Category: economics

Democratic socialism: sounds good, but is way too expensive, and not the future of the Democratic party

August 8, 2018 • 12:30 pm

Bernie Sanders and now the upcoming Democratic candidate Alexandria Ocasio-Cortez, an American-born of Hispanic extraction who may well sit in Congress this fall, have gotten a lot of airplay espousing “democratic socialism”, which proposes an expansion of social programs funded by the government. While I’m in favor of some of these in principle, nobody really asks—and candidates avoid talking about—how much they will cost. Well, Vox did a survey of what the programs Sanders and Ocasio-Cortez would cost the government (and that means the taxpayer); the sources used to estimate the costs were liberal organizations, so there’s not much anti-progressive bias in the numbers. Many of the numbers come from the Urban Institute, which is a leftist organization often in favor of government interventions.

Read the Vox story by clicking on the screenshot:

Here are the costs that Vox author Brian Riedl came up with:

Medicare for all (Sanders and Ocasio-Cortez): $32 trillion over the next decade

Social Security expansion (Sanders): $188 billion over the next decade

Paid family leave of 12 weeks for new parents (Sanders): $287 billion over the next decade

Free college for all (Sanders and Ocasio-Cortez): $807 billion over the next decade

Guaranteed jobs for all at $15/hr plus benefits (Ocasio-Cortez): $6.8 trillion over the next decade

New infrastructure (Senate Democrats): $1 trillion over the next decade

Payoff of all student loan debt (House Democrats): $1.4 trillion over the next decade.

As Vox notes, this is a huge sum (my emphasis):

Total cost: $42.5 trillion in new proposals over the next decade, on top of the $12.4 trillion baseline deficit.

To put this in perspective, Washington is currently projected to collect $44 trillion in revenues over the next decade. And the Republican tax cut, decried universally by Democrats as irresponsible (and by Minority Leader Nancy Pelosi as “Armageddon”) will cost less than $2 trillion over the decade.

The 30-year projected tab for these programs is even more staggering: new proposals costing $218 trillion, on top of an $84 trillion baseline deficit driven by Social Security, Medicare, and the resulting interest costs.

What would be the effects of such an unprecedented spending binge? Federal spending, which typically ranges between 18 and 22 percent of GDP, would immediately soar past 40 percent of GDP on its way to nearly 50 percent within three decades. Including state and local government spending would push the total cost of government to 60 percent of GDP by that point — exceeding the current spending level of every country in Europe.

. . . These numbers are not partisan. They come from the Congressional Budget Office, top liberal think tanks, and the lawmakers themselves. They are the left’s own figures. (And note that we included an absurdly low-cost estimate for the jobs guarantee.)

Vox notes that single-payer health insurance is not going to fix government health spending (e.g., Medicare), nor would the moving of money from private citizens (spent on their own healthcare) to government healthcare (via taxes); that has “serious economic and redistributive side effects.” And engineering the $26 trillion tax hike needed to cover this would be nearly impossible, as it would set the payroll tax at 29% (now 15.3%).

The rest of the Vox article tries to figure out how to pay for all this social engineering, and author Riedl concludes that there’s just no way to do it in an acceptable fashion. He concludes like this:

Mix and match these tax policies and it still represents an unfathomable and impossible tax burden. American taxes would be higher than most of Europe because its spending levels would also be higher. (Our health care system would still cost more, and Europe does not have an expensive government job guarantee.)

Taxing the rich is not enough. America would need to match, or even surpass, Europe’s enormous tax burden on the middle class. There is no evidence that American voters will accept this level of taxation.

Democratic socialists are disingenuously cagey about the exorbitant tax burden they require. Alexandria Ocasio-Cortez recently offered a list of tax increases — such as a 28 percent corporate tax rate, a “Buffett tax” on millionaires, and carbon tax — that collectively add up to just $2 trillion over the decade, according to the CBO.

Ocasio-Cortez, only 28, is often touted as “the future of the Democratic Party,” but I haven’t been impressed by her. She’s young, for sure, and that may be why I don’t see her as ready for prime time, but she’s also a new face, a Hispanic woman, and a socialist, which appeals to Sanders fans (note: I voted for him in the Illinois primaries). She’s the social justice warrior that Democrats think, unwisely, is the person that can defeat the Democrats.

But she hasn’t seemed to grasp the difficulties with her proposals, and she doesn’t look especially thoughtful in interviews. RealClear Politics analyzed her statement that unemployment is low only because everyone has two jobs, and found that it, along with much of she said, was a big “pants on fire” whopper (note: I don’t think it’s necessarily a conscious lie). Here she is with that proposal, and a prediction that we are (and should) be marching toward socialism and against capitalism. Much as some socialistic programs appeal to me, there’s still a lot to be said for the retention of some capitalism in the private sector.  And let’s face it: America isn’t going to buy a completely socialistic society, and espousing it is political suicide.

Here’s her not terribly well thought out stand on Israel on Palestine, with several professions that she’s not an expert in geopolitics. Well, I agree with the two-state solution, but she needs a more eloquent response.

As I said, she’s young and I won’t hold this against her. But I do hold her adamant and unthinking socialism against her, and that’s exactly what makes her popular.

Like every Democrat, I am desperately looking for a viable Leftist to contest Trump (or, if he’s out, his Republican replacement) in 2020.  Ocasio-Cortez isn’t even close, though of course I’d rather have her in Congress than almost any Republican. But I don’t want the future of the Democratic Party to be ignorance and untenable forms of socialism.

 

What’s the point of a trade war?

June 1, 2018 • 8:30 am

My dad was trained as an economist, and one thing he taught me when I was very young is that tariffs never benefit the country that levies them—or anyone else save perhaps a few people in “protected” industries. Yet Trump promised to engaged in trade wars, and people voted for him. Now they’ll get to see what happens.

Yes, yesterday The Donald just levied tariffs on steel and aluminum imported from three major trading partners: Canada, Mexico, and the European Union. The duties are 10% on imported aluminum and 25% on steel, and took effect at midnight last night. These three areas provide, according to the New York Times, half of the metal imported into the U.S.

Predictably, these countries are threatening to levy, and almost certainly will levy, duties on products imported from America, products like blue jeans, cigarettes, bourbon, and so on. People here will lose their jobs, prices will rise, and everyone loses except—perhaps!—some in the steel and aluminum industries.

After all these years, I still can’t see that what my dad taught me was wrong. The principle of comparative advantage, with each country producing what it produces best and cheapest, and selling those products worldwide without the impediment of duties, seems eminently reasonable from the viewpoint of both economics and employment.

Mexico, the EU, and Canada are fighting back, and rightfully criticizing this stupid move. Why on earth would any American favor it?

What’s wrong with capitalism?

April 1, 2018 • 12:30 pm

Before I’m thrown into the basket of alt-right deplorables because of the headline, what I’m asking is this: “Is there any better economic/governmental system than free-market capitalism combined with appropriate government regulations against its excesses?” The reason I’m asking this is because I’ve seen many Leftist bloggers attack capitalism as if it were the root of all Western evil, something to be ruthlessly expunged. (These are the same people who get their overpriced macchiatos from Starbucks.)

The kind of capitalism I don’t find problematic is that in Scandinavia and Western Europe, and the kind that we could have in the U.S. were the government a bit more compassionate.  Now I’m not an economist, and can’t rattle off every danger of an unregulated free market lacking government safety nets, but surely we need regulations that will help those who can’t survive in that system, or who fall through the cracks. We need government medical care, taxes, help for old people, and a variety of social services beside the free market. We need regulations to prevent unethical business practices, the purveying of misrepresented or dangerous products, the creation of monopolies, and so on. This is pretty much above my pay grade.

But I ask those of you who are constantly harping on capitalism, indicting it as evil, and calling for its destruction: what alternative do you propose?   As I believe Steve Pinker pointed out in his latest book, any society that has eliminated capitalism but has tried to be democratic—or maintained the pretense of democracy—has failed. Capitalism is, after all, a form of economic freedom.

Well, you weigh in. What alternatives are better than a humanely regulated form of capitalism in a democracy?

This is an extreme example, but there are many other non-loons who espouse pretty much the same sentiments.

Republican tax bill opens up drilling in Arctic National Wildlife refuge, lets ministers endorse candidates from the pulpit, eliminates tax deductions for student loan interest, and imposes taxes on grad-student tuition waivers

December 1, 2017 • 8:30 am

I guess I haven’t been paying much attention to the finer points of Republican perfidy, and so discovered three things only last night:

1.) The Republican tax bill in the House (if it passes, it still has to be reconciled with a Senate bill), has a provision that will allow parts of the Arctic National Wildlife Refuge to be opened for oil and gas drilling. The state of Alaska has been trying to get this done for years, but Congress has stood in its way. Now they’re caving. There is no amount of damage to wildlife or the environment that the Trump administration won’t tolerate in the name of capitalism. They’ve already proposed allowing imports of big-game hunting trophies, like elephant heads (though that’s on hold), and have passed a measure allowing hunters to shoot hibernating bears and their cubs, or wolves in their dens. These people have no respect for the lives or suffering of animals. And what does this have to do with taxes? It’s a sneaky add-on!

2.) The new bill will allow ministers to endorse political candidates from their pulpits, though churches still won’t be able to make contributions to political candidates. I agree with these humanists who claim that this now creates an entanglement between church and state (ministers are still allowed to express their private opinion in other places):

The Rev. Barry Lynn, the executive director of Americans United for the Separation of Church and State, said in an email, “The House GOP leadership and President Trump want to turn America’s houses of worship into centers of partisan politics. It’s a reckless scheme that may please Trump’s allies in the religious right, but could spark a blowback since the vast majority of Americans, faith leaders and houses of worship are firmly opposed to it. This is a bad idea that should be immediately dropped.”

Larry T. Decker, the executive director of the Secular Coalition for America, called the proposal in a statement “a brazen attack on the separation of church and state.” And the Baptist Joint Committee for Religious Liberty argued in a statement that inviting politics into the sanctuary is bad for churches, saying the House proposal “threatens to destroy our congregations from within over disagreements on partisan campaigns. … This change has been pushed by a tiny minority and is opposed by the vast majority of Americans and churchgoers, across party lines and faith traditions.”

If they’re gonna do that, then let’s eliminate the tax exemption for churches and pastors. This, too, is a sneaky add-on

3.) Finally, the Congress’s own joint committee on taxation admits that the new tax bill will increase the federal deficit by a trillion dollars over the next decade.

The bill will, of course, drastically slash the corporate tax rate, almost halving it from 35% to 20%, while it’s likely that the tax bill for middle-class Americans will rise. Mortage interest deductions are being slashed, students will no longer be able to deduct the interest on their educational loans from their taxes, and graduate students will have to pay taxes on the tuition waiver they get. Since grad student tuition is often high, but waived for many students, this will hit them with a tax bill that they may not be able to afford. I had such a waiver at Harvard, and I’m not at all sure I could have afforded to pay taxes on that. In the net, this bill is going to hurt American undergraduate education in many ways.

It’s hard to avoid seeing this bill as one aimed at helping the rich at the expense of the poor. I wonder if those poor schlemiels who voted for Trump might start to dimly realize that they didn’t act in their own interest.

U. of Chicago prof wins economics Nobel

October 9, 2017 • 2:32 pm

This is getting monotonously regular, but it’s still a boost for our reputation. Richard Thaler, 72, a professor of behavioral science and economics at our Booth Business School, just won the Nobel Prize for Economics. He wrote the bestselling book Nudge, which I haven’t read, but I’m sure some readers have, so weigh in below. As the New York Times reports,

Richard H. Thaler was awarded the Nobel Memorial Prize in Economic Science on Monday for incorporating a more realistic understanding of human behavior into economic theory, and for using the resulting insights to improve public policy.

Professor Thaler, an economist at the University of Chicago’s Booth School of Business, is a pioneer of the discipline known as behavioral economics, which marries the work of psychologists with that of economists to produce better models of human decision-making.

The Nobel committee, announcing the award in Stockholm, credited Professor Thaler with taking the field from the fringe to the academic mainstream. The committee also noted that his work had driven a wide range of public policy improvements, notably a sweeping shift toward the automatic enrollment of workers in retirement savings programs.

Professor Thaler said on Monday that the basic premise of his approach to economics was that, “In order to do good economics, you have to keep in mind that people are human.”

Asked how he would spend the prize money, he replied: “This is quite a funny question.” He added: “I will try to spend it as irrationally as possible.”

Some of his work:

Professor Thaler’s academic work can be summarized as a long series of demonstrations that standard economic theories do not describe actual human behavior.

For example, he showed that people do not regard all money as created equal. When gas prices decline, standard economic theory predicts that people will use the savings for whatever they need most, which is probably not additional gasoline. In reality, people still spend much of the money on gas. They buy premium gas even if it is bad for their car. In other words:, they treat a certain slice of their budget as gas money.

He also showed that people place a higher value on their own possessions. In a famous experiment, he and two co-authors distributed coffee mugs to half the students in a classroom, and then opened a market in mugs. Students randomly given a mug regarded it as twice as valuable as did the students who were not given a mug. This pattern, which Professor Thaler labeled an “endowment effect,” has since been demonstrated in a wide range of situations. It helps to explain why real markets do not work as well as chalkboard models.

I suspect, but can’t be arsed to look it up, that the University of Chicago has more economics laureates than any other school. It’s almost a requirement for a senior economist at this school to have made the trip to Sweden.

Here’s the announcement from the Swedish Academy of Sciences. If you won the contest (and you’ll have to tell me), email me or post below; as you recall, you had to be the first person to guess one prizewinner in at least two categories.

Richard Thaler

Gender- and race-based ticket pricing in Canada

September 20, 2017 • 12:15 pm

According to yesterday’s Toronto Sun, some Canadian filmmakers are charging people different amounts of money for tickets to see their productions, with the charges based on both race (a social construct?) and sex.

Organizers for the Victoria [British Columbia] premier of “Building the Room” used “justice pricing” when tickets went on sale last week, with white males being charged $20, while others paid $10.

Sid Mohammed, a spokesman for the production, says organizers wanted to address the fact that white males tend to have more purchasing power than other demographics.

But he says they received a “huge amount” of backlash on the pricing, including emailed death threats and accusations that the practice was racist and constituted discrimination.

Organizers have responded by lowering the admission price for white males to $15 and announcing that any profits from the door will be donated to the Native Friendship Centre of Victoria and the Victoria Pride Society.

First, this issue is no reason for death threats. But there’s case to be made that it involves race and gender discrimination.

As the article notes, this isn’t the first time men have been charged more than women, though apparently race didn’t figure in an earlier case in which a feminist vegan cafe in Melbourne, Australia charged men 18% more than women, on these grounds:

The 18% figure comes from a 2016 Australian government Workplace Gender Equality Agency report which found the average difference between a man and woman’s full-time weekly wage is about 18%.

I’m not really down with this because it punishes or rewards entire classes based on averages rather than individual incomes. If a cafe wants to give a poor person a free meal, or charge less for somebody who earns less, I have no problem with that—unless your penuriousness is due to a disinclination to work. Differential charges should be based on differential incomes. But to assume that all men make 18% more than all women (or, in the case of the Victoria theater, twice as much) is to fall into the fallacy that an individual should be treated not on his or her qualifications or salary, but on group differentials.  And really—$20 as opposed to $10?

I’m wondering what readers think of this.  It shouldn’t be dismissed offhand simply because you’re using group averages to deal with individuals because, after all, that’s how affirmative action policies work Regardless of how “privileged” an upper-middle-class black family is, their child will get preferential admission at many American colleges. I still favor this policy as it increases diversity, which is an inherent good, though I recognize the problems with it as well.  But differential ticket and meal pricing does nothing to increase diversity. In fact, I’m not sure exactly what it does, except serve as a demonstration of virtue. If you really wanted to create a level playing field, charge people according to their income. Of course, that wouldn’t work in practice!

And, at least in the U.S., I think it’s illegal. I remember when women brought lawsuits against dry cleaners for charging women more than men to clean essentially the same garment, a practice which is deeply unfair. (I can’t recall the outcomes of those lawsuits.) Women also seem to pay a lot more than men for getting the same haircut, which is also unfair.  At least in America, I don’t think you’d be able to get away with charging people more or less for such things based on either their race or sex. Why isn’t this illegal in Canada?

h/t: Michael

Mrs. Tiggy-Winkle on 50p coin

June 21, 2017 • 3:30 pm

When Grania forwarded me this tw**t, I thought it was a huge joke:

But it’s TRUE! One of my favorite Beatrix Potter characters—unfairly mocked at the end of the book as “she’s just a hedgehog!” after her washerwoman disguise slips— is on a 50p coin issued by The Royal Mint. Sadly, it was issued last year and appears to be unavailable now:

“Only a hedgehog!” A hedgehog who can do laundry! What a stunning bit of species-ism which, for me, ruined the story:

I think there’s a postmodernist, feminist, intersectional Ph.D. thesis to be written on Mrs. Tiggy-Winkle. What would it be called?

p.s. I found the coin for a few bucks on eBay and bought it.