Category Archives: Socialism

Benefits trap art

This is a pretty good illustration of how income support can reduce incentive to work as much more than income taxes.

That said, I think you can conclude one of two things:

1) social welfare programs should be less generous; or

2) such programs should extend up lower middle income to make it easier to move from low income to above.

Two charts from the UK, admittedly sprayed with too much chartjunk, but illustrating the poverty trap in Britain. (A previous post on high marginal tax rates for low income people has more charts like this.)

Most of UK benefits are not time-limited, so people get stuck for life, and then for generations.
The original article, by Fraser Nelson, “Why the Poles keep coming” in the Spectator, is worth reading. The article starts with the puzzling fact that

Britain’s employment figures are strong but most of the rise in employment so far under this government is accounted for by foreign-born workers (as was 99pc of the rise in employment under Labour).

The author had the same epiphany that led me to economics all those years ago. No, it’s not culture, or “laziness.” Treat poor people as intelligent, responding to incentives, just like you and me, but with a lot bleaker choices. Try to look at the world through their eyes if you want to understand their behavior:

if I was in a position of a British single mother I have not the slightest doubt that I would choose welfare. Why break your back on the minimum wage for longer than you have to, if it doesn’t pay? Some people do have the resolve to do it. I know I wouldn’t.

…Until our policymakers start to see things through the eyes of those ensnared in welfare traps, nothing will change.

More great quotes:

If you had designed a system to keep the poor down, in would not look much different to the above.
…the cash-strapped British government is still creating still the most expensive poverty in the world.

Hat tip: Dan Mitchell writing at Cato@Liberty. His post is worth reading, as are the links. (Alas, the Spectator only cites the source of the graphs as ” an internal government presentation,” so I don’t know who to properly credit.)

Benefits trap art
John H. Cochrane
Thu, 27 Dec 2012 23:18:00 GMT


Slouching Towards Socialism


Below is comment on Ezra Klein by Karl Smith.  It suggested Klein is pushing socialism.  I don’t favor subsidies to business just because they’re small, and I don’t think Karl Smith does either.  I think Smith may be missing the Klein point:  policies are defending by emphasis on the benefits they have on popular groups.  For example tax cuts may help the old money rich, but to sell the tax cuts you emphasize a small group of small businessmen that benefit from the cuts.

 this by Ezra Klein really is pushing a socialistic agenda.

Most Americans don’t like the idea that someone who makes money by playing the market gets taxed at a lower rate than they do. But they do like the idea of Google. So argue that the tax change will hurt the next Google.

Similarly, most Americans don’t like the idea that as the rich have gotten richer over the past few decades, they have also gotten huge tax cuts. But most Americans do like the idea of small businesses. So if you want to keep the tax cuts for the rich, argue that they help a small number of small businesses which are both taxed at an individual rate and bringing in more than $250,000 in income a year.

But this is a very bad way to defend very broad policies. If Jackson is right, and there is something special about tech investment that we would like to subsidize, then perhaps we should subsidize it directly. That would be far cheaper than taxing all capital gains at a lower rate. Similarly, if we want to do more to help profitable small businesses, we can offer them targeted subsidies, or specific tax breaks.

Here Ezra has now dispensed with even the pretext of combating externality. If we “like” Google we give Google special favors. If we like small business, we give small businesses favors.

It precisely this effect -  that the whims of the electorate or the wide-eyed plans of the politicians could directly manipulate the industrial organization of the US economy – that makes socialism paralyzing.

Now, obviously it is impossible to stop all efforts at industrial policy and planning. However, there was self-limitation in the social hypocrisy that we are just trying to combat externality. At least then you have to come up with some plausible case and it can be attacked by the other side as being senseless.

However, if we are descending into simply shoveling money towards favored industries because we like them – no pretense necessary – then we are slouching towards socialism.

Filed under: Economics

Slouching Towards Socialism
Karl Smith
Thu, 22 Sep 2011 21:05:29 GMT

Endogenize ideology


Paul Krugman has a nice column on how moral issues now constrain and complicate economic policymaking [italics mine in both quotes]:

One side of American politics considers the modern welfare state — a private-enterprise economy, but one in which society’s winners are taxed to pay for a social safety net — morally superior to the capitalism red in tooth and claw we had before the New Deal. It’s only right, this side believes, for the affluent to help the less fortunate.

The other side believes that people have a right to keep what they earn, and that taxing them to support others, no matter how needy, amounts to theft. That’s what lies behind the modern right’s fondness for violent rhetoric: many activists on the right really do see taxes and regulation as tyrannical impositions on their liberty.

There’s no middle ground between these views. One side saw health reform, with its subsidized extension of coverage to the uninsured, as fulfilling a moral imperative: wealthy nations, it believed, have an obligation to provide all their citizens with essential care. The other side saw the same reform as a moral outrage, an assault on the right of Americans to spend their money as they choose.

This deep divide in American political morality — for that’s what it amounts to — is a relatively recent development.

I think he’s right about this. Here’s where I think he is wrong:

But the question for now is what we can agree on given this deep national divide.

I am going to put things into econogeek terms, because it is technocratic economists like Krugman, whom I admire and respect, that I am trying to persuade.

Krugman is treating morality as a problem of comparative statics. In the 1990s and before, there was one ideological environment, an environment under which decent economic ideas (from Krugman’s perspective and from my own) had a reasonable shot of being enacted into policy. In 2010, we have a different environment. An ideology that treats all taxation as theft — as illegitimate, coercive, perhaps even morally equivalent to violence — is now sufficiently prominent that it effectively renders policy ideas that involve use of resources by government and potentially even redistribution impractical. In both cases, we treat the ideological environment as exogenous and try to characterize the space of feasible policy options. We then choose the best available.

That’s the wrong approach, I think. Rather than treating ideology as fixed and given, we should treat it as dynamic, as a consequence rather than a constraint of policy choices. Choosing the apparent best available policy in 2008, given prevailing views of mainstream technocrats, helped generate an ideological environment much more challenging to those who support activist government than might otherwise have ensued, because the “least-bad” policies involved deploying taxpayer resources in a manner widely viewed as corrupt and illegitimate. At the margin, people (like me) who had previously accepted that the beneficial actions of government more than justify the costs and coercion of taxation shifted towards viewing taxation as theft on behalf of well-connected insiders. (Ironically, that shift may be helpful to many of those same insiders, who, having already “got theirs”, now have more to lose than to gain from government activism.) Going forward, we oughtn’t confine ourselves to making the best of a terrible ideological environment. We should be considering how we might alter that environment to be more conducive of good policy.

Paul Krugman understands this stuff. He is in general very sensitive to the political and ideological ramifications of policy choices. Throughout the Bush administration, he highlighted some of the dynamic that brought us from prickly consensus to nasty division. For example, there was the fabulously successful strategy of governing incompetently while using each failure as evidence that government action cannot help but be corrupt and inept. Heckuva job, Brownie!

However, many of Krugman’s professional colleagues really do treat ideology or “political constraints” as given, and perform the exercise that economists perform reflexively, starting with their first grad school exam: constrained optimization. Constrained optimization is a mechanical procedure. The outcome is fully determined by the objective function and the constraints. A party that understands the objective function and can shape constraints controls the outcome.

Let’s play a game. There are two players, a space of hypothetical moves, and a set of constraints that limits acceptable moves in each round. The two players in general have different objectives: high payoff states for Player 1 are sometimes (though not always) low payoff states for Player 2. Player 1 assumes the constraint set is exogenous. Player 1 knows that the constraint set is not fixed — she has observed changes over time — but her working hypothesis is that the constraints form a martingale, which is a fancy way of saying that her best guess with respect to the shape of future constraints are present constraints. Importantly, Player 1 does not believe that future constraints are a function of present moves. Player 2, on the other hand, correctly understands the distribution of future constraints to be a function of present moves, and is also aware that Player 1 erroneously believes constraints to be exogenous. Both players choose strategies to optimize an intertemporal payoff function. How will this game work out? The answer is obvious: Given any initial conditions, Player 2 always performs better than Player 1 would have under the same conditions (in expectation). Further, Player 1 may frequently observe Player 2 acting in ways that seem irrational, sometimes mutually destructive, when Player 2 chooses a strategy that yields jointly low payoffs when strategies with jointly high payoffs are available, holding the constraint set fixed in expectation. Player 1 will compute strategies that yield an acceptable Nash equilibrium, only to watch that equilibrium fail to hold as Player 2 makes choices that are apparently suboptimal given Player 1’s available responses. Meanwhile, Player 2 will not be surprised by Player 1’s choices and will correctly optimize her unilateral welfare in a manner that is potentially costly to Player 1.

So this is a dumb example, right? We have allowed Player 2 rational expectations (unconditional and conditional), but left Player 1 ill-informed. We have stacked the deck. And so we have, in my example and in the real world. It does only a little injustice christen Player 1 “Team Obama” and Player 2 “Team Bush”. The technocratic team, the people who are constantly exasperated about the perfidy and sheer irrationality of the other side, is the team that is in fact ill-informed. Team Obama diligently and correctly optimizes at each point in time, making use of the best expertise available subject to existing political constraints, not interested “scoring points” but instead focused on “getting things done”. Meanwhile Team Bush makes choices that seem bizarre and blatantly ill-conceived, if we take the constraint set as given. Yet the ecosystem of constraints, the ideology, moves ineluctably in Team Bush’s favor.

I do not think I have been unfair in my description of Team Obama. But I have been overgenerous in my description of Team Bush. In our hypothetical game, Player 2 strictly dominates Player 1. Player 2 simultaneously optimizes the future constraint set and choice under expected future constraints, while Player 1 only performs the latter optimization. I don’t think Team Bush, or “the Right”, or whatever moniker you choose, has been very attentive or skilled in technocratic terms given any moment’s set of constraints. Rather than two optimizers one of which has strictly less information than the other, in the real world we’ve seen two satisficers, one of which has adopted the strategy of optimizing subject to fixed constraints and the other of which has neglected pursuit of optimal present policy in favor of action intended to reshape the constraint set. [*] A priori, we would not be able state with certainty which of the satisficers would outperform the other. If the constraint set were, in fact, strongly resistant to change Team Obama’s strategy would dominate. But if the constraint set is malleable (and constraints frequently bind), then Team Bush outperforms.

We are not a priori. In the course of my lifetime, we have gone from a polity in which President Nixon publicly flirted with guaranteed income proposals to a polity in which there is a bipartisan tidal wave to bail out bankers but redistribution is beyond the pale. Throughout the period, every Democratic presidency has been technocratically superior to any Republican presidency, in terms of its reliance on expertise rather than, um, ideology in policymaking. Yet both parties have moved inexorably rightward, so that the center right of 1970 would be viewed as Communist today. The empirical evidence is clear. Ideology is malleable, over years and decades rather than generations and centuries. If you have to choose one — smart policy and indifference to ideology or sloppy policy and careful ideological work — you are better off choosing the latter.

Obviously, there’s a reductio ad absurdum here: If your policy is so bad we blow up the planet, your ideological work will be for naught. And one might argue we will experience something like that, extrapolating trends of the last 40 years. But that doesn’t counter the point that ideologues are more successful in shaping policy than wonks, and that therefore smart wonks will become ideologues too if they want to actually prevent the planet from exploding.

Note that, at least ideally, ideological work and technocratic policy are complements, not substitutes. That is to say, ideally we want to be Player 2, who simultaneously optimizes both the expected future constraint set and policy under current and expected constraints, rather than a Team Bush that largely ignores the quality of policy. (Hey, democracy is messy.) Although it’s difficult to know (given that ideological concerns sometimes can justify apparently bizarre policy), I think in practice we’ve had (since the late 1970s) two political groups in the United States that have pursued one strategy to the exclusion of the other, so it feels natural to imagine we have to choose either ideology or technocracy. We don’t. We want smart technocrats, but we want technocrats who treat ideology as endogenous, who assign a very high value to the dynamism of moral ideas and political constraints when considering alternatives.

Further, we want critical ideologues. Shifting the polity towards an idée fixe, some ideology chosen a priori from first principles, or from reading the Bible, Mises, or Marx, is likely to be unwise. We ought to do our best to explore the full space of potentially achievable ideologies and consider which are likely to promote good outcomes, especially given the “trembling hand” of policymakers. That is, we want to choose an ideologies under which the polity is unlikely to make terrible choices even when it makes erroneous choices. But ideology is path-dependent, and ideological change is never instantaneous. Not all collections of constraints and biases, heuristics and intuitions, can “take” as ideology on human wetware. In choosing ideologies, individually and collectively, we face a lot of constraints and trade-offs. But one way or another, we will choose ideologies. Ideologies are consequential. To whatever degree we can affect ideological change, we should do so with great care.

I expect this essay will arouse objections. We have all been made allergic to terms like “ideological work” for the very good reason that we associate that sort of thing with propaganda by evil and repressive regimes. But that we don’t use the words doesn’t mean the work isn’t done. It just means ideological work isn’t done as overtly, that the people who do it don’t think about it in such explicit terms. The ickiness of “ideological work” is consequential, for sociological reasons. People who are verbal, broadly educated, and self-critical notice when what they are doing is, in some sense, ideological work, and (under the prevailing ideology about ideology) shy away from it. But that just cedes the practice to those who think they are doing “God’s work”, or who are so suffused in their own ideology that the pursuit of its enlargement is second nature to them. There is more ideological work done in the United States than ever was done in Mao’s China. But most of the workers are smart enough not to call it that, or usually even to perceive it in those terms. Economists in particular are disdainful of ideology, on the theory that ideology implies bias and constraint, while optimality requires unconstrained choice. But that is misguided on multiple levels: 1) Supposing the economist could (counterfactually) be non-ideological, the human agents that she studies are subject to ideological biases and constraints, and our non-ideological economist will fail to be a good scientist if she fails to take those into account; 2) The economist is human, and ought to grapple explicitly with her own biases and instinctual constraints, if she is to have any hope of countering them and approximating “unconstrained” choice among available hypotheses and policies; 3) Despite an economist’s best efforts, the true, unconstrained space of models and hypotheses plausibly consistent with evidence is always too large to be exhaustively searched and sorted. Ideology, individual and institutional, will always shape economic conclusions to some extent, and economists ought take responsibility for that and think critically about the effect of their ideology on the polity whose choices they help to shape.

It is childish, and wrong, to imagine that acknowledging the ideological aspects of ones work and self makes one less trustworthy or more dangerous than those whose work is equally ideological, but who mistake their ideology for objectivity or truth and who therefore deny any role for ideology. Many of history’s most dangerous ideologues have been “true believers”, and others have pretended a “scientific” perspective while advancing claims we now recognize as ideological. Being acted upon by, and acting upon, prevailing ideology are part of what it means to be human. It is not just the province of economists or policymakers, or a fabrication of Svengalis in the propaganda ministry. Nevertheless, politicians and economists and other “opinion leaders” probably do have disproportionate influence over ideological change. As far as I’m concerned, they (we) ought to be doing a better, more careful, and more conscious, job of it.

[*] Team Bush was not unconscious of the ideological dimension of their labors. Remember this famous passage?

[Probably Karl Rove, talking to Ron Suskind] said that guys like me were ”in what we call the reality-based community,” which he defined as people who ”believe that solutions emerge from your judicious study of discernible reality.” I nodded and murmured something about enlightenment principles and empiricism. He cut me off. ”That’s not the way the world really works anymore,” he continued. ”We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality — judiciously, as you will — we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors . . . and you, all of you, will be left to just study what we do.”

For all the manifest failures of the Bush Administration, look at where the United States is today, politically and ideologically, compared to where it was ten years ago and ask yourself whether Karl Rove was wrong. Self-styled members of the “reality-based community” have very little to crow about. They studied — “judiciously”, even — while their America, my America disappeared beneath our feet. Perhaps it is some consolation that they felt superior and scientific all the while. (I, by the way, am not an innocent. I was something of a fellow traveller to the Bush Administration for much of its first term.)

Endogenize ideology
Steve Randy Waldman
Sun, 16 Jan 2011 17:23:33 GMT

Genetics and Egalitarianism

It seems to that deviation from a egalitarian outcome is the easiest to justify (on grounds of the societal good loosely speaking) the more that allowing greater reward for some provides incentive that induces productive activity.

If distribution of wealth is genetic this means one of two things:

1. High producers are that way by no choice they make, just genetics, and they can’t be anything other than highly productive.
2. Highe producers have great abilities, that they didn’t choose, but may or may not to use them. If use their gifts results in no private reward then such abilities may be less likely to be used and all will suffer some, from say great musical abilities not used.

Karl is I think maybe in the first school, but those on the right are in the second, and believe that great ability is in a few hands, and the cost and disincentive to the gifited to perform from high marginal tax rates is very high.

A few on my friends on the right have publically and many more privately, suggested that egalitarian efforts were foolish or unwarranted because income distribution is pretty much all genetic.

Poor parents have poor children because they pass on genes for irresponsibility, violence, promiscuity, impulsiveness, etc.

The empirical truth of this statement aside, it seems to me that this is overwhelmingly an argument for egalitarian measures.

No one asks to be born. And, certainly no one asks to be born with impulsive genes. To the extent those genes strongly predispose them to a life of misery this is something that was done to them without their consent.

I argue that miserable lives can be worse than no life at all. Some suggest that this is impossible since you can always kill yourself if things are that bad. Yet, as I’ve said before, ending your life is not free. At a minimum people who care about you will be sad, and to the extent you have any concern for what happens after you are gone there are costs to shuffling yourself off this mortal coil.

Still even if you are not willing to accept that some lives are worse than never having lived the belief in genetic poverty is a strong argument for egalitarian measures.

If we could we would like buy insurance against having been born with bad genes. However, bad genes are the ultimate pre-existing condition. By definition there was never a moment in your life were you didn’t have them and thus could have had the opportunity to buy fairly priced insurance against them.

So purely for the sake of economic efficiency it makes sense society at large to insure you against risks for which the free market cannot possibly create insurance.

Filed under: Economics, Society alt alt alt alt alt alt alt alt

Genetics and Egalitarianism
Karl Smith
Sun, 03 Apr 2011 00:29:47 GMT

Land of the free? NOT!

I find it fascinating that the heritage foundation (no bastion of socialists), finds the Canada freer than the US.  This even though Canada has a single payer healthcare system.  Per Rush limbaught as soon as government has healthcare, bye bye freedom. 

To clarify, I think that some kind of coherent health care system with better access and lower cost is what we need.  I’m not sure what that will ultimately look like, but my hope is that in passing a comprehensive reform we’ll get there.  States taking different paths might really help with that.  Finally, I’m not necessarily an advocate of Canadian style single payer.  It just I can’t deal with the over the top nonesense that the talk radio right claims and so so many uncritically accept.

Communal Ownership

In this time of conservative revival with a vengeance, I see communal experiments casually dismissed as almost always miserable failures.  Is this true?  Usually when socialism is dismissed as a failure the Soviet Union is at least alluded to.  Is that fair?

Clearly the Soviet Union was a pretty spectacular flameout for “to each according to his needs”.  It was neither very fair or very effective or efficient.  That said the blanket nature of the dismissals of each and every departure from private ownership has always seemed a little to smug.

The new issue of Region Focus from the Richmond Federal Reserve bank has some insight on this.  It finds that many attempts at communal ownership have not been permanent.  However, it concludes with this:

How long will they last, these communities, cooperatives,
collectives, and eco-villages? It doesn’t matter, says Tim
Miller, a professor of religion at the University of Kansas
who is working on an encyclopedia of utopian communities.
“It’s not longevity, it’s what does society learn from the
experiment?” That’s a good question — the same one that
feeds the urge to reinvent society, an urge that apparently
never dies. While Robert Owen’s communities failed, his
influence and image survive; there’s even a campaign on
Facebook to use his picture on Scottish bank notes.

Obama a Socialist?

As best I can tell, much of the US populous think the nation in peril, because among other things: our president is a socialist.

I’m skeptical of that. Let check out foxnews (he is President Obama):

O’REILLY: Do you think he’s a socialist?

STOSSEL: I don’t think it’s a useful term. He hasn’t said — he did say “I prefer single-payer health care.” He did take over GM. But he said, “We want to give GM back to the private sector.”

O’REILLY: So you have suspicions that he may be?

STOSSEL: I call him…

O’REILLY: I can see this.

STOSSEL: I call him an interventionist.

O’REILLY: An interventionist. Nobody knows what that means.

STOSSEL: Well, nobody knows what socialism means.

Even on fox, not everyone agrees that there is the hard and fast rubicon that once crossed for economic policy means:


Most of the last 30 years we’ve been in a cycle of deregulation, and reductions in taxes. Obama seems to be swinging the pendulum back the other way. That said though taxes (at least for now) are lower then the average of recent decades. Airlines are still deregulated, as are many other sectors. We may be heading in a direction that would Europize our economy a bit. Some correction in the other direction may be called for.

I’m concerned that we may overcorrect in re-regulation and so on in response to Obama’s election. I think we have a fiscal situation we must address sooner than later.

I think conservatives should be proposing superior alternatives to the President’s proposals, but still work with him to solve the nation’s problems, to find the right spot on a continuum. I don’t think that our president is anywhere on the darkside of some rubicon that makes him our enemy, or arguably a socialist, whatever that means.