hudebnik: (Default)
Robert Reich's blog today makes several criticisms of Donald Trump's much-touted "$1 trillion infrastructure plan".

  1. It's not really $1 trillion in Federal infrastructure spending; it's $200 billion in Federal infrastructure spending and $800 billion in tax breaks to private developers.

  2. It's not really a plan; it's "a page of talking points".

  3. It's "a giant public subsidy to developers and investors".

  4. The projects to be built would charge tolls to the public.

  5. The projects to be built would be "the wrong kind of infrastructure": new construction, not maintenance, and where they're most profitable, rather than where they're most needed.



#1: I don't see the distinction. In either case, it's $1 trillion of taxpayer dollars being spent on infrastructure. There's no obvious, inherent reason (but see later points) that having the Federal government do it directly is more efficient than having private developers do it and be paid by the Federal government, and no obvious, inherent reason that paying Federal developers as "contractors" is more efficient than paying them through tax breaks. Nor (Republican ideology notwithstanding) vice versa: the fact that it's being done by private industry and paid for through tax breaks doesn't inherently make it more efficient.

#2: True: the plan is pretty vague. Which on its own doesn't mean it's a good approach or a bad approach, just that it's too early to analyze it. I think this has become Trump's strategy for policy development: announce something vague, see which parts of it draw the most applause, and those parts become the actual policy, whether they work together coherently or not.

#3: The fact that private developers and investors get rich off it doesn't inherently mean it's not in the public interest (although it increases the risk of capture and rent-seeking, as developers spend a good deal of their tax breaks bribing lobbying Federal officials for more tax breaks rather than building things).

#4: True: the actual cost to taxpayers is not only the $1 trillion mentioned above but what they spend subsequently in tolls, and if the latter cost is "hidden", the plan looks more fiscally sound than it is. There are situations in which a toll bridge or road makes good economic sense: they have to get enough traffic that the tolls more-than-cover the cost of toll collection, and they have to be sufficiently better than non-toll alternatives that the toll doesn't have the effect of diverting much of that traffic onto non-toll alternatives. If these conditions aren't met, a toll bridge or road doesn't make economic sense. Which brings us to...

#5: ... what Reich calls "worst of all". The tax break dramatically reduces the cost to developers of a project, but they still won't do it unless it generates revenue, i.e. tolls. You can't put tolls on a local residential street, so local residential streets won't see a penny of the money. You can't make much on tolls in low-traffic rural areas, so low-traffic rural areas won't see much of the money. You (probably) don't earn the right to charge tolls by fixing a few potholes, only by building something big and new, so repairs and maintenance won't see much of the money. In short, projects would be picked based almost entirely on how much revenue they generate, rather than holistic cost/benefit calculations. Which has been Trump's business strategy for decades: build things for which other people pay most of the costs and you get most of the revenues.

If you want private industry to do things voluntarily that are in the public interest, you have to align their costs and benefits with the public's costs and benefits. If there's a substantial externalized benefit (say, decreased time wasted in traffic jams, or decreased air pollution), you need to estimate that and pay private industry in proportion to it. If there's a substantial externalized cost (say, the traffic-and-parking burden of a new residential or office building, or the impact on schools of a new housing development), you need to estimate that and charge private industry in proportion to it.
hudebnik: (teacher-mode)
So, one vague part of Da Trump's vague plan to come up with a tax plan is "reducing the number of personal income tax brackets", from seven to three. That sounds like a simplification, right? And a simpler tax system has to be good, right?

Well, no. Most Americans figure out how much tax they owe by looking up their taxable income in a table; it makes no difference to them whether the table was generated from three brackets or three hundred. But if you have complicated taxes and a paid tax preparer on speed-dial, it makes a big difference. Tax brackets are discontinuities, thresholds, and every place there's a discontinuity, there's an opportunity to get on the more favorable side of the discontinuity by fudging some numbers, reclassifying one kind of income as another, etc. The bigger the discontinuities, the more incentive there is for people to game the system in these ways, and the more money rent-seeking tax professionals will make by finding opportunities to do so.

Gaming the system not only deprives the government of revenue (which some see as a feature), it also makes the economy as a whole less efficient. If you actually believe in free markets, you want people to put their money where it will be the most productive, which (under certain assumptions that dyed-in-the-wool capitalists believe) is where it earns them the highest return. Discontinuities in tax policy encourage people to put their money where it will earn them the highest after-tax return, which may not be at all where it would be most productive in any other sense.

If we want a tax system that distorts the economy as little as possible, it should treat income as income, no matter whether it comes from interest, dividends, salary, consulting, short-term capital gains, long-term capital gains, inheritance, royalties, etc. And tax rates should be as smooth and continuous a function as possible -- infinitely many tax brackets, ideally, with each "discontinuity" being so small as to not influence behavior. That way people have little incentive to "reclassify" their income from personal to business, to move their stock sales from one fiscal year to another, etc. just to avoid taxes.

Naturally, that's the opposite of what the Trump plan-to-write-a-plan does: it makes the discontinuities bigger, and in particular encourages ultra-wealthy individuals like Trump to reclassify their personal income as business income -- not because it's any less their personal property, not because it's any more productive as business income than as personal income, but just in order to cut their tax rates by more than half.

Da Wall

Apr. 24th, 2017 07:28 am
hudebnik: (Default)
So Da Trump wants this week's continuing budget resolution to include billions of taxpayer dollars to build a wall on the Mexican border. The wall won't keep out illegal immigrants, won't keep out drugs, won't serve any useful purpose except to allow Donald Trump to say that he kept a campaign promise -- while conveniently ignoring the other half of that campaign promise, "Mexico's gonna pay for it." Trump says "Oh, Mexico will pay for it at a later date, but we need to get started on it now." Huh?

Let's put this in terms the President will understand, with a real estate analogy. Suppose you were working on a development project, courting two investors, V and M. You tell V that M is going to invest (despite M's repeated public statements that he has no intention of investing), and V somewhat dubiously signs onto your project. M continues saying publicly that he has no intention of investing. M has nothing to gain from the project, and you have no plan to entice or force M to invest that doesn't cost you more than it costs M. Would you put your own money into the project, on the assumption that M would eventually invest and you could reimburse yourself from M's contribution? Would you expect V to put more money into the project, promising V that M would eventually invest and you could reimburse V from M's contribution?

Wait -- that's not just an analogy. That's exactly how the President has actually been putting together real estate deals for decades: lie to one investor about another investor's commitment. As long as none of your own money is on the line, it's all good: if the project goes through, you get a cut of the profits, while if it doesn't, your investors are stuck with the losses. In either case, you go on with your life, find another gullible investor whom you haven't burned yet, and repeat the cycle with a new project.
hudebnik: (Default)
Mixed messages from Trump and Ryan. Some indication that Trump never really cared about health care except "repeal Obamacare" as a campaign slogan, and he would be delighted to never hear the words for the rest of his Presidency; also some indication of an interest in "working with Democrats". It's clear that the Republicans don't have enough of a unified vision to pass any health care bill on their own, so any change from here on will need to be bipartisan. What if he/they actually meant it? What improvements could be made that would get a significant number of both Democratic and Republican votes?

I wouldn't shed many tears if health insurance were divorced from employment, and most Americans got their health insurance through an individual market rather than through group deals worked by their employers. (This would make cases such as Hobby Lobby moot: if your employer doesn't pay for your health insurance, your employer doesn't get to choose what your health insurance covers based on their religious views.) This could be accomplished by gradually decreasing the amount of employee health-insurance expenses that an employer can tax-deduct, making it gradually less attractive for them to offer health insurance. The effect would be to move a lot more employed, reasonably-healthy people into individual markets (including, unless changed, the state Obamacare exchanges) and make those markets more stable and sustainable. And it would arguably be a "pro-free-market" move that would attract ideological Republicans.

One of the problems with Obamacare as it stands right now is that in some states most insurers have pulled out of the market. A public option would guarantee that there IS competition in every state, which should bring down premiums... but it's competition by a gummint entity (even though it's not taxpayer-funded), so Republicans won't go for it. Never mind.

Perhaps the biggest possibly-bipartisan improvement would be clarity and fairness in health care pricing. At present, most of the financial benefit of having health insurance isn't the amount of your health care costs the insurance company *pays*, but the amount that the insurance company *negotiates away in a puff of smoke*. Providers have to give deep discounts to big insurers, or they'll be out-of-network and will never get any customers from that insurer.

So here's how we change that. Require health-care providers to publish price lists of their services, and limit the ratio (gradually decreasing over a number of years) between the maximum and the minimum they charge different customers. (Might want to allow large discounts based on personal income, but not based on insurance.) This would make illegal a lot of insurance-company "negotiations" with providers, and mean that uninsured and insured people paid more-nearly the same prices for things. Health care providers would compete with one another on price and quality, rather than merely on which ones are in-network for your insurance company. The whole idea of in-network and out-of-network providers would become less important; consumers would have more choice of doctors, and maximum prices would come down as minimum prices rose. I suspect most doctors would love this, but insurance companies would hate it, so there would need to be some other sweetener to prevent the latter from blocking it. Perhaps the first idea above would please the insurance companies enough to balance this. And it's a free-market reform, so it should get a fair number of Republican votes (although not those who see ANY government regulation as evil, even government regulation to open the markets).
hudebnik: (rant)
Let's take the "pro-lifers" at their word and assume they (or a significant fraction of them) honestly believe that full human life begins at the moment an egg is fertilized. What happens if we insert that axiom into the rest of an ethical and legal system?


[Note: for purposes of this thought exercise, "woman" is defined in terms not of birth certificate or appearance or self-identification, but of the physical ability to get pregnant.]

A fetus, embryo, blastula, zygote, or fertilized egg is a full human being with the same rights as one who's already been born. Any intentional termination of the pregnancy, even days or hours after conception, is therefore murder. No "exceptions for rape or incest", because we wouldn't consider a child fair game for murder just because of its parentage or the circumstances of its conception. Likewise, no exceptions for crippling or life-threatening genetic defects, unless we as a society would be willing to actively kill a born child for having those defects. Even an "exception to save the life of the mother" is dubious: it amounts to choosing which of two human beings to kill. Terminating a pregnancy to save the life of the mother would be permissible only if the alternative was both mother and child dying; in that circumstance you're choosing to kill one person rather than two. In all these cases, it seems clear that both the mother and any medical personnel involved would be criminally liable.

What about unintentional termination or harm? It could be argued that conduct (e.g. strenuous exercise) that accidentally leads to the termination of a pregnancy is manslaughter or negligent homicide -- which typically get a lighter sentence but are still felonies. Conduct that leads, or could reasonably be expected to lead, to harm to the fetus, such as drinking alcohol while pregnant, is reckless endangerment of a minor, and could again be punished under the criminal code. Even allowing a spontaneous miscarriage without taking heroic measures to prevent it could be considered criminal medical malpractice -- negligently allowing a human to die who could have been saved.

Once you're pregnant, you no longer have full jurisdiction over your own body, because you share it with another human being who has the same rights as you, but no decision-making power. Indeed, if there's a realistic chance you might be pregnant, you should probably (to stay on the safe side) assume you are. In short, if you're a sexually active female of reproductive age, you have less autonomy than a sexually active male of the same age. Unfair, yes, but that's just the way the world is -- like menstruation.

A woman who has sex is giving up part of her autonomy for at least a few months until she's sure she isn't pregnant, and possibly for years to come. A man who has sex is not giving up anything unless it turns out she is pregnant and he's the father. So having sex is a much bigger decision for a woman than for a man. A woman who has sex "lightly" is therefore irresponsible and morally suspect, while a man who has sex "lightly" is normal.

If you're female and want to retain independence and autonomy, you need to avoid sex, at least any form of sex that could lead to pregnancy. Males, of course, don't face this dilemma -- indeed, they can express independence and autonomy through sex. Again, it's unfair, but it's just the way God made us: women have to choose between (hetero) sex and autonomy, while men get both at once. If you've chosen (or been forced) to live on the "sex" side of the divide rather than the "autonomy" side, your every action henceforth has to be assessed from your perspective as a growth medium.

If a woman is going to willingly risk her autonomy in order to have sex, she'd better get something in return, like financial security, so it is appropriate to consider most (hetero-)sexually active women as prostitutes, although the "respectable" ones get to call it "an advantageous marriage".

Which implies that in the natural order of things, there are two kinds of women: autonomous but (heterosexually) celibate ones, and sexually active ones financially supported by their male sex partner(s). Men can be autonomous, sexual, and financially independent, in any combination they wish, because these are orthogonal questions for them. If they don't want to take on the long-term financial responsibility for a wife and children (or if they get bored with their long-term partner), they can get their sex a la carte from short-term prostitutes and mistresses instead. Again: unfair, but that's just the way things are.

For women on the "sex" track, their main saleable assets (to be exchanged for financial security) are sex and physical attractiveness; a man's main saleable asset (to be exchanged for reliable access to sex) is his money-making ability. So it is entirely appropriate for women to be extremely concerned with physical appearance, and to spend whatever money (or eyelash-batting) they have on clothes, makeup, cosmetic surgery, etc, while it is entirely appropriate for men to concentrate their energy on their careers. Men earn money, men give it to women in exchange for sex, and women spend it on their appearance so they can keep getting paid for sex. That's the natural order of things; objecting to this model makes as much sense as objecting to the law of gravity.

And it's understandable that employers would be reluctant to hire women, or to promote women, or to pay them as much as a man: this particular woman might be on the "autonomy" track now, but both she and her employer know that she has another option, and could switch to the "sex" track at any time. Since she doesn't really depend on her job, you can expect her to take it less seriously than a man would, and her employer will accordingly take her less seriously.



In short, we can live in a society in which women have roughly the same rights and freedoms as men, or we can live in a society in which zygotes have roughly the same rights and freedoms as born children. We cannot have both.

Our new President and Vice President, in their different ways, have both made clear that they prefer the latter. The President has had three wives, whom he married at the fertile ages of 28, 30, and 35 respectively, and (I think) cheated publicly and repeatedly on all three of them, because he is just that oversexed. Their role was to be beautiful and fashionable and sexy and spend the money he made, as a sort of scoreboard to show off his supreme manliness (including, but not limited to, earning capacity). He's made abundantly clear that he values women primarily for physical attractiveness; the worst cut-down he can think of for a woman is to insult her appearance. Grown women are unimportant except as sex objects. Meanwhile, the Vice President has taken every opportunity in his career to assert the importance of unborn children from the moment of conception on, and to keep women in their rightful places as sex partners, housekeepers, and child-rearers. In short, zygotes are more important and have more rights than grown women.

Most of the conclusions I've drawn above aren't really about abortion: they're really about the equation of sex with pregnancy. Anything that breaks the "God-given" connection between sex and pregnancy -- whether abortion, contraception, or even homosexuality -- is a threat to an equally "God-given" social model built on the assumption that women can't have sex without risking their autonomy for months or years to come, and men can.
hudebnik: (devil duck)
So a month or two ago, Hillary officially joined Bernie in calling for a nationwide $15 minimum wage, on grounds that it'll reduce inequality and the "corporate welfare" phenomenon whereby McDonald's and Walmart can assume the Federal government will keep their low-paid workers alive. Republicans consider a $15 minimum wage -- or any minimum wage -- a job-killer, on grounds that when you make something (including labor) more expensive, people buy less of it.

Both are right, in a way. The Republican argument that a $15 minimum wage would eliminate all the jobs currently getting paid less than that is simplistic, ignoring the fact that when you put more money into low-income people's pockets, they spend it and stimulate the economy. And it seems harmless to take that money out of the pockets of large corporations that, for want of good investment opportunities, have been just sitting on it for eight years. But I think it's also dangerous to completely discount the job-killing potential.

Let's start with a reductio ad absurdum: if a $15 minimum wage is good, why not $20, or $30, or $50, or $100? At any given minimum wage level, workers whose value to their employer is less than that will be unemployable. With a $100/hour minimum wage, either (a) the majority of working Americans lose their jobs, or (b) inflation devalues the $100/hour until it matches their job productivity. Now, a certain amount of inflation would be welcome in the current economy (by everybody without a large bank account), but betting that the inflation would kick in before the unemployment did sounds risky to me. Anyway, it seems clear that above some level, a minimum wage will cost jobs; the question is whether we're currently above or below that level.

This is now a quantitative, empirical question, not a qualitative matter of principle, and its answer probably depends largely on geography and the local cost of living. $15 in New York City is a lot less money than $15 in rural Iowa, which is in turn a lot less money than $15 in Puerto Rico. A $15 minimum wage in New York City would be almost adequate to live on, and stimulate the local economy; the same wage in Puerto Rico would be comfortable for the people who got it, and could well devastate an already-struggling local economy by making many people unemployable.

So what would be a better solution? We can reasonably consider both a government solution and a free-market solution. The government solution is to set minimum wages based on the local cost of living (although finding the right formula to appropriately weight local factors against non-local factors would be tricky). (I guess another option would be setting minimum wages at the state level, as at present, but that predictably produces a "race to the bottom" effect.) The free-market solution is for workers and their employers to negotiate geographically appropriate wages. But we all know that when an individual, non-superstar worker "negotiates" with a multi-national corporation, the latter is in a much stronger bargaining position and will probably pocket almost all of the worker's productivity. The obvious counterbalance to this is unionization: if we still had strong unions in this country, we might not need a minimum wage law at all.

In short: if you don't want to see a nationwide minimum wage law, encourage your workers to unionize instead.
hudebnik: (rant)
In recent days the Times has had several articles that sorta fit together in my mind:
Fixing Our Broken Water Systems
What Happened to the Great Urban Design Projects?
How New York Made Pre-K a Success
Can Health Care Providers Afford to Prepare for Disaster?
How Sea Walls Around Hoboken Might have Stopped Hurricane Sandy's Floods
Finding Beauty in the Darkness

All of these articles are about projects which
(a) [would] improve a large number of people's lives a little bit each;
(b) [would] cost a lot of money, although not a lot per capita; and
(c) would be difficult or impossible to charge for individually: either they inherently benefit everyone in a geographic area, or many of their beneficiaries are liquidity-constrained and unlikely to make the individual decision to invest in them.

In short, classic examples of what economists call "positive externalities": they benefit largely people who didn't voluntarily pay for them, which means either
(a) a lot of people pay a little for them involuntarily (e.g. through taxes or surcharges on something else they need), or
(b) a few wealthy and public-spirited people voluntarily pay more for them than they personally benefit, or
(c) they don't happen, even though their total benefit may far exceed their total cost.  (To be more precise, they happen at a level below the most efficient level.)

A few decades ago, these sorts of projects might have been the subject of a bipartisan debate over whether the project in question really is cost-effective, whether there's appropriate accountability in procurement, whether to pay for it cash-on-the-nail or float a bond, boring stuff like that.  Today if you propose any such project, regardless of the specifics, Republicans will oppose it because gummint! taxes! socialism! tyranny! Today's Republican party is fundamentally, irrevocably committed to the principle that anything done by a government won't work.  If you somehow start building such a project (like Obamacare), Republicans will do everything in their power to sabotage it, make it work as badly as possible, because if (God forbid!) it actually worked, it would call this principle into question.  Indeed, if you try to study a problem that might have a positive-externality solution, Republicans will oppose even gathering the data for fear it might lead to somebody proposing government action.

This Republican axiom implies that the only effective way to fund a large project is for a large corporation to do it in the expectation of making a good ROI.  Or, if it's really not marketable, it can still be funded by a wealthy philanthropist who happens to have a hobbyist's fascination for this particular useless project.  I'm all in favor of wealthy philanthropists, but there aren't enough of them, with a broad enough range of hobbyist fascinations, to be a reliable source of funding for all the things that have good cost/benefit ratios but aren't individually sellable.  Relying on them inherently skews funding in favor of things that interest rich people, not necessarily the things with the best global cost/benefit ratios.

Mind you, there are certainly problems with funding things through government means.  Anybody who has a larger-than-usual stake in the project (e.g. somebody hoping to get the contract to build it) has an incentive to spend a lot on lobbying (aka rent-seeking) to direct the project in his/her preferred direction.  Examples are legion of government projects and regulations being "captured", managed more for the benefit of a few powerful politicians or donors than for the public benefit.  But there are also plenty of examples of government projects and regulations actually improving the broad public welfare by an amount greater than their cost. The possibility of such a project or regulation being mismanaged should inspire us not to throw out the baby with the bathwater, but to improve government management and accountability so more of them are well-managed and cost-effective.  But that might increase public trust in government, so today's Republicans can't allow it to happen.  A party that used to be concerned with stamping out government incompetence and inefficiency now wants government to be as incompetent and inefficient as possible.
hudebnik: (devil duck)
So NPR just interviewed Ted Cruz about climate change. Cruz's statements boil down to

1) The last 18 years of satellite weather data show no significant global temperature change at all, and more generally, there's no good scientific evidence that global warming is happening.

2) The whole "global warming" thing (like the "global cooling" thing of 35 years ago) is the result of liberal politicians who have already decided on big-government policies and have faked or cherry-picked the scientific data in order to support the policies they want to enact anyway.

3) People criticizing "climate-change deniers" are making a religious argument, not a scientific argument. They're calling us heretics rather than addressing the substance of our arguments.

4) Cruz and others in his political camp take their position in order to protect "the waitress working tables, whose wages have stagnated through seven years of the Obama economy, who's finding it harder and harder to make ends meet" from liberal policies that would slow the economy.

5) If alternative energy sources are developed to economic viability, they won't be developed in Washington, DC driven by political concerns, they won't be developed by Solyndra [dog-whistle!]; they'll be developed by the private sector in response to what actually works.

Item #1 is specific and more-or-less verifiable. I looked on NASA's climate-change web site (which is unambiguously on the "yes it's happening, it's human-caused, and we need to do something about it" side). The most-relevant thing I've found in a few minutes of searching is here: I'm not sure whether this graph is based solely on satellite data, or whether it merges data from several different sources. Anyway, if you look at the last 18 years, as Cruz says, it shows a lot of up-and-down stuff, with perhaps an upward trend, but not anything clear-cut. But why does Cruz say 18 years so specifically? Because 1997 showed a major temperature spike, by far the warmest year up until that time. If you look at the last 17 years, or the last 19 years, you DO see an upward trend. If you look at the last 40 years, you see a very consistent upward trend. If you look at the last 75 years, you see somewhat less upward trend, but still pretty clear. If you look at the last 106 years (to cherry-pick from a cold trough, as Cruz cherry-picks from a warm peak), you see a strong upward trend; if you look at the last 135 years, somewhat less but still upward. In other words, Cruz has very carefully cherry-picked the data to support his desired conclusion; almost any other way you look at the data does not support his desired conclusion.

#2 I think all sides can agree that politicians are quite capable of cherry-picking scientific data to support the policies they've already decided they want to enact, as witness Cruz above. That is, after all, a criticism commonly leveled at Cruz and other anti-AGW Republicans, and there's no reason to assume it happens on only one side. So let's remove politicians (particularly U.S. politicians) from the mix entirely and listen to the rest of the voices talking about AGW. The ones saying it isn't happening are mostly U.S. industry leaders, and the ones saying it is happening are mostly scientists, both U.S. and around the rest of the world. I'm inclined to believe the scientists over industrialists who have an obvious vested interest in one set of policies.

As for "global cooling", my recollection from 35 years ago is that it was about the effects of nuclear war, not the effects of the everyday economy, and that the "liberal policies" to avoid it weren't government intervention in the economy but rather attempts to avoid nuclear war. But let's work with Cruz's story that 35 years ago a lot of scientists and left-leaning politicians believed the economic status quo was causing global cooling and we needed big-government economic policies to prevent it. Would that invalidate current concerns about global warming? Not necessarily, because a good scientist changes conclusions when the data change, and the data really did change: global temperatures were fairly stable from 1935-1975, and rose steadily at least from 1975-2000. Does reaching "big-government policies" as a solution in both cases suggest that the scientific data were skewed to support that prejudged solution? Possibly, but there's a reasonable argument that local threats should be addressed locally, while national or global threats should be addressed at a national or global level, whether that threat be warming, cooling, pollution, economic depression, medical epidemic, asteroid strike, etc.

#3: OK, let's not call anyone a heretic. And perhaps "denier" is synonymous with "heretic" in some people's minds. What would be a good word for someone (left or right) who (like Cruz) ignores or cherry-picks scientific data to support a pre-judged set of policies?

#4: The waitress's wages have been stagnant for a lot longer than seven years. Inflation-adjusted median wages have been basically flat since 2000, and have grown only slightly since 1980. But the waitress is probably below median, earning minimum wage or a little above, and I think the minimum wage is substantially lower (after inflation) than it was in 1980. Anyway, it's not at all obvious that policies to fight global warming will slow down the economy or make life harder for ordinary wage-earners; as the NPR interviewer pointed out, they're policies to make the economy more efficient and save people money. And some of those policies would actively create jobs. (But I guess they're not "real" jobs, because they're inspired by government policies rather than the market, and their employees wouldn't be cashing "real" paychecks.)

#5: I agree that most of the innovation in the economy is outside the government sector, inspired by what works in the marketplace. But government (big or small) unavoidably sets the ground rules for the marketplace. A hundred years or more of government subsidies to the oil industry, the automobile industry, and the road-and-pipeline infrastructure on which they depend has given us the oil-and-car-dependent economy we have today; what's wrong with consciously changing the ground rules to encourage a cleaner and more sustainable economy instead?
hudebnik: (devil duck)
You know the classical Prisoner's Dilemma game, which (along with several related games) can be characterized by the values in a payoff matrix in which R, the "reward", is what both players get if they both cooperate; T, the "temptation payoff", is what you get if you defect and the other guy cooperates; S, the "sucker's payoff", is what you get if you cooperate and the other guy defects; and P, the "punishment", is what both players get if they both defect. In any such game, I can choose between (T/P) and (R/S), but the other player's choice determines whether I get T or P (if I defected) or whether I get R or S (if I cooperated). The effect on me of my own choice is either T-R or P-S, depending on the other player's action; the effect on me of the other player's choice is either R-S or T-P, depending on my action.

Prisoner's Dilemma is characterized by the inequality
T > R > P > S
For any given other-player action, I'd rather defect than cooperate, but eliciting cooperation from the opponent is even more valuable: under almost any plausible scenario, R-S and T-P (the effects on me of the other player's choice) are larger than T-R and P-S (the effects on me of my own choice). When played iteratively for a long and unknown number of rounds, therefore, this game favors the development of strategies that are "nice" (not the first to defect), "punitive" (responding in kind to defection), and "forgiving" (responding in kind to a return to cooperation after defection). Since both players following such a strategy simultaneously is a stable equilibrium, the outcome feels "fair". (It is sometimes also stipulated that S + T < 2R, so successive rounds of (C,C) are preferable to an alternating series of mutual retribution: (C,D) and (D,C).)

The related game of Chicken is characterized by the inequality
T > R > S > P
Since S > P, you're better off being the sucker who swerves off the road than being one of two people who, both refusing to swerve, collide head-on. Again, my choice is between (T/P) and (R/S), but the implications are different: I'm not always better off defecting for a given other-player action, but I get to choose how large the other player's effect is on me (am I playing for large stakes or small?). No symmetric pair of deterministic strategies is a stable equilibrium for this game; it tends to favor the development of exploitative, dominant/submissive solutions in which one player consistently defects and the other consistently cooperates.

A less-studied variant might be called "Mine", and is characterized by the inequality
T > P > R > S
In this variant, my choices alone determine whether I'm in the better (T/P) part of the matrix or the worse (R/S) half of the matrix; the other player's choice only selects between T and P or between R and S. The effect on me of my own actions is unconditionally more important than the effect on me of the other player's actions. The obvious successful strategy is "always defect".

Which is where ideology and pragmatism come in. If you're a politician expecting to run for (re-)election on your record of accomplishments, you're playing a game in which eliciting cooperation from others is at least as important as your own unilateral actions, something like Prisoner's Dilemma. If, on the other hand, you're a politician expecting to run for (re-)election on your record of ideological purity, you're playing the game of Mine: you don't much care what anybody else does, and will always stand on principle (and seldom get anything accomplished).

For another example, suppose you're a government official charged with carrying out a law with which you personally disagree. If you believe in the rest of your job, and think you can make the world better on balance by doing it and maintaining a productive relationship with your co-workers, you'll find a way to live with it; if you're more interested in ideological purity than accomplishing anything, you'll stage a dramatic and futile protest (and set the stage for a future career as an ideological politician).

Now, what if I'm a pragmatist and you're an ideologue? I assume we're playing Prisoner's Dilemma, so I adopt a "tit for tat" strategy appropriate to that game, while you adopt an "always defect" strategy appropriate to the game of Mine. After cooperating once and getting screwed, I punish you by defecting. You are unchastened: my newfound intransigence only confirms you in your own, and we both continue defecting forever. If I'm feeling especially optimistic, I may occasionally send up another trial balloon of cooperation to see whether you've learned your lesson; you haven't, of course, and this only persuades you that I'm a sucker who can be taken advantage of, and that (because I sometimes cooperate) I have no integrity.

Of course, under some circumstances you CAN get something done by being ideologically pure. If your ideological position, while initially unpopular, is persuasive enough that you can develop a large voting bloc who believe the same way you do, you no longer need to elicit cooperation from the other side. Martin Luther King, by adopting strategies that initially looked dramatic and futile, captured the attention and conscience of the nation and gradually developed a solid majority in favor of racial integration and fairness (at least in theory), whereupon the remaining few segregationists could be marginalized and ignored. Today's Tea Partiers may anticipate something similar: by insisting on ideological purity, they hope to attract more and more people to their cause until the national consensus agrees with them. But as long as there's a large-but-not-majority ideological faction, not much will be accomplished.

Note that the ideologue/pragmatist distinction is almost independent from the left/right distinction. One can take an ideological or pragmatic approach to either left-leaning or right-leaning politics, although in 2015 most of the ideologues are on the right and most of the pragmatists are on the left.

At a meta-level, the whole thing is embedded in a larger game of Chicken: ideologues (whether left or right) have decided to play for the large stakes of eventually dominating the political discourse, while pragmatists (whether left or right) have decided to play for the smaller stakes of getting things done along the way.
hudebnik: (devil duck)
So Krugman points to this commentary in the NY Times, calling on the Federal Reserve to "show some spine and raise interest rates."
The case for raising rates is straightforward: Like any commodity, the price of borrowing money — interest rates — should be determined by supply and demand, not by manipulation by a market behemoth....
The only way to return the assessment of risk to something resembling normalcy is to stop the manipulation. That requires nothing less than serious intestinal fortitude from the Fed and a willingness to raise interest rates in the face of determined opposition from Wall Street.

Wait, what? When the Fed sets interest rates to 0.25%, that's "manipulation by a market behemoth", but when the Fed sets interest rates to 1% or 2%, that's "stopping the manipulation" and allowing "supply and demand"? Seems to me the only way to "stop the manipulation" would be for the Fed to not set interest rates at all -- to be just another big bank with no economic goals but maximizing its own profit. Which Rand Paul might appreciate, but most people would consider a rather extreme shift from the past several decades.

In fact, a number of the calls for an immediate interest-rate hike (over the past five years) have been based on the notion that current Fed interest rates are "unnatural" and "artificially low", which as far as I can tell means "lower than they've been for most of the past fifty years" rather than having any objective basis.

I'm not sure how that's possible. The Fed is basically a really big lender-to-the-trade: if it sets interest rates "too low", i.e. lower than "the market" would on its own, banks will borrow vast amounts of money from the Fed, turn around and lend it out at higher rates to those poor suckers who can't get to the Fed's discount window, and make vast amounts of money on the difference. This would continue until either the demand for credit was met and "market" rates dropped to match the Fed's rate, or the Fed raised its rates to match the "market" rate. In the process, an enormous amount of money would flow into the functioning economy and be chasing either (a) too few goods and services, aka inflation, or (b) rapidly growing goods and services, aka rapid GDP growth. The fact that neither the arbitrage, the inflation, nor the rapid GDP growth seems to have happened on a large scale despite six years of "artificially low" interest rates seems to be pretty good evidence that they're not "artificially low" after all: those banks that have borrowed money from the Fed at 0.25% haven't found an abundance of high-yield places to lend that money, so it's just sitting in their vaults.
The right answer is self-evident: End the easy-money addiction, raise rates in September and begin the healing.

The words "begin the healing" suggest the reasoning he's using. As long as interest rates are "artificially low", there won't be the round of bankruptcies and extreme economic hardship necessary to pay off the karmic balance of the pre-2008 economic party, and without paying off that karmic balance, things will never get back to normal. To quote Ron Paul in 2009:
We need a correction. Correction should be a good word. When the government screws things up and makes things, you know, so much out of whack, we need a correction and a correction is a healthy thing and everything we do in Washington, everything the Central Bank does is they work real hard to prevent the correction. That’s why it’s prolonged.
In this view, the best solution to an economic slump is to "rip the bandage off" -- create some intense, immediate pain, with the understanding that things will then get better. When your people are out of work, you should lay off government workers; when your people have no money to spend, you should cut unemployment benefits and raise taxes; when the private sector isn't buying enough to keep the economy moving, the government should stop buying things too.

The problem is that there's no evidence that "ripping the bandage off" actually helps in economics (except in the "feels so good when you stop" sense). The countries that took the strongest doses of austerity medicine (Spain, Portugal, Ireland, Italy, and above all Greece) have had the weakest economic recoveries, while the places that enacted only moderate austerity (the U.S.) have had the strongest (albeit still slow by comparison with previous slumps that were not medicated with austerity).

This "rip the bandage off" reasoning seems to be based on two flawed assumptions. One is the notion of "karma", of macro-economics as a morality play in which irresponsible partying must be paid off with suffering (oddly enough, never by the same people who most enjoyed the irresponsible partying) before the party can resume. The other assumption is that an economic system has one and only one natural, stable equilibrium point, to which it will return automatically whenever the hand of government is removed. As long as government keeps trying to stimulate the economy, we must be operating above the equilibrium and would be better off letting the economy fall to where it "wants" to be. But what if the same fundamental economy could have several different possible stable equilibria? You could have lots of people employed and spending money and supporting other people's jobs, or you could have very few people employed and spending money and supporting other people's jobs, and both of those would be stable situations. Which means it's plausibly a legitimate government goal to pick a happier equilibrium over an unhappier one.

But that would mean government has a legitimate role in managing the economy, and "keeping big business owners happy" isn't the only road to prosperity. Unthinkable.
hudebnik: (devil duck)
As you know, we need several billion Euros in the next few weeks. We recognize that none of this money will actually go to Greece; it will go from one set of creditors directly to another set of creditors, who in turn will say that we're in good standing on their loans.

We also request that a substantial fraction of our debts be written off, or at least refinanced at a much lower interest rate, so we don't spend so much of our income on debt service and can spend some of it reducing principal.

In exchange for these considerations, we will take the following steps to ensure our ability to repay loans in the future.
1) We will INCREASE means-tested pension payments.
2) We will INCREASE pay levels for government employees (particularly at lower levels)
3) We will INCREASE and EXTEND unemployment benefits.
4) We will INCREASE poverty-support payments.
5) We will DECREASE the most regressive consumption taxes, while improving tax enforcement.

All of these measures have the effect of putting money into the pockets of the people most likely to spend it immediately in the consumer economy. Economic research shows that in a depressed economy, such measures have a multiplier significantly larger than 1, and are among the most efficient ways to stimulate economic growth, jobs, and future tax revenues. These measures also have the effect of triggering inflation, which encourages companies and individuals currently holding cash to invest or spend it, thus creating more jobs; inflation also shrinks the real value of our debts, making them easier to pay.

Of course, we're not a large enough part of the Euro economy to inflate the Euro on our own, so we ask the larger countries in the Eurozone to undertake similar measures.

What -- you say this is a joke, and that we don't seem to realize the seriousness of our situation? On the contrary, we are keenly aware of its seriousness: our people are starving. This is anything but a joke.

We've followed the austerity prescription for five years now: our government is now running a primary surplus (all of which, and more, goes to debt service, so we're still racking up debt). As a result of the resulting economic depression, our unemployment rate is now about 25% (50% among youth) and our debt-to-GDP ratio has grown from 126% to 177%. We've tried it your way, and it doesn't work; we see no reason to believe that more of the same toxic medicine will now magically become healthful. Give us two years to try a different prescription and see whether THAT works. In either case, we will all learn something from the experiment, which will cost our creditors no more than continued austerity would.

Alternatively, we can continue to follow the austerity prescription, our economy will continue to shrink, our debt load will continue to grow, we will continue begging the EU for money every year for the rest of our lives, and none of our creditors will ever see a repayment that doesn't come from another creditor. Most of our population will flee the country in search of economic opportunity somewhere else, creating a refugee crisis measured in millions of people. But you will have demonstrated your firmness and resolve.
hudebnik: (devil duck)
I'm sure most of you have heard about this by now, but here's a Daily Kos link that includes the Congresswoman's video response to the oceans of pro-Obamacare comments she got in response to her Facebook call for Obamacare horror stories.  Apparently out of the hundreds of comments, she couldn't find even one that told the story she wanted to tell, so she cribbed some from a Republican Party web site.

Quotes from Congresswoman Rodgers on Obamacare )


After selecting four data points that support her desired conclusion (and weren't even in the original data set) and ignoring hundreds that don't, she turns her keen analytical skills to the Federal budget.

"American families all across this country balance their money to pay the bills, so they can afford the co-pays at the doctor's office and send their kids to school.  Families have to prioritize; they have to save; they have to live within their means.  The Federal government needs to do likewise."

No, that doesn't work )
hudebnik: (devil duck)
Some weeks ago I followed a link on Paul Krugman's blog to an article at AEI-Ideas, the group blog of the American Enterprise Institute.  And ever since then I've been getting e-mail notifications of further articles and reader comments on that blog -- probably a dozen a day.  It's an interesting exercise to read stuff written by people with extremely different political/economic views from mine, and figure out which of their statements I can find some logic in and which seem just utterly bonkers.  James Pethokoukis is the "sane, moderate" voice on the blog: he generally favors less government, less regulation, less taxes, etc. but recognizes the reality that after five years of Obama and quantitative easing, inflation has NOT exploded, interest rates have NOT exploded, the Federal budget deficit has NOT exploded (indeed it's shrunk dramatically), and the parts of the world that enacted the most stringent Austerian policies have been the ones to go into double- and triple-dip recessions, while those that didn't cut government spending as much have recovered better.  Other columnists are less willing to acknowledge reality, and some of the readers are even farther immersed in unquestionable right-wing assumptions.

I got into a debate with one such on the issue of externalities.  His position appears to be that you should pay exactly as much for public goods (police and fire protection, clean air and water, street lights, etc.) as you feel like paying for them; people who value them more should and will pay more for them, and that's fair; he shouldn't be asked to pay anything for other people's actions, even actions that benefit him.  I was skeptical about how this works in the real world, and pointed out that whenever the benefits of something are public and the costs are private, it's almost guaranteed to happen at less than the optimal level ("positive externalities"), while when the benefits are private and the costs are public, it'll happen at more than the optimal level ("negative externalities").  After I had written a longer post than I intended, I decided to copy it here so I don't lose track of it.

Ron H. writes:
“People who value things the least value them at $0, so most often that’s the amount that actually gets charged for positive externalities"

Not necessarily.  It's quite possible that EVERYBODY in a community places a positive value on a particular common good (say, a fire engine), and the total value they place on it is more than enough to buy the fire engine, but still it doesn't happen.  Why?  Because no one community member, even the person who places the highest value on a fire engine, can afford to buy a whole fire engine; it has to be bought jointly.  And if all of my neighbors are chipping in to buy a fire engine, it'll probably be bought whether I chip in or not, so I have a strong temptation not to chip in.  If everybody reasons that way, nobody chips in and it doesn't get bought, even though EVERY SINGLE PERSON wants it.

"Who gets to decide what is the “optimal level”? It would seem that the “optimal level” of something is determined by the number of people who want it, and the price they are willing to pay for it."

Yes, it is.  I'm using the word "optimal" in the usual economic sense of "maximizing total average utility."  I'm not an economist, but I hope I can describe this correctly :-)

We assume that each person in society has a "utility curve" indicating how much that person would be willing to pay, in isolation, for various quantities of the good in question.  Such curves usually rise steeply at first, then gradually level off with satiety.  The person's "average utility" is that person's utility divided by the amount of the good, in other words how much that person would be willing to pay PER UNIT for various quantities of the good.  Average utility curves typically rise to a peak (or maybe several) and then fall off.  The peak of your average utility curve is how much of the good you would want to buy, in the ideal world; it maximizes your personal "bang for the buck".  Different people, not surprisingly, have peaks in different places.

The "total average utility curve" is what you get by adding up each person's average utility curve.  Since it's a sum of curves that each rise to one or more peaks and then fall off, it too rises to one or more peaks and then falls off.  The "optimal level" of a good is the highest peak on this curve, i.e. the amount of the good that maximizes the TOTAL "bang for the buck", as measured by adding up how much each person would be willing to pay per unit if buying that much of it individually -- or in other words, how much benefit each person feels (s)he is getting per unit.

So yes, it IS based on what people are willing to pay.  And in a market where everybody's purchases are independent of one another, you can indeed find "the" optimal level by having each person buy at that person's own optimal level.  But in a market with externalities, where your purchase affects me and vice versa, that doesn't work.  Inevitably some people's peaks are to the left of the total peak, and others' are to the right.  If everybody is expected to pay the same amount, people whose peaks are to the left of the total peak feel oppressed by being asked to subsidize those who value it more.

So let's NOT have everybody pay the same amount; instead, have everybody pay as much as the value they place on the good.  This doesn't work either, because in a market with positive externalities, there's a strong temptation to lie and say you value it less than you actually do; you'll still get the benefit of everybody else paying for it, at less cost per-unit to yourself.  It's especially tempting for people who value the good less than most, as they can be reasonably confident that other people who value it more will cover them.  If you want a fire truck in the neighborhood, but you have a brick house and most of your neighbors have wooden houses, you'll be tempted to pay not just less than they do, but even less than YOU think it's worth, because you know that your neighbors will pay.

If lots of people do that, the market behaves as though their peaks were to the left of where they really are, so the amount of the good actually provided is less than most people (or possibly even ALL people) would be willing to pay for if they were doing it individually.  That's what I mean by "positive externalities are provided at less than the optimal level."

Similarly, negative externalities (e.g. pollution) are provided at above the optimal level because people have a strong temptation to understate how much the externality bothers them, and therefore how much they're willing to pay to avoid it; the result is that not much is paid to avoid it, and we end up with more than most people (or perhaps even ALL people) want.

““…most or all of the employees want more of them, but it somehow doesn’t happen.”

That’s because they are relying on someone else to pay for them. When you “put your money where your mouth is”, you are determining the real value you place on something.”

The first sentence is right: the good is not provided because people who would benefit from it are freeloading, paying less than they actually value it (or nothing at all), and are therefore relying on someone else to pay for them.  The second sentence is right only in an independent market, not one with externalities.  Define "the real value you place on something" as what you would be willing to pay for it in isolation.  Being part of a group tends to lower the amount you're willing to pay for it, even though you benefit just as much; in other words, once you're part of a group, what you're willing to pay does NOT reflect the real value you place on it.
hudebnik: (devil duck)

I recently read a blog post celebrating Milton Friedman's birthday and including several Quotable Quotes from him. Like Quotable Quotes in general, they're pithy, memorable, and easy to use in arguments in lieu of facts.

One was "There is nothing so permanent as a temporary government program." Now, we all know this in our cynical hearts, but as Krugman has pointed out (see also here), it's not particularly true, at least for large social-welfare programs.

So let's do a thought experiment with two government programs, each costing taxpayers a billion dollars a year. Program A writes a $1000 check to a million people a year, while Program B writes a $10 million check to a hundred people a year. Which is more likely to expire on schedule? I claim it's Program A: it benefits far more people, but few if any of them is so strongly affected as to lobby hard for its extension. (If, as seems likely, they're not politically well-connected people, they may not even know where to start.) By contrast, every one of the hundred beneficiaries of Program B has a strong interest in lobbying for the program to be extended, and might be willing to spend up to $10 million/year on it, which is enough to buy some professional-quality lobbying. On the other side are the taxpayers, who each spend $3/year on the program and therefore have no interest in fighting to make sure the program expires on time.


To look at it another way, suppose Program C writes a $1000 check to ten million people a year, while Program D writes a $100,000 check to a hundred people a year. Program C costs taxpayers $10 billion/year, which is enough to grab the attention of deficit hawks, while Program D costs only $10 million a year, so if even one of its beneficiaries fights to extend it, there's unlikely to be any significant opposition.

If this is correct, then there's a substantial thumb on the scale favoring redistribution programs to small groups of people over programs benefitting large groups of people. Look at industry-specific government subsidies and price supports, especially those that in practice benefit mostly a few upper managers rather than a whole worker base.

How would one fix this? One approach would be to adopt a convention that "temporary" government programs don't sunset all at once, but phase out over 5-10 years, and can only be extended one year at a time. This would raise the threshold of individual benefit it takes to inspire someone to lobby for extension: if you only stand to lose 10% of your $100,000/year check this year, and lobbying to extend it simply means you have to come back and lobby again next year, the cost/benefit relationship has shifted and you're less likely to do the lobbying.

But that's not a complete solution: for an individual, group, or industry that already maintains a lobbying arm, adding on one more annual lobbying effort isn't much of a burden. Other ideas?

hudebnik: (rant)
Of course, the Repubs calling this a "victory for individual rights against the government" are blowing smoke: it's a victory for the individual rights of a few corporation owners against the individual rights of their hundreds or thousands of employees -- or, if you prefer, a victory for the individual rights of a corporation to have its own religious views, against the individual rights of actual human beings.

Interestingly, like so many Republican suggestions in the past five years, it would actually be fairly harmless or even good if we were in a thriving economy: "if you want your insurance to cover contraception, and Hobby Lobby doesn't cover it, get a job somewhere else."  Of course, in a depressed economy, "get a job somewhere else" is frequently not an option.  Similarly, cutting Federal spending and hiring would be harmless or even useful if those were "crowding out" private hiring, and cutting Federal deficits would be harmless or even useful if those were "crowding out" private borrowing, and raising Fed rates to restrict the money supply would be harmless or even useful if there were an inflation problem.  All of which is not happening, and hasn't been happening for five years, and won't be happening until more people are working real full-time jobs at decent pay, but Republicans don't believe there is such a thing as involuntary unemployment or business cycles, so they blithely go on prescribing what might be the right medicine for a booming economy with full employment.

Anyway, back to the SCOTUS decision.  Hobby Lobby and friends actually do have a bit of a point: if you ran (say) a small business, and the law said you had to allocate a certain fraction of your payroll to the local Baby-Seal-Clubbing Program, which you considered immoral, you would have some cause to object, even if a few of your employees inexplicably believed in clubbing baby seals.

However, the "right" answer isn't to say "because of your religion, you don't have to obey this Federal law that all of your competitors do."  The "right" answer is to get employers out of the business of providing health insurance for their employees -- that way it wouldn't MATTER much what your employer thought were legitimate health expenses -- or lifestyle choices, for that matter.  And if you lost your job, it wouldn't mean losing your health insurance at the same time.  And and and.
hudebnik: (devil duck)
I started thinking about Say's Law, which is usually stated as "Production creates its own demand."  IIUC, the idea is that if you produce something, you now have an asset that you can trade with somebody else for his/her assets, thus creating a demand for those other assets exactly equal to the asset you produced.  The more production, the more assets, so the more demand.

One possible problem with this is that the desire for something isn't in the same place as the assets to pay for it.  Suppose you produce something that lots of people want, but most of the people who want it are producing very little -- say, they're unemployed or underemployed -- so they don't have a lot of assets to trade for what you produce.  Perhaps they can't even afford to buy it at your cost, which is the lowest price at which you're likely to want to sell it.  So you stop producing it.  Rather than production creating its own demand, we have a sort of contrapositive: the lack of demand creates a lack of production.  But presumably the reason you were producing that thing is that you're GOOD at producing it, so by switching your production to something else, you've made the whole economy less efficient.

A related problem: suppose you produce something, but you DON'T have the asset you just produced -- your employer does. Your employer now has a bunch of buying power, but isn't interested in buying the same things you want, so there is effectively no demand for the things you want, which means they won't be produced.  Indeed, your employer may be not interested in buying anything at all, which means all the assets you produced are just sitting in your employer's bank account, not creating any demand at all.

How can this happen?  Ask anybody who works at McDonald's or Wal-Mart.

What is a worker worth?

One answer says "you get paid what you're worth -- indeed, what you're worth is DEFINED (in a market economy) by what you can get through negotiation."
Another answer says "you're worth what you produce," i.e. the value added by your labor.

These answers don't necessarily match one another very closely.  In fact, if you work for a for-profit company, what workers get paid must be LESS than the value-added that they produce, or there would be nothing left to show as profit.  (For simplicity, I'll assume that all of a company's value-added -- its revenues minus its non-labor spending -- is created through labor, not through (say) buying something and holding onto it until it appreciates and can be sold for a profit.)  But that's not true for all workers, only for the AVERAGE.  Specifically, the total wages of all the workers in the company must be less than the total value-added of all the workers in the company, in order for there to be a profit.  How much less depends on the worker's bargaining position: if the worker is hard to replace and knows it, (s)he can negotiate a wage that's pretty close to his/her value-added, while a worker who's easy to replace is in a weaker bargaining position and will probably get paid considerably less than his/her value-added.

There are even circumstances in which a worker can negotiate a wage that's HIGHER than his/her value-added.  This clearly isn't in the best interest of the company, but if the worker in question happens to be in upper management, able to effectively set his/her own salary, it's in the worker's best interest to set that salary as high as possible, regardless of the best interest of the company.  Naturally, the manager in question doesn't want the company to go bankrupt, so in order to raise his/her own salary, (s)he needs to keep the AVERAGE salary below the AVERAGE value-added by lowering everybody else's salary.  But you can't do that if your workers are in a strong negotiating position, so for your own best interest (if not necessarily the company's), you need to put them in a weak negotiating position: bust the union and keep overall unemployment rates high.

I was involved with the Co-ops And Enterprises Board at my graduate school (UC San Diego).  UCSD had a thriving bunch of student-run, on-campus businesses, many of which were organized as egalitarian co-ops.  At one point there was a discussion of how to set salaries for co-op workers, and the University administrators on the board said "we can't let people set their own salaries: there's an obvious conflict of interest, people will set them too high and the co-op will go bankrupt."  The Co-op people replied "There's no problem with people setting their own salaries, because they know that if everybody in the co-op gets paid too much, the co-op will go bankrupt.  The conflict of interest arises when one person can set not only his/her own salary but other people's as well, as happens at the University bookstore: the manager can set his own salary high and the check-out clerks' low.  In a co-op, no one person's salary will be much higher than everybody else's, so this isn't a problem for a co-op."  The University administrators somehow didn't see the logic in this.

Anyway, the problem arises, predictably, whenever the people making salary decisions for a whole company are a small subset of the paid employees of that company.  If the decisions are made by a large subset, those people's salaries can't be too much higher than anybody else's, while if the decisions are made by people who aren't paid employees at all, there's no conflict of interest and the decision-makers can act in the best interest of the company.  Yet there IS a skill to management, managers DO provide a useful service to a company, so they deserve to get paid for that service.  The question is how to pay fairly for their management services without allowing their management position in the company to enable them to set their own salaries higher than their value-added.  You could try some sort of "peer" salary-setting -- I don't set my own salary, but I get to participate in setting the salaries of all the other managers at my rank -- but as long as the set of managers is a fairly small subset of all the workers, this still encourages them as a group to set their own salaries irrationally high and everybody else's low.

It's late: I'd better get to bed.
hudebnik: (teacher-mode)
I ran across a series of blog posts about "Modern Monetary Theory", and I'm trying to make sense of them.  The authors reach a lot of conclusions that I like politically, which suggests I'd better be more than usually skeptical to avoid confirmation bias.  One idea in particular intrigued me, and I thought I would try to analyze it on my own before reading more of what they have to say about it.

As I understand it, one of their fundamental principles is that over the past 80 years the U.S. and most other developed nations have moved from the gold and/or silver standard to the "tax standard": the value of the U.S. dollar, no longer backed by a fixed amount of gold per dollar, is ultimately backed by its ability to pay U.S. taxes (which, the libertarians will point out, is backed by the U.S. government's ability to punish people for not paying taxes).  In a way, this is nothing new: for hundreds of years of gold-and-silver coinage, a coin's worth was not only the value of the metal in it but also the promise that the King would accept it in payment of taxes.  We've just eliminated the precious-metal component entirely.

more analysis here )
hudebnik: (devil duck)
The simple right-wing argument against minimum wage laws says "they make it more expensive to hire people, so any given company can't afford to hire as many people, so jobs will be lost."  (There are more sophisticated arguments, but I want to address this one now.)

The above reasoning is valid under the tacit assumption that everything else in the company's finances is unchanged, and the only thing changing is per-person labor costs.  In fact, several other things will change too.  For example, if your company pays higher wages relative to the market, your employees are less likely to leave for other jobs, so you save money on training and job churn.  But that's probably not a big effect if every low-wage employer's wages rise at the same time.

More interestingly, all of your employees are also somebody else's customers, and their employees are also your customers; if your customers suddenly have more money in their pockets, you'll sell more than you did before, so your revenues will go up at the same time as your labor costs.

So what kinds of businesses would see what kinds of effects?  Country clubs and luxury-clothing manufacturers won't benefit at all: they have low-wage workers, but no low-wage customers, so it's a loss for them.  Fast-food joints and big-box discount stores, OTOH, have both low-wage workers and low-wage customers, so it might be a wash, or even a slight win.

If it's a win (between job-churn and richer-customers) for those companies, why haven't they adopted higher wages already on their own?  Because it's not in any company's interest to be the first or only company to raise wages (at least in a low-skill sector where there's no shortage of workers); it only works if everybody does it.  Hence a law.

But a minimum-wage increase isn't going to pass a House of Representatives in which 20% of the members, in safe seats, don't want government to do anything, while another 30% won't vote for government to do anything out of fear of a Tea Party primary challenger.  So in keeping with Obama's pledge to use his own power to do what Congress won't, how about this:

Obama calls the CEO's of McDonalds, Burger King, Wendy's, KFC, Domino's, etc, puts them all in a room together, and says "I want you to all raise your bottom-end wage.  None of you will lose competitive advantage to the others, because you're all doing it simultaneously.  And since a lot of your customers are one another's employees, you'll all see increased revenues.  I'll be sure to mention in public which companies signed on, and which didn't."  Then he does the same with Walmart, Target, etc.

An interesting question: what kind of business would see a clear win from an increase in minimum wages?  Ideally, one that had high-paid employees (hence not affected by the increase) and low-paid customers.  The only way to pay for high-wage employees with low-wage customers is to have a LOT of low-wage customers -- to be on the long tail, making a little bit of money from lots and lots of transactions.  For example, Big Data companies: Google, Twitter, Facebook, Netflix, etc.  (Those don't make money on customers who are so low-wage that they don't have or use computers, but they would make a lot of money from people moving up into the computer-using echelon.)
hudebnik: (teacher-mode)
Several mostly-unrelated stories that hooked up in my brain.

I live in Queens, NYC, and the Queensborough Public Library has been making the news lately: the Library Director is earning $391K and spending hundreds of thousands of dollars renovating his executive suites and building himself a private outdoor smoking deck, while the rank-and-file library staff haven't gotten a raise in four years, nor a new hire in five. The Union and some of the City Council (led by one who used to work at the Queensborough Public Library himself) find this outrageously unfair.

I tried to imagine what the Director could possibly be thinking to do things like this. His job is to manage the Library's finances, among other things, and the more money he saves the Library (e.g. by not hiring anybody or giving anybody a raise), the better he's doing his job and therefore the more pay and perks he deserves. The very actions he's criticized for doing while paying himself more are precisely why he's paying himself more.

The Union and some of the City Council are concerned with the difference between his salary and those of rank-and-file staff, while he's concerned with the sum. A large difference is bad if you're concerned about fairness and propping up the working class; a large sum is bad if you're concerned with city finances and taxes.


Second, there was a CBO report last week predicting that Obamacare, through subsidies and the partial decoupling of insurance from employment, would lead to the equivalent of 2 million fewer people working in the U.S. Republicans, naturally, spun this as "We told you so: Obamacare will cost 2 million jobs." Which wasn't technically correct: the predicted effect is that people with jobs will voluntarily leave them, or work fewer hours, because now they can without losing their insurance. (Others will presumably change jobs, for the same reason, but that's not part of the 2 million figure.) If anything, this will make it easier to find jobs because fewer other people are competing with you for the same job.

Yet in a sense, the Republicans are correct: with the equivalent of 2 million fewer people in the labor market, 2 million fewer jobs will be done (under the usual Republican assumption that all economies are running at capacity, and there is no such thing as involuntary unemployment), which means a reduced GDP.  (Even without that assumption, one suspects that not all of the workers removed from the labor force will be replaced from the unemployment rolls, so it still means fewer jobs being done and a reduced GDP.)

In other words, the same prediction is bad if you're concerned about total GDP, or good if you're concerned about any given person's ability to find work (the difference between you and the rest of the work force). More generally, a decreased labor force is good if you're still in it yourself, and bad if you're trying to hire from it.


Third: I'm reminded of dear old Ronald Reagan, who, while running against the incumbent Jimmy Carter, invented something called the "misery index", the sum of the inflation rate and the prime interest rate. Which didn't make a lot of sense even to my 16-year-old self, since high inflation is bad for lenders, while high interest is bad for borrowers; the only person whom both of them would hurt is somebody storing lots of cash under the bed.

What's more meaningful, for most purposes, is the difference between interest rates and inflation, known to economists as the "real interest rate": high real interest rates encourage saving and investing, while low real interest rates encourage spending and borrowing.  The current economy could really use more spending and borrowing, but the millionaires in Congress and the billionaires backing them would prefer to be rewarded for saving and investing, so they've done everything in their power to drive real interest rates back up.

hudebnik: (devil duck)
Following up on this post...

[livejournal.com profile] shalmestere is undergoing physical therapy for a knee injury last month, and I just got the first insurance statement.

For the initial one-hour visit, the charges add up to $790, which is paid for as follows:
$660.40 "insurance plan discount"
$109.60 "insurance plan pays"
$20.00 "customer co-pay"
$180.00 "not covered"
$0.00 "you owe"

I had to look up the difference between "insurance plan discount" and "not covered": the former is "treatments for which the insurance company has agreed to pay a little bit," while the latter is "treatments for which the insurance company has agreed to pay nothing," but the effect is the same: nobody is paying it.  So why do they bother billing for it in the first place?  Do they hope to actually get the whole $790 from uninsured patients, while getting only $129.60 (about 1/6 of the total) for an insured patient?

The second one-hour visit adds up to only $540, because it doesn't involve an initial exam.  The other therapies cost exactly the same amount as before, despite presumably taking longer (because there's no initial exam).  This time it's broken down into
$464.46 "insurance plan discount"
$55.54 "insurance plan pays"
$20.00 "customer co-pay"
$180.00 "not covered"
$0.00 "you owe"
This time the provider is getting less than 14% of their claimed total from us.  If 95% of their customers have insurance, and our insurance company is neither better nor worse at negotiating discounts than the average company, then the average reimbursement they actually get for this sort of visit is $98.76, which means their actual costs for this sort of visit must be somewhere below that.  So why not just bill everybody the same $99 rather than loading 27% of the costs onto what are probably the poorest 5% of the customers?

When you buy a gallon of milk, there's a price tag on the shelf.  You can see the price before you decide whether to buy it, and everybody pays the same price (although some may do it with food stamps).  I could imagine charging less (for necessities like milk and health care) to the people least able to pay, but what kind of cockamamie scheme charges MORE to the people least able to pay?

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