There is an article in the New York Times Magazine by an American expat living in Holland about how having the government take more than half your paycheck isn’t as bad as it seems. It’s a pretty good article, and if America is headed in a more social democratic direction (as I fear we may be) then we would do well to look more towards the sensible policies of some more socially democratic countries, rather than the sort of populist demagoguery that is sometimes popular on the American left.
Anyway, what caught my eye in this piece in particular was the following bit:
The Dutch are free-marketers, but they also have a keen sense of fairness. As Hoogervorst noted, “The average Dutch person finds it completely unacceptable that people with more money would get better health care.” The solution to balancing these opposing tendencies was to have one guaranteed base level of coverage in the new health scheme, to which people can add supplemental coverage that they pay extra for.
Note that the third sentence contradicts the second. The Dutch find it totally unacceptable that the rich should get better health care than everyone else; that’s why they designed their system so that the rich could get better health care than everyone else. Continue reading
In the course of a recent post on Warren Buffett and the Efficient Market Hypothesis, Scott Sumner made the following aside:
Bill Gates essentially taxed middle class consumers all over the developed world, and is giving almost all of the money to the disadvantged in poor countries. That’s something governments don’t do, and yet for his “monopoly profits” he is despised by many on the left.
This prompted a hearty Amen from Arnold Kling, who added:
There is a huge contest going on between politicians and rich people over who should get to spend their money. Most of us have no direct stake in the outcome–as neither politicians nor rich people, we will not have the choice.
But I think we really ought to be rooting for the rich people. That is, we should root for lower taxes and less government spending. Government is one of the worst charities in the world. It advertises that it is going to give money to worthy causes, but very little money goes to programs that are aimed at people in need, and not many of those programs hit their targets. All of the bleeding hearts who are thrilled by the idea of government closing tax loopholes and taking more money from rich people should do an empirical analysis of who benefits from government spending and who benefits from the spending of rich people.
I’m not aware of any empirical analysis comparing the results of private charity versus government spending, but I suspect Kling is right that, dollar for dollar, you get more bang for your buck from private charitable spending than you do from government spending. If your average rich guy decides he wants to give away his money in the most beneficial way possible, he’s probably not going to just give it to the government, and I don’t think that’s just because he’s being foolish. Continue reading
Let’s start with what I would expect is an uncontroversial sounding principle (call it the progressive principle): if the government is going to run a social assistance program, the average income of the people paying for the program should be higher than the average income of the people benefiting from the program.
The justification for this principle is, as I say, common sensical. Most people support the idea of redistribution, but it’s usually redistribution from the rich to the poor that they have in mind. Redistribution from the poor to the rich (or from the poor to the poor) would, I think, strike most people as perverse. Yet the odd thing is that quite a large portion of the modern “social assistance state” violates this very principle. Both Medicare and Social Security, for example, involve redistribution not to the poor, but to the old, who are statistically speaking much wealthier than the average American (here is one analysis of the question regarding Social Security; I’m confident that if you ran the numbers for Medicare you’d get the same result). Not only that, but the funding for Social Security and Medicare comes mainly from taxes that are highly regressive. Similarly, funding for education tends to be only slightly progressive at best, and in many cases (such as funding for higher education) is downright regressive. Much of the funding for public schools comes from property taxes, which means that the people paying for the schooling (either directly or indirectly in the form of increased rents) are the same people getting the benefits from the schools. An increasing proportion of education spending, however, comes from state taxes, which as Ezra Klein notes, tend to be regressive overall. Indeed, a recent trend has been to use revenues from state lotteries (a particularly egregious form of regressive taxation) as a source of education funding. Thus you have a strange situation of states bragging about taking money from the poor to improve the educational experiences of the well to do.
I could go on, but you get the idea.
If we want to reform the social assistance state to bring it in line with the progressive principle, we have two options: we can change the structure of benefits or we can change the structure of how those benefits are funded. For things like Social Security and Medicare, changing the benefits would mean instituting some sort of means testing, to ensure that people aren’t receiving government assistance if they don’t actually need it. The typical argument against means testing is that it will erode public support for the programs. If the wealthy don’t themselves benefit from a program, it is argued, they will agitate for it to be abolished. The problem with this argument is that it has almost no empirical support. We don’t send food stamps to Bill Gates, yet somehow the food stamps program has not been eliminated. Social security remains popular in countries where benefits are means tested (like Australia), and do not seem to be in any danger of being repealed on that account. And if the argument were really true, then it would be hard to see how any attempt to make the funding of these programs more progressive wouldn’t be doomed to failure.
For reasons that I don’t quite fully understand, many people would prefer to keep paying benefits to the rich, while raising their taxes even more to do so. I’m not opposed on principle to the idea of making taxes more progressive, but realistically there are limits to how far one can go with this. States didn’t resort to lotteries because they hate the poor or are just dumb. They did it because there is a wide spread anti-tax sentiment in this country, and that isn’t likely to change soon. Even discounting issues of political viability, it really is the case that higher taxes discourage productivity and growth, and these effects are only going to increase as a global economy makes it easy to move capital from one country to another (one reason, I suspect, that state taxes are so much less progressive than federal taxes is the ease of moving from one state to another). I would therefore submit that if a progressive social assistance state is your goal, it’s going to have to come largely by means testing benefits rather than by raising taxes on the rich.
Stuart Buck has a post up about political consistency. People say they object on principle to X, and make quite a stink about it, yet they show comparatively little concern for Y, which is arguably just as bad. His examples: people object loudly to the use of torture in interrogation, but are fairly quite when it comes to the use of solitary confinement (which many claim is as psychologically damaging as torture) or sexual abuse in prisons; they object to the government finding out which books people have checked out of the library under the Patriot Act, but not the much more intrusive information a person has to give to the government when paying his taxes.
Stuart blames this inconsistency on partisanship. No doubt there is a lot of that, but I think that the examples he gives illustrate a deeper and even more puzzling phenomenon. When it comes to the question of how to balance the protection of civil liberties against the needs and interests of society, it seems to me that there are three coherent approaches:
1. Protecting civil liberties should always trump the needs of society;
2. The needs of society should always trump civil liberties; or
3. Civil liberties should receive less protection where the needs of society are weighty, and greater protection as they become less weighty.
So, for example, one might rationally give less protection to civil liberties in cases involving, say, threats to national security than in cases involving traffic safety.
Very few people subscribe to approach number one, and at least in America virtually no one subscribes to approach number two. The odd thing, though, is that in practice most people don’t subscribe to approach three either. Instead, most people seem to subscribe to something like the following:
4. Civil liberties should receive *more* protection where the needs of society are weighty, and less protection as they become less weighty.
They wouldn’t put it that way, of course, but if you look at when people actually do object to violations of civil liberties, and how strenuously they do so, it does seem as if they are apt to give greater scrutiny to government action when the government interests involved are most pressing. So, for example, the Patriot Act took various techniques (involving wiretapping, search and seizure, etc.) that had been used for decades in drug cases, and applied them to terrorism cases. You might think that if such techniques were justified to keep people from getting high, then they would be justified to keep people from blowing up buildings (and that, alternatively, if they were objectionable as a means of stopping terrorism that they would be much more objectionable as a means of stopping drug trafficking). Yet a lot of people who never raised a peep about the use of these techniques in the war on drugs became seriously concerned about them once they began to be used in the war on terror. Likewise, many of the traditional protections against search and seizure applied in the criminal context do not apply in the administrative context, even though preventing people from being raped and murdered would seem to be a more pressing interest than ensuring that a building is up to code.
You might argue that this difference is due to lack of knowledge. Cases involving national security or whatever attract more attention, and hence more condemnation. The problem with this is that when you do bring such cases to people’s attention they rarely get even more outraged and start protesting the new civil liberties violations were even more vigor. Tell someone upset about some national security related violation of civil liberties about some comparable violation in a more mundane context, and you may get a verbal denunciation of this other practice (“yes, I think that’s wrong too”) but you can usually tell that the person’s heart isn’t in it, and often times they will in fact defend the government’s actions in the less compelling case.
The source of this discrepancy, I think, has to do with the stories we tell ourselves about our political activities. There are plenty examples, both in fiction and in history, or tyrannical regimes who have abuses civil liberties and have tried to justify this by an appeal to national security. A person who protests such actions, therefore, can easily be seen (and can see himself) as part of a heroic tradition to dissent, struggle against oppression, etc. By contrast, no country has ever descended into totalitarianism by making people stand in line at the airport. Going to jail for burning your draft card has a chic value that getting arrested for performing a manicure without a license just lacks.
Last week I was accused of being a stooge for the powerful. It wasn’t the first time, and it probably won’t be the last. What did I say that caused this charge? I suggested that the market should be given a greater role in the provision of health care.
Well, then, you might say, what more need have we of witnesses. Everybody knows that free markets are in the interests of the powerful. That’s why big businesses are so opposed to government intervention in the economy.
Changing the subject completely, I was reading an article in the DC Examiner only a few hours later when my eyes fell upon the following sentence:
Philip Morris, openly and without qualification, backs Kennedy’s and Waxman’s bills to heighten regulation of tobacco.
The state is trying to shut down a New York City doctor’s ambitious plan to treat uninsured patients for around $1,000 a year.
Dr. John Muney offers his patients everything from mammograms to mole removal at his AMG Medical Group clinics, which operate in all five boroughs.
His patients agree to pay $79 a month for a year in return for unlimited office visits with a $10 co-pay.
But his plan landed him in the crosshairs of the state Insurance Department, which ordered him to drop his fixed-rate plan – which it claims is equivalent to an insurance policy.
Muney insists it is not insurance because it doesn’t cover anything that he can’t do in his offices, like complicated surgery. He points out his offices do not operate 24/7 so they can’t function like emergency rooms.
Louisiana governor Bobby Jindal came in for criticism here at Vox Nova a few weeks back when he announced that Louisiana would not be taking a portion of the federal stimulus funding earmarked for increased unemployment benefits (since this announcement, the governors of several other states have made similar statements). I don’t think the actions of the governors in this regard are particularly noble (you’ll note that they didn’t reject all stimulus funds, but only this one little bit). Nevertheless, I thought some of the criticism of Jindal on this score was misdirected. The money rejected by Jindal doesn’t just disappear. The money is still there, and can still be used to provide relief in other states. Louisiana’s unemployment rate is currently significantly below the national average, and if Louisiana’s rejection means that more funds are freed up for harder hit areas, that would seem to be all to the good.
Similarly, Mother Jones reported on Tuesday that cities in Los Angeles County were selling the stimulus funds earmarked for their cities, in some cases at a significant discount. It seems that, out of some misguided sense of fairness, the government had allocated some funds to every city in the area, regardless of whether a particularly municipality would even be able to use the funds. After the story broke, the Los Angeles County MTA canceled the swaps.
In both cases, what we have is the belief that stimulus funding is best allocated based on political clout and/or the whims of a central authority, rather than having local self-evaluations of need play a role.
On Monday, I listened to President Obama’s prime time press conference, which was focused on the President’s economic plans. When asked how we would know if the stimulus package due to be voted on today was successful, Obama stated that his “initial measure of success is creating or saving 4 million jobs.” The inclusion of the words “or saving” is, of course, a fairly big hedge, since the only way to really say for certain that his plan hasn’t saved 4 million jobs is if things get so bad that there are less than four million people working in this country. Still, I take the President at his word that saving jobs is a priority for him, and motivates his strong support for the stimulus package.
The irony is that even as Obama was speaking, thousands of small businesses in the U.S. were bracing for the effects of a new law that may very well put an entire industry out of business. As you may dimly recall, last year there was a scare involving lead paint in some toys from China. In response, Congress hastily passed the Consumer Product Safety Improvement Act, which required any manufacturer of children’s products to certify, starting on February 10, 2009, that there products did not contain a significant amount of lead.
It sounded like one of those common sense pieces of legislation that no sensible person could oppose. And, in fact, passage of the bill was nearly unanimous. The problem, however, is that the required certification is prohibitively expensive for most small businesses. So whatever the good intentions behind the law, its results are potentially devastating.
Due to public outcry, the Consumer Product Safety Commission agreed to stay enforcement of certain aspects of the new law for one year. Nevertheless, on February 9th the CPSC published guidelines telling thrift stores and other sellers of used goods that they could be held liable for selling uncertified books published prior to 1985, as well as books with metal or plastic components. The results have been far from pretty:
My daughter works in a used bookstore. TODAY they pulled all the books from the children’s section that had any kind of metal or plastic or toy-like attachment, spiral bindings, balls or things attached, board books, anything that might be targeted under this law, and they very quietly trashed them all. I say “very quietly” because the bookstore had a meeting with employees and told them to be careful not to start a panic. If anyone asked what they were doing they were told to say that they were “rearranging their inventory.” No one was allowed to tell anyone about the new law, and no one was allowed to take any of the doomed-for-destruction books home or give them away.
I just came back from my local thrift store with tears in my eyes! I watched as boxes and boxes of children’s books were thrown into the garbage! Today was the deadline and I just can’t believe it! Every book they had on the shelves prior to 1985 was destroyed! I managed to grab a 1967 edition of “The Outsiders” from the top of the box, but so many!
The lesson here, I think, is that laws often have serious and negative unintended consequences, and this danger only increases when a bill is passed in a hurry or out of a perceived necessity to “do something” about a given problem. It’s a lesson, I fear, that we will have to learn again and again over the coming years.
A propos of yesterday’s post, I came across a blog post the other day about the Madoff scandal which I found quite interesting. Madoff, as anyone not living under a rock for the last few months knows, was the famed investor whose ponzi scheme milked America’s rich and famous out of nearly fifty billion dollars. The fact that this scheme went undetected for so long (despite the efforts of some to sound the alarm) and was only uncovered when his own sons turned him in, is, to put it mildly, a rather bad screw up for the S.E.C. In fact, as Robert Murphy notes, if you had asked people beforehand to come up with a situation where the S.E.C. screwed up so badly that it would be abolished, they probably would not have come up with something nearly as bad as the Madoff scandal. And yet, the response to these failures at the S.E.C. will undoubtedly be for it to be given more money, more power, and an even greater mandate to root out scams in the investment world.
No doubt for some the problem here is not so much a failure of government as a failure of Republican administrations. If the S.E.C. wasn’t doing its job, it must be because Bush gutted the agency, or filled it with ideological hacks who refused to enforce the law. Continue reading
As time goes by, I become more and more convinced that one of the main things that keeps government in business is the inability of people to imagine how anyone else could deal with the sometimes serious problems that arise in the social order. If private action fails to solve a given social problem as well as we might like, the answer is more government. Whereas if the government fails, even spectacularly, in dealing with a particular social ill, the answer is… more government. People respond to the poor performance of a government initiative not by suggesting that it be abolished, but rather by calling for government to redouble it’s efforts. Failing businesses have a tendency to go out of business (well, at least most of the time). Failing government programs, by contrast, tend to get more money. Which, when you think about it, is not a recipe for success.
People act this way, I think, not because they are just irrational, but because they don’t see an alternative. Yes, public schools in some parts of the country are just plain awful. But what’s the alternative? Just let kids roam the streets all day? Yes, the Post Office is often inefficient, costly, and they lose your mail a lot. Still, someone has to deliver the mail. If not the government, then who? Okay, so the response to hurricane Katrina by the government was just awful, and the rebuilding efforts in many cases haven’t been much better. But it’s not like anyone else is going to do the job, so the government has to. To a lot of people, saying that some problem should be left to “private charity” or “the market” sounds like saying “let’s ignore the problem and hope it goes away.” Which hardly sounds like a counsel of prudence. The truth is, though, that allowing everyone in America to try and come up with a solution to a given social problem often works a lot better than trying to impose a single solution from the top down.
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