Missing the Basic Flaw

You might want to read Peter St. Onge’s consideration of the Universal Basic Income at the Foundation for Economic Education. He’s against it.

Fascinating to me is that he misses the gravest practical problem with the UBI. Assume for a moment that a UBI is implemented and it takes the form of sending every man, woman, and child in the United States a check for $1,000 every month, funded simply by issuing credit. What would happen?

What’s more important is what wouldn’t happen. It wouldn’t result in the production of more goods and services, especially in areas like real estate where there is natural scarcity. They aren’t making new land.

What would happen is that rents, home prices, the prices of many other goods and services would rise to absorb the additional cash and we’d be just about back where we started except that we’d be issuing a lot more debt ($330 billion a month). There would be political pressure to increase the monthly stipend, politicians would yield to the pressure, ad infinitum.

Then there are other problems: the psychological, physical, and social problems of mass idleness, the rush of people across our borders to take advantage of the program, etc. etc.

I don’t believe in master stroke solutions to problems for the simple reason that are always complications, run-on effects, and it is a commonplace for run-on effects to overwhelm the actual result desired. However, as master stroke solutions go, the UBI is a terrible one. A national guaranteed job program would be better but that would have its own set of problems.

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What, Me Worry?

The editors of the Washington Post are concerned about what they call Chinese President Xi’s “worrying vision” for his country. It takes them a while to get around to the meat of their concerns but here they are:

Most of all, his vision of China as a superpower was infused by a nationalist agenda. In an address that stretched for three hours and 25 minutes, Mr. Xi intoned the phrase “strong power” or “great power” 26 times, according to a New York Times count. Mr. Xi boasted that one of his regime’s most internationally controversial actions, the fortification of islets in the South China Sea, was a highlight of his first five years in office, even though an international tribunal found Beijing to be acting contrary to international law.

Mr. Xi’s biggest applause line was a vow to “never allow anyone . . . at any time or in any form, to separate any part of Chinese territory from China.” That would include Hong Kong and Taiwan, along with those disputed rocks. But he said nothing about North Korea or its manic pursuit of a nuclear arsenal, the crisis that most demands China’s responsible cooperation.

What they haven’t established is why we should be worried. Yes, China is a different country from the United States. It has its own problems, concerns, and objectives, different from ours. Why should any of that surprise or concern us? Because China would dare to have a foreign policy different from our own?

IMO Chinese nationalism shouldn’t concern the editors of the WP. What should concern them is the U. S.’s lack of nationalism, sometimes pursuing goals that aren’t actually in our interests, sometimes pursuing goals that are only in the interests of a very narrow segment of individuals while on occasion even harming the majority of Americans or our long-term interests.

There are plenty of Chinese policies about which we should be worried. Is Tibet actually “part of Chinese territory”? Or is China’s rule of Tibet an example of raw expansionism? Where does that place Vietnam, Laos, Cambodia, North and South Korea, parts of Russia, and parts of India, all of which were ruled by the Chinese at one time or another? Is there a sort of Chinese “Brezhnev Doctrine”?

China is routinely and systematically engaged in cyberattacks against U. S. government agencies and private companies alike, scouring them for usable intelligence and intellectual property. They are also routinely and systematically violating U. S. intellectual property rights. Now those are all legitimate worries.


If It Weren’t Hard Anybody Could Do It

The editors of the Wall Street Journal cite an example of why tax reform is so hard. Every deduction and even the rates themselves has a constituency who depend on them for their incomes and who will fight to defend them.

One goal of the GOP framework is to simplify the tax code by eliminating preferences that distort economic behavior. Most itemized deductions other than mortgage interest and charitable contributions would be nixed. But the individual standard deduction would increase to $12,000 from $6,350 ($24,000 for married couples) to reduce taxes for most Americans.

The Realtors are upset because they say this middle-class tax cut would make fewer taxpayers use the mortgage-interest deduction. The National Association of Realtors trashed the framework in a statement, saying it “would all but nullify the incentive to purchase a home for most, amounting to a de facto tax increase” and ensure “that only the top 5 percent of Americans have the opportunity to benefit from the mortgage interest deduction.”

That reminds me of a complaint some years ago by a member of the Illinois Tollway Authority that if Illinois’s tolls were to be eliminated we couldn’t use I-PASS (automatic toll payment). The reality of toll roads in Illinois is that we can’t eliminate toll roads because we need the revenue to pay the pensions of retired Tollway Authority employees. The snake devouring itself.


To Err Is Human

I’m not sure what the point of ProPublica’s article on Supreme Court errors of fact in its findings is. That the Supreme Court makes errors? We knew that. That stare decisis should be abandoned? That sounds like a formula for societal chaos to me. That too many cases reach the Supreme Court? That seems obvious but the Supreme Court is hearing half as many cases now as it did a half century ago and the population has nearly tripled. That the present Supreme Court justices are more likely to make errors of fact for reasons of age? They don’t establish that. That the Supreme Court’s error rate is too high? They don’t establish that, either.

We must have laws. We must have rules. There must be some ultimate authority. The Supreme Court is that authority and it, too, is fallible.


Basic Reasons

After reading Molly Ringwald’s recollections at the New Yorker about the demeaning experiences she’s had making movies, weak tea, really, after what we’ve been hearing for the last few weeks, I wonder if it’s occurred to anyone that the coarse, churlish, abusive men behind the camera in Hollywood are there because it gives them access to young, attractive women who want something? And over whom they have leverage? The more they want it the greater the likelihood of abuse?

I’m not blaming the victims; I don’t think that women should have to put up with such behavior to retain their jobs. I’m suggesting that the behaviors being complained about may be quite basic to the industry, not incidental, part of its basic structure.


Would Medicare for All Make Health Care Less Expensive?

There is a discussion by Charles Blahous at E21 of whether “Medicare For All” (M4a) would reduce administrative costs per patient or administrative costs as a percentage of health care spending that strikes me as being pretty fair. His tentative conclusion is that it would reduce administrative costs either per person or as a percentage of expenditures but possibly not total health care costs:

To the extent that M4A achieves its intended goal of universal health coverage, this would increase total national health expenditures. The primary effect of insurance is to reduce out-of-pocket costs facing consumers of health services. This increases health service demand and puts upward pressure on costs and prices. Any credible model for forecasting national health expenditure growth will treat wider insurance coverage as a cost driver rather than a cost reducer. The Medicare trustees’ projection model, for example, anticipates more rapid health expenditure growth to the extent individuals carry comprehensive insurance.

This is not merely a theoretical proposition, especially with specific respect to Medicare itself. The academic literature is clear that the enactment of Medicare in 1965 was a prime driver of subsequent increases in national per capita health spending, notwithstanding Medicare’s relatively low administrative costs. Thus, even if the administrative costs of M4A were impressively low it would still be expected, other things being equal, to add significantly to national health care cost growth. Furthermore, there is no particular reason to believe that single-payer would add significantly to the quality of health care spending – that is, the health value Americans receive per dollar spent. The most M4A is likely to accomplish from a cost perspective to shift costs to providers via legislated Medicare fee schedules, constraining the supply and quality of health services. The bottom line is that lower administrative costs do not necessarily imply a less expensive system. (Final ruling on point #4: point for M4A opponents).

In sum, supporters of M4A are on fairly solid ground when they credit Medicare with having commendably low administrative costs. But in the aggregate, Medicare for All should be expected to drive total costs up, not down.

which I think is optimistic if anything. I think the greatest likelihood is that any savings realized as a consequence of M4A will be disappointing.


The Commanding Heights

Imagine for a moment that the U. S. had no copyright or patent laws and that there were no restrictions on providing health care of any sort, from licensing to restrictions on telemedicine to buying pharmaceuticals across national borders. I know there would be all sorts of abuses but that’s fruit for another post. What would happen is that compensation for copyright holders, whether authors, publishing companies, software developers working for large companies, television studios, motion picture distributors, and health care providers would fall because they were open to competition.

Now onward to David Brooks’s New York Times column:

Progress is real, but of course it doesn’t happen in a straight line. Often it happens in what Ruth DeFries calls the ratchet, hatchet, pivot, ratchet manner.

First there’s some innovative breakthrough that benefits society over all. But the innovation disrupts some lives. Down comes the hatchet as people want change. That leads to a pivot as society looks for new innovations to address newly created problems. Thanks to human ingenuity the innovation comes and progress ratchets up another notch.

This clearly happens with technological progress but also, less linearly, with cultural progress. Every era develops the culture it needs to solve its problems.

During the mid-20th century the West developed a group-oriented culture to deal with the Great Depression and the World Wars. Its motto could have been “We’re in this together.” That became too conformist and stultifying. A new individualistic culture emerged (pivot) whose motto could have been “I’m free to be myself.” That was great for a time, but excessive individualism has left society too fragmented, isolated and divided (hatchet). Something new is needed.

Politics during the hatchet phase gets nasty. It tends to devolve into a fight between upswingers and downswingers. (I’m adapting the words from a deceased Iranian-American futurist who called himself FM-2030.) Upswingers believe in progress and feel that society is still fitfully moving upward. Downswingers have lost faith in progress and feel everything is broken.

Mr. Brooks is confused. Technological development has nothing to do with “upswingers and downswingers” while policy has everything to do with them.

Let’s engage in a second thought experiment. Imagine that steel, automobiles, and clothing were all as restricted as providing health care, selling pharmaceuticals, banking, or practicing law are. What would happen is that all of those manufactured goods would rise in price and wages would rise for those who produce them, again due to competition, in this case less of it. U. S. auto unions would have much more bargaining power because the more restrictive laws would free them from the fear of U. S. “manufacturers” just buying what they build in Japan and South Korea and slapping “Made in the U. S. A.” labels on them.

My point is not that we should abandon copyrights and patents or professional licensing or that we return to the system of restrictive tariffs that dominated most of our history. It’s that what is happening now is not just some airy Whig history notion of progress but the direct consequences of policy, the picking of winners and losers.

The winners should not merely show magnanimity, the thrust of Mr. Brooks’s column. They should recognize the source of their victory and just how tenuous it is.

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Good Dog

There are many stories of heroism emerging from the terrible disasters of the fires engulfing Northern California. This one stood out for me:

This is Odin.
He is a hero.
Despite the fire, he never left the goats he was in charge of.

Here’s what Roland Tembo Hendel wrote about his dog:

As many of you know, Ariel, Scott, Stephen, and I lost everything we had in the Tubbs fire that devastated our forest home in Sonoma County earlier this week.

We had minutes to load up the animals and run from the advancing firestorm.

Despite the sounds of exploding propane tanks, twisting metal, and the hot swirling winds, Odin refused to leave our family of 8 bottle-fed rescue goats.

Hours later when we had found relative safety we cried for Odin and our goats.

I was sure I had sentenced them to a horrific and agonizing death.

Days later, when we were able to make it back to the property, we found a burned, battered, and weakened Odin, surrounded by his 8 goats, and several small deer who had come to him for protection and safety.

Odin was weak, and limping, his once thick and beautiful coat singed orange, his whiskers melted.

Read the whole thing and follow-up for more information and pictures.


The Scandal Is What’s Legal

To get some idea of what we’re up against here in Chicago, cruise on over to Charles Lipson’s site for a story of a Chicago alderman at work:

The headline: “Chicago Alderman Who Told Businessman to ‘Come Back To Me On Your Knees’ Sued for Abuse of Power“ (Reason’s Hit and Run blog)

Chicago Alderman Proco Joe Moreno wanted to help a business [Double Door Music Hall] that had contributed to his campaign coffers. So he told Brian Strauss, a firefighter and property owner, to rent his building to the business or suffer the consequences. When Strauss refused to comply, Moreno made good on his threats, downzoning Strauss’s building and scuttling multiple attempts to sell the property.

Strauss is now suing, arguing that Moreno’s abuses of his aldermanic powers violate Strauss’ rights under the Fifth and Fourteenth Amendments. –Reason blog

Charles concludes by wondering why it’s only a civil suit:

My question: Why is this only a civil case? The actions alleged ought to be investigated as possible felonies by federal attorneys. (Expecting state attorneys to do such investigations of fellow pols is crazy talk.)

As he notes, the case had to go to the federal courts to get any traction whatever and in all likelihood no federal criminal laws have been broken. IMO this is a case in which the real scandal is what’s legal.

This case is obviously abuse of power and corrupt but proving a criminal abuse of power case is something else entirely.

So, what to do? Vote for the Republican candidate? Notionally, Chicago aldermanic elections are nonpartisan but in practice many are single party. In the 2015 aldermanic elections, for example, the ward from which Alderman Moreno was elected, all of the candidates are Democrats and materially in agreement on the issues. The biggest differences among the candidates are racial/ethnic identity. In the latest Chicago mayoral election, no Republicans ran for mayor.

There aren’t even any reform Democrats running in the 1st Ward.


The Way We Were

At the American Interest Larry Diamond is alarmed at Russian and Chinese threats to liberal democracy:

The most profound shock to democracy, however, occurred not in Europe but in the United States, with the Russian hacking of the 2016 American presidential election. For the first time, a hostile foreign power not only deeply intervened in the American electoral process but tipped it toward its preferred candidate. Russia’s authoritarian regime hacked into the emails of the Democratic Party and some of its key campaign leaders. It then “weaponized” this information, leaking it with exquisite timing and tweeting and posting it with surgical precision, socially and geographically, to inflict the maximum damage on the party and its presidential candidate. The effort employed a vast social media army of machines (“bots”) and paid agents (“trolls”) to pretend to be real Americans venting their political cynicism, disgust, and provocative extreme views.

None of this would have worked if the American public had not already become deeply polarized and distrustful. But Vladimir Putin found a deep vulnerability in his adversary, and—as with all forms of asymmetrical warfare—used a limited expenditure of resources to deal a devastating blow. We still don’t know what the Russians did or learned when they hacked into the voter registration databases of more than twenty American states. What we do know about the overall attack, as former FBI Director James Comey testified in June, is: “They did it with purpose, they did it with sophistication, they did it with overwhelming technical efforts.” And: “They will be back…. They’re coming after America.”

China’s ruling Communist Party has been taking a very different, more incremental and subtle approach. Analysts are only now beginning to piece together the full scope of this strategy, but it involves:

  • The relentless global expansion of Chinese state media enterprises, such as Xinhua News Agency, the People’s Daily, and CGTV, which—unlike the BBC, CNN, or Deutsche Welle—offer a uniformly rosy view of China, its government, and its intentions.
  • The aggressive expansion of Confucius Institutes and other initiatives to promote the study of Chinese language and culture while conveying the Chinese state’s political line.
  • Growing efforts to penetrate U.S. movie, media and information companies, as with the recent purchase of the second largest chain of movie theaters in the U.S., AMC.
  • The rapid expansion of Chinese ownership of vast tracts of farmland and critical industries and infrastructure worldwide.
  • Opaque flows of support to American institutions and individuals to fund sympathetic studies of China.

but I think he has the wrong end of the stick. Nothing in the balance of my comments should be construed as a defense of Russian hacking or Chinese mercantilism or expansionism.

Quite to the contrary I don’t think that either of these efforts are any sort of threat to liberal democracy. They are a blow to the vitals of our system as it is right now but that has little or nothing to do with liberal democracy.

Our present economic system has correctly in my view been characterized as a blend of cronyism, neo-mercantilism, and free markets, those generally arranged to benefit a few while hurting far more. Our present political system is a mixture of tribalism, phony technocracy, hereditary aristocracy, and bureaucracy. You really need to squint to see liberal democracy in that melange.

That system is highly dependent on lies. It’s easier to put a finger on the Republicans’ lies because they’re so obvious. Regardless of what they say at election time Republicans do not believe in small government. Name an agency Republican administrations have closed. Quite to the contrary Republicans have enlarged government at every turn, cf. the Department of Homeland Security.

Their other lie is that tax cut produce economic growth. I believe that’s completely dependent on other circumstances—where we are on the Laffer Curve, who gets the tax cuts, and what they do with them. To see why we might think that is the case let’s just consider one hypothetical example. Each year Bill Gates pays about $10 million in federal taxes. What would happen if he were exempted from paying federal tax?

I think the answer is obvious. His consumption patterns wouldn’t change at all. His domestic investments wouldn’t change at all. He’d probably spend the $10 mil on his mostly overseas charities. In other words the effect on the domestic economy would be negligible, negative if anything.

My point is not that Bill Gates’s being rich is good or bad, that Bill Gates is good or bad, or that the rich should be taxed more highly. My point is that it depends.

What are the Democrats’ lies? I think their biggest lie is the benignity of government. IMO some government workers are doing the best job that anyone could do, some are doing the best job that they can do, some are just biding their times until retirement, and most are somewhere in between. Is that benign? I don’t think so. At best it’s neutral but because of the irresistible forces on bureaucracies over time any benignity will vanish. That’s just how they work. Every agency’s notional mission is abandoned in favor of organizational expansion and survival.

Another lie is the lie of competence.

The threat posed by the hacking of the Democratic National Committee regardless of who was responsible for it is that it revealed the lies. When you’re incensed about the truth, it reveals the bankruptcy of the system.

Quite to the contrary I don’t think liberal democracy can be threatened by the truth. It also can’t be injured by Chinese mercantilism or expansionism. Our problem is that we need more liberal democracy not more of what we’ve got.