American Homicide Rates: Which America?

12 Thursday Oct 2017

Posted by Nuetzel in Discrimination, Gun Control, Immigration

Tags

Affirmative Action, Assimilation, Bretigne Shaffer, Diversity, Economic Mobility, Heterogeneity, Illegal Immigration, On the Banks, Rent Controls, Ryan McMaken, School Choice, Segregation, Sponsorship, Violent Victimization, War on Drugs

A heterogenious society and the successful assimilation of minorities are two very different things, as much as we might wish otherwise. Two populations within a region will come into contact, but conditions promoting real assimilation are complex. (I’m avoiding use of the term “diversity” because it has come to imply the successful assimilation of distinct groups.) While cultural differences can enrich the lives of both populations, sharp economic gaps between minority and majority populations (and even some cultural differences) will tend to slow the process of assimilation. This is often associated with social dysfunction, such as high crime and homicide rates, especially among the minority group. This is a fairly common phenomenon in countries with racial and ethnic minority or immigrant populations, as Ryan McMaken writes in a recent piece on international differences in heterogeneity and homicide rates.

Heterogeneity In the West

Countries in the Western Hemisphere tend to have relatively high immigrant and minority populations, as McMaken describes:

“… when considering the Americas, … nation-states are in most cases frontier states with populations heavily affected by immigration, a history of conflict with indigenous populations, and institutionalized chattel slavery that lasted until the 19th century. The factors are significant through the region, and the United States cannot be held apart in this regard from the Caribbean, Brazil, Colombia, and other states impacted by all these factors.

Importantly, these factors also make the Americas significantly different from Western Europe and other areas — Japan and Korea, for example — where the present situation is marked by much higher levels of cultural uniformity and quite different recent histories and current demographic trends.“

Homicides

McMaken questions popular theories of cross-country differences in homicide rates based on the degree of gun control and gun ownership rates. Homicides and violent victimization have been declining in the U.S. for many years even as gun ownership has soared. Furthermore, international comparisons are traditionally plagued by arbitrary country classifications and exclusions, as well as inconsistent definitions of homocide and gun ownership. However, McMaken points to other explanations for violent crime found to be fairly robust in the academic literature: poverty and population heterogeneity:

“… these factors contribute to lower levels of social cohesion, and thus higher levels of criminality and other socially-undesirable behaviors.“

McMaken cites research involving ethnic minority populations of Slavs in Germany, Italians in Argentina and the U.S., and Arabs in Europe, all of whom had crime rates far exceeding those in their countries of origin. The connection between heterogeneity and crime might have nothing to do with particular ethnic groups, though it seems all too easy for observers within individual countries to blame specific “others” for crime. It is a symptom of alienation from the majority as well as economic desperation and vulnerability to opportunities and threats arising from the underground economy. Illegal activities might truly provide the best alternatives available to low-skilled, minority job seekers. Needless to say, underground economic activity, such as the drug trade, involves high risk and often violence among users and between competing factions. This is an important source of the high crime and victimization that typifies many minority communities.

Despite declines since the 1970s, the U.S. still has a higher homicide rate than many other industrialized countries. Beyond the weakness cited above, such comparisons fail to control for other confounding effects, including the degree of heterogeneity across countries.

Policies

Heterogeneity poses a problem in the context of involuntary and often voluntary segregation of sub-cultures. If you don’t believe the “voluntary” part, take a close look at the different clusters of individuals in the cafeteria at almost any “diverse” university or corporate office. Judge for yourself. Differences in language, fertility, demographics, religion and cultural traditions may be noteworthy, but where crime is associated with effectively segregated minorities, there is usually a gap in economic status and mobility relative to society at large.

What policies can mitigate these conditions and their impact on crime? It would be nice to approach this question strictly from the perspective that heterogeneity is a given, but the degree of heterogeneity is, to some extent, an endogenous outcome. Restrictive immigration policies might leap to mind as a way of restraining heterogeneity, and there is little doubt that illegal immigrants are less likely to assimilate (many contend that their crime rate is low). Policies allowing less restricted flows of legal immigrants tend to be salutary if they are based on domestic economic need, economic potential, or compassion for those seeking asylum or a haven from political oppression. A legal immigrant receiving a welcome on new shores is more likely to assimilate successfully than an illegal immigrant, all else equal. Citizenship and language education are avenues through which assimilation might be encouraged. And there could be ways to improve sponsorships and even temporary visa programs so as to encourage assimilation.

What can be done to encourage more effective assimilation of all minorities? And what can be done to reduce the crime associated with unassimilated populations? One major corrective is a strong economy. Policies that encourage economic growth will lead to greater participation in markets and society, with consequent interaction and mixing of sub-cultures. Growth policies include low and non-distortionary taxes and light regulation.

The war on drugs also accounts for a major share of homicides, and that war interacts with non-assimilation in perverse ways. It is crippling to disadvantaged communities precisely because it creates risky “opportunities” in the underground economy. It also produces high levels of incarceration and dangerous forms of “cut” contraband. As I’ll discuss in my next post, ending the war on drugs would reduce violent crime and lead to safer drugs in relatively short order.

A short list of other policies that would foster assimilation and economic mobility would include: improved education: school choice and apprenticeship programs; better labor market outcomes: reduce the minimum wage or create sub-minimum wage categories to enhance opportunities to gain experience and skills; better housing: eliminate rent controls.

Assimilation is always more effective when it occurs “organically”. Affirmative action and forced diversity initiatives often fail to achieve effective assimilation. Beyond the obvious infringement on liberty, these policies may sow resentment among those who suffer reverse discrimination, and among those who witness it, to the probable detriment of efforts to eliminate bias. Even worse, these policies often put their intended beneficiaries into vulnerable, un-winnable situations: jobs or programs for which their skills are not adequate. There are undoubtedly excellent candidates among those placed in positions under quotas, but there is a likelihood that many will be unsuccessful in their roles.

Conclusion

The anti-gun left is eager to attribute differences in homicide rates to the impact of gun control policies, but a close examination of the facts reveals better explanations. A prominent factor contributing to differences in homicide rates is the degree of heterogeneity across countries. Those with more homogeneous populations tend to have lower homicide rates and vice versa. But the problem is not merely heterogeneity, but the difficulty of economic and cultural assimilation of minority populations. These factors appear to lead to greater crime within many minority populations. The U.S. is not unique in its experience with high minority crime rates, but it is a relatively heterogenous nation. This is an important factor in explaining why the homicide rate tends to be higher in the U.S. than in other industrialized countries. To close, I’ll offer something cogent from Bretigne Shaffer’s On the Banks blog, in which she offers this quote from an individual named Michael Owen (the soccer player?):

“... we don’t really have a single America with a moderately high rate of gun deaths. Instead, we have two Americas, one of which has very high rates of gun ownership but very low murder rates, very comparable to the rest of the First World democracies such as those in western & northern Europe, Australia, New Zealand, Canada, Japan, South Korea. The other America has much lower rates of gun ownership but much, much higher murder rates, akin to violent third world countries.“

Trump Budget Facts and Falsehoods

02 Friday Jun 2017

Posted by Nuetzel in Federal Budget, Government, Trump Administration

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Administrative State, Baseline Budget, Budget Reconciliation, Deficit Reduction, Double Counting, Dynamic Scoring, Lawrence Summers, Math Error, Obamacare, Office of Management and Budget, Repeal and Replace, Revenue Neutrality, Ryan McMaken, Spending Priorities, Static Scoring, Steve Bannon, Tax Reform, Trump Budget, Welfare reform

The innumerate left is unhappy over cuts in various categories of spending in the budget proposal submitted by the Trump Administration last week. However, they have adopted “talking points” that are incorrect in an effort to rail against the budget. There is no reduction in overall spending in the proposal. Instead, there is a reduction in the growth of total spending. Ryan McMaken calls the mistaken assertions about spending “the media version of ‘cuts’“. The budget plan calls for an increase in total spending of 41% ($1.7 trillion) by 2027, versus 63% ($2.6 trillion) under the baseline (based on current law). Many of the actual cuts and growth reductions are in so-called discretionary spending. However, in one key mandatory component, Medicaid, spending increases by 39% under the plan, or $146 billion, versus 82% under the baseline. That is not a spending cut.

Another issue over which the Trump budget has been attacked is the so-called “math error,” or “double counting” of economic growth, to which former Treasury Secretary Lawrence Summers alluded with apparent delight. The gist of it is that the proposal somehow double-counted the salutary effects of growth in eliminating the projected deficit over the next ten years. In other words, the tax cuts proposed by Trump would be not just revenue-neutral due to stronger growth; they would result in an increase in tax revenue sufficient to eliminate the deficit by 2027.

Thus far, the Trump tax reform plan has been revealed in only a one-page summary released in late April. In static terms, it implied a loss of revenue of $5 trillion over ten years, though the summary left many features unclear. There could be additional provisions to broaden the tax base that might bring the ten-year static revenue loss down to somewhere between $3 and $4 trillion. In dynamic terms, however, the impact of the tax cuts would be smaller. The cuts would stimulate the economy (yes, they would!), but the precise impact on growth is unknown. In the budget, economic growth is assumed to increase from 1.8% to 3.0% annually over most of the ten year period. That has been criticized as unrealistic, but such a boost would likely be enough to make the tax cuts revenue neutral.

Here is a summary of the budget from the Office of Management and Budget (OMB). The tables at the back of the document, on pages 27 and 29, provide enough information on the cumulative ten-year changes to evaluate Summers’ double-counting claim. Keep in mind that his claim applies to changes expressed relative to a baseline. The proposed budget shows a total ten-year deficit projection of $3.2 trillion, compared to baseline of $6.7 trillion. So the deficits are reduced by a total of $3.5 trillion over the full ten years.

Individual and corporate income tax receipts are virtually unchanged over the ten-year period. There’s our revenue neutrality. Other receipts are down by $0.9 trillion, however. Most of that decline is attributed to a $1 trillion “allowance for repeal and replacement of Obamacare”, presumably elimination of taxes on such things as medical devices, Cadillac insurance policies, and fines for failing to comply with insurance mandates. So increased tax revenues do not account for the decline in the budget deficit.

Total cumulative outlays are reduced by $4.6 trillion in the budget proposal relative to the baseline. That more than accounts for the ten-year deficit reduction. Like the policies or not, the decline in spending is sufficient, relative to the baseline, to fully explain the deficit reduction. Yes, the budget assumes that some of the spending reductions are afforded by the faster assumed rate of economic growth, such as welfare payments, but that is not double-counting.

Revenue neutrality of the tax cuts is certainly an assumption worth questioning, especially because the summary of the tax plan gave every impression of abandoning neutrality. Neutrality was probably imposed on the budget plan as a matter of convenience. In a sense, it made the job of presenting the Administration’s spending priorities (like them or not) a cleaner exercise. For another, while budget reconciliation rules do not require the tax plan to be revenue neutral, Senate leaders have stated their strong desire for neutrality. The Trump budget proposal thereby allows Congress’ budget process to get underway while deferring the introduction of a more detailed and potentially controversial tax plan, one that is obviously still in flux and is likely to involve a loss of revenue, even in a dynamic sense.

The assumed change in economic growth is not solely attributable to tax effects, however. It would be reasonable to expect some growth to be driven by deregulation and the “deconstruction of the administrative state“, as Steve Bannon described so eloquently. This intention is embodied in the budget proposal. In that sense, it was unnecessary for OMB to impose revenue neutrality of the tax plan to eliminate the budget deficit over ten years. The economic growth spurred by deregulation would generate some of the extra growth in tax revenue.

I happen to like many of the priorities expressed in the proposed budget, despite the document’s lack of specificity. This includes the deregulatory initiatives, Obamacare repeal and replacement (we’re waiting…), and some of the welfare reform proposals. I am not happy about the scale of the shift toward defense, and I am not happy that government continues to grow in the aggregate. And as for the still-incubating tax reform plan, I like many of the features originally described, though not all.

Many believe that the Administration’s economic growth assumptions are unrealistic, and many dislike the spending priorities. Those cannot be used as excuses for mischaracterizing the proposal, however. Reductions in some spending categories occur only relative to the baseline growth path. They are not real cuts in spending. Likewise, Summers’ double-counting allegation is false. The recovery of tax revenue via economic growth is not double counted, and there is no “math error”. The proposed reductions in spending relative to the baseline more than account for the deficit reduction. I suspect that Summers’ motives were strictly polemic and not grounded in a careful examination of the budget proposal. He is not innumerate. What’s worse, a number of economists swallowed the “double-counting” story hook, line, and sinker.

Suicides Happen, Guns or Not

20 Monday Jun 2016

Posted by Nuetzel in Gun Rights

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British Coal-Gas Story, Don B. Kates, Gary Mauser, Gun Rights, Guns and Suicide, Harvard, Impulsive Suicide, International Suicide Rates, Mises Institute, Mises Wire, OECD Suicide Comparison, Passion Suicide, Premeditated Suicide, Ryan McMaken, Teenage Suicide

heads

Gun-rights deniers often assert that access to guns increases the suicide rate, a question recently addressed by Ryan McMaken on the Mises Wire blog. He shows conclusively that suicide rates across countries are not related to gun laws. While gun ownership in the U.S. is extensive, and most gun deaths in the U.S. are suicides, the U.S. suicide rate is in the middle of the pack for OECD countries. Most of those countries have more restrictive gun laws. In fact, the U.S. suicide rate is lower than in Austria, Finland, France, Belgium, and Japan. Gun ownership rates are extremely low in Austria, France, and Japan. Therefore, suicide rates appear to be unrelated to legal gun ownership and the restrictiveness of gun laws. These facts, and simple logic, suggest that an individual in a state of extreme desperation has alternative means of taking their own life.

The most nuanced argument that guns encourage suicides is based on a dichotomy of premeditated suicides versus suicides of impulsivity or passion. Most impulsive suicides, according to this view, are carried out with faster, less painful and more reliable methods, which would include the use of guns. That’s based in part on interviews with suicide survivors and the mental health records of non-survivors. However, it would not be surprising to learn that survivors actually had less intent to begin with; a comparison is impossible because we can’t ask the non-survivors. And whether a mental health record, or the absence of one, is always a reliable guide to the degree of impulsivity is open to question. So while there are differences in the mental health records of firearm suicide victims versus those who have used less reliable methods, the conclusions seem to rest on fairly unreliable measures of impulsivity or on survivor-only samples. Researchers don’t have much choice in the matter, but drawing conclusions based only on survivors is prone to severe bias.

McMaken shows that guns account for most suicides only among those of age 55 and above, a group that is likely to be the least impulsive. Teenagers might be expected to be the most impulsive, but they tend to have lowest rates of suicide by firearms. However, a teen might not have ready access to a gun even if one is in the home. The teenage suicide rate is even less related to gun ownership across countries. New Zealand, Ireland, Finland and Canada come in much higher than the U.S. on this sad measure, and Australia, Japan, Switzerland, Belgium and Sweden are above the U.S.

At the previous link, the “British coal-gas story” is told to argue that cutting off a common means of suicide will lead to a permanent reduction in suicides. In this case, a changeover from coal gas for heating and cooking to natural gas is alleged to have led to a permanent decrease in total suicides in Great Britain in the 1960s, as death by “sticking your head in the oven” was no longer very reliable. However, other research has found compensatory increases in other forms of suicide, so the coal-gas lesson is suspect.

A Harvard study (circa 2007) by criminologists Don B. Kates and Gary Mauser focused on the ties between guns, murder and suicide; they concluded that suicide does not bear a relationship to gun possession. The authors examined cross-country and within-country data:

“There is simply no relationship evident between the extent of suicide and the extent of gun ownership. People do not commit suicide because they have guns available. In the absence of fire‐ arms, people who are inclined to commit suicide kill themselves some other way.”

Suicide is a manifestation of despair so deep that the victim simply cannot get on with life. Guns have nothing to do with that anguish. It may be true that failed attempts often lead to a renewal of spirit, but survivors still have a high rate of suicidal recidivism. Moreover, the question of the depth of the original intent for survivors is open to question. Those choosing guns for suicide might think it’s the best alternative, but clearly other alternatives will be chosen when guns are unavailable. The claim that access to guns makes people more vulnerable to taking their own lives is not supported by the data.

Central Bank Bubbles Pop On Our Heads

09 Wednesday Sep 2015

Posted by Nuetzel in Big Government, Macroeconomics, Monetary Policy

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Asset Bubble, Asset Price Distortion, Boom and bust, capital costs, Capital investment, Easy Money, Jim Grant, Market Manipulation, Martin Feldstein, Quantitative Easing, Ryan McMaken, Seigniorage, Supportive Earnings, Zero Interest Rate Policy, ZIRP

Printing money is a temptation that central banks can’t resist. And they distort prices when they do it. The new “liquidity” finds its way into higher asset values: stocks, bonds, real estate, even art. But as Jim Grant points out (as quoted by Ryan McMaken), the inflated prices are artificial, decoupled from the actual value those assets are capable of generating. The high asset prices are unsustainable:

“The idea is that you put the cart of asset values before the horse of enterprise. By raising up asset values, you mobilize spending by people who have assets… It was otherwise known as trickle-down economics before the enlightenment, then it became something much fancier in economic lingo. But that’s essentially the idea. So what you have seen is an artificial structure of prices worldwide.”

This comports with the general drift one gets from chatting with financial market professionals about the Federal Reserve and other central banks. These advisors usually add a reflexive assurance that corporate earnings are adequate to support stock prices. So which is it? Those very earnings might reflect trading gains on assets held by financial institutions and others, so the “supportive earnings” argument is circular to some degree. That aside, it’s suggestive that the recent market selloff has been centered on tighter monetary conditions:

“‘The risk of global liquidity conditions swinging is real for the markets, justifying a significant reduction in exposure for all asset classes,’ said Didier Saint-Georges, managing director at Carmignac, in a note to clients.“

Likewise, significant rebounds have been attributed, at least in part, to softening expectations that the Fed will move to increase short-term interest rates next week. If asset values are so heavily dependent on a continuation of a zero-interest rate, easy-money policy at this stage of an economic expansion, then it looks like a bubble is waiting to pop. More liquidity might delay the inevitable.

How did we get here? Martin Feldstein describes the policy of “quantitative easing” (QE) in “The Fed’s Stock Price Correction“:

“When the Obama administration’s poorly designed 2009 stimulus legislation failed to produce a strong economic turnaround, then-Fed Chairman Ben Bernanke announced that the central bank would pursue an ‘unconventional monetary policy’ by purchasing immense amounts of long-term bonds and promising to hold short-term interest rates near zero for an extended period.

Mr. Bernanke explained that the Fed’s policy was designed to drive down long-term interest rates, inducing portfolio investors to shift from bonds to stocks. This ‘portfolio substitution’ strategy, as he labeled it, would increase share prices, raising household wealth and therefore consumer spending.“

Feldstein does not buy the contention that “earnings are supportive”. Despite his conventional demand-side approach to macroeconomics, he too emphasizes that loose monetary policy has distorted asset prices.

The process is exacerbated by the bloated federal government’s appetite for funds. The Treasury is able to float debt at very low interest rates, thanks to the Fed’s willingness to provide liquidity to the banking system. By that, I mean the Fed’s willingness to buy Treasury bonds and monetize federal deficit spending.

Jim Grant’s argument regarding price distortion goes further. Increases in the prices of financial assets artificially deflate the cost of raising new capital, translating into over-investment in physical assets such as office buildings and machinery. Here’s Grant:

The prices themselves are the cosmetic evidence of underlying difficulty. So if you misprice something, it’s not just the price that’s wrong. It’s the thing itself that has been financed by the price. So you have perhaps too many oil derricks, too many semi-conductor fabs. We have too much of something, which is financed by an excess of credit or debt.“

Thus, the boom feeds the inevitable bust. That is certainly a danger. I’m sympathetic to Grant’s reasoning, but we have not experienced much of a boom in physical capital investment in the U.S., except perhaps for commercial real estate and in capital-intensive oil and gas extraction, and the latter is now on the skids. China, however, has been aggressively over-investing, and that is coming to an end.

While asset values have likely been inflated, it is fair to ask why the Fed’s accommodative policy has not led to a more general inflation in the prices of goods and services. For one thing, the strong dollar has held import prices down. (The international value of the dollar has been buttressed by the view that dollar-denominated assets are relatively safe, despite the risks created by the Fed.) More importantly, aging baby boomers have contributed to relatively strong saving activity (and less spending). Paradoxically, it’s possible that saving has been reinforced by the zero-rate policy of the Fed, as noted before on Sacred Cow Chips. Buying extra comfort in retirement requires greater set-asides if rates are low.

I am not optimistic about the direction of asset values, but I am not adjusting my own investment profile. Market timing is generally a bad strategy, and I will do my best to ride out the market’s ups and downs, even if they are manipulated by the Fed. However, we should all demand more discipline from the federal government and more restraint from the Fed. Better yet, limit the Fed’s discretion in the conduct of monetary policy by relying on a monetary standard that is less prone to manipulation and seigniorage.