2013-03-25T20:08:11+00:00

“Job creators”

March 25, 2013/stevereads/1 Comment

Maybe this is paying too much attention to a mere rhetorical trope, but I really dislike the phrase “job creator” as a synonym for “businessman”. Businessmen may or may not create jobs; if they do, it seems to me, it’s very often purely accidental. Word processors, for instance, are a great benefit to mankind, but they also take jobs away from secretaries. Everyone loves their smartphone, but that love is seemingly taking jobs away from supermarket-tabloid writers. Google Search, maybe the most magical technology of my life so far, may well radically decrease demand for librarians.

That’s just what Schumpeter called “creative destruction” (“celebrated everywhere that capitalism is actually believed in”). So on the one side, it’s not at all clear that businessmen create jobs; they may well destroy existing industries.

Then, of course, there’s the fact that a successful business very often drives out the incumbents from its own industry. Google may have created some jobs, but I assume that it also eliminated some jobs at Alta Vista.

Finally, there’s the obvious point that it’s considered a good thing when businesses squeeze more revenue out of each individual employee. This is called “increased productivity”, and historically it’s how nations increase their GDP, and thereby how living standards rise. The fraction of Americans working in agriculture is 1/3 of what it was in 1970, yet total output is 91% above what it was then. Agriculture may be the foundation of a healthy people, but it’s not because farmers are job creators. Quite the opposite, in fact.

The conceptual trouble may come from businessmen’s desire to be associated with people whom we universally admire, and whom we rightly view as advancing society — people like inventors. Not all businessmen are inventors; nor are all businessmen job creators. Today, for instance, I saw Rick Steves describe himself as “a hardworking business owner who creates jobs”. He may employ people; but if he wants to claim that he created jobs by writing travel guides, he needs to show that he didn’t take away jobs from other travel guides (Lonely Planet, say). If he’s just taking jobs away from other businesses, then he’s not a job creator. He may be an *employer*, but he’s not a job creator.

This was the trouble that Mitt Romney got into during the 2012 campaign. He wanted us to think that he knew something about how to run a country because he was a businessman. (Set aside everyone’s intuition that there’s a difference between a financier and an inventor, and that Romney was a financier.) But as a businessman, he would be happiest when his companies drove all of their competitors out of business and managed to produce the same output with half the workers. But inasmuch as his competitors were also American companies, the net effect on American employment is … well, it’s not obviously zero, but neither is the effect obviously to add American jobs. (Paul Krugman made the point more eloquently back in 1996, in “A Country Is Not a Company”.)

To the extent that businessmen know which policies encourage inventors to thrive, they may know how to create jobs; but even here, I think it’s really only safe to say that creating a fertile climate for inventors aids in increasing productivity; it doesn’t say anything about guaranteeing full employment, which is what “creating jobs” has to mean. It has to mean that there are more people working today than there were before you took charge.

Actually creating jobs may be the role of the Federal Reserve. The Fed is charged with maintaining stable prices consistent with maximum employment. There’s a story according to which allowing unemployment to drop too low means that inflation will start spiraling upward; that threshold level is called the Non-Accelerating-Inflation Rate of Unemployment, or NAIRU for short, and I’ve been convinced that the concept is bunk. But in any case, the question is how to ensure that everyone who wants a job has one. It’s romantic to think that a proud fellow called a “job creator” knows how to make this happen, but the true story may be that mechanically adjusting interest rates, and occasionally pushing stimulus when all else fails, is all that we need. Not surprising that the Romneys of the world would yearn for a more heroic story. Unfortunately, that story doesn’t withstand any scrutiny.

Richard Feynman, The Character of Physical Law

March 3, 2013/stevereads/Leave a comment

Lest I develop a reputation as a Negative Nancy, I should note that I also recently read Feynman’s [book: The Character of Physical Law], which has been sitting on my shelf for certainly more than a decade. Just a delightful book; I had forgotten how remarkable a teacher Feynman is. The whole book has the tone of Feynman’s little bit on uncertainty:

which is to say a certain extremely rehearsed casualness. The book’s casualness is in the teaching of things that are actually extremely complicated: symmetry laws (i.e., laws stating that certain quantities are unchanged when certain actions are performed), conservation laws (that the total amount of some quantity in the universe is constant), the relationship of mathematics to physics, etc. Just a delightful little gem, which ought to be read just before or just after Wilczek’s [book: Longing for the Harmonies].

Two books to dis-recommend

February 23, 2013/stevereads/Leave a comment

* Siobhan Roberts, [book: King of Infinite Space: Donald Coxeter, the Man Who Saved Geometry]. The problem with this genre — biographers of scientists, or maybe more broadly “science literature for everyone” — is that it needs to please two masters at once: those who know the subject reasonably well and want to know about the men and women behind it, and the general public that is concerned with quirky people first and the subject matter second. This is a very, very fine line to walk, and the number of books I’ve read that do manage to walk it can be counted on one hand. Or maybe zero hands.

Roberts, sadly, is not the person we want reporting on Donald Coxeter. She wants to convince us that he singlehandedly saved geometry, and she wants us to know a bit about the man. Coxeter’s whole life was geometry, though, so Roberts had better know the subject decently well. And if she knows it, she’d better present it to a nontechnical or semi-technical audience fairly well. It’s not at all clear to me that she knew the subject well. She tries her best to make Coxeter sound interesting on his own, but he sounds either extremely boring or just not a very nice person outside of mathematics; in particular, he seems to have lived a fairly loveless marriage, and to have been not very good to his kids.

So we end up not really liking the man, finding him desperately boring, and not understanding much of what makes him a great mathematician. Roberts protests too much about his greatness, telling us over and over again how important he was without really being able to prove it. It’s too bad, because he probably was a first-rate mathematician. I picked up Coxeter’s famous [book: Introduction to Geometry] while I was reading Roberts. Hopefully I’ll like Coxeter’s book more than I liked Roberts’s book about him.

* Joshua Ferris, [book: Then We Came To The End]. I’m really disappointed to be dis-recommending Joshua Ferris’s first novel, given how much I loved his second. So the thing to say here is: go read the second and absolutely skip the first. [book: Then We Came To The End] is a boring story from a boring advertising office in Chicago toward the end of the dot-com boom, when everyone is getting laid off and the economy is in slow-motion deflation. People fill their empty lives spreading rumors about one another … and that alone would offer space for a little moral about the insanity of rumors, if it didn’t turn out that all the rumors are basically true.

I know what boring office jobs are like; I’ve worked in them. I don’t need to read a book about them, unless that book shines some sort of interesting light on the plight of office workers. It doesn’t, really at all. The office workers are either contemptible, pitiable, or noble, and I would gladly read a novel about the two noble characters. In the novel I actually read, though, there are 400 pages about bored, despicable people. There’s a bit of a redemptive love fest at the end for no good reason. The final sentence of this 400-page atrocity could have resolved a big question mark that the reader will have carried with himself or herself throughout. But that resolution would involve turning back a few pages and methodically checking off who’s at the love fest, so that we can see who’s *not* there; and By The Time I Came To The End, I was so desperate to put it down and do something enjoyable that I didn’t even care about a resolution.

So please, go read Ferris’s [book: The Unnamed]. It’s great. Let’s just pretend that that was his first novel, and speak no more about his real first one.

Alicia H. Munnell and Steven A. Sass, Working Longer: The Solution to the Retirement Income Challenge

January 21, 2013/stevereads/1 Comment

Here’s a quick bit about a book I despised. Munnell and Sass’s thesis is that since people are living longer, they logically have just 3 options: live on less per year of retirement, save more for every year they’re employed, or retire later. No problems up to here.

Living on less would be dangerous, say Munnell and Sass, and people aren’t saving enough (no arguments here, either); ergo, the only option (flashing DANGER lights) is working longer. So their first sin is one of omission: a better book would have looked at how to, e.g., shift more of society’s resources into providing a better retirement for everyone.

Their next sin is in acknowledging that life expectancies have risen the least for the poorest and least educated among us, and for African-Americans, without then proposing any solution that would actually solve their problem and while sticking to their retire-later guns. If you’re the sort of person whose basic moral alignment says to help the neediest first, this book will anger you. Indeed, I often thought that it should be retitled, [book: Throwing It Against The Wall: The Solution To This Book].

The solutions that they do come to are small-ball ones, like beefing up little job-retraining programs that they admit don’t really work. And they leave the reader with no confidence that employers will actually want to employ older workers. (Even larger solutions, like committing on G.I. Bill scale to college education, aren’t obviously going to solve the problem: give everyone a college degree, and you’ll still find that some people are better educated than others. It’s not clear that a college degree for everyone will solve a macroeconomic problem like retirement security.)

Munnell and Sass rule most of the interesting parts of the problem out of scope, for reasons that elude me. The basic problem, it seems to me, is that employers have no incentive to do what society acknowledges needs to be done, namely provide for the well-being of those who’ve spent their lives toiling. Employers aren’t charities, naturally, so this isn’t necessarily a knock on them. It is, however, a knock on a society that has structured much of worker security (401(k)s, before them pensions, and health insurance for current workers) around employers whose incentives push in exactly the opposite direction. We know that companies won’t do what we need them to do; other societies have taken the next logical step here and looked to government to provide what companies will not. Yet Munnell and Sass rule this out of bounds early on: literally their only question is how to get workers to work longer.

Workers don’t *want* to work longer. They end up retiring at 62, even though they say they want to work to 65. Here Munnell and Sass have a point: changes in the provision of Social Security benefits have caused people to lower their retirement age from 66 to 62; policy changes could just as easily return the retirement age to where it would have “naturally” landed on its own.

That said, real per-capita GDP has more than tripled since 1950, back when the U.S. economy was the envy of the world; if Americans were prosperous then, we must be really prosperous now. When people earn more money, they naturally decide to convert some of that money into increased leisure. And if they had greater income security (through Social Security, say), they’d likely convert more of that income into leisure. Munnell and Sass ask, essentially, how to convince people who are wealthier than ever to work longer. It’s bizarre tunnel vision.

I *anti*-recommend this book wholeheartedly.

Facebook Graph Search is pointless, says Farhad Manjoo without meaning to

January 16, 2013/stevereads/Leave a comment

Farhad Manjoo’s piece about Facebook Graph Search is the best possible case for why we should care about Facebook Graph Search, which leads ineluctably to the conclusion that we shouldn’t care about Facebook Graph Search. Here’s the sort of thing that Facebook Graph Search lets you do, according to Manjoo:

> The most interesting searches werent necessarily the most complicated, but those that asked Facebook to combine its knowledge in ways that other sites cant. In an effort to suss out authentic cuisine, I tried, Mexican restaurants in New York liked by people from Mexico.

Let’s pick apart what’s wrong about this. First, the problem for any search engine is that it has to be not only *better* than Google, but better than Google by enough of a margin to make switching worthwhile. So you have to ask yourself whether searching like this is going to get you better results than just Googling for [authentic Mexican New York]; and if it does get you better results, will it require a lot more effort to do so? How about if you, like many people, eventually find websites that you trust for food questions? (Me, I use Chowhound.) How easily can you answer this Mexican-restaurant question by narrowing your search to Yelp?

Much more fundamentally, though, the problem with Facebook Graph Search is that it’s for people who don’t want to interact with people. Look at Manjoo’s Mexican-food example: I’m supposed to ask Facebook to search among those people who are from Mexico. Why wouldn’t I, instead, just *ask people from Mexico?* It’s supposed to be a *social* network, right? Like, with people? So shouldn’t I ask people things? Manjoo wishes he could ask FGS about “running shoes liked by people who have run marathons”; I know what I’d do in that case: I’d post on my friend Laura’s wall (or better yet, email Laura), “Hey Laura: which shoes should I get?”

In its defense, maybe FGS will not just query what my friends like, but rather query what all Facebook users like. But if that’s true, FGS is even *less* valuable: I *don’t care* what all Facebook users like. I hardly care what’s outside my own network, *contra* Manjoo’s example of searching for “photos of friends of friends who like Girls who live in NYC who are single women between 20 and 34 and like Arcade Fire.” That is a question that no one has ever had or will ever have. Either you’re querying the tastes of people you know, or you’re querying the tastes of strangers. And if you’re querying the tastes of strangers, why not use a site that makes no pretense about being “social” — like Google or, in that Arcade Fire dating example, like OkCupid?

The useless use cases come thick and fast in Manjoo’s article. I’m thankful for that, because he’s trying as hard as he can to show why we should care about this thing; given that no one could possibly care about these examples, there must be no reason to care about FGS. Like this:

> What captivated me was Facebooks search interface. Its unlike any search box youve ever used. Googles search is based on keywords. If you type restaurants chicago into Google, it guesses that youre looking for restaurants in the city even though you typed just two nouns. Facebook, by comparison, wants you to connect nouns with verbs. You can ask, restaurants in Chicago, or restaurants liked by people who live in Chicago or restaurants liked by my friends who are from Chicago. (The search box offers drop-down suggestions as you type, so you dont usually have to finish writing these full queries.)
>
> This method of searching is instantly intuitive. After just a few queries, I started asking the engine for more and more complicated things, just to see if it could keep up. I tried: My friends of friends who work in Palo Alto, California and are from California and are male and who like Indian restaurants.

Is natural-language searching something that anyone needs? Was it a problem that Google required you to search for [restaurants chicago] rather than “I would like to know where to eat a meal in Chicago”? This is a natural-language solution in search of a keyword problem.

If you want to know “restaurants liked by my friends who are from Chicago”, shouldn’t you *ask your Chicago friends which restaurants they like?*

The fact that Facebook and Manjoo think there’s a problem a computer can solve here is bottomlessly sad to me. It exposes a deep poverty of interpersonal relationships.

Help me learn how to read laws

January 9, 2013/stevereads/Leave a comment

I wonder if my dear readers could educate me. Here’s where I got started: my employer’s payroll company, ADP, emailed me to say that as of this year, the mass-transit-pass employer fringe benefit reduces taxable income by as much as the parking-permit fringe benefit; it used to be that you got more for parking. I found this unjust, and was pleased when the injustice was corrected.

So now I want to go find the part of the law that rectifies the injustice. As per that earlier blog post, the relevant section of the tax law appears to be 26 USC 132.

First thing I seem to have discovered: you can’t understand any part of that law until you read all of it. Here’s the first relevant piece:

(f) Qualified transportation fringe
	(1) In general
	For purposes of this section, the term qualified transportation fringe means any of the following provided by an employer to an employee:
		(A) Transportation in a commuter highway vehicle if such transportation is in connection with travel between the employees residence and place of employment.
		(B) Any transit pass.
		(C) Qualified parking.
		(D) Any qualified bicycle commuting reimbursement.
	(2) Limitation on exclusion
		The amount of the fringe benefits which are provided by an employer to any employee and which may be excluded from gross income under subsection (a)(5) shall not exceed
			(A) $100 per month in the case of the aggregate of the benefits described in subparagraphs (A) and (B) of paragraph (1),
			(B) $175 per month in the case of qualified parking, and
			[]
In the case of any month beginning on or after the date of the enactment of this sentence and before January 1, 2012, subparagraph (A) shall be applied as if the dollar amount therein were the same as the dollar amount in effect for such month under subparagraph (B).

That final paragraph says “equalize transit passes and parking”. Got it. But two things:

1. ADP says that the benefit is $240 per month, which disagrees with the $175 in (f)(2)(B).
2. The final paragraph says that this equality of benefits ends when 2011 ends, which disagrees with ADP.

So I look around some more and I find two things that address these problems:

1. Section 6(A) in this same law applies an inflation adjustment — hence my statement that you need to read the whole thing to understand the rest. It seems to say that you take the CPI from the preceding calendar year and divide by the CPI for 1992, then multiply by whatever (f)(2)(A) or (f)(2)(B) say.

All right, so we consult the CPI. First of all, I don’t know what ‘the CPI for 1992’ means: does it mean January of 1992? It probably doesn’t much matter which part of 1992 I pick (we’re not Zimbabwe), so I’ll just grab 140.3, the annual average for 1992. Then we get 2012’s CPI, which is about 230. So the multiplier is 1.64. Multiply by the $100 in (f)(2)(A), and I only get $164 — not the $240 that ADP reported.

But again recall that final paragraph, quoted above. It says that mass transit and parking are equal. So let’s assume the pre-inflation-correction benefit is $175 per month, and again apply the 1.64 multiplier. That brings the mass-transit benefit up to $287 — which is now too *high*. So now I’m confused where the $240 came from that ADP mentioned.

2. The American Taxpayer Relief Act of 2012 extended benefit parity until the beginning of 2014, specifically

> SEC. 203. EXTENSION OF PARITY FOR EXCLUSION FROM INCOME FOR EMPLOYER-PROVIDED MASS TRANSIT AND PARKING BENEFITS.
>
> (a) IN GENERAL.Paragraph (2) of section 132(f) is amended by striking January 1, 2012 and inserting January 1, 2014.
>
> (b) EFFECTIVE DATE.The amendment made by this section shall apply to months after December 31, 2011.

The law as it’s archived at Cornell doesn’t seem to reflect this.

So I’m confused on three general points:

1. How do I know that I read all the parts of the bill that modify the particular paragraph I’m interested in? (John E. McDonough’s magisterial [book: Inside National Health Reform] explains very patiently the complicated way in which one needs to read the Affordable Care Act. Do I need a McDonough by my side to read any law? Do I need a Marion Nestle to walk me through the farm bill?)

2. How do I know that I’m looking at the most up-to-date version of a particular section of the law?

3. How do I know that there isn’t another section of the US Code that’s relevant to the particular policy — in this case, commuter fringe benefits — that I care about?

Social Security and Medicare are unjust: sure. So let everyone have them!

December 3, 2012/stevereads/Leave a comment

There are at least two possible reactions to the realization that a lot of your Federal taxes transfer money from the young to the old (Medicare, Social Security, etc.). One is to argue that this is unjust and try to cut these programs. Another is argue that this is unjust, and therefore to *expand* them: eliminate the injustice by making the benefit available to everyone. Expand Medicare to everyone. Make Social Security available to people 50 and older. After all, we’re a more prosperous country than we were when Social Security was passed; shouldn’t we reward ourselves for our productivity by providing official support for greater leisure?

It seems like people (e.g., “the execrable Robert J. Samuelson”) only ever take the first option: we must cut Social Security. But why? We’re wealthier than we’ve ever been! (That’s disposable personal income per capita, where disposable personal income is defined as personal income minus taxes. Personal income, in turn, is what you’d expect.) Social Security is an unjust transfer? Sure it is! So make it more just and let more people have it; problem solved.

As it happens, the government has been keeping close watch over productivity statistics since after World War II. If I’m looking at the right data series, and I think I am, aggregate productivity — that is, output per hour of labor — is 4.6 times what it was just after the war. The miracle of compounding, brothers and sisters! Imagine if we as a society had made the decision to take half of that productivity and plow it into our own leisure at the end of a lifetime of hard work. We’d still have the standard of living of postwar America — the most prosperous time this country has ever known. We’d just be able to enjoy more of it.

I’m sure I’m missing important pieces here. For instance, maybe Social Security does now indeed consume twice as much of every person’s paycheck as it did back then; maybe we’ve quite kept up with the productivity gains. Chart A in a summary of the latest Trustees’ Report, for what it’s worth, says that even in their fevered dreams, the actuaries can’t conceive of Social Security consuming more than about 6.5% of GDP.

You could certainly continue working past age 50 under this idea. By all means! You can continue working under the current system. Some people will choose not to, however. And I’m sure the hardworking Social Security actuaries have plenty of good estimates of the benefit level that would induce x many millions of people to drop out of the workforce.

Not that Social Security is any kind of panacea. It pays out an average of $1,230 per month. Even with that meager payout, Social Security constitutes the majority of retirement income for the poorest 60% of retirees; retirees are poor. Social Security is a way to keep people out of poverty; it’s not a retirement with dignity.

Likewise with Medicare: despite liberals’ love for the program, and our desire that everyone be allowed to buy into it, it’s by no means salvation. Marilyn Moon goes into great and fascinating detail about this in her [book: Medicare: A Policy Primer], of which I desperately need to write a review. Moon’s take, which is woefully rare, is to look at Medicare from the perspective of the beneficiaries; too often we look at it only from the perspective of the Federal budget. From the beneficiaries’ perspective, Medicare is a den of complexity. It’s not the single-payer health-care system of our dreams, and it leaves too many retieees (who are, again, by no means wealthy) paying a significant portion of their disposable income toward medical care. In the single-payer system that I think most liberals imagine, you’d pay some amount in taxes, and that would be that. No one expects me to pay a Department of Defense co-pay if the country gets invaded: my taxes are supposed to do the job on their own.

Decades of bludgeoning by the Republican Party has left us with the mistaken impression that we’re a poor country, and that the only thing we can do is cut cut cut. We’re not; we’re an astoundingly wealthy country. What is that wealth buying us? (Well, other than $1.121 trillion to fly money to the Middle East, drop it out of planes, and blow it up.) Wealthy societies should be willing to spend more on health care: a year of life is worth more to us than a year of life in a poorer country — indeed, worth more to us than a year of life to our relatively impoverished 1960s selves. (That’s the fundamental argument underneath David Cutler’s excellent [book: Your Money Or Your Life], which I’ll review soon if I know what’s good for me.)

Wealthy societies should also, at some point, decide whether to convert some of their hard-won gains into leisure. We never seem to have had that discussion. Even opening up this discussion in “libertarian”-friendly ways — like allowing people to contribute money to their Social Security now to buy themselves extra retirement income — would be a worthwhile place to start.

Instead all our discussions are of a crabbed and nervous and desiccated sort. We act as though we’re a poor country. Every politician likes to say that he opposes the story of U.S. decline, but this incessant poverty drumbeat says quite the opposite.

The Affordable Care Act and 2014

November 8, 2012/stevereads/Leave a comment

We’ve all been hearing that the Affordable Care Act will come online in 2014, so I thought I’d take a moment and read the bill text to see where ‘2014’ shows up. Turns out it shows up in a lot of places, actually: 164 different pages in the 906-page bill, by my count. But this, on a quick scan, seems like where 2014 rubber hits the 2014 road:

PART IICONSUMER CHOICES AND INSURANCE COMPETITION THROUGH HEALTH BENEFIT EXCHANGES
SEC. 1311. AFFORDABLE CHOICES OF HEALTH BENEFIT PLANS.
[…]
(b) AMERICAN HEALTH BENEFIT EXCHANGES.
(1) IN GENERAL.Each State shall, not later than January 1, 2014, establish an American Health Benefit Exchange (referred to in this title as an “Exchange”) for the State that
(A) facilitates the purchase of qualified health plans;
(B) provides for the establishment of a Small Business Health Options Program (in this title referred to as a “SHOP Exchange”) that is designed to assist qualified employers in the State who are small employers in facilitating the enrollment of their employees in qualified health plans offered in the small group market in the State […]

Then there’s the dreaded “mandate” — section 1501, starting on p. 124. It amends Chapter 48 of the Internal Revenue Code, in part, as follows:

(b) SHARED RESPONSIBILITY PAYMENT.
(1) IN GENERAL.If an applicable individual fails to meet the requirement of subsection (a) for 1 or more months during any calendar year beginning after 2013, then, except as provided in subsection (d), there is hereby imposed a penalty with respect to the individual in the amount determined under subsection (c).

I read that to say that you need to have coverage (“minimum essential coverage,” as it happens — a term defined starting about halfway down on page 130 and extending for about a page) for every month of every year after 2013 — which would be 2014 and after, if I have my math right.

So that’s where 2014 comes from. When January 1, 2014 rolls around, Obamacare will be here to stay. By the time the midterm elections happen in November of that year, Obamacare will have spent 10 months rectifying one of our great national tragedies: that there are about 48 million uninsured Americans.

Mitt Romney on privatization, devolution to the states, and insurance

October 28, 2012/stevereads/1 Comment

A fellow with whom I used to work tweeted today,

> Watch Mitt Romney say federal disaster relief for tornado and flood victims is “immoral” http://youtu.be/OhXyJeKaj8E

That’s not actually what Romney says in the linked video; Judd is being disingenuous. But I think Romney is wrong in there for some reasons that bear elucidating.

First he says that we need to move programs from the Federal government to the states or to the private sector when possible. He goes on to say that racking up giant debts and passing them on to our kids is immoral, as though the debt piece were connected with the privatization/devolution-to-the-states (just “privatization” from here on in) piece.

The only way this argument makes sense is if you believe that the private sector or state governments are likely to do things more efficiently than the Federal government. If you don’t believe that they will, and if you believe that the thing the Federal government is doing needs to be done — for instance, if you believe that *someone* needs to be handling disaster relief — then transferring this job to the states is just shifting a bucket of money from one place to the other. If states are no more efficient than the Feds at this, then you’re replacing one source of debt (the Federal government’s) with another. Most states are required to maintain balanced budgets, so shifting this burden to the states would result in an immediate tax increase for all state taxpayers.

Privatizing disaster relief has its own problems. If we’re lucky, it would be privatized such that everyone who needed it could afford it. If we as a society believe that people shouldn’t be devastated when natural disasters strike, then we’d probably have to impose some kind of regulation to ensure that everyone who wants it can get it. This starts to look like the act of pantomime that a friend has done for many years: “capitalism picks its nose like this” (right arm reached around behind the left side of the head to pick the left nostril). Rather than simply have the Federal government do what needs doing, we privatize it and then impose a lot of regulations to achieve the outcome that we as a society want. Seems wasteful. Though by all means: if it happens that society can achieve what it wants to achieve using fewer resources in the private sector than it would through government — *including* the costs of the necessary regulation, and including all the efforts that private industry will then go through to evade regulation and get a leg up on its regulated competitors — then that’s a strong argument for privatizing.

Another direction this disaster-relief argument might go is to privatize disaster *insurance*, rather than disaster *relief*. I don’t know how disaster insurance works offhand. With insurance in general, we want to prevent two bad outcomes: __adverse selection__ (only the riskiest cases bother to get insured) and __moral hazard__ (the insured take more socially harmful risks than the uninsured). The way to prevent adverse selection is to require that everyone get insurance; that way the riskiest cases and the least-risky cases are buying in together, and the market doesn’t completely unravel. So if we want flood insurance to work at all, we’re going to have to require everyone to carry it, for some value of ‘everyone’ (maybe only ‘everyone’ in flood-prone areas, for instance). So again, government regulation to make the market work properly seems unavoidable.

*Federal*-government involvement seems unavoidable, in particular, because you want to spread risk over as many people as possible. This is one of the virtues of living in a country as large as the United States: when one group of flood-insurance beneficiaries is cashing in because, say, there’s flooding in the Southeast, another group in the Midwest is doing just fine, and the insurer doesn’t go broke. So having separate state-by-state insurers doesn’t seem like a stable equilibrium: risks are too concentrated in one state to make this work, and we’d likely end up with national insurers. These could either be private national insurers or the government itself. If it were a private insurer, it would have to be regulated: the insurer would have to hold onto enough of a cash buffer so that it wouldn’t be bankrupted by the “storm of the century”. And we as a society want insurance to really be there when it’s needed, so there would be a government backstop of some sort to make beneficiaries whole in case the insurer goes out of business. In exchange for providing this backstop, insurers would have to subject their books to regular auditing, would have to hold sufficient reserves, etc. Again, government involvement is unavoidable.

As for the moral-hazard piece: maybe there’s an argument that people with insurance are more likely to build on flood plains, and maybe we want to discourage this. One way the private market might do this is by setting the premium on flood-prone homes very high. There would then be at least a couple possible responses: either people continue building on those spots, even though they’re not insured, or they don’t build there. Without any regulation at all, maybe a lot of people would continue planting homes on uninsurable spots; when they get wiped out by floods, they’re bankrupted, and maybe we as a society are okay with that. Alternately, maybe we just forbid people from building on spots that no one is willing to insure; the only way to do this is through law or regulation, which — again — means that government involvement is unavoidable.

I’ll give the benefit of the doubt to Romney on this: it’s hard to describe real-world privatization in a 30-second soundbite. Here’s my 30-second soundbite: if we have reason to believe that something is better done by the states or by private industry, by all means let’s consider privatizing it. But privatization is not a magic potion that makes industries efficient — particularly when you consider the government involvement that necessarily has to accompany a lot of industries. Regulation is there for a reason; it’s because we as a society believe that certain things need to be accomplished, and for whatever reason we’ve left those things up to the private market.

Of course, from there you could also ask, “Well, do we actually need to do these things?” Do we actually need flood insurance or disaster relief? The really infuriating thing about watching Romney and his Republican brethren during this interminable election has been watching them try to walk the line: on one side, they want to say that principles of good government require us to drop things like universal health insurance (Ron Paul’s uncomfortable answer when asked whether to let an uninsured patient die) and flood insurance; but on the other side, they know that the public finds these positions morally vile, which they are. Which is why the Republican approach has been to answer a different question: Romney lectures us on the evils of Federal debt rather than say whether the Federal government has a role to play in disaster relief, and Ron Paul just says that the patient should exercise personal responsibility.

I strongly suspect, without having gathered the data on this, that people are liberals when they’re not asked to self-identify that way. Ask people the same question that Wolf Blitzer asked Ron Paul: should society let him die? I suspect most people would say, no, of course not. But in return for not allowing him to die, and for picking up the tab when he falls ill, we should expect him to pay for his own insurance while he’s healthy. And what if he can’t afford to pay that insurance? Should we help him out, in exchange for his subsidizing poorer folks when he gets back on his feet?

Whether or not most people would answer yes to that, that’s the question. The debate over these big moral questions has been hidden behind a technocratic or legal shroud of late. Maybe there was actually an urgent legal question about whether the government can ‘compel you to buy broccoli’, and whether that is meaningfully different from just giving you broccoli and including that in your tax bill. I don’t think so, though. The real root of the issue is whether you believe that society has a responsibility to protect its weakest members. Having decided that the answer is yes, we can set about deciding the best way to achieve that goal. When Republicans make a stink about requiring people to buy broccoli, they’re actually saying that the answer is no, and that society needn’t serve that protective role. They should be honest and just say so.

“The poor”

October 26, 2012/stevereads/Leave a comment

I had a realization today: when we talk about ‘the poor’, we have a labeling problem. I think people are inclined, when they envision ‘the poor’, to envision a permanent underclass — the perennially helpless. The mental picture that a lot of people have is of people who were born to poor parents, will be poor and uneducated throughout their lives, and will raise children who are stuck in the same class as well for all their lives.

There may be some of that. Who knows, it may be the case that most of those who fall on hard times will spend their entire lives there. But the point is that, by envisioning the poor this way, we envision them as ‘the other’. And by envisioning them as the other, we don’t picture ourselves as people who could be poor by a stroke of fortune tomorrow. Consequently, we imagine a program like Medicaid as a program for ‘the poor’, rather than as a program that we ourselves could benefit from. We envision food stamps as something for other people. That makes it hard for us to defend food stamps as a thing *for all of us*. If the society is lucky, most of us will be altruistic enough to defend social programs for others, but I wouldn’t count on it.

Seems to me that if we really want to sell these things, we need to convince Americans that any of us could fall into the social safety net at any time. That turns Medicaid into a middle-class benefit, which the middle class should defend purely out of self-interest. (1 in 7 Americans is on food stamps. Medicaid and CHIP provide coverage to 1 in 5 Americans. There is no state, among those from which records are available, in which Medicaid pays for less than 1 in 4 births. Etc.)

As it happens, right now I’m reading a book (Frank J. Thompson’s [book: Medicaid Politics: Federalism, Policy Durability, and Health Reform]) that tries to understand whether Medicaid has the political clout to survive; and if it does, why it does. The maxim has always been that “a program for the poor becomes a poor program”; so why does Medicaid, the classic program for the poor, not become a poor program? Why does it seem to be thriving?

I recall some Jacob Hacker data showing that income variability is quite high: the probability that your income will drop by half next year is rather high; you might need that safety net after all.

Then of course there are the second-order effects of making middle-class life more predictable: if your future is more predictable, you can do more planning and long-range thinking. You can choose to stay in the community you want to live in, knowing that a layoff won’t force you to pack up and find work elsewhere. If you know your children will have health insurance regardless of whether you’re employed, you can go off and start a small business — you can take the sort of risks that society is supposed to encourage. Now that you and your neighbors are more stable, the guy running the bakery down the street knows that he can rely on a steadier stream of business; so he can plan further ahead in *his* future; and so forth. The benefits of a middle-class safety net radiate out far beyond the immediate beneficiary.

More on all of this soon. Hopefully more data, in particular.

Steve Reads

Author: stevereads