of its drivers are part-time and like it that way, so it’s not clear that the government can force Uber (under current rules) to pay for extra benefits, or how many of its drivers that would affect. Still, it is instructive that the government is applying pressure in this area, potentially undermining competitive forces and voluntary relationships formed between innovative businesses and their working partners.

Big government advocates are extremely uncomfortable with the gig economy, but there are a fair number of progressives who place a high value on their ability to transact with “gigsters”. Politicians such as Hillary Clinton, who “skewered” the gig economy last week, risk fracturing their own base by advocating steps that could threaten innovative enterprises like Uber. In another statist attack on Uber, New York Mayor Bill De Blasio recently proposed to “cap” the company’s growth while the city studied its impact on traffic. Fortunately, he has backed down.

Progressives should love the value that the gig economy brings to segments of society whose members otherwise can’t afford or can’t access traditional services. For example, residents of low-income neighborhoods often find themselves living in “taxi deserts” when forced to rely on the entrenched cab companies. Megan McArdle makes this point in “Uber Serves the Poor by Going Where Taxis Don’t“. Aside from the technology angle, this is basic capitalism in action. When government steps in to restrict the conditions under which services may be offered, and raises the cost, it lends a degree of monopoly power to the entrenched providers and blocks the diffusion of services to all segments of the market. This should be seen as antithetical to the progressive agenda, but politicians and cronies don’t always see it that way.

The advantages of the gig economy have been made possible by technology, but another key element is that it has unleashed a flood of voluntary activity to fill gaps that were heretofore inadequately addressed. There have been some principled objections to the business practices of Uber and other gig sponsors, which often involve details regarding the splitting of revenue. Despite these concerns, there are benefits to workers who choose to participate, including a great deal of flexibility in choosing working hours and conditions. Second guessing their motives and the opportunity costs they face is a purely speculative and presumptuous exercise. Furthermore, on other fronts, government has been engaged in a seemingly intentional effort to make only part-time work available, as with recent changes in overtime rules and Obamacare regulations; at least the gig economy fits into that framework.

Traditional service providers, some of whom enjoyed government-enforced monopolies, have reacted to new competition by calling for protection. This rent-seeking behavior is typical in the history of regulation, which has often taken root under strong pressure for protection by entrenched interests. Progressives should reject this perverse form of economic conservatism.