Wednesday, January 14, 2015

Thoughts regarding On the Run

Even though author Alice Goffman did not set out to write a book about the drug war, it nonetheless serves as perhaps the defining subtext to On the Run: Fugitive Life in an American City. Lurking ever present in the background, Goffman's work helps bring the drug war's destructive effects more into focus, particularly for those unfamiliar with life among the urban poor. Besides violent police conduct while enforcing drug laws, another negative impact of this policy highlighted by the book is the snowballing of fines and court dates related to drug offenses, oftentimes producing a downward financial spiral through various knock-on effects. Reason magazine's J.D. Tuccille provides a good description of this dynamic in his review of the book:
The police presence in 6th Street is pervasive. Residents, young black men in particular, can expect to be frequently stopped, questioned, and searched. Many initial arrests are for drugs, often possession of marijuana. After that, as Goffman records, the system takes on a horrible logic of its own. Criminal records make employment hard to find, and recurring court dates devour time that might be devoted to work, job searches, or family responsibilities. Without regular income, court fees add up and may prove unpayable. Many of the people Goffman writes about are essentially constant low-level fugitives, hunted by police for missed appointments. Some end up committing additional crimes to pay their accumulating debts to the courts [Indeed, I recall one individual in the book breaking into someone's house to steal items so that he can post bail for a friend arrested on a drug charge].
(It should be pointed out, however, that this problem is not caused by the drug war alone. Both National Public Radio and Cato Institute veteran Radley Balko have written about secondary impacts of fines and court fees on low income individuals, while Charles G. Koch (of eeeevil Koch brothers fame) and Mark V. Holden authored a recent piece in Politico regarding the country's overcriminalization problem.) 

Perhaps equally insidious, the drug war also serves to undermine personal and familial relationships, severing fathers from children, brothers from siblings (a relationship that may be particularly important in the absence of a father figure), romantic partners, etc. While in many (most?) cases those being hauled off to jail are far from model citizens, a father who sells small amounts of drugs on the street corner may still have a more positive impact on a child's life than one that is in jail. As George Mason economist Tyler Cowen notes, just the mere threat of prison time has a pernicious impact:
A core point of “On the Run” is that “young men’s compromised legal status transforms the basic institutions of work, friendship and family into a net of entrapment.” For instance, the police round up fugitives by monitoring and contacting their relatives — and that frays family relations. A young man might avoid showing up at the hospital to witness the birth of his child because he knows he could be caught or turned in. Family gatherings become another hazard, so in-person appearances are often surprise visits. People stuck in this kind of limbo are also reluctant to visit hospitals when they need treatment, and a result, the book says, is a “lifestyle of secrecy and evasion,” driven by the unfavorable incentives set in motion by the law.  
...As every friend or relative becomes a potential informant, cooperation plummets and life degenerates into a day-to-day struggle to remain outside the reaches of the law. Professor Goffman offers a chilling portrait of tactics used to encourage relatives to turn in possible lawbreakers: For example, the police may tell mothers that if they don’t report their errant men, the authorities will yank their children, a threat that may be backed by a charge of harboring or aiding and abetting a fugitive. “Squealing” thus becomes more likely. A community becomes divided between those who are on the clean side of the law and those who are not. And trust breaks down in personal relationships.
If one believes in the vital role of family bonds and a solid upbringing in shaping lives, then this policing approach is absolutely counterproductive to the goal of forming productive citizens. 

Lastly, with regard to the drug war, it should be no surprise that respect for the police suffers when they are perceived to be engaged in a campaign of harassment that is justified on the dubious grounds of halting a victimless crime:
It may come as a surprise that the majority of women I met who learned that spouse or family member was wanted by the police initially expressed anger at the authorities, not the man, and promised to support him and protect him while he was hunted. In part, I think these women understood how easy it was to get a warrant when you are a Black young man in neighborhoods like 6th Street; they understood that warrants are issued not only for serious crimes but for technical violations or probation or parole, for failure to appear for one of the many court dates a man may have in a given month. A second and related reason for women's anger is that the police have lost considerable legitimacy in the community: they are seen searching, questioning, beating, and round up young men all over the neighborhood. As Miss Regina often puts it, the police are "an occupying force." 
It's not hard to imagine that such low regard for the police contributes both to the culture of "stop snitching" and a cultural norm against cooperation with the police, thus removing a traditional avenue for the resolution of conflict within a community. That's bad for everyone.

Besides the drug war, however, the book also struck me as a tale of self-sabotage on an enormous scale. Examples:
  • A group of young men (perhaps teens, I can't recall) are shooting dice, when one of them pulls out a gun and announces that he is robbing another one of the players. Not taking him seriously, the rest then burst into laughter. Humiliated, the individual with the pistol then shoots someone in the head to demonstrate his seriousness. Everyone was high on PCP at the time. This then touches off a gang war which claims several more lives. 
  • The author, a twenty-something white woman raised by two professors in a nice part of town, has trouble for something like the first six months of her study simply engaging in verbal communication with those she interacts with due to their use of slang and, as she calls it, African American Vernacular English. How can someone be successful in society when they can't effectively express themselves with someone from mainstream society? What does a job interview for any position outside of those with very low pay look like? 
  • Babies, often more than one and invariably outside of marriage, appear more the rule than the exception by age 22 or so. 
  • For his 23rd birthday party, one of the main characters of the book rents out a hotel room and then spends $250 on liquor and drugs. Call me judgmental, but if you're poor that's not where you should be spending your money. It beggars belief that this was that individual's only highly questionable financial decision. 
  • At several points in the book the author references homes that are not merely messy or cluttered, but rather filled with trash, animal droppings and -- no surprise -- insect infestations. This seems to speak to a broader values problem, for there is no rule that just because someone is poor that they have to be dirty (indeed, not all homes described -- and they are all from humble circumstances -- are so filthy). Anecdotally, in my own mixed-income neighborhood the amount of trash found in the streets seems proportional to its proximity to low income housing despite plentiful numbers of trash receptacles (Indeed, I've actually seen people drop trash while being literally within an arm's length of such a receptacle). 
Such examples would seem to suggest a need for tempering expectations of what may be achieved through an end to the drug war and/or less aggressive punishments for minor offenses. While it would no doubt be beneficial and result in some marginal improvements, the social ills that plague neighborhoods such as the one described by On the Run plainly run deep, perhaps reflecting a deeper cultural rot that, having set in over the course of many decades, will not be easily eradicated.

Monday, January 05, 2015

State violence

In On the Run: Fugitive Life in an American City, author Alice Goffman gives a first-hand description of what it's like when the police burst through the door in the middle of the night:
I'd spent the night at Miss Regina's house watching Gangs of New York with Mike and Chuck for maybe the hundredth time. I had fallen asleep on the living room couch and so hear the banging in my dream, mixed in with the title page music, which the DVD played over and over. 
The door bursting open brought me fully awake. I pushed myself into the couch to get away from it, thinking it might hit me on the way down if it broke all the way off its hinges. Two officers came through the door, both of them white, in SWAT gear, with guns strapped to the sides of their legs. The first officer in pointed a gun at me and asked who was in the house; he continued to point the gun toward me as he went up the stairs. I wondered if Mike and Chuck were in the house somewhere, and hoped they had gone. 
The second officer in pulled me out of the cushions and, gripping my wrists, brought me up off the couch and onto the floor, so that my shoulders and spine hit first and my legs came down after. He quickly turned me over, and my face hit the floor. I couldn't brace myself, because he was still holding one of my wrists, now pinned behind me. I wondered if he'd broken my nose or cheek. (Can you break a cheek?) His boot pressed into my back, right at the spot where it had hit the floor, and I cried for him to stop. He put my wrists in plastic cuffs behind my back; I knew this because metal ones feel cold. My shoulder throbbed, and the handcuffs pinched. I tried to wriggle my arms, and the cop moved his boot down to cover my hands, crushing my fingers together. I yelled, but it came out quiet and raspy, like I had given up. My hipbones began to ache -- his weight was pushing them into the thin carpet. 
A third cop, taller and skinnier, blond hair cut close to his head, entered the house and walked into the kitchen. I could hear china breaking, and watched him pull the fridge away from the wall. Then he came into the living room and pulled a small knife from its sheath on his lower leg. He cut the fabric off the couch, revealing the foam inside. Then he moved to the closet and pulled board games and photo albums and old shoes out onto the floor. He climbed on top of the TV stand and pushed the squares of the drop ceiling out, letting them hit the floor one on top of the other.  
I could hear banging and clanging and clattering from upstairs, and then Miss Regina screaming at the cop not to shoot her, pleading with him to let her get dressed. All the while, the cop with his foot on my yelled for me to say where Mike was hiding. It would be my fault when Miss Regina's house got destroyed, he said. "And I can tell she takes pride in her house."
Goffman describes other experiences with the police:
The summer was punctuated by more severe police action. On a hot afternoon in July, Aisha and I stood on a crowded corner of a major commercial street and watched four officers chase down her older sister's boyfriend and strangle him. He was unarmed and did not fight back. The newspapers reported his death as a heart failure. In August, we visited an old boyfriend of Aisha's shortly after he got to county jail. Deep lacerations covered his cheeks, and his eyes had swollen to tiny slits. The beating he took while being arrested, and the subsequent infection left untreated while he sat in quarantine, took most of the vision from his right eye. 
In interviews, Warrant Unit officers explained to me that this violence represents official (if unpublicized) policy, rather than a few cops taking things too far. The Philadelphia police I interviewed have a liberal understanding of what constitutes reasonable force, and a number of officers told me that they have orders from their captains that any person who so much as touches a cop "better be going to the hospital."
On a side note, the dust jacket features a laudatory quote from Cornel West calling the book "the best treatment I know of the wretched underside of neo-liberal capitalist America." West's blithering about neoliberalism is pretty rich considering the book is in large part not a tale of unfettered markets but rather draconian state intervention. His failure to grasp this point brings a certain graphic to mind:

(click to enlarge)

Overall thoughts on the book will be the subject of a future blog post.

Sunday, January 04, 2015

Incentives: government vs. market actors

In his book Boom Towns: Restoring the Urban American Dream, author Stephen J.K. Walters uses the decision of Indianapolis to place its water treatment facilities under private management to illustrate the relative inefficiency of government in comparison to the private sector:
The political obstacles were formidable. Regulators feared that a private firm would sacrifice environmental quality in pursuit of profits. Public employees' unions were certain that talk of "cost reductions" and "efficiency gains" were code for wage cuts and job losses. In addition, there seemed little reason to hope that privatization would do much good. Two consultants' reports on the treatment plants concluded that they seemed reasonably well run; one estimated that private management could, at most, trim about 5 percent from operating costs. 
Nevertheless, [Mayor] Goldsmith and the City-County Council plowed ahead. They opted not to sell the treatment plants outright, but put a five-year concession contract up for bids. The winner was the White River Environmental Partnership (WREP), a consortium that included one of the big French water companies, a Denver-based environment management company, and the city's own (private) water supplier. WREP's winning bid was not 5 but 40 percent below the city's prior costs. Actual savings exceeded initial projections, with utility, maintenance, and capital costs all coming in well under budget.  
And environmental quality improved: the number of effluent violations decreased from about seven per year under city management to one. Though some of these efficiency gains did, indeed, come from a one-third reduction in operational staff (which led the union to fight the privatization tooth and nail in both the courts and media), the city provided a safety net for displaced workers by offering them a severance package or transferring them to other positions as they became available; within a year all had been placed. Those that remained actually banked higher wages, experienced fewer workplace accidents and injuries (which, in turn, cut workers' comp insurance costs), and reduced the frequency with which they lodged grievances with their union.  
But Indianapolis did not realize such dramatic gains in the performance of its wastewater treatment system by merely eliminating some redundant staffers. WREP had access to the technical expertise of the best engineers in the world; more important, it had a strong incentive to heed their advice. Under city management, innovative ideas--simply figure out better ways to operate or adopting new technologies--usually went nowhere because they brought nothing back to the innovator. Any realized costs savings would revert to the city's general fund to be spent on other constituencies.  
With shareholders and managers operation under a long-term concession contract, however, such savings would go do the bottom line and fuel dividends, bonuses--and even the aforementioned higher wages. Indeed, once workers are freed of unions' work rules and across-the-board compensation formulae, they frequently offer up the most useful suggestions about how to get their work done better for less--and find private managers far more willing to listen than their public-sector counterparts. 
It's not a matter of smarter people, but rather the differing incentives which face actors in market-based and public sector settings. Given this reality, shouldn't we desire as much of our world as feasible to be subject to market incentives rather than those faced by government? It's also notable that this kind of innovative thinking occurred at the local government level, which--unlike Washington--often can't simply borrow its way out of trouble.

Thursday, January 01, 2015

Indonesia Etc.

Finished reading Indonesia Etc. the other day and wanted to share a couple of excerpts related to economic matters. The first is on the impact of culture and customs on economic outcomes:
Outwardly, the gift of a buffalo is a mark of respect to the person who has died, and to his or her clan. Its splendid horns will be nailed to the front of the clan house, perhaps displacing some earlier, lesser sacrifice. To that extent, it's a gift that keeps giving; it visibly contribute to the honor of the clan for evermore. But in truth, Mama Bobo's trophy buffalo wasn't just about respect. It was about revenge. 
Nothing, but nothing, in Sumba is really a gift: it's always an exchange. If I 'give' you a fatted buffalo, you are immediately in my debt for a beast with horns at least as long. It's a debt you absolutely must repay whenever it falls due, that unpredictable time when my granny dies, or my husband does, or I do. If you don't have a buffalo to spare, what then? You do whatever you have to. You can call in debts from other people, or deepen your web of obligation by borrowing. If payback means taking your kids out of school, selling your rice fields, or just stealing a buffalo in one of the cyclical cattle raids that does the calendar of Sumba, so be it.  
...I met many young people in Sumba who had to drop out of school because some adat obligation fell due. What agony, to have to lead a prize buffalo into a ceremony and slit its throat, knowing full well that you are watching your hopes for the future drain away with the blood that seeps into the dust between the graves. When I ask young people if this makes them angry, they shrug. 'Adat is adat. What can you do?'
The second excerpt notes the distortionary effects which occur when subsidies interfere with pricing signals, and the accompanying efficiency losses:
Over the course of my travels in Indonesia, I spent hundreds of hours burning up fuel in intercity minibuses, not getting from A to B, but just driving around town for an hour or two before departure, looking for extra passengers. With subsidized petrol at just 4,500 rupiah a liter, bus drivers didn't have to worry too much that they'd burn up more in fuel than they'd make in extra fares.  
Households pay less for their electricity than it costs to generate it. In places with twenty-four-hour electricity, Indonesians seem to leave the TV on permanently and the lights on all night, if not in the bedroom itself, then certainly in the sitting room and on the veranda. The fear of ghosts outweighs the price of electricity.  
Power is subsidized for domestic consumers, not for industry, so the money the government shells out does little to create jobs or stimulate the economy. Through energy subsidies, the government is channelling a fifth of its total spending into the pockets of middle-class people with cars, air-conditioners and microwaves. Every mention of a price hike brings people out onto the streets and revives the ghosts of 1998, when a demo about rising fuel prices spiralled into the nationwide protests that brought down Suharto.
Voter turnout in Indonesia's 2014 presidential election has been placed at 80% for the voting age population, yet another reminder that there is no relationship between high voting rates and good governance or smart policymaking. 

Sunday, November 30, 2014

Bruenig on Inequality

While Matt Bruening has attracted notice in recent days for his column making the sensational claim, in the context of recent events in Ferguson, that riots are good, it's the bracing honesty in his post earlier this month on inequality that I find more noteworthy. Frankly, a more unadulterated view of the lefty position on inequality will be hard to find. Rather than go through the whole thing, I'd like to just focus on a few key parts. First up:
[The distribution of market income] is not at all what people are worried about in most inequality circles. The concern that income inequality hurts the living standards of the poor and middle class is not implicitly about inequality produced by markets. The concern is that high disposable income inequality (relative to other countries) is strong suggestive evidence that the bottom and middle could be made better off by increasing taxes and transfers. That is to say, where disposable income inequality is high, that suggests there is money out there going to the rich that could be hoovered up and shot out to the non-rich.
It doesn't get much more plain-spoken than this, with an approach that can essentially be boiled down to "these people have a lot of money, these other people don't have that much, so we should take from this group and give to that group." In fact, it's not terribly far removed from certain Marxist dogma.

Notice that completely absent from the argument is any conditional or moral component, with seemingly all non-rich people deserving of money belonging to the rich regardless of individual circumstances. All that is apparently required to justify a wealth transfer is one person having less than another. Thus, someone who has diligently worked to start a successful business that produces useful products or services for the rest of society -- and is well compensated for that effort -- is presumably obligated to transfer some of their earnings to an NBA star who blew through tens of millions of dollars on frivolities and is left with nothing (an admittedly extreme scenario used to illustrate the point). 

There is apparently no place for the role of life choices and decisions in assessing need or the moral claim to someone else's money. That's interesting because later in his piece Bruenig provides this chart:

As can be seen, even in Scandinavia there is a high correlation between single motherhood and pre-transfer poverty rates. Thus, it would seem that if the left and income inequality worriers more generally were truly concerned with reducing both poverty and income inequality that they should be among the fiercest critics of single motherhood. Yet how often does one encounter members of the left inveighing against single motherhood and advocating for being in a stable long-term relationship before having children (indeed, Bruenig's wife recently critiqued Rod Dreher for having the temerity to characterize the decision to have multiple children out of wedlock as foolish)? While many on the left have a great affinity for Scandinavia and its envious social indicators, almost invariably unremarked upon is the role of behavior in such outcomes. As Tino Sanandaji has noted, only about 3% of children in Sweden are born to single mothers.

One could almost be forgiven for thinking the left is only concerned about poverty reduction to the extent it involves an expansion of the state and/or confiscating wealth from the well-off. 

Bruenig, meanwhile, concludes his piece on this note:
The concern about inequality has very little to do with the market distribution itself (the market is, after all, just a creature of policy, a government program like any other). Rather, the concern is that high and rising inequality signals that we are throwing away opportunities to relieve the want and humiliation of the bottom (and to a lesser extent, the middle), and are opting instead to shovel more and more of the national income to the rich for no good reason.
There are some amazing assertions made here:
  • The market is a government program, apparently because it is subject to government policy. By the same logic, since our lives are also subject to government policy then life itself can be considered to be one big government program.
  • It is desirable to relieve the want of the bottom (which for most humans is almost endless). We've seemingly moved beyond needs -- a tacit admission that they have largely been satisfied? 
  • Apparently money is not earned by people nor has much to do with things like effort and individual decision-making, but rather is obtained by luck or the operation of a great cosmic shovel which allocates large amounts of money to some people but not others on a mysterious basis. 
  • There is no good reason for the rich to gain additional money. The fact that they may have that money because of contributions made to society via products, services and/or investments is left unexplored. 
The inequality agenda isn't about the creation of more opportunity. It isn't about ensuring the basic needs of each citizen is met. It's about redistribution for its own sake. If only the rest of the left was as unvarnished in presenting its views as Bruenig...

Tuesday, April 08, 2014

Inequality update

The evidence continues to mount that the ongoing uproar over income inequality is much ado about nothing. Exhibit A is this recent piece from New York Times columnist Eduardo Porter (bolded parts mine):
As the income gap in the United States has exploded over the last three decades, blowing past the previous record set in the Roaring Twenties, scholars in fields from sociology and economics to psychology and epidemiology have tried to answer what turns out to be a difficult question: “So what?” 
“The most common moral arguments for and against inequality rest on claims about its consequences,” Professor Jencks [described earlier in the column by Porter as "a renowned professor of social policy at Harvard"] wrote more than a decade ago. “If these claims cannot be supported with evidence, skeptics will find the moral arguments unconvincing. If the claims about consequences are actually wrong, the moral arguments are also wrong.” 
For all the brain power thrown at the problem since then, however, specific evidence about inequality’s effects has been hard to find.
Porter then notes some of the various arguments that have been mounted by the inequality doom-mongerers, such as The Spirit Level's claim that income inequality leads to higher crime, greater teen pregnancy and even diminished life expectancy:
But does the data really back this up? One problem with these analyses is that they are based on correlations between levels of inequality and variables like life expectancy or the odds of poor children climbing the income ladder. But such correlations can’t prove inequality causes other social ills. They can’t disentangle inequality from the myriad things pushing American society this way and that.
Porter then offers up this:
Lane Kenworthy, a sociologist at the University of Arizona, is all too aware of these limitations. He was to be Mr. Jencks’s co-author on the book about inequality’s consequences. Now he is going it alone, hoping to publish “Should We Worry About Inequality?” next year. 
“People that worry about inequality for normative reasons have been very quick to jump on plausible hypothesis and a little bit of evidence to make sweeping conclusions about its consequences,” Professor Kenworthy told me. 
To avoid misleading correlations and better isolate inequality’s impact, Mr. Kenworthy studied its evolution over time, comparing how changes in income concentration across the world’s industrialized nations related to changes in a whole set of social and economic outcomes, from growth and employment to health and educational attainment. 
He came up mostly empty-handed: “My tests suggest it seems to be a small player in the overall story.” 
Professor Stiglitz notes that the United States grew faster during the decades of low inequality immediately after World War II than it did after inequality started rising in the 1980s. But Mr. Kenworthy finds no meaningful impact of inequality on growth one way or the other. “Income inequality isn’t the only thing that differed between these two periods,” he said. 
Similarly, Mr. Kenworthy found no significant relationship between increasing inequality and life expectancy, infant mortality or college graduation rates, among others. Even when some patterns do mesh — teenage pregnancy rates fell a little more slowly in countries where the share of income going to the top 1 percent grew fastest — the relationship is weak. If you take the United States and Britain off the list, the relationship disappears.
Kenworthy expands his thoughts on income inequality in an interview with Porter posted on the Times' Economix blog:
The evidence supports a number of the most prominent [income inequality] hypotheses only weakly or not at all. As best I can tell from the available data, income inequality hasn’t reduced economic growth. It hasn’t hindered employment. It may or may not have played a role in fostering economic crises, including the Great Recession. It hasn’t reduced income growth for poor households. It may or may not have contributed to the weakening of household balance sheets by encouraging too much borrowing. It may or may not have reduced equality of opportunity.  
It hasn’t slowed the growth of college completion. It either hasn’t reduced the increase in life expectancy or the decrease in infant mortality or, if it has, the impact has been small. It looks unlikely to have contributed to the rise in obesity. It hasn’t slowed the fall in teen births or homicides since the early 1990s. It may or may not have weakened trust. It doesn’t appear to have affected average happiness. In the United States it has had little or no impact on trust in political institutions, on voter turnout, or on party polarization. And while it may have boosted inequality of political influence, we lack solid evidence that it’s done so.
Keep in mind that, like Porter -- who should be classified as at least center-left based on a fair-minded reading of his columns -- Kenworthy is a man firmly rooted in the leftist camp (indeed, he has been praised by Matt Yglesias for his book calling for an expansion of the welfare state) who does not seem predisposed towards dismissing or downplaying possible negative impacts resulting from income inequality. And in fact he argues that income inequality is not cost-free:
On the other hand, income inequality has reduced middle-class household income growth. It very likely has increased disparities in education, health, and happiness in the United States. And it has reduced residential mixing in the U.S.
While Kenworthy presents it as established fact that inequality has reduced the income growth of the middle class, it is actually far from agreed upon. Indeed, in Porter's column he quotes Harvard's Professor Jencks that "'Most economists don’t feel there’s a logical mechanism that really is persuasive' linking the rise of the 1 percent and the stagnation of incomes for the rest." 

As for the "very likely" idea that income inequality corresponds with disparities in education, health and happiness, this is fairly unremarkable. Given that money can purchase higher quality goods, including in education and health, it would be surprising if the two weren't related. But, as with income, the real issue is the absolute conditions of health and education, not their relative states (everyone having equally poor health or being equally ignorant would not be a victory).  With regard to residential mixing, it seems logical that income inequality is in fact only a proximate cause, with the real culprit being found in restrictive zoning laws which depress housing supply and drive up its cost.

Kenworthy and Jencks aren't the only ones questioning the alleged desultory impacts of income inequality. Reviewing Thomas Piketty's new book on the topic, which has created a great deal of excitement among leftist intellectuals (Paul Krugman has called it "the most important economics book of the year — and maybe of the decade"), Ira Stoll highlights Piketty's quote that "inequality is not necessarily bad in itself: the key question is to decide whether it is justified, whether there are reasons for it." 

Assuming the quote is not taken out of context, Piketty's apparent concession that inequality per se is not a bad thing seems a fairly stunning admission. After all, how often do we see hand-wringing about income inequality attached with any kind of qualifier? Rather it seems the issue is typically presented with very little nuance, leaving people with the impression that income inequality should always be considered a grave problem regardless of the particulars. 

Piketty, of course, is in fact very concerned about income inequality -- that's the entire point of his book. Stoll explains why:
Piketty writes that "confiscatory tax rates on income" were "an impressive U.S. innovation of the interwar years" that deserve to be "reconceived and revived." 
How does Piketty justify, morally, what he concedes to be confiscation? 
To me the weakest part of his argument is his assertion that the money he is proposing to tax, now in private hands, was stolen in the first place. 
He writes, "the courts cannot resolve every case of ill-gotten gains or unjustified wealth. A tax on capital would be a less blunt and more systematic instrument for dealing with the question." After all, he writes, "Broadly speaking, the central fact is that the return on capital often inextricably combines elements of true entrepreneurial labor (an absolutely indispensible [sic] force for economic development), pure luck (one happens at the right moment to buy a promising asset at a good price), and outright theft." 
Here Piketty is speaking "broadly" indeed, tarring as "outright" thieves anyone who has managed to amass a million dollars or so worth of assets, and proposing to deal with the problem not by enforcing the criminal laws against theft, but by taxing everyone. He acknowledges his own ignorance here—"To be frank, I know virtually nothing about exactly how Carlos Slim or Bill Gates became rich." Surely the decent thing would have been to have looked into the matter and learned something about it before tarring the two men as thieves and proposing to tax away billions of their fortunes as punishment for their supposed crimes.
Again, assuming Stoll's characterization is accurate, Piketty's problem with inequality isn't due to demonstrable harm, but rather his belief in the unseemliness of it all. If the accumulations of vast sums of money is in large part the result of luck and thievery, the justification for its redistribution becomes much easier than if it is mostly due to personal enterprise and the provision of valuable goods or services. 

I suspect that most of the left's anger over income inequality is similarly reasoned. Fighting income inequality isn't about curing an economic ill so much as correcting a cosmic injustice through the redistribution of ill-gotten gains (recall that suspicion of capitalism is a key part of the leftist creed -- otherwise they wouldn't constantly clamor for more government power to restrain it and taxation to ameliorate its perceived negative effects). Making that argument to the American people, however, does not seem to be a winning one at the current time, hence the continued futile quest for proof of income inequality's negative effects in order to justify their desired interventions. 

Monday, March 10, 2014

Inequality update

First up, a mostly sensible column in last Sunday's New York Times from Harvard economics professor Sendhil Mullainathan: 
I worry about growing income inequality. But I worry even more that the discussion is too narrowly focused. I worry that our outrage at the top 1 percent is distracting us from the problem that we should really care about: how to create opportunities and ensure a reasonable standard of living for the bottom 20 percent. 
Our passion about the widening disparity in wealth and income is easy to understand. After all, studies often find that unequal incomes reduce happiness. Of course they do: Jealousy and envy are strong emotions. They are also very basic ones that develop as early as 4 months of age. There is even evidence that great apes are averse to inequality. And though there is debate about that point, at least it produces enjoyable videos. Our outrage at inequality is primal. 
But primal emotions are not always noble ones. Of course, when I see a colleague receive some award, I covet it. But this is not me at my best, and these are not the feelings we would instill and promote in our children. So why would we want public policy to cater to such feelings?
While Mullainathan's message that anger at the 1% is a distraction from finding ways of helping those at the bottom is absolutely correct, there are a couple of points worth quibbling with here. When Mullainathan references "our outrage" at the top 1% he seems to take it as a given that anger at the rich is widespread, but it's unclear how true this is. How much outrage against the 1% really exists outside of academia, Occupy Wall Street veterans and other assorted leftist ideologues? While it isn't hard to imagine that considerable ire exists among many Americans towards the financial sector and those who made their riches there given the huge public bailouts it has received over the years, it isn't obvious there is blanket outrage towards the 1% per se. 

This ties into another point: it's instructive that when Mullainathan references his own personal envy and jealousy, it isn't in the context of the 1% but rather his colleagues -- people more like himself. Intuitively, this seems likely to be the case for most people. After all, who really measures their welfare against the 1% or uses people like Warren Buffet, Bill Gates or Hollywood celebrities as a personal measuring stick? Conversely, who gets any real satisfaction from outperforming (however one measures such things) those from a much lower socioeconomic demographic? 

Rather, it seems much more plausible that people measure themselves against other people from a similar background -- friends, neighbors, family, colleagues, acquaintances from high school and college, etc. I would submit that much more jealousy is generated when someone's close acquaintance gets a new car, house or takes a fabulous international trip than when that same person discovers that some famous person just bought a 5th home. 

These are, however, minor issues in what is overall a solid column which helps move the inequality conversation in the right direction (I would also disagree, however, with his argument that higher tax revenue is needed to promote greater opportunity). 

Now let's move on to the bad, in the form of another New York Times column written by an academic economist, this time from -- surprise, surprise -- Paul Krugman:
[I]f generous aid to the poor perpetuates poverty, the United States — which treats its poor far more harshly than other rich countries, and induces them to work much longer hours — should lead the West in social mobility, in the fraction of those born poor who work their way up the scale. In fact, it’s just the opposite: America has less social mobility than most other advanced countries.
Actually, contra Krugman, there is no reason to think why the US approach to dealing with its poor would produce greater social mobility than countries with more elaborate social welfare schemes. The reason for this is very simple: social mobility -- a measurement Krugman also relies upon in a recent blog post -- is a terribly flawed measure of progress, as this example nicely illustrates:
Reihan Salam, a writer for The Daily and National Review Online, has calculated that a Danish family can move from the 10th percentile to the 90th percentile with $45,000 of additional earnings, while an American family would need an additional $93,000.
In other words, one method of boosting social mobility would be to simply reduce the earnings of the rich, thus compressing income percentiles and making it easier to skip from a lower percentile to a much higher one. Why that would be desirable, however, is unclear. If presented, for example, with the choice between getting a raise of $20,000 and jumping from the 10th percentile to the 90th in Country X, or getting an extra $80,000 and only jumping from the 10th percentile to the 20th in Country Y, how many people would choose the former?

To make this even simpler, just consider the fact that in a country where each person doubled their income year after year that social mobility would be zero, as everyone would remain in the exact same income percentile. For those obsessed with social mobility such a country would be a pariah, even though it would represent an amazing growth in living standards for its citizens. 

The real intellectual bankruptcy of the income inequality issue, however, is to be found in a recent Twitter exchange I had with Sean McElwee. McElwee, who has extensively written about income inequality for such publications as Salon, The New Republic and The Huffington Post, caught my eye with this claim in a recent HuffPo piece:
The actual data show that higher government expenditures increase upward mobility. That's why countries like Denmark have much higher levels of mobility. We find the same correlation at the local level within the U.S.: Higher government spending leads to more mobility.
When I pointed out the meaninglessness of Danish mobility statistics to McElwee he simply responded that he would "rather live in a more equal society." Doubting whether he actually meant this or fully appreciated his statement's ramifications, I then asked if he would prefer to live in a society where everyone made $15,000 per year (perfectly equal) or a range of $10,0000-20,000 per year (somewhat equal) over the status quo found in the US. Unsurprisingly he declined to answer, instead calling such scenarios "absurd situations."

After some more back and forth in which I argued that absolute welfare trumps relative welfare measurements (such as social mobility), McElwee stated that "I think relative welfare is intimately tied to absolute welfare." This is where the conversation took a very interesting turn. Wondering how McElwee's claim could be true, I then asked how my welfare would be harmed, for example, if Bill Gates were to accrue another billion dollars (in fact, Bill Gates gained another $4 billion in the last six months alone). McElwee's response? With his extra money Bill Gates could get more health care, which harms the rest of us because such purchases would come at the expense of others who require health care.

Think about this for a second. McElwee has spilled a lot of proverbial ink over the income inequality issue and has presumably given it considerable thought. When pressed for an example of how inequality can hurt others he, presumably reaching for his strongest argument (after all, he's had plenty of time to think the issue over), argues that inequality can deprive others of health care. Let's unpack just some of the ways in which this claim is absurd:
  • Bill Gates is worth $76 billion. Presumably that should be sufficient to cover every conceivable health care expense he may incur. Can anyone conceive of even an outlandish scenario in which Bill Gates receives an extra billion dollars and then proceeds to purchase additional health care with it because the $76 billion he already had was apparently insufficient to meet his needs? Does that even begin to make sense? 
  • Conversely, if giving Bill Gates an extra billion dollars would result in someone being deprived of health care, then doesn't it also logically stand that taking a billion dollars away from Gates and dumping it into the ocean -- thus reducing inequality -- would then pave the way for someone previously denied health care to obtain it? Is that at all plausible?
  • Even if Gates did want to spend his extra money on health care, does anyone really think that the US is currently at its health care production possibilities frontier and that it would be impossible to create additional health care resources to meet additional health care demand from other people? That any additional demand from Gates would come at the expense of others? When pressed on this, McElwee just notes that there are limited resources and that scarcity is the central tenet of economics. True enough, and maybe someone would have to give something else up to obtain additional health care (for example, spending on a vacation or a new television), but the idea that we have already created all of the health care resources we possibly can is nonsense.
  • Let's also note that if we are currently at our health care production maximum that Obamacare is essentially an exercise in futility, as it is totally pointless to extend health insurance to more people if there is no more health care to be obtained. 
  • Lastly, if billionaires buying up all the available health care, and thus denying it to others, one would think this issue would have been raised by the left during the great health care debate which proceeded the passage of Obamacare. It was not, presumably because it is not true and anyone who seriously made such a claim would have been laughed out of the room.
Lastly, I'll note that McElwee has deployed The Spirit Level in support for his inequality arguments, including a January Huffington Post column as well as a Rolling Stone piece published just the other day. When I pointed out that the book was both eviscerated by Tino Sanandaji (among others) years ago as well as labeled as "largely debunked" by The Economist (in October 2012), McElwee's response was to simply note that some people still believe the book's arguments to hold some validity and to label The Economist as "libertarian"and presumably thus hostile to The Spirit Level's arguments. 

That The Economist is libertarian will no doubt come as a surprise to those active in libertarian circles. Let's note, for example, that the publication has endorsed Democrats in the last three US presidential elections and, in a 2012 economic "report card", gave President Obama an A- for his bailout of GM and Chrysler and a B+ for the 2009 stimulus package. Say what you will about either policy, they can't be accurately described as libertarian. 

Given the frequently absurd arguments trotted out by the left on the topic of income inequality, it begs the question of why the issue animates them so deeply. Why do they continue to bang the inequality drums when the weaknesses in their arguments are so glaring? While it is impossible to know for sure, this recent statement from a leading member of the California state Democratic Party likely provides us with some real insight:
"I'm going to say something, and it's probably going to get me in trouble, but there are some people who are just too rich," said party secretary Daraka Larimore Hall in a last effort to rally the rank and file before delegates dispersed. "If we don't solve the problem of income inequality we will lose our souls and we will lose our republic."
This is the game right here. Ranting about income inequality isn't about raising up the fortunes of the poor, leveling the playing field or having a discussion about how best to increase the opportunities available to the less fortunate, but rather tearing down the rich (who frequently amass their fortunes in the marketplace, which leftists are distrustful of -- hence their constant calls for additional regulations to be placed upon it). As an added bonus, taking the rich down a peg via higher taxation helps provide more revenue for government do-gooding. Apply this template for understanding the inequality debate and everything begins to make sense.