Tag Archives: economics

I Read the Ryan Budget

March 18, 2013 – 8:00 am

Last week, when I talked about ideological bubbles and how to tell if you’re in one, I should have mentioned the best way to stay out of bubbles in the first place: Expose yourself to as many original sources as you can, especially the ones you know you’re going to hate.

With that in mind, I read Paul Ryan’s budget. (More accurately: I read the 91-page document he wrote to advertise his budget. An actual budget would have way more numbers in it.) In telling you about it, I’m going to try to keep my commentary as close to the text as possible, with quotes and page references as appropriate. (I wish I had the time to do an end-to-end annotation, but I’ve got some big deadlines looming.)

General impressions. Before I get into specifics, I want to say a few things about the overall impression the document makes.

As many people have already observed, Ryan’s proposal is not an attempt to reach a workable compromise with the White House or the Democratic majority in the Senate, both of which would have to agree before his plan could become law. Instead, it’s an aspirational document for conservatives: This is what they fantasize doing if and when they get complete control of the government.

There’s nothing wrong with that, but the Ryan Budget needs to be classed with aspirational budgets from the Left, like People’s Budget put out by the Congressional Progressive Caucus (which also balances the budget in ten years). Both are shots across the bow, not plausible projections of what its backers think they can pass.

So Ryan has written a rallying cry for the troops of the conservative movement, not an attempt convince or convert non-believers like me. The summary (page 7) says

This is a plan to balance the budget in ten years. It invites President Obama and Senate Democrats to commit to the same common-sense goal.

But there is no spirit-of-invitation in Ryan’s style. Any liberal who reads it will get pissed off, and I believe that’s intentional. Conservatives couldn’t fully enjoy their reading experience without visualizing pissed-off liberals.

Let me detail that: You’ve probably already heard that Ryan wants (once again) to try to repeal the Affordable Care Act (a.k.a. ObamaCare). But after the first mention, he can’t just call it by name. It’s “the President’s onerous health care law” (page 33) or “the President’s misguided health care law” (page 40) and so on, as if the ACA had been imposed on the country by imperial decree and Congress had nothing to say about it — also as if the ACA hadn’t been an issue in the 2012 election that Romney/Ryan lost by nearly five million votes.

Other partisan stuff is just silly. On page 24, President Reagan is given credit both for the economic expansion of his era, and of President Clinton’s era as well. Clinton is mentioned exactly once (on page 33, when Ryan re-raises the universally debunked lie from campaign 2012 that Obama wants to rescind the work requirement of Clinton’s welfare reform). The reader would never know that Ryan’s stated goal — a balanced budget — was achieved by Clinton (who raised taxes) while Reagan (who cut taxes) ran up record deficits.

You will also hear echoes of 2009’s Lie of the Year: death panels. The ACA sets up an Independent Payment Advisory Board (IPAB) to make annual recommendations (which Congress can rewrite before they take effect) on keeping Medicare spending within specified limits. The law specifically bans the IPAB from recommending care-rationing, but the heading of the Ryan’s section on it (page 40) is “Repeal the health-care rationing board”.

Background assumptions. In the real world, if a program is important enough, the government could conceivably raise taxes or borrow to pay for it. OK, Ryan’s balanced-budget goal won’t let him advocate borrowing. But a fundamental assumption that runs through his whole budget — usually without being stated explicitly — is that taxes cannot be raised for any purpose. Nothing is important enough to raise taxes to pay for.

Also, defense spending is untouchable. “There is no foreseeable ‘peace dividend’ on our horizon.” (page 61)

So if the domestic demands on government are growing — the population is getting older, the infrastructure more decrepit, healthcare more expensive, weather-related disasters more extreme and more frequent, future economic growth more dependent basic research and an educated workforce etc. — any money you want to spend to deal with one of those challenges has to be taken from the others.

The idea that over the long term our country could decide that it wants to do more of its consumption publicly — that it wants to take its economic growth in the form of Medicare and public education, say, rather than BMWs — is completely off the table.

Big Picture. The numbers don’t appear until the Appendix (page 80). Atlantic’s Derek Thompson put them into a bar graph:

Medicare and Social Security are usually considered “mandatory spending” (because benefits are defined by law rather than by appropriation), but I believe the additional $962 billion of 10-year savings is mostly Food Stamps, Pell grants, and so on.

So the cuts are almost entirely in healthcare, education, or anti-poverty spending. And while Ryan waves his hand at replacing Obamacare with “patient-centered health-care reforms” (page 33), apparently those reforms require no money from the government.

Meanwhile, rich people get a big bonanza: The top tax rate drops from the current 39.6% to 25%. If you make $10 million a year (some CEOs do), you could save nearly $15 million over the ten years Ryan’s budget covers.

So what isn’t in the budget document?

  • Any specifics about discretionary spending cuts. The cuts are just numbers on a spreadsheet. All the “tough choices” necessary to achieve those numbers are left to your imagination, so Ryan can deny his intention to cut anything in particular, as Mitt Romney did in his first debate with President Obama.
  • Any specifics about closing tax loopholes. Ryan claims his rich-guys-bonanza 25% tax rate wouldn’t cut federal revenue, because it would be balanced by eliminating tax loopholes. As in the 2012 campaign, Ryan says nothing about what those loopholes might be. Again, he can deny wanting to cut any specific item, like the mortgage interest deduction. But he’s got to raise that revenue somehow, and I seriously doubt it’s all going to come from the super-rich who benefit most from the lower rate.
  • Any plan for Social Security. Page 37 charges: “In Social Security, government’s refusal to deal with demographic realities has endangered the solvency of this critical program.” But rather than “deal with demographic realities” here and now, Ryan only “requires the President and Congress to work together to forge a solution.”

We have always been at war with Eastasia. The background rob-Peter-to-pay-Paul assumption allows Ryan to construct some truly Orwellian statements. This is particularly true in the “Opportunity Extended” section, which is all about shrinking opportunity for poor and working-class young people.

For example, on page 20 Ryan identifies “tuition inflation” as a problem that “plung[es] students and their families into unaffordable levels of debt”. And then he says:

Many economists, including Ohio University’s Richard Vedder*, argue that the structure of the federal government’s aid programs don’t simply chase higher tuition costs, but are in fact a key driver of those costs.

What could that possibly mean? Well, that federal aid is allowing too many people to go to college, creating a high-demand environment in which colleges can raise tuition. So the “solution” is to lower the maximum Pell grant (thereby “saving” the Pell grant program from spending at an “unsustainable” level, since we couldn’t possibly raise taxes to pay for it). Also to “target aid to the truly needy” by making families report more of their income on financial aid forms. Also “reforming” student loans and “re-examining the data made available to students to make certain they are armed with information that will assist them in making their postsecondary decisions”.

Presumably, when the facts of this harsher you’re-on-your-own world are “made available to students”, fewer of them will decide to go to college, thereby saving both their money and the government’s. So don’t worry about student debt — just don’t go to college at all if you’re not rich, and if you do go we’ll “help” you avoid massive debts by refusing to loan you money.

Oh, and we’ll also “encourage innovation” in education through “nontraditional models like online coursework”. Never mind that’s where the big scams are. Corporations profit from those scams, so that’s not “waste”.

Ditto for job training: Ryan promises to “extend opportunity” by spending less on it.

Ditto for the safety net. Since taxes can’t possibly be raised, every person who is helped by the safety net is taking those dollars away from somebody else who might be helped. So Ryan’s “A Safety Net Strengthened” section is all about spending less on the safety net. Mostly this is accomplished by block-granting programs like Medicaid to give “states more flexibility to tailor programs to their people’s needs.”

So if, say, low-income Texans need to toughen up and stop seeing a doctor at all, Texas can tailor its program that way. That’s what it’s doing already with the “flexibility” the Supreme Court gave it last summer.

Energy. Climate change just isn’t happening. Ryan doesn’t make that claim in so many words, but there’s a big empty spot where climate change would otherwise have to figure in.

He clumps energy together with a grab-bag of other issues in the “Fairness Restored” section. The “unfairness” in this case is the way that the Obama administration favors clean energy over dirty energy. Ryan will “end kickbacks to favored industries” like wind and solar in favor of “reliable, low-cost energy” like coal, oil, and gas. With climate change out of the picture, only corruption can explain Obama’s favoritism. In the Introduction, Ryan says his budget “restores fair play to the marketplace by ending cronyism.”

In current energy policy, fossil fuels and green energy are subsidized in different ways: Green energy gets grants and loans while established-and-profitable fossil energy gets tax breaks. Tax breaks are invisible to Ryan, so he can say on page 50:

on a dollar-per-unit-of-production basis, the level of subsidies received by the wind and solar industries were almost 100 times greater than those for conventional energy

Do it for the kids. So what’s the purpose of all this? A better world for our children. “By living beyond our means, we’re stealing from the next generation.” (page 5)

Of course my baby-boom generation knows how that works, because all that debt America ran up during World War II was “stolen” from us, right? I don’t know how I failed to notice.

In the real America, the big deficits of World War II kicked off 40 years of prosperity, during which the country achieved a level of equality that it hasn’t equalled before or since. So no, deficits are not “stolen” from the future. My generation did not build tanks and landing crafts and put them in time machines to send back to D-Day.

But in order to save our children from the horrible maybe-sorta-problem of the national debt, we need to under-educate them; not do basic research that might create the next computer industry or Internet; leave them crumbling roads, bridges, and electrical grids; not care for them when they get sick; move in with them when we get old; and leave them with a torched planet, where Iowa is a desert and Miami is underwater.

I’m sure they’ll thank us for our foresight.

* As best I can tell, although Ryan identifies only their university affiliations, every economist Ryan mentions by name is inside the conservative bubble. Richard Vedder is with the American Enterprise Institute and John Taylor with the Hoover Institute.

By weeklysift | Posted in Articles | Also tagged | Comments (2)

Nobody Likes the New Capitalist Man

March 4, 2013 – 11:34 am

A number of insightful recent books and articles point out various pieces of the following picture:

  • People are fascinating bundles of benevolence and selfishness.
  • A well-designed market can channel people’s selfish tendencies into actions which, in the aggregate, achieve beneficial social ends.
  • Our economic theory models markets, not people, so only human selfishness is relevant. Homo economicus is entirely selfish.
  • Because the conditions that nurture benevolence are invisible to market theory, an “optimized” market system may inadvertently poison benevolence. In other words, market theory may create the perfectly selfish people it postulates.
  • For-profit corporations are artificial entities designed for the market. Consequently, they are defined to be the perfectly selfish, totally profit-driven players market theory postulates.
  • “Good management” means training each employee to internalize the values of the corporation.
  • Top managers are valued for their ability to “make the tough decisions”. In other words, they eliminate all human values other than profit from their decision process.
  • Increasingly, all the rewards of the corporate system flow to those at the top.

Put all that together, and you see that we have created a system that trains us to be bastards, and rewards us according to how well we have managed to stamp out our benevolence.

When you put it that way, it sounds kind of crazy, doesn’t it?

Let’s start with the upside of this vision: If our economic system is making us into worse people than we would otherwise be, then we could be better people and live in a nicer world if we just stopped making ourselves worse. This is not the utopian vision of the “new Soviet man“, a society-centered being who will spontaneously appear (for the first time in human history) after the revolution. It’s the far more modest observation that human beings have benevolent as well as selfish tendencies, and that creative system-builders could figure out ways to make use of human benevolence and nurture it.

That’s the uplifting message of The Penguin and the Leviathan by Yochai Benkler. Benkler says that through most of history, big cooperative projects only happened through “the Leviathan” — the state, exercising top-down power to make people play their parts. (Picture slaves dragging blocks to build the pyramids.) With capitalism comes the alternative of “the Invisible Hand” — the market, in which many individual decisions can add up to something big. (Think about how we wound up with lots of personal computers rather than the “big iron” IBM originally offered.)

Most of our political debate is about the Leviathan vs. the Invisible Hand: Will we get things done through government or by manipulating the incentives of the market?

(One hybrid observation doesn’t get enough attention: A corporation or cartel can dominate a market to the point that it essentially becomes a government, usually an unelected and unaccountable one.)

Anarchists have long claimed that another choice is possible: voluntary cooperation. But until recently, it was hard to find examples on scales larger than a barn-raising.

Then came the open-source movement, which Benkler identifies with the Penguin, the logo of the open-source Linux computer operating system. The Internet grew up together with a host of open-source projects created and maintained by volunteers: Linux, Apache, Mozilla, and eventually Wikipedia. Each in its own way defeated corporate-sponsored for-profit competitors. (Some, like Linux, eventually drew in corporate support, but on their own terms. IBM pays employees to contribute to Linux, but IBM still can’t own Linux.)

Benkler doesn’t claim that we could live in a complete open-source utopia; only that the principles that make open-source projects work have unexplored potential. Many people in our society are starved for opportunities to express their inventiveness, skill, and creativity in ways that do not pay them money, but win them the admiration of a peer group that shares their values. Similar motivations could complement monetary incentives more broadly.

He reviews much of the recent research into cooperation, reaching this conclusion:

In hundreds of studies, conducted in numerous disciplines across dozens of societies, a basic pattern emerges. In any given experiment, a large minority of people (about 30 percent) behave as though they really are selfish, as the mainstream commonly assumes. But here is the rub: Fully half of all people systematically, significantly and predictably behave cooperatively. … In practically no human society examined under controlled conditions have the majority of people consistently behaved selfishly.

The bulk of the book explores non-internet examples of how these principles play out in Japanese management, in community policing, in politics, and elsewhere. He concludes by offering principles for “growing a penguin” — designing a system that nurtures cooperation rather than incentivizing selfishness.

One of Benkler’s political examples — the get-out-the-vote strategy of the Obama campaign — is examined in more detail in The Victory Lab by Sasha Issenberg. It turns out that who people vote for may be determined by self-interest, but whether they vote isn’t. Nobody really believes their single vote will decide the election, so purely selfish people will stay home and pursue their other interests. The most effective method of motivating marginal voters, it turns out, is to appeal positively to their civic pride, while subtly reminding them that their non-voting will be a matter of public record. In laboratory experiments, this pride/guilt combination is more effective than paying people to vote.

Staying positive for a bit longer, Jane McGonigal’s Reality is Broken, which I have reviewed before, finds that online gamers hunger for the chance to be a respected member of a questing community. She reports that many gamers feel their online persona is a better person than they are in their offline jobs and relationships. Like Benkler, she examines ways that the design principles of games could be used to encourage cooperative and altruistic behavior in real life.

Now let’s look at the negative side, starting with a book that walks the line between seriousness and tongue-in-cheek humor: Assholes, a theory by Aaron James. A sociopath is someone who lacks any moral core, but uses other people’s moral scruples to gain an advantage over them. An asshole, according to James, is different: He has a moral sense, but his moral vision comes with an unassailable sense of entitlement. So, for example, he understands perfectly why other people should wait their turn in a line, and is honestly incensed when they don’t. But he also feels — not occasionally, but constantly — that his special situation or status entitles him to cut to the front.

Like Benkler, James recognizes that most people aren’t assholes. (If they were, there would be no lines. We’d all just shove our way to the front.) But late in the book he considers whether a society can reach a tipping point, where there are so many assholes that the rest of us are driven to behave like assholes just to avoid constant exploitation.

From there he considers how capitalism can devolve into asshole capitalism. Suppose some social change causes the system to send

a powerful entitlement message, for instance, that having ever more is one’s moral right, even when it comes at a cost to others. As asshole thinking and culture spread and take hold, the asshole-dampening systems that used to keep assholery in check become overwhelmed. Parents start preparing their kids for an asshole economy, the law is increasingly compromised, the political system is increasingly captured, and so on. As some switch sides while others withdraw, cooperative people find it more difficult to uphold the practices and institutions needed for capitalism to do right by its own values. … Society becomes awash with people who are defensively unwilling to accept the burdens of cooperative life, out of a righteous sense that they deserve ever more.

James applies this model to various countries and concludes: “Japan is fine, Italy already qualifies as an asshole capitalist system, and the United States is in trouble.” (One symptom of Italy’s trouble: Even Silvio Berlusconi’s supporters understood that he was an asshole. Nobody cared.)

And that brings us to Gus DiZerega’s blog post Capitalism vs. the Market. In some ways this belongs to the same genre as my own Why I Am Not a Libertarian — insights that begin with a critique of a simplistically appealing libertarian worldview. DiZerega views the fundamental libertarian error as upholding corporate capitalism because markets are good. DiZerega agrees that markets are good, but corporate capitalism is something else entirely.

Markets, he says, are ways that producers and consumers send each other signals about supply and demand. The market doesn’t tell you what you should do, just what it will cost you. For example, the slave market won’t tell you whether or not you should free your slave, just how much money you’ll be passing up if you do.

But in corporate capitalism the market usurps the decisions once made by humans.

To succeed in managing a capitalist institution a person must always try and buy for the lowest price and sell for the highest before any other value enters in.  Any corporate CEO allowing other values to trump this principle will see his or her decisions reflected in lower share prices.  If these prices are much affected the corporation risks the likelihood of being taken over in an unfriendly acquisition, its management ousted, and financial values once again elevated above all others. In other words, as a system of economic organization capitalism defends itself against richer human values by penalizing and expelling people who to some degree put them ahead of profit when making economic decisions.

In theory corporations are owned by people. But in practice you cannot remove your capital from a corporation. All you can do is sell your shares to someone else. By selling, you disassociate yourself from practices you may consider immoral, but you do nothing to end them. Think of slavery again: You can free your slave, even if it lowers your net worth. But if instead you own shares in Rent-a-Slave, Inc., all you can do is give or sell those shares to someone else. No slaves are freed when you do.

So if I don’t want to profit by addicting people to drugs that kill them, I can sell my shares in tobacco companies. But the tobacco companies themselves roll on. To the extent that they are profitable, the new owner of my shares will make money and gain power in society. Even individually, power accrues to people who have no values beyond profit.

The libertarian ideal is of people who are free to live by their own values, trading with each other without coercion.

Capitalism is different. It is the gradual overwhelming and destruction of all values that are not instrumental. … Once capitalism exists non-instrumental values are actively selected against, and receive little opportunity for expression.  Human beings become profit centers for corporations, and nothing more. … Capitalism cannot distinguish love from prostitution.

I wish DiZerega had said “corporate capitalism” rather than just capitalism, but otherwise I agree. As I put forward two years ago in Corporations Are Sociopaths, we have created entities that embody all of our worst traits. James and DiZerega are pointing out what then happens to us and our society when those created entities are allowed to dominate.

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The Trillion-Dollar Coin Hits the Big Time

January 14, 2013 – 8:01 am

The notion that President Obama could avoid the debt ceiling by minting a trillion-dollar platinum coin and depositing it in the government’s account at the Federal Reserve has been around for a while now. (I first noticed it in July, 2011.) It sounds ridiculous because it is. (Even people who favor the idea understand that.) It’s a wacky solution that underlines just how wacky the whole debt-ceiling problem is in the first place.

Think about the situation President Obama will find himself in (by about mid-February) if the debt ceiling isn’t raised: Laws passed by Congress tell the President what taxes he can collect, what money he must spend, and that (even though these numbers don’t balance) he can’t borrow. Meanwhile, the Constitution tells him that his first duty is to “faithfully execute the laws”.

What’s he supposed to do? Several people, including Matt Yglesias, claim that the Budget and Impoundment Act of 1974* leaves the administration with no legal choices other than something off-the-wall like a trillion-dollar coin.

During the 2011 debt-ceiling crisis, the Very Serious Persons of the punditocracy did not stoop to comment on the trillion-dollar coin. Instead, they just refused to believe that our politics had gotten that dysfunctional. Congress might appear to be steaming headlong towards welching on all our nation’s commitments, but at the last minute wisdom would prevail. And lo: Congress temporized, giving a Super Committee of the Wise time to design an austerity plan.

Well, that worked out just dandy, didn’t it? The Super Committee deadlocked in the same place Obama and Boehner had: Republicans would not raise rich people’s taxes by a single dime, and Democrats refused to thrust all the sacrifice onto the old, the sick, and the poor. That deadlock set up the fiscal-cliff conflict that Congress again avoided at the last minute, but didn’t resolve. Now we’re looking at a second debt-ceiling showdown.

I think that sequence of events has been an eye-opener for the VSPs: Seriously? You want to do that again? [Yes, they do.]

Suddenly, the trillion-dollar coin doesn’t look so crazy. Well, it is still crazy. But picking a path into the fiscal future is starting to feel like picking a Bull Goose Loony at the asylum. Tom the Dancing Bug provides the proper level of seriousness:

So this week the trillion-dollar coin suddenly went from a fringy absurdity to a policy option that every VSP needs to have an opinion on. The WaPo asked financial types how the markets would react. Wednesday, NBC’s Chuck Todd asked about it at a White House press briefing, and Jay Carney dodged. “I would refer you to the Treasury.” Saturday, the Treasury issued an official denial.

Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit.

But a lot of other VSPs regard it as a viable option. Paul Krugman was one of the few to comment during the 2011 debt-ceiling crisis: “Outrageous behavior demands extraordinary responses.” He came back to it this week, characterizing Obama’s options as:

one [the coin] that’s silly but benign, the other [default] that’s equally silly but both vile and disastrous. The decision should be obvious.

Thursday he added: “we need a strategy to deal with the crazies if they really do prove irredeemably crazy, which seems all too possible.”

Former CBO director Donald Marron more-or-less agrees: The coin option “lacks dignity”, but “might be better than the alternatives if we reach the brink of default”. Former Director of the Mint Philip Diehl says minting the coin would work and have no obvious bad effects on the economy. As a co-author of the law it takes advantage of, he writes:

Yes, this is an unintended consequence of the platinum coin bill, but how many other pieces of legislation have had unintended consequences? Most, I’d guess.

And Atlantic’s Matthew O’Brien adds:

If it’s a choice between defaulting on our obligations, and minting a trillion-dollar coin, I say mint the coin. In an ideal world, Obama would end the platinum coin loophole in return for the House GOP forever ending the debt ceiling, as Josh Barro proposed, but I’ll settle for anything that involves us paying our bills as we promised.

So far, most conservatives still refuse to take this idea seriously. But they want the rest of us to take their don’t-raise-the-debt-ceiling threat seriously, and threaten impeachment if Obama somehow circumvents it.

Continuing to stake their claim as the Party of Stupid, Republicans at the NRCC tweeted an image** of a coin made out of a trillion dollars worth of platinum — as if that’s how coinage works. And the Network of Stupid made the same mistake even after the NRCC had been widely lampooned.

But liberals have an objection also, which Ezra Klein expressed like this:

The platinum coin is an attempt to delay a reckoning that we unfortunately need to have. It takes a debate that will properly focus on the GOP’s reckless threat to force the United States into default and refocuses it on a seemingly absurd power grab by the executive branch.

The right way for this crisis to end, Klein believes, is for the remaining grown-ups in the Republican Party (i.e., the business community) to take back control in order to save the day. That will start a civil war inside the party, so they will only do it if they have no choice; if they think Obama can still pull a day-saving gimmick out of his hat — especially one that could make him vulnerable politically — they won’t.

That’s why wannabe Republican grown-up Philip Klein (no relation) says minting the coin “would be tossing a life preserver to Republicans”.

Obama apparently agrees. That’s why he’s steadfastly refusing to take the burden off Congress by embracing any executive-branch gimmicks. He thinks Congress should pass a clean debt-ceiling bill. If House Republicans want to tie the ceiling increase to unpopular spending cuts, they can spell out what those cuts are. He isn’t going to give them any political cover.

[I’ve explained the politics of this many times: The American people have only very hazy notions of how the government spends money. So “spending” in general is unpopular, but the particular things the government actually spends on — Medicare, Social Security, defense — are very popular. Republicans want to take advantage of this by opposing “spending” but getting Obama to specify which programs to cut.]

Here’s how I put all that together: The coin would be a last resort, and while Obama should hold it in mind to buck up his resolve, the administration is right to deny that they are open to it — until the public understands that we are in last-resort territory and clamors for any kind of solution.

“Last resort” means: The Republicans have blocked a clean bill raising the debt ceiling. The Treasury has run out of books it can juggle to keep paying the bills. The government has shut down all but the most essential services, furloughed its workers, and the public has felt the first pinches: Retirees find that there is no one to process their Social Security applications. Income tax refunds are delayed indefinitely. Defense contractors are filing lawsuits to get paid. And there’s a big interest payment due on the national debt that there may not be money to cover***. The stock market is crashing. Wall Street is begging its bought-and-paid-for congressmen to do something. But still the House majority refuses to raise the debt limit.

Then — and only then — does Obama go on TV, explain the coin loophole to the public, say he has reconsidered his decision not to use it, and promise to trade away that ridiculous power forever if Congress also eliminates the ridiculous debt ceiling.

If that scenario plays out, America will be a laughing stock to the rest of the world. But we will have taken a pratfall, not tumbled into an abyss.

*After President Nixon “impounded” money Congress appropriated to buy stuff he didn’t like, Congress passed a law demanding that future presidents spend whatever Congress appropriates.

**Their image contains a false frame I can’t let pass: It’s not “Obama’s spending”, it’s the spending of the United States of America, duly authorized and appropriated according the Constitution.

***As Josh Barro points out: It isn’t just that incoming revenue covers only 60% of expenditures over the course of a year. Both revenue and expenses are “lumpy”.

It would be impossible to give certainty to people and entities owed money by the federal government about when and whether they would be paid; they would have to wait and see how much money the government could come up with on any given day.

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Two Observations on the Robot Menace

December 10, 2012 – 11:02 am

Not what I’m talking about

No, I don’t mean the Cylons from Battlestar Galactica. I’m talking about what the economists call technological unemployment, i.e., there are no jobs because machines do everything. Or, as Keynes defined it:

unemployment due to our discovery of means of economizing the use of labor outrunning the pace at which we can find new uses for labor.

Now, this is not a new idea, so it’s something of a mystery why so many people started talking about it this week. I think the original impetus was the news that Apple is planning to move some of its Mac production back to the U.S. This validates the predictions of a rebound in American manufacturing that have been bouncing around for a while now, and fits with the “insourcing” trend identified in the current issue of Atlantic.

After the initial cheering died down, people started envisioning those new manufacturing jobs: Probably there won’t be many of them, because even minimum-wage Americans make a lot more than Chinese factory workers. So any large-scale new American manufacturing plant only makes sense if most of the work is done by entities not covered under minimum-wage laws or represented by unions: robots, in other words. (Another workerless manufacturing technology is 3D printing. It’s going to be huge someday, but it doesn’t seem to be news on any particular day.)

So the complete story is: High-paying unionized factory jobs in the Rust Belt get replaced by low-paying non-unionized factory jobs in China, which in turn get replaced gradually by robots in China, until eventually there’s no reason not to have those robots work in the U.S., closer to the buyer.

As more robots are built, largely by other robots, “assembly can be done here as well as anywhere else,” said Rob Enderle, an analyst based in San Jose, Calif., who has been following the computer electronics industry for a quarter-century. “That will replace most of the workers, though you will need a few people to manage the robots.”

So if the “insourcing boom” isn’t going to be a jobs boom, where will the jobs of the future come from? That was the theme of Race Against the Machine and The Lights in the Tunnel, two books I already told you about last year. But this week the topic got hot again. Kevin Drum worried about it. And Matt Yglesias said, basically: No problem, when the robots do all the manufacturing, we’ll still have jobs taking care of old people, an answer that Drum, in turn, derided as “our bedpan and canasta future“. Paul Krugman also weighed in, twice, three times.

Krugman’s insight was the most interesting: Moving jobs to China (or back) just replaces labor with other labor. But robots and other automations replace labor with capital. (Or, if you want to use Marxist terminology that Krugman avoids: It replaces living labor with dead labor, since capital is just the residue of labor done in the past.) This could be why the corporate-profit share of the economy is surging while labor’s share of the economy is falling.

If this is the wave of the future, it makes nonsense of just about all the conventional wisdom on reducing inequality. Better education won’t do much to reduce inequality if the big rewards simply go to those with the most assets. Creating an “opportunity society”, or whatever it is the likes of Paul Ryan etc. are selling this week, won’t do much if the most important asset you can have in life is, well, lots of assets inherited from your parents.

Kevin Drum plays this vision out:

the owners of capital will automate more and more, putting more and more people out of work. Liberals will continue to think that perhaps this can be solved with better education. Conservatives will continue to insist that people without jobs are lazy bums who shouldn’t be coddled. The lucky owners of capital won’t care. Their numbers will decline, but the ones who remain will get richer and richer. The rest of us will have no jobs, and even with all this lovely automation, our government-supplied welfare checks will be meager enough that our lives will be miserable.

I don’t have an answer, either to jobs or inequality, but there are two general observations you need to keep in mind when you think about this stuff:

First, technological unemployment is fundamentally a social problem, not an economic problem. For comparison, think about all the automation that has replaced “jobs” inside a parallel social system, the family. Our ancestors used to spend an enormous amount of time walking down to the creek and carrying back buckets of water (which get damn heavy after a few steps). Modern plumbing delivers that water to your kitchen with the turn of a tap. Is that a problem? No. Within the family, replacing work with leisure is a pure benefit.

The problem only shows up in the money economy, where “leisure” becomes “unemployment”. In a world of robot-produced abundance, our system for distributing the abundant goods gets screwed up. The economy no longer needs human workers to produce goods, but we individual humans still need jobs to justify our claim to receive those goods. An outside observer might wonder: Couldn’t those goods just be given to the people who need or want them? Answer: Not without screwing up our motivational systems and our ideas about personal worth and identity.

It’s a social problem.

(As an aside, this is why supply-side economics looks at things exactly backwards: Increasingly, supply is not the problem. Demand is the problem. How do we give people permission to consume the goods we can so easily produce? Agriculture, where technological unemployment started, is a prime example: The world produces plenty of food and could produce a lot more. But hungry people have no money; that’s another way of saying that our economic system can’t justify distributing our abundant food to the people who need it.)

Second, whenever you visualize this process, you can’t forget the time dimension. Economists love to talk about how this all works out in the long run: When you no longer need to spend your time hauling water, you realize that you’ve always wanted to see Paris. As the old goods become producible with little labor, desires for new goods arise, creating new jobs — airline attendants, tour guides, museum curators, waiters in sidewalk cafes. My water-hauling ancestors had no use for such people, but I do.

The real problem, as Keynes already knew in 1930, is pace. It’s not that there will never again be anything of economic value for humans to do. But will new desires arise and new markets develop as fast as automation replaces current jobs? Keynes’ most famous (and most inappropriately quoted) line is “In the long run we are all dead.” He was making precisely this point about time: Don’t give me your steady-state model and claim that the real economy will “eventually” converge to it. If you’re not worrying about the timing, you’re not working on the real problem.

By weeklysift | Posted in Articles | Comments (8)

Five Pretty Lies and the Ugly Truths They Hide

August 27, 2012 – 10:39 am

A week after Todd Akin’s “legitimate rape” comment, we should be long past the “OMG — I can’t believe he said that!” stage. It’s time to take a longer view and ask ourselves what the Akin incident says about the larger picture.

You can find takeaways at many levels. First, contrary to Akin’s personal damage control, he didn’t “misspeak“. He really believes that many pregnant women — like maybe this one — make up their rape stories.

At a slightly more general level, and contrary to Republican damage control, you can observe that Akin is typical of the party. Not only is his no-rape-pregnancy lie common, but Paul Ryan agrees with him about redefining rape, and the official party platform calls for banning abortion with no rape exception. (Mitt Romney claims to support such an exception, but as usual, he’s speaking out of both sides of this mouth. Whose delegates are writing this platform? And if he won’t actively oppose a no-exceptions party platform, what makes you think he’ll veto a no-exceptions bill when Congress sends it to him?)

But here’s what I think is the most important Akin takeaway. When confronted with an ugly consequence of his policies — women forced by law to bear their rapists’ babies — Akin papered it over by telling a pretty lie: It doesn’t happen; the female body doesn’t work that way.

Isn’t that pretty? Wouldn’t the world be nicer if no woman who “really” got raped had to worry about pregnancy? Of course it would.

Akin may not have intended to lie; maybe he believes what he said. But does he believe this bogus biology because it makes sense? Of course not. Because an expert told him? The “expert” is someone he sought out precisely for that purpose; real experts would have told him the opposite.

I have a simpler explanation: Akin believes the lie because it’s pretty. The lie tells him that he’s not a monster. It helps him avoid the ugliness of his beliefs.

That thought pattern makes him absolutely typical of the conservative movement today. When implemented, conservative policies cause a lot of ugliness. And when confronted with these ugly consequences, conservatives rarely adopt a more compassionate position. A few brave ones talk about necessary sacrifices and breaking eggs to make omelets, but most just paper over the ugliness with a pretty lie.

“Raped women don’t get pregnant” is just the first lie on my list. Here are four others:

2. The uninsured can get the medical care they need in the ER.

The lie. As he prepared to veto a 2007 bill providing health insurance to children, President Bush said it very clearly:

People have access to health care in America. After all, you just go to an emergency room.

That’s what Governor Rick Perry meant during his presidential campaign when he said:

Everyone in the state of Texas has access to health care, everyone in America has access to health care.

Mississippi Governor Halley Barbour agreed: “there’s nobody in Mississippi who does not have access to health care”

Why it’s pretty. It’s so distressing to hear statistics like 50 million Americans don’t have health insurance. (Texas and Mississippi rank #1 and #2 in percentage of the population uninsured.) But wouldn’t it be nice if that number didn’t really mean anything? if insurance was just a bookkeeping device, and nobody really went without care?

Why you shouldn’t believe it. It’s true that the uninsured can get emergency care. If you’re in a car accident, if you’re having a heart attack, if you’re not breathing when they fish you out of the lake — EMTs and the ER will do their best to save your life even if you can’t pay. But as the Houston Chronicle points out, emergency care can’t replace regular care:

About half of uninsured adults have a chronic disease like cancer, heart disease or diabetes. The lack of regular care for the uninsured is why they have death rates 25 percent higher than those with insurance; more than half of uninsured diabetics go without needed medical care; those with breast and colon cancer have a 35 percent to 50 percent higher chance of dying from their disease; and they are three times more likely to postpone needed care for pregnancy. Clearly, the uninsured don’t get the care they need

What it hides. Lack of health insurance kills people. It kills lots of people — more than car accidents or our recent wars. The technical public-health term is amenable mortality — the number of people who die unnecessarily from treatable conditions. An article in the journal Health Policy says:

If the U.S. had achieved levels of amenable mortality seen in the three best-performing countries—France, Australia, and Italy—84,300 fewer people under age 75 would have died in 2006–2007.

France, Australia, and Italy don’t have smarter doctors or better medical technology, but they do have something conservatives are determined to see that Americans never get: universal health insurance. When a questioner confronted Rick Santorum with these facts, he replied:

I reject that number completely, that people die in America because of lack of health insurance.

Of course he does. If he accepted what the public health statistics say, he’d have to admit that his policies condemn tens of thousands of people to death every year. “Pro-life” indeed.

3. Tax cuts pay for themselves.

The lie. The most recent vintage is from the Wall Street Journal’s defense of the Romney tax plan:

Every major marginal rate income tax cut of the last 50 years — 1964, 1981, 1986 and 2003 — was followed by an unexpectedly large increase in tax revenues

Or you could hear it from Mitch McConnell:

That there’s no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue, because of the vibrancy of these tax cuts in the economy.

The claim is pretty widespread on the Right: Cutting taxes stimulates the economy so much that the government ends up collecting more revenue even at the lower rates.

Why it’s pretty. Everybody likes a tax cut, but deep down we all know that taxes pay for important things: roads, schools, defending the country, keeping the poor from dying in the streets, and so on. But wouldn’t it be great if we could pay less tax and pretend that money for all those things will appear by magic?

Why you shouldn’t believe it. This has been tried over and over again. It never works. Pointing out that it didn’t work for Bush is shooting fish in a barrel — nothing worked for Bush — but this didn’t even work when Reagan tried it. The Economist’s “Democracy in America” column looked up the numbers:

The federal government’s receipts for 1981-86, in billions of 2005 dollars:

1981    1,251.1
1982    1,202.6
1983    1,113.4
1984    1,173.9
1985    1,250.5
1986    1,277.2

Do you see the “unexpectedly large increase in tax revenues” resulting from the 1981 marginal rate income tax cut? Me neither! It took five years just to get back to par.

What it hides. A huge transfer of wealth to the rich. This lie is the first move in a cruel shell game: First, cut taxes with the promise that it won’t cause a deficit. Then, when it causes a deficit (as it always does), don’t respond “Oh, we were wrong. Let’s raise taxes back to where they were.” Say: “Government spending is out of control! We have to cut food stamps, education, Medicare …”

Stir the two steps together, and you get a cocktail voters would never have swallowed in one gulp: We’re going to cut programs people rely on so that the rich can have more money.

4. Gays can be cured

The lie. Homosexuality is a choice that results in an addiction, but (like alcoholics and drug addicts) gays can learn to choose differently and become ex-gay.

Why it’s pretty. Suppose you think gays are going to Hell, and then your son turns out to be gay. Or suppose you’ve been brought up to believe gays are evil, and then in junior high you start feeling same-sex attractions yourself. Of course you’re going to want to believe that this situation is fixable.

Why you shouldn’t believe it. It’s almost impossible to 100% prove a negative like “Gays can’t be cured”. But if a well-funded movement to teach people to fly had been running for years, and yet no one actually flew, reasonable people would develop a strong conviction that this wasn’t going to work.

That’s the situation with the ex-gay movement. The extreme lack of success has reached the point where the movement itself has started to splinter. The original ex-gay group, Exodus International, now rejects attempts to “cure” gays and instead focuses on “helping Christians who want to reconcile their own particular religious beliefs with sexual feelings they consider an affront to scripture.” This has caused a schism, with the new group, Restored Hope Network, continuing to promote therapies to cure gays.

What it hides. Pure bigotry is the only reason to discriminate against gays.

As discrimination wanes, it becomes obvious that unrepentant gays can find love, form long-term relationships, raise children who are a credit to the community, and (in short) do all the things that are usually thought of as part of a good life. They can also serve in the military, be good teachers, have productive careers in the private sector, pay taxes, do volunteer work — everything that constitutes good citizenship.

To prop up anti-gay discrimination (and even to try to reinstate it in places where it has been torn down), and to do so even though the people discriminated against didn’t choose to be gay and can’t change it — that’s pretty ugly.

5. Obama’s election proves racism is over.

The lie. John Hawkins put it like this:

So, the moment Obama was elected, people started asking the obvious question, “How serious of a problem can racism still be in the United States if a black man can be elected President?” The honest answer to that question is, “Not very.”

Just this summer, Boston Globe columnist Jeff Jacoby reacted the same way to a black man becoming head of the Southern Baptist Convention:

The pervasive racism [Martin Luther King] confronted is primarily a historical memory now, while King himself is in the American pantheon. … America’s racist past is dead and gone.

Why it’s pretty. Pat yourself on the back, white America! You used to have a problem, but you kicked it.

So if any blacks or liberals are still complaining, feel free to ignore them. They just want the government to give them “more free stuff” by taking what you earned, or to use the charge of racism as “their sledgehammer … to keep citizens who don’t share the left’s agenda from participating in the full array of opportunities this nation otherwise affords each of us”. If anybody’s really oppressed these days, it’s whites.

Why you shouldn’t believe it. Barack Obama’s election was definitely a sign of racial progress, just like Jackie Robinson joining the Dodgers in 1947, Jesse Owens’ Olympic gold medal in 1936, or Jack Johnson becoming heavyweight champion in 1908. But racism didn’t end in 2008 any more than it ended in 1908.

Let’s start by debunking the logic: In 2008, a year when everything broke wrong for the Republicans, Obama got 53% of the vote. For the sake of argument, let’s say that’s more-or-less what a white Democrat would have polled. Does that prove racism is over? No, it just proves that Republicans already had the racist vote.

Then we get to evidence that points the other way: Trayvon Martin. (Nobody jumps to the defense of black men who shoot unarmed white teen-agers.) Birtherism. (No white president has faced this kind of persistent, baseless accusation.) The racial dog-whistles in the Romney campaign. The racist anti-Obama pictures and cartoons that circulate in viral emails. (But don’t you get it? These are jokes. Like the “Don’t Re-Nig in 2012” bumper sticker. Clever, huh?) The attempt to legalize anti-Hispanic racial profiling in Arizona and other states. I could go on.

It’s not just that 1 in 3 black men will spend time in jail, it’s that this fact isn’t seen as an emergency that requires outside-the-box solutions. If white men were imprisoned at the same rate (no matter what they were imprisoned for), the number of possible explanations and solutions would skyrocket. But black men … that’s just how they are; what can you do?

(For a longer discussion of racism in the Obama era, see Ta-Nehisi Coates’ article in the current Atlantic.)

What it hides. Indifference to human suffering. At a time when poverty is at a level we haven’t seen in decades, the House has passed bills to gut safety-net programs like Medicaid and food stamps.

That can only happen if the white middle class is convinced that the poor are different and deserve their fate. And the best way to accomplish this is through racial stereotyping: The poor are black, and blacks are lazy. Both statements are false, but they work.

How to respond. This is far from an exhaustive list; I just picked the pretty lies I could document and refute fairly quickly, and I didn’t even touch well-covered lies like “Global warming is a hoax.” or “Abstinence-only sex education works.” But I hope the five I’ve listed are varied enough to establish the pattern.

If you have any conservatives friends, relatives, or co-workers, you probably hear pretty lies all the time. (“The poor have it good in America. They’re the lucky duckies who don’t have to work, because the rest of us are paying for their X-boxes and cable TV.”) Probably you’ve already tried to respond by googling up facts and presenting them, so you understand that this never works.

I sympathize with your frustration.

But it’s important take the next step and ask why presenting the facts doesn’t work. It’s simple: Facts are not the source of the belief. Conservatives aren’t mistaken, they’re hiding something.

What they’re usually hiding is cruelty. Conservative policies are cruel, but individual conservatives usually aren’t, or at least they don’t want to see themselves like that. The only way to square that circle is with a lie.

Once the lie is in place, “facts” will be found to support it. A whole industry is devoted to supplying fake facts. And since fake facts are easier to manufacture than to refute, you will never fight your way through the swarm.

I don’t have a foolproof method for converting conservatives, but I can tell you this much: You don’t understand a pretty lie until you’ve seen all the way through to the ugly truth it’s hiding.

That’s where you should be focusing your energy. Don’t just refute the lie. Expose the truth.

By weeklysift | Posted in Articles | Also tagged , , , , , , , | Comments (16)

Monopoly’s Role in Inequality

July 30, 2012 – 11:32 am

For several years I’ve been dipping into the subject of rising inequality, usually in book reviews like this one of Hacker and Pierson’s Winner-Take-All Politics. But all along a mystery has been nagging at me, and I think I’m finally getting to the bottom of it.

Inequality. The basic story is simple: Inequality in the United States has risen dramatically since the mid-70s. And the effect gets more extreme the farther out you go. It isn’t just that the top 10% is pulling away from the bottom 90%. The top .01% is pulling away from the top .1% even faster. The multi-billionaires are pulling away from the mere billionaires. (If you want graphs and numbers, look here.)

Obviously you can’t account for all that with education or competition from China. Maybe those factors explain why unskilled workers are having such a tough time, but they say little about the millionaire/billionaire divergence. Ditto for tax rates. Sure, the rich pay a much lower tax rate than they used to, but the explosive growth in their net worth is much bigger than tax rates can account for, and the mega-rich don’t get a significantly better tax deal than the ordinary rich. (Plus, tax cuts start with Reagan in 1982, not the mid-70s.)

Clearly something has happened to the structure of the market, but I couldn’t figure out exactly what.

Monopoly. Barry Lynn’s book Cornered: The New Monopoly Capitalism and the Economics of Destruction looks like the puzzle piece I was missing. Lynn claims our economy is now full of monopolies and near-monopolies — businesses big enough to dictate terms to their customers and/or suppliers.

In the mid-20th-century industrial economy, you got mega-rich by imitating Henry Ford: You figured out how to make things people wanted for a price they wanted to pay. Now you get mega-rich by building choke-points between producers and consumers.

WalMart exemplifies the current paradigm. WalMart makes nothing, but it is big enough to dictate how its suppliers will make things and what prices they can charge. In many of its rural markets, WalMart also dictates what people can buy. If your product isn’t on WalMart’s shelves, it’s not for sale. (WalMart also drives consolidation elsewhere in the economy, which produces big fees for Wall Street. For example, Procter & Gamble bought Gillette largely to improve its negotiating position with WalMart. In slightly different ways, Amazon and Google are trying to duplicate the WalMart model in the online economy. If your book isn’t on Amazon, it’s not for sale.)

Many near-monopolies are less visible than WalMart or Amazon. Lynn begins his book with the story of a pet-food recall, which suddenly made it obvious that many “competing” brands of pet food were actually all packed in the same factory. And Ford lobbied for the government bailout of “competitors” GM and Chrysler because it feared their common suppliers would go bankrupt. Many markets, Lynn says, are hydras: The countless brands on the shelves are just heads that spring from a common body.

The ends against the middle. Reading Lynn, I’m getting a clearer vision of how markets work. The purest form of market is what you can see at any big farmer’s market: Lots of consumers dealing directly with lots of producers. It’s rare that anybody gets really rich from these interactions, but many small producers have a chance to make a living and become independent.

Obviously the global economy has to be more complicated than that. But markets are created by rules, and the rules can be structured to favor either the ends (producers and consumers) or the middle. Producers and consumers benefit from transparent markets, where the rules force middlemen to treat everyone more-or-less the same.

But markets can also be structured to give middlemen as much freedom as possible. The most profitable way to use that freedom is to create choke-points where a toll can be extracted or one producer can be played off against another. In an opaque market, the way to get rich is not to produce things, but to build middleman power that allows you to dictate terms up and down the supply chain. (I don’t have space to go into it here, but keeping the internet transparent is what net neutrality is about, and why Comcast doesn’t like it.)

In a nutshell, what has happened since the mid-70s is that deregulation of old markets and under-regulation of new markets has made our economy more opaque. The people in the best position to take advantage of this are the very rich. Meanwhile, workers and small businessmen — the middle-class people who actually make stuff and deliver services — lose out. In the short term consumers may win or lose, depending on whether the middlemen’s advantage is in raising or lowering prices. But in the long run consumers lose options, power, and quality.

The most interesting thing politically is how the rhetoric of freedom works. Freedom for the middleman leads to domination of producers and consumers. “Freedom” seldom works out to mean more options for everybody.

One worked-out example. If you’ve watched much cable or satellite TV lately, you probably saw Viacom’s ads against DirectTV, like this one.

If you’re a DirectTV subscriber, Comedy Central (and other Viacom channels) went dark for nine days before the two corporations resolved their dispute, so you had to do without The Daily Show or watch it online.

Here’s the point: Maybe you couldn’t watch Jon Stewart for a week, but the problem had nothing to do with either you or Jon Stewart. He wasn’t asking for a raise; you weren’t balking at the price of watching the Daily Show. But both you and Jon were irrelevant when two giant middlemen had a power struggle.

Each brought a lot of power to the struggle. In most of its markets, DirectTV is the only alternative to the local cable monopoly, while Viacom is one of a handful of megacorps that dominate TV content. (Disney, Time Warner, NBCUniversal, NewsCorp, and CBS are the others. National Amusements owns a big chunk of both Viacom and CBS. Comcast plays both sides of the street, being both a cable monopoly and a partner with GE in NBCUniversal.)

Viacom thought it had the upper hand, so it was demanding a bigger payout from DirectTV and insisting DirectTV carry its new Epix channel. I haven’t sorted out yet who won.

These middlemen outweigh both you and Jon Stewart. If Jon doesn’t work for one of the six big media companies, he can’t reach a major audience. If you don’t deal with either DirectTV or a cable monopoly, your TV choices shrink considerably.

Transparent markets. But it’s not hard to imagine a TV system that works differently: Cable or satellite systems could be common carriers, making a fixed amount whenever they connect a TV producer with a TV consumer. Cable and satellite would still compete, but only by changing that fixed amount or by offering more reliable service to the consumer.

With that kind of middleman transparency, small TV companies could spring up and get their shows seen, so Jon Stewart would have a lot more than six choices. You and Jon would have more power, Viacom and DirectTV less.

Even more interesting is what happens to the profit motive: The way to make money in this transparent system is to create shows people want to watch and deliver them reliably. Wheeling and dealing to amass middleman power wouldn’t accomplish much.

Government regulation would probably be necessary to bring this system about, but it would still be capitalism. The marketplace would just be structured differently, so that the benefits and opportunities of capitalism would accrue to producers and consumers rather than to financiers and empire-builders.

Probably this restructured marketplace would lead to more small companies and fewer megacorps, more millionaires and fewer billionaires.

Picture the same transparent-market principle spreading across the economy: More small businesses, more places to look for jobs, greater variety of products, and more opportunity to go into business for yourself. Less inequality.

By weeklysift | Posted in Articles, The Sifted Bookshelf | Also tagged , , , | Comments (21)

What Shaving Taught Me About Capitalism

July 16, 2012 – 10:20 am

A couple months ago, I ran into an article on TechDirt that linked to another guy’s post on his personal blog, both making the same ridiculous point: Shaving technology hasn’t really improved since World War II.

Anybody who watches sports in real time (when you can’t fast-forward through the commercials) knows this is crazy. For decades, shaving has had a “revolution” every two or three years: disposables, cartridges, comfort strips, double-blade, triple-blade, and now even 5-blade cartridges. Each revolution makes shaving a little more expensive, but it achieves the perfect comfort and safety that the previous revolution fell short of.

Or so the ads say.

But these guys on the internet were saying that all the revolutions were just marketing nonsense, and that I (and just about every other male on the planet) had been taken in by it. Shaving itself hadn’t gotten any safer, easier, or more comfortable since the last few bugs were worked out of the double-edged safety razor, a technology that is more than a century old.

All these “improvements”, they claimed, had only two purposes:

  • to create a patentable technology that would protect the manufacturer from generic competition for another 20 years or so.
  • to provide a marketing gimmick that would make men fork over big bucks for a product no better than one they could buy cheaply.

That couldn’t be right. Could it?

Reclaiming the way of my ancestors. It’s actually not that simple to find out. My local supermarkets and drug stores sell double-edged blades if you look hard enough for them — they get one hook in the whole shaving aisle — but the razors they fit into are nowhere. No worries, though, that’s what the internet is for: I got a perfectly functional razor (in the old butterfly style my Dad used) for about $20. That lone hook in my supermarket carries 5-blade packs for $2. Above it, rows of 8-packs of Gillette Fusion cartridges go for $32.

Do the math: 40 cents apiece vs. $4 apiece. Even for somebody like me (who goes bearded in the cold half of the year) that could add up.

But what about the experience and the quality of shave? You have to hold the handle at a slightly different angle (because the double-edged blades sit perpendicular to the handle rather than being angled like the cartridges), and that takes a day or two to get used to. After that, in my opinion, the “improved” 21st-century razor is no better and might even be worse.

Connoisseur shaving. Once you start browsing through shaving web sites, you quickly discover the other side of the market: straight-razor shaving, like the old-fashioned barbers did before King Gillette (his real name, apparently) invented his double-edged blades. (BTW, it turns out this great American entrepreneur was a utopian Socialist.)

Today, straight-razor shaving is a way for a man to establish his connoisseur identity, and it carries a comparable price tag. A high-class straight razor can set you back hundreds. Then you need a leather strop, and the perfect brush and bowl to mix your special shaving soap, and on and on.

Upper-crust malls have a chain of shops called The Art of Shaving, many of which include a barber chair where a straight-razor professional can demonstrate proper technique.

Does it make a difference? I got the cheap cousin of the classic straight razor — a $19 arm-and-handle that holds half of a double-edged blade. Straight-razor shaving turns out to be like driving a manual transmission or baking a cake from scratch. It takes some learning, there’s a certain satisfaction to mastering it, and even if you never do it again, you’ll have a deeper appreciation of what’s really going on when you shave.

Here’s the deeper appreciation I got: All blade shaving comes down to covering your face with something slick, and then dragging something sharp across it. You can improve by making the slick stuff slicker or the sharp thing sharper, but pretty soon you’ve gone as far as you can go. Beyond that, it’s all marketing.

Profit margins. So let’s review. Shaving has basically been a solved problem for at least half a century. By the 1970s the patents on those solutions had expired, and nothing of importance has been invented since. In a sensible world, all men would know this and the factories would focus on delivering cheap high-quality double-edged razor blades.

That didn’t happen because it wouldn’t have made anybody rich. Since a standardized, patent-expired product like the double-edged razor can be made cheaply by anybody, the profit margin is too small to buy Super Bowl ads or pay stupendous CEO salaries.

So instead, the market has gone two ways. The mass market has kept research labs busy churning out phony “improvements” that generate market-protecting patents and give advertisers something to work with. And vast amounts of money have been spent persuading men (successfully!) that there’s something new worth paying up for and something primitive about the double-edged safety razor.

For men who have caught on to that game, a connoisseur market sells expensive shaving paraphernalia to bolster an overclass identity. So whether you’re a mass-market Gillette-Fusion-type guy or a connoisseur wielding a buffalo-horn-handle Damascus-steel-blade straight razor, you support a market with high profit margins.

Computers, razors, and public schools. This isn’t a personal-care blog, so I didn’t tell you any of that because I think you care about shaving. Instead, I believe there’s a lesson here about capitalism and politics.

Whenever we have a public discussion about the virtues of the free market, we always end up talking about computers. Computers keep getting better and lighter and faster and cheaper because that’s what the market does; it forces everybody to improve or die.

So we’re always promised that if we turn the magic of the free market loose in some new area — if we get rid of public schools, say, and let the market educate our kids, or if we stop regulating healthcare and let hospitals, doctors, and insurance companies compete freely — we’ll see the same incredible progress we’ve seen in computers. Everything will get better and cheaper in ways no one can imagine now.

But how do we know that the education market or the healthcare market won’t turn out to be like shaving? What if, instead of low prices and spectacular improvements, we get high prices funding marketing campaigns that obscure and denigrate the low-profit-margin solutions that already exist and actually make sense?

Realistically, it could go either way. Neither the computer market nor the shaving market is an invention of some political propagandist. Both exist in the same economy.

Capitalism is double-edged that way. Sometimes the market inspires scientists and engineers to build a better mousetrap. But sometimes it’s the advertisers who turn out to be slicker and sharper than the rest of us.

By weeklysift | Posted in Articles | Comments (11)

The Economics of Leviticus

July 9, 2012 – 11:59 am

Culture war conversations often end with a verse from Leviticus, the old testament book of laws. After the verse has been quoted, it does no good to point out that the implied solution is impractical or unfair or causes needless suffering. God has given his command and we should be carrying it out, whether it makes sense to us or not.

Strangely, though, the economic parts of Leviticus aren’t quoted with the same air of ultimate authority. If they were, Biblical literalists might have to become radicals rather than reactionaries.

For example, when vulture capitalists ruin towns by closing factories and shipping jobs overseas, someone might quote Leviticus 19:9-10, which clearly denounces business practices that wring out every last dime of profit.

When you reap the harvest of your land, do not reap to the very edges of your field or gather the gleanings of your harvest. Do not go over your vineyard a second time or pick up the grapes that have fallen. Leave them for the poor and the foreigner.

The foreigner? You mean, like, illegal aliens? Could be. Leviticus 19:33-34 says:

When a foreigner resides among you in your land, do not mistreat them. The foreigner residing among you must be treated as your native-born. Love them as yourself, for you were foreigners in Egypt.

It doesn’t say anything about a green card, it just says “resides among you in your land”. (Don’t argue with me, argue with God. I’m just reading literally.)

But by far the most radical part of the book is Leviticus 25, the chapter that institutes the Jubilee Year.

Consecrate the fiftieth year and proclaim liberty throughout the land to all its inhabitants. It shall be a jubilee for you; each of you is to return to your family property and to your own clan. The fiftieth year shall be a jubilee for you; do not sow and do not reap what grows of itself or harvest the untended vines. For it is a jubilee and is to be holy for you; eat only what is taken directly from the fields. In this Year of Jubilee everyone is to return to their own property.

“Their own property” includes anything that has been sold or repossessed:

If one of your fellow Israelites becomes poor and sells some of their property … [and] if they do not acquire the means to repay, what was sold will remain in the possession of the buyer until the Year of Jubilee. It will be returned in the Jubilee, and they can then go back to their property.

Basically, every 50th year all mortgages and foreclosures are cancelled and land goes back to its original owners. Anybody whose debts forced them into slavery is freed.

I know what you’re thinking: “That would never work.” And you’re absolutely right: It would never work with our modern capitalist notion of private property. But guess what? Leviticus has a completely different understanding of property:

The land must not be sold permanently, because the land is mine and you reside in my land as foreigners and strangers. Throughout the land that you hold as a possession, you must provide for the redemption of the land.

So the Earth itself belongs to God, while human deed-holders only own what the land produces.

If you sell land to any of your own people or buy land from them, do not take advantage of each other. You are to buy from your own people on the basis of the number of years since the Jubilee. And they are to sell to you on the basis of the number of years left for harvesting crops. When the years are many, you are to increase the price, and when the years are few, you are to decrease the price, because what is really being sold to you is the number of crops.

Leviticus was talking about an agrarian economy. If you wanted to apply this today, you might generalize to something like this: The Bible does not support private ownership of the means of production. The owner owns the product, not the means of production.

Taking Leviticus 25 seriously would force a sweeping re-visioning of the economic system. That would be a lot of work, and cause a certain amount of distress for the people who own property under our more free-trading definition. Why go to all that trouble? Unless you think this the Word of God or something.

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77 cents, part II: What if secretaries became programmers?

May 14, 2012 – 12:05 pm

When I was a kid in the 1960s, wage discrimination against women wasn’t something you had to ferret out with statistics.

My grade school was owned by the Lutheran church my family belonged to, and the congregation had to approve  the teachers’ salaries each year. So everyone knew that Male Teacher and Female Teacher were two different professions with different pay scales. If we hired a man and a woman straight out of the same Lutheran teachers’ college, we’d pay the man significantly more.

Everyone knew why: Male teachers (even if currently single) would need to support a family, while women (even if currently childless) taught either before or after their real profession, which was raising children.

That kind of thinking hung on longer in religious workplaces than elsewhere, but it wasn’t uncommon. Men made more than women, even if they were doing the same job. It was out in the open because nobody was ashamed of it.

Today, such overt separate-pay-scale discrimination is both illegal and socially unacceptable, so remaining wage discrimination (if any) must be hidden. That’s why we do statistics.

Last week I verified that at the grossest level, women still make less. In 2011, women working full time made 82 cents for every dollar made by men working full time. (The often-quoted 77 cents figure is a year older and figured slightly differently, which tells you something about the sensitivity of the calculations. In what follows I’ve been careful not to mix data from different sources. Everything comes from the Bureau of Labor Statistics table that leads to the 82-cent estimate.)

But why do women make less? Is it for reasons we can all live with, or is the pay gap an injustice that needs fixing? Several reasons are frequently offered, together with explanations why we can live with those reasons. (Never forget that those are two separate conversations. Even if the whole pay gap could be boiled down to something as simple as “Girls don’t like math”, we’d still need to discuss whether that’s a problem we can or should fix.)

For each proposed reason, there’s a study proving that it’s not the whole story. Today I want to look at one of the most popular explanations of the pay gap: Women choose lower-paying professions. In other words, the overall averages compare female special education teachers to male aerospace engineers. No surprise who makes more.

The Institute for Women’s Policy Research has a study “The Gender Wage Gap by Occupation” proving that occupational segregation (as they call it) is not the whole story. Using Bureau of Labor Statistics numbers from 2011 (the same ones in that 82-cent calculation), they list the 20 most popular occupations (out of around 400 listed by the BLS) for men and for women. Four occupations are on both lists, and six more are too segregated (i.e., construction worker, teacher assistant) to provide a reliable estimate of the minority gender’s earnings.

In the 30 remaining occupations, men make more in 28, and the other two are low-pay occupations where the female advantage is small: Female “stock clerks and order fillers” make $1.03 for every male dollar, and female “bookkeeping, accounting and auditing clerks” make $1.003. On the other pan of the scale, men have huge margins in high-pay occupations like “financial manager” (where women make 66 cents on the male dollar) and “chief executive” (69 cents).

So clearly, occupational segregation isn’t the whole story of the wage gap. But here’s the more interesting question: Granted that it isn’t the whole story, how big a part is it?

Maybe there’s a study that answers that question, but I didn’t find it. So I crunched some numbers myself. I started with the numbers in Table 1 and Table 2 of the IWPR report, restricting my attention to the 30 comparable occupations.

Eliminating the duplicate occupations and totaling up, we’ve got 18.4 million men making a total of $16.4 billion per week ($892 each) and 20.9 million women making $15.0 billion per week ($715 each), or about 80 cents on the dollar. So these 30 occupations are slightly better than average for both men ($832 overall) and women ($684), with women making almost the same relative wage (80 cents on the dollar) as in the total survey (82 cents).

To understand what I did next, imagine that there are only two occupations: male-dominated “software developers” and female-dominated “secretaries and administrative assistants”. (These are two of the 30 from the IWPR study.)

 occupation  # men  men $  # women  women $
 software  812  $1606  179  $1388
 office  84  $757  2059  $651
 Total/average  896  $1526  2238  $710

(The number of workers is in thousands.) So our miniature, two-occupation economy (call it “2-Job World”) employs 3,134,000 people (896,000 men and 2,238,000 women) and has a total weekly payroll of  $2.96 billion ($1.37 billion to men, $1.59 billion to women). Overall, its men average $1526 per week and its women $710. So the unfortunate women of 2-Job World make only 46 cents for every dollar a man makes, even though they make 86 cents on the dollar in each occupation. (That’s why I picked those two for my example.)

Amateur economists in 2-Job World — there are no professional economists, that would be a third job — could analyze their pay gap by constructing two counter-factual models. In each model, each occupation maintains the same the total number of jobs and the same total payroll, but women move towards equality in two different ways.

In 2-Job World Fantasy #1, the ratio of men and women in each profession equalizes. Overall, 29% of the workers are men. So in Fantasy #1, 29% of workers in each occupation are men. But the wage gap within each occupation stays the same: 86 cents on the dollar. That changes the table to look like this:

 occupation  # men  men $  # women  women $
 software  283  $1735  708  $1499
 office  613  $728  1530  $626
 Total/average  896  $1046  2238  $902

Basically, bringing lower-paid women into software allowed us to raise salaries in general, while bringing higher-paid men into the secretarial pool forced us to cut salaries there. But now we have an economy where there is no occupational segregation, and women make (surprise) 86 cents on the dollar.

In 2-Job World Fantasy #2, we leave everybody in their current job, but equalize pay within the occupations, so everybody makes the average salary for their occupation. That gives a table like this:

 occupation  # men  men $  # women  women $
 software  812  $1567  179  $1567
 office  84  $655  2059  $655
 Total/average  896  $1481  2238  $728

And here you wind up with women making 50 cents on the male dollar. You’ve only nudged the pay gap by 4 cents.

(I know what some of you are thinking: Where’s the extra 10 cents? Shouldn’t the 4 cents from equalizing pay and the 40 cents from equalizing occupational segregation add up to 2-Job World’s whole 54 cent pay gap? Congratulations, you have just discovered non-linearity. Equalizing pay in the already-desegregated world of Fantasy #1 would have a 14-cent effect, while it only has a 4-cent effect in the original 2-Job World.)

So 2-Job World looks like some people’s intuition about our whole economy: The big money is in getting women to become programmers instead of secretaries.

But when I applied the same two fantasies to the more representative 30-Job World, it came out exactly the other way. In 30-Job World (where women make 80 cents on the dollar), Fantasy #1 (desegregating the occupations) only gets us a 3-cent gain to 83 cents.

But Fantasy #2 (where both men and women make the average salary for their occupations) raises women’s relative pay to 92 cents. It gains women 12 cents rather than 3 cents.

So at least in 30-Job World, getting equal pay within each occupation turns out to be about four times more important than getting equal representation within the occupations.

Why? While programmers and secretaries are part of 30-Job World, the bigger effect comes from occupations that are already fairly well integrated, but men just make more, like retail sales supervisors: about 1.3 million men and 1.0 million women, but the women make 79 cents on the dollar.

Is that how things work in the overall economy (400+ Job World, if you use the BLS categories)? I’m not ready to say that yet. But until I see a better analysis, I’m going to be very skeptical of anybody who claims the wage gap is even largely due to women’s choice of professions. I’d be surprised if it ultimately explained more than a nickel of the gap.

Technical notes:

If you need to see for yourself, I’ve posted the larger tables: 30-Job World Actual, 30-Job World Fantasy #1, 30-Job World Fantasy #2.

I anticipate this objection: When I eliminated the 6 occupations where there wasn’t a large enough sample to get a good estimate of one gender’s wages, I disposed of exactly the occupations where desegregation would make a difference.

Strange things happen when you put those occupations back in, and they work backwards from what the objector might expect. Five of the six are male-dominated working-class jobs. When you lump them together, they pay less than even the female average in 30-Job World.

So the main effect is to pull the male average down, which gets the wage ratio in 36-Job World up to 83 cents. From there, Fantasy #2 gets you to 94 cents. Fantasy #1 is hard to apply (because you don’t know what to pay the minority gender). But if you equalize even further (just for those 6 occupations) by paying the minority gender the overall occupational average , you only get up to 84 cents — higher than in 30-Job World Fantasy #1, but showing a smaller improvement over 36-Job World Actual.

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Jesus Shrugged — why Christianity and Ayn Rand don’t mix

April 30, 2012 – 12:19 pm

To a sizable number of conservatives, Ayn Rand’s novel Atlas Shrugged is practically scripture. To another sizable number, Christian scripture is a law higher than the Constitution.

If you want to appreciate just how strange that is, consider the passage that gives Atlas Shrugged its title:

“Mr. Rearden,” said Francisco, his voice solemnly calm, “if you saw Atlas, the giant who holds the world on his shoulders, if you saw that he stood, blood running down his chest, his knees buckling, his arms trembling but still trying to hold the world aloft with the last of his strength, and the greater his effort the heavier the world bore down on his shoulders – what would you tell him to do?”

“I … don’t know. What … could he do? What would you tell him?”

“To shrug.”

Both Francisco d’Anconia and Hank Rearden are heroes of the novel. Ultimately, Francisco convinces Hank and many other right-thinking capitalists to vanish and let the success-punishing world economy fend for itself without their genius and productivity. Francisco’s exit is particularly dramatic: He destroys all the assets that he can’t take with him into hiding.

The capitalists are Atlas. They shrug and let the world economy collapse. (Well, Francisco does a bit more than shrug. He didn’t just let those copper mines collapse. But never mind.)

Now imagine entering the novel to ask this question: “Mr. d’Anconia, if you saw Jesus, whipped and with a crown of thorns on his head, his knees buckling, his arms trembling, but still trying to drag his cross down the streets of Jerusalem to Golgotha – what would you tell him to do?”

To shrug?

That impossible image – Jesus shrugging off the cross and returning to Heaven six weeks early – sums up the incompatibility of Randism and Christianity. Rand taught that the powerful bear no obligation to the helpless. Jesus had other ideas.

Rand held private property rights to be absolute. That’s how Francisco can guiltlessly blow up his mines. They’re his. Forget superstitious nonsense like Psalm 24’s “The Earth is the Lord’s and the fullness thereof.” Property is not something you hold in trust for a higher power. Owning property entails no moral responsibility at all. It’s yours. Do whatever you want with it.

Short of pure Orwellian doublethink, there’s no way to square that with Christianity. Rand herself didn’t even try. She found “the inviolate integrity of man’s soul” and “a code of altruism” to be “a great, basic contradiction in the teachings of Jesus”.

This is why men have never succeeded in applying Christianity in practice, while they have preached it in theory for two thousand years. The reason of their failure was not men’s natural depravity or hypocrisy, which is the superficial (and vicious) explanation usually given. The reason is that a contradiction cannot be made to work.

And that brings us to Rep. Paul Ryan’s recent go-round with the Catholic bishops and the Jesuits of Georgetown University.

Ryan is a Randist whose budget plan Francisco d’Anconia would love. As Paul Krugman sums up, “it slashes taxes for corporations and the rich while drastically cutting food and medical aid to the needy”. It deals with the resulting deficit increase by closing unspecified tax loopholes that lobbyists will undoubtedly manage to keep open once they get specified.

But Ryan also claims to be a good Catholic, so now he’s trying to make that work too. Like Peter denying Jesus, Ryan now calls his Randism “an urban legend“. But that trick is hard to pull off in the Age of Google, when everything you’ve been saying for years is easily retrievable. You know who started that urban legend? Paul Ryan.

Unfortunately for Ryan’s attempt to wash his budget in the blood of the lamb, popes have been handing down bleeding-sacred-heart encyclicals on economic policy since Rerum Novarum in 1891. (You can get the general flavor from this week’s Sift quote or  my article on John Paul II’s Laborem Exercens.) Worse, the Church has actual experts who keep track of these things, so you can’t just cherry-pick the Catholic tradition for out-of-context quotes and expect nobody to call you on it.

Ninety members of the Georgetown faculty called Paul Ryan on it:

we would be remiss in our duty to you and our students if we did not challenge your continuing misuse of Catholic teaching to defend a budget plan that decimates food programs for struggling families, radically weakens protections for the elderly and sick, and gives more tax breaks to the wealthiest few. … In short, your budget appears to reflect the values of your favorite philosopher, Ayn Rand, rather than the Gospel of Jesus Christ.

The particular doctrine Ryan misuses is called “subsidiarity” (first enunciated in Rerum Novarum). As theologian Meghan Clark explains it:

According to the principle of subsidiarity, decisions should be made at the lowest level possible and the highest level necessary.

And BeliefNet editor David Gibson elaborates:

[Subsidiarity] argues that lower levels of society (individuals, families, communities) should be allowed to carry out social functions that they can fulfill and larger society (state and federal governments), meanwhile, should provide help (“subsidium,” is the formal Latin term) to cover things the smaller units cannot. … If Washington has to do it, so be it; if Mayberry can do it, all the better. But if Mayberry can’t, then Washington has an obligation to step in.

Conservative policy genuinely based on subsidiarity would work upward from below: As local churches, charities and neighborhood organizations developed plans and raised resources to care for the poor and helpless, local governments could re-purpose their resources on services that the state now provides. States could similarly replace federal programs, and the federal government would shrink because there was less for it to do.

None of that is actually happening in any significant way. Instead, conservatives at all levels cut programs and taxes, using the excuse that problems would be better handled further down the chain. But down-the-chain conservatives are not reaching up to take the responsibilities that up-the-chain conservatives are dropping.

I could sympathize with, say, Ryan’s desire to cut federal services for the poor in his district if conservative Governor Scott Walker were eager to expand Wisconsin’s state programs to take up the slack (and raise state taxes to pay for them) as subsidiarity demands.

But is he? I don’t think so.

If elected at all levels, conservative officials from the president to the councilman would shrug and let responsibility for the poor drop like a stone. That’s not subsidiarity, and it’s not Catholic or any other kind of Christian.

Francisco d’Anconia, though, could probably give a great speech about it.

By weeklysift | Posted in Articles | Also tagged | Comments (40)