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Assorted Links

September 12, 2016

1. How politics went insane

2. The freedom lover’s case for the welfare state

3. Mr. Rogers and Advice columns

4 New Opiod isn’t addictive. Hopefully it’s also safe and effective.

5. Post truth politics.

Assorted Links

August 29, 2016

1. Political ads don’t work

2. The post-truth era

3. Inconvenient questions

The answers, btw, are:
Upgrade McCarthy.
FDR and Trump are similar and both are bad
Democrats should address the concerns of Trump supporters but that might not be compromise per se.
American history would have taken a better course if none of our Presidents had had significant authoritarian tendencies.

4. To what degree is the system rigged?

5. The world will get weirder.

Basic Income vs. Welfare

July 14, 2016

There is a lot of misinformation and unrealistic expectations about basic incomes/negative income taxes/universal incomes/guaranteed national incomes (I will call it basic income in this article, but all the terms above are equivalent). Basic income is not magical, nor is it radically different than other welfare programs.

How is it different from normal welfare?
The fundamental difference between a basic income and normal welfare is that basic income does not try to control the decisions of the poor. Basic income is not conditional. It does not stop if a recipient does not look for a job, is not disabled, gets a part time job, decides to spend the day writing, painting, or getting drunk. It consists of cash, allowing the poor to spend money how they see fit rather than trying to force them to buy particular things, such as healthy food or crappy apartments. Instead of getting food stamps, the equivalent money could be spent on food, or anything else the poor person wants.

It’s no surprise that basic incomes are popular among libertarians and left wing liberals. Libertarians don’t want the government to control anyone’s behavior, and left wing liberals don’t view poverty as being primarily a problem of poor people’s behavior.

The disadvantage is that the poor make politically unpopular and often short-sighted decisions. The poor drink more, have more children out of wedlock, are more likely to be unemployed, drop out of high school, take payday loans, buy lotto tickets, and a host of other behaviors that are not prudent. Causality runs both ways: poverty causes bad decisions and bad decisions cause poverty.

What welfare program places no behavioral requirements whatsoever on its recipients? Social Security. It’s the exception that proves the rule. People don’t think of senior citizens as inherently immoral and they are high status. Furthermore, they aren’t expected to be productive, so their immoral behavior doesn’t affect society as much. Thus, Social Security recipients are not drug tested, they don’t have behavioral requirements (such as job searching), and they have no restrictions placed on them as to what they are allowed to spend the money on.

Cost
I investigated the cost of basic income and find that it would be affordable (but very expensive) at around $500 per person per month. That’s about half the poverty line, so it wouldn’t end poverty, but it would eliminate severe poverty and deprivation. Yes, it’s an expensive program. Yes, it would require the government to cut other spending, especially other welfare spending. It would not totally destroy the budget or have any other apocalyptic effects.

Health care is the wild card of American poverty. America has a uniquely bad health care system that is neither free market nor government. It’s got the worst traits of both systems, with uneven coverage, high prices, lack of information, lack of incentives, lack of competition, slowed innovation (relative to free market), and financial traps for the poor. Basic income would not address this problem. No plausible level of basic income would allow people to afford decent health care without major reforms or some other medical welfare program.

Behavioral Impact
Many articles argue that a basic income would dramatically reduce employment, but a basic income wouldn’t necessarily discourage working any more than our current system. There are two factors to consider: substitution and an income effects.

Income Effects
As people get richer, they usually chose to work less. For example, if someone won the lottery, it wouldn’t be unreasonable for them to quit their jobs. However, basic income would probably be at or below the poverty line, so such a life would be quite austere.

The people leaving the labor force for such a lifestyle would be those with very low earnings potential or a high disutility of work. For society, having a large number of people who don’t earn much quit the labor force does not reduce total production or tax revenue very much. At higher incomes, quitting to take a basic income would not be an attractive proposition.

Substitution Effects
A lump sum transfer does not affect marginal incentives, however the basic income needs to be paid for by taxation. There’s no way a society can give everyone a net amount of money, since that money has to come from somewhere. Therefore, on average, just like any other welfare system, the amount of money received will be slightly negative (because of costs of redistribution/administration). In practice, those who are poorer than average will get money, and those who are richer than average will pay money. It is likely that if a basic income were enacted, the government wouldn’t transfer income to everyone, but instead would transfer it only to people whose income fell below a certain point. Otherwise, you’d just wind up giving people money and taking it right back. As Social Security is a sort of “basic income for the old”, they would probably not get any additional money.

Screen-Shot-2016-06-09-at-10.54.24-AM

Under our current tax/welfare system, the poor often face higher marginal tax rates than the rich. Let’s say there’s a welfare program that gives you a benefit worth $2000, but you have to earn less than $10,000 per year to get it. If you make $9999, you have a huge incentive not to work a few extra hours and lose that benefit. If you add up all benefits like this across federal and local programs, there are some areas where the poor are marginally taxed at almost 100% of additional income.

CBO marginal_tax_1

Even if a basic income were taxed back at a high rate, as long as it replaced welfare programs with higher marginal tax rates, the net effect would be to lower marginal tax rates on the poor and get rid of poverty traps.

Assorted Links

June 28, 2016

1. Rome vs. Pirates

2. Can Social Science find the truth?

3. How OPEC lost

4. Varoufakis on the EU

5. Reflections on Brexit

Economist Morality

June 10, 2016

An action is moral if there are no better alternatives to it.

Economists espouse the idea of opportunity cost. Life consists of choices. Those choics are between various options, and picking one means not picking all the others. The best option not chosen is the opportunity cost. For moral decisions, there is also an opportunity cost.

Unfortunately, it is all too common to encounter a non-profit organization that does not use its donations wisely. Giving to them anyway is considered morally good by most systems of moral philosophy. However, economists might argue that you are failing to get the most charitable value for your money and thus it is actually wrong to give to those sorts of organizations.

Economists are often accused of playing devil’s advocate. That’s somewhat correct and somewhat incorrect. Economists have the ability to look at difficult situations critically and really ask what the best option is. Non-economists try to opt out of the situation entirely, but that’s not a real option. As the great philosopher Geddy Lee once said “If you chose not to decide, you still have made a choice.” Outlawing difficult choices simply means people in those situations have to pick one option instead of getting to chose themselves.

Examples of subjects where economist morality is better than common sense morality:
Sweat shops
Minimum wage
Price gouging
Safety laws
Child labor laws
Fair trade
Job creation on wasteful projects/broken windows – Ironically justified by economics

An Introduction to Economics Syllabus

June 7, 2016

1. What is economics? Brief. Explain why it’s important, key questions asked, method of thinking.

2. Economic history – agriculture, industrial revolution, population + wealth increases of the 20th century, Gapminder. Show the incredible journey humanity has had in the last 200 years.

3. Human Action, Choice, opportunity cost, decision making

4. Supply and demand:
How are prices determined
How competition works
Marginalism
Prices as information and incentives

5. Market coordination – Technology as specialization, Markets in Everything, Markets as evolution

6. Unintended consequences – broken window, economics in one lesson
Price controls, the effect of regulation on markets

7. Political economy – People have incentives to reduce supply to increase profits. Petition of the candlemakers, other political stories. Bootleggers and Baptists

8. Basics of game theory – PD, repeated games, signalling, commitment, reputation, etc

9. Basics of industrial organization

Other Reading
Chapters 1-3 TWoN
Economics in One Lesson
I, Pencil
Petition of the Candlemakers, What is Seen and what is not seen
Cartoon Introduction to Economics, Yoram Bauman
Economic Naturalist, Robert Frank
The Use of Knowledge in Society
Theory of the Firm, Problem of Social Costs, Coase

Are Mexicans the Problem?

May 6, 2016

All aspiring fascist demagogues pick an ethnic minority to blame for all of their country’s problems. It looks like Mexican immigrants are the scape goat du jour, although Syrians are a close second.

To some degree this article is useless. The likelihood that a substantial number of people will read it and change their minds is about 0. But the only thing necessary for the triumph of evil is for good men to do nothing. If you were living in Massachusetts during the Salem Witch Trials you had a moral duty to speak out and say that witches aren’t real and these trials are just murdering innocent people. If you were living in Germany during the Holocaust, you had a moral duty to point out that Jews do not poison wells, and are not to blame for Germany’s loss in WW1. If you were living during the Red Scare in America, you had a moral duty to say that Communists are the worst human beings who have ever lived and no one should rest until they are wiped from the face of the earth.

Jobs
The relationship between immigrants and employment is positive. That is to say, empirically, the more immigrants you have, the less unemployment you have. This could mean that immigrants follow jobs, but the lump of labor based “immigrants take jobs” approach is completely false.

Wages
Wages are not negatively affected by immigration, although some studies show a small negative effect on high school dropouts. Generally speaking, admitting higher skilled immigrants is going to have a better positive effect on wages than low skilled, since low skilled workers are substitutes for one another, whereas high skilled workers are complements. Economically speaking, there is no difference between immigration and fertility, except fertility has higher governmental costs, since you have to school children born in your own country. As wages go up in more population dense areas, it makes sense that adding more people would have a net positive effect on wages.

Welfare
Illegal immigrants don’t get welfare, except their children get schooling and they can get emergency health care. They might not pay income taxes, but they still pay sales and some other miscellaneous taxes. Furthermore, granting amnesty would likely increase the amount of taxes they pay.

Note: Legal immigrants get more welfare than natives, but that’s because they are poor, not because of their ethnicity. The amount of welfare they get is determined by Congress. If you don’t like it, elect someone who changes the law.

Trade – Nafta
The way trade works is that each side gives up something and gets something of equal nominal value in return. If you buy $50 of groceries, you give up $50, and you get that much in food. The value of imports equals the value of exports, overall. Since there are many countries in the world, it is exceedingly unlikely that the payments will balance exactly between any two countries, but there is nothing wrong with this. If Mexicans buy American corn, and Americans use the money to buy German cars, and Germans use the money to buy Mexican gasoline, each country runs a deficit with the next country, but overall the payments still balance.

America actually has a manufacturing surplus with Mexico, and NAFTA has been beneficial to the U.S. automobile sector. This article isn’t trying to be a primer on international trade theory, but the trade related woes about NAFTA are overblown. It was a great deal for the U.S. and ending it would hurt our economy.

Crime
Immigrants are incarcerated at lower rates than natives. It makes sense that if you are an illegal immigrant, you’re going to want to keep your head down so you don’t attract police attention. Perhaps you could argue that by immigrating, they are all criminals by definition. But that seems a circular argument for making immigration illegal to begin with. We could make having blue eyes illegal by noting that if that were the law, the only people hurt would be those evil blue eyed criminals. As Augustine said, an unjust law is no law at all.

Learning English
The vast majority of immigrants learn English. Yes, temporary immigrants on work visas aren’t going to bother, but permanent residents will and their children certainly will. I guess if even hearing a bit of Spanish is painfully grating to you, the fact that the speaker will one day learn English is cold comfort.

Further reading
10 Myths about immigration
Immigration Facts