Feeds:
Posts
Comments

Archive for the ‘Redistribution’ Category

Back in 2014, I shared a report that looked at the growth of redistribution spending in developed nations.

That bad news in the story was that the welfare state was expanding at a rapid pace in the United States. The good news is that the overall fiscal burden of those programs was still comparatively low. At least compared to other industrialized countries (though depressingly high by historical standards).

I specifically noted that Switzerland deserved a lot of praise because redistribution spending was not only relatively modest, but that it also was growing at a slow rate. Yet another sign it truly is the “sensible country.”

But I also expressed admiration for Canada.

Canada deserves honorable mention. It has the second-lowest overall burden of welfare spending, and it had the sixth-best performance in controlling spending since 2000. Welfare outlays in our northern neighbor grew by 10 percent since 2000, barely one-fourth as fast as the American increase during the reckless Bush-Obama years.

But I didn’t try to explain why Canada had good numbers.

Now it’s time to rectify that oversight. I went to the University of Texas-Arlington last week to give a speech and had the pleasure of meeting Professor Todd Gabel. Originally from Canada, Professor Gabel has written extensively on Canadian welfare policy and he gave me a basic explanation of what happened in his home country.

I asked him to share some of his academic research and he sent me several publications, including two academic studies he co-authored with Nathan Berg from the University of Otago.

Here are some excerpts from their 2015 study published in the Canadian Journal of Economics. Gabel and Berg explain welfare reform in Canada and look at which policies were most successful.

During the 1990s and 2000s, Canada’s social assistance (SA) system transitioned from a relatively centralized program with federal administrative controls to a decentralized mix of programs in which provinces had considerable discretion to undertake new policies. This transition led to substantially different SA programs across provinces and years… Some provincial governments experimented aggressively with new policy tools aimed at reducing SA participation. Others did not. In different years and by different amounts, nearly all provinces reduced SA benefit levels and tightened eligibility requirements.

By the way, the SA program in Canada is basically a more generous version of the Temporary Assistance to Needy Families (TANF) program in America, in part because there are not separate programs for food and housing.

The study includes this remarkable chart showing a significant drop in Canadian welfare dependency, along with specific data for three provinces.

The authors wanted to know why welfare dependency declined in Canada. Was is simply a result of a better macroeconomic environment? Or did specific reforms in welfare policy play a role?

…what role, if any, did new reform strategies undertaken by provinces play in observed declines in SA participation. This paper attempts to address this question by measuring disaggregated effects of new reform strategies on provinces’ SA participation rates, while controlling for changes in benefit levels, eligibility requirements, labour market conditions, GDP growth and demographic composition.

Their conclusion is that welfare reform helped reduce dependency.

…our econometric models let the data decide on a ranking of which mechanisms—reductions in benefit levels, tightened eligibility requirements, improved macro-economic conditions or adoption of new reform strategies—had the largest statistical associations with declines in participation. The data suggest that new reforms were the second most important policy reform after reductions in employment insurance benefits. … In the empirical models that disaggregate the effects of different new reform strategies, it appears that work requirements with strong sanctions for non-compliance had the largest effects. The presence of strong work requirements is associated with a 27% reduction in SA participation.

Here’s their table showing the drop in various provinces between 1994 and 2009.

The same authors unveiled a new scholarly study published in 2017 in Applied Economics, which is based on individual-level data rather than province-level data.

Here are the key portions.

A heterogeneous mix of aggressive welfare reforms took effect in different provinces and years starting in the 1990s. Welfare participation rates subsequently declined. Previous investigations of these declines focused on cuts in benefits and stricter eligibility requirements. This article focuses instead on work requirements, diversion, earning exemptions and time limits – referred to jointly as new welfare reform strategies.

Here’s their breakdown of the types of reforms in the various provinces.

And here are the results of their statistical investigation.

The empirical models suggest that new reform strategies significantly reduced the probability of welfare participation by a minimum of 13% overall…the mean person in the sample faces a reduced risk of welfare participation of 1.1–1.3 percentage points when new reform strategies are present… the participation rates of the disabled, immigrants, aboriginals and single parents, appear to have responded to the presence of new reform strategies significantly more than the average Canadian in our sample. The expected rate of welfare participation for these groups fell by two to four times the mean rate of decline associated with new reform policies.

The bottom line is that welfare reform was very beneficial for Canada. Taxpayers benefited because the fiscal burden decreased. And poor people benefited because of a transition from dependency to work.

Let’s close by looking at data measuring redistribution spending in Canada compared to other developed nations. These OECD numbers include social insurance outlays as well as social welfare outlays, so this is a broad measure of redistribution spending, not just the money being spent on welfare. But it’s nonetheless worth noting the huge improvement in Canada’s numbers starting about 1994.

Canada now has the world’s 5th-freest economy. Welfare reform is just one piece of a very good policy puzzle. There also have been relatively sensible policies involving spending restraint, corporate tax reform, bank bailoutsregulatory budgeting, the tax treatment of saving, and privatization of air traffic control.

P.S. If it wasn’t so cold in Canada, that might be my escape option instead of Australia.

P.P.S. Given the mentality of the current Prime Minister, it’s unclear whether Canada will remain an economic success story.

Read Full Post »

Inequality is now a major dividing line in the world of public policy.

Supporters of limited government think it’s not a big issue and instead focus on the policies that are most likely to generate growth. Simply stated, they tend not to care if some people get richer faster than other people get richer (assuming, of course, that income is honestly earned and not the result of cronyism).

Folks on the left, by contrast, think inequality is inherently bad. It’s almost as if they think that the economy is a fixed pie and that a big slice for the “rich” necessarily means smaller slices for the rest of us. They favor lots of redistribution via punitive taxes and an expansive welfare state.

When talking to such people, my first priority is getting them to understand that it’s possible for an economy to grow and for all income groups to benefit. I explain how even small differences in long-run growth make a big difference over just a few decades and that it is very misguided to impose policies that will discourage growth by penalizing the rich and discouraging the poor.

I sometimes wonder how vigorously to present my argument. Is it actually true, as Thatcher and Churchill argued, that leftists are willing to hurt poor people if that’s what is necessary to hurt rich people by a greater amount?

Seems implausible, so when I recently noticed this amusing humor on Reddit‘s libertarian page, I was not going to share it. After all, it presumes that our friends on the left genuinely would prefer equal levels of poverty rather than unequal levels of prosperity.

But, after reading a new study from the International Monetary Fund, I’m wondering if I’m underestimating the left’s fixation with inequality and the amount of economic damage they’re willing to inflict to achiever greater equality of outcomes.

Here are some introductory passages to explain the goal of the research.

…it is worth reemphasizing some lessons from the “old masters” in economics who addressed this topic a few decades ago—including Arthur M. Okun and Anthony B. Atkinson in the 1970s. Their lessons—on how to elicit people’s views on inequality and how to summarize societal welfare using a monetary indicator encompassing both average incomes and their distribution—remain relevant for fiscal policymakers today. …a satisfactory theory of welfare must recognize that welfare depends on both the size and the distribution of national income. …This primer seeks to encourage more widespread use by policymakers of the tools developed by welfare theory. …the primer provides an in-depth, step-by-step refresher on two specific tools chosen because of their simplicity and intuitive appeal: Okun’s “leaky bucket” and Atkinson’s “equally-distributed-equivalent income.”

Please note that the IMF explicitly is saying that it wants policymakers to change laws based on what’s in the study.

And, as you continue reading, it should become obvious that the bureaucrats are pushing a very radical agenda (not that we should be surprised given the IMF’s track record).

Here’s the bureaucracy’s take on Okun and his pro-redistribution agenda.

Okun (1975) proposed a thought experiment capable of eliciting people’s attitudes toward the trade -off between equality and efficiency: Okun asked the reader to consider five families: a richer one making $45,000 (in 1975) and four poorer ones making $5,000. Would the reader favor a scheme that taxed the rich family $4,000 and transferred the proceeds to the poorer families? In principle, each poorer family would receive $1,000. But what if 10 percent leaked out, with only $900 reaching the recipients? What would the maximum acceptable leak be? The leak represented not only the administrative costs of tax-and-transfer programs (and, one might add, potential losses due to corruption), but also the fact that such programs reduce the economic incentives to work. …Okun reported his own answers to the specific exercise he proposed (his personal preference was for a leakage of no more than 60 percent). ….Okun was willing to accept that a $4,000 tax on the rich household [would] translate, with a 60 percent leakage, into a $400 transfer to each of the four poor households.

The only good part about Okun’s equity-efficiency tradeoff is that he acknowledges that redistribution harms the economy. The disturbing part is that he was willing to accept 60 percent leakage in order to take money from some and give it to others.

It gets worse. When the IMF mixes Okun with Atkinson, that’s when things head in the wrong direction even faster. As I noted last month, Atkinson has a theory designed to justify big declines in national income if what’s left is distributed more equally. I’m not joking.

And that IMF wants to impose this crazy theory on the world.

Atkinson (1970) showed that under the assumptions above and having identified a coefficient of aversion to inequality, it becomes easy to summarize the well-being of all households in an economy with a single, intuitive measure: the equally-distributed-equivalent income (EDEI), i.e., the income that an external observer would consider just as desirable as the existing income distribution. …The percentage loss in mean income—compared with the initial situation—that an observer would find acceptable to have a perfectly equal distribution of incomes was introduced by Atkinson (1970) as a measure of inequality.

The study then purports to measure “aversion to inequality” in order to calculate equally-distributed-equivalent income (EDEI).

The greater the observers’ aversion to inequality, the lower the EDEI. Table (2) reports for a few alternative ε coefficients, for the example above.

Here’s a table from the study, which is based on a theoretical rich person with $45,000 and a theoretical poor person with $5,000 of income. A society that isn’t very worried about inequality (ε = 0.2) is willing to sacrifice about $4,000 on overall income to achieve the desired EDEI. But a nation fixated on equality of outcomes might be willing to sacrifice $32,000 (more than 60 percent of overall income!).

I’ve augmented the table with a few of the aggregate income losses in red.

In other words, nations that have a higher aversion to inequality are the ones that prefer lots of misery and deprivation so long as everyone suffers equally.

Another use of this data is that it allows the IMF to create dodgy data on income (sort of like what the OECD does with poverty numbers).

It appears the bureaucrats want to use EDEI to claim that poorer nations have more income than richer nations.

…the ranking of countries based on the EDEI often differs significantly from that based on mean income alone. For instance, South Africa’s mean income is more than double that of the Kyrgyz Republic, and substantially above that of Albania. However, those countries’ lower inequality implies that their EDEI is significantly higher than South Africa’s. …Similarly, the United States’ mean income is considerably above that of the United Kingdom or Sweden. However, for an inequality aversion coefficient of ε=1.5, Sweden’s EDEI is above that of the United States, and for ε=2.0 also the United Kingdom’s EDEI is above that of the United States.

Here’s a table from the study and you can see how the United States becomes a comparatively poor nation (highlighted in red) when there’s an “aversion” to inequality.

In other word, even though the United States has much higher living standards than European nations, the IMF is peddling dodgy numbers implying just the opposite.

But the real tragedy is that low-income people will be much more likely to remain poor with the policies that the IMF advocates.

P.S. Fans of satire may appreciate this “modest proposal” to reduce inequality. I imagine the IMF would approve so long as certain rich people are excluded.

Read Full Post »

One of my pet peeves is when people characterize Robin Hood as some sort of left-wing redistributionist. As I’ve explained, that’s utter nonsense.

If you read the book or watch the movie starring Errol Flynn, Prince John and the Sheriff of Nottingham were the bad guys because they over-taxed the peasants. Robin Hood was the good guy because he rescued the money from the tax collectors and returned it to the people who earned it.

Kudos to Ted Cruz, who tried to educate (a poorly informed) Bernie Sanders on this topic.

Cruz accidentally promoted Prince John to King John (or is my aging memory betraying me and did Prince John declare himself King at some point?), but he’s 100 percent correct on the fundamental point.

And now I’m wondering which modern leftists should play the roles of the bad guys from Robin Hood if there’s a remake of the movie. Perhaps Obama should be Prince John, which might be a better fit than the other movie roles people have imagined for our former president.

And the Sheriff of Nottingham obviously could be played by our corrupt IRS Commissioner. He would be a natural for the role.

But let’s not get too distracted. The focus today is on whether Robin Hood belongs to Occupy Wall Street or the Tea Party. This image reinforces the point that the latter is a better fit.

Just in case the message isn’t clear, here’s a nice clip from the cartoon version of Robin Hood.

I’m delighted that children actually were exposed to this message. I suggest sharing this clip widely with your kids, grandkids, nieces, nephew, etc, etc.

For what it’s worth, I also tried to correct the record about Robin Hood in a TV interview back in 2012.

P.S. Leftists aren’t the only people to mischaracterize Robin Hood, as I noted when discussing an otherwise-solid column by Cal Thomas.

P.P.S. Since Cal Thomas mentioned Robin Hood as part of a column explaining that Jesus wasn’t a socialist, I can’t resist showing Libertarian Jesus, who dispenses wisdom here and here.

Read Full Post »

Imagine that we’re in a parallel universe and that you’re the lookout on the Titanic. But in this make-believe world, you have all sorts of fancy radar that allows you to detect icebergs with lots of advance notice. Furthermore, imagine that you detect danger and give lots of warning to the Captain and other officers.

How would you feel if they then decided to ignore your warnings and continued on their course to disaster? You’d probably tear your hair out in frustration.

And that’s a pretty good description of how I feel about the easy-to-predict, visible-to-the-naked-eye, baked-in-the-cake, bound-to-happen fiscal crisis that will occur because of the combination of demographic change and poorly designed entitlement programs.

It’s happening in the United States. It’s happening in Europe. It’s happening in Asia. Heck, this is a worldwide problem.

Simply stated, welfare states were created back when everyone assumed that there would always be a “population pyramid,” which means relatively few old people (who collect a lot of money from entitlement programs) at the top, plenty of workers (also known as taxpayers) in the middle, and lots of children (i.e., future taxpayers) at the bottom.

In that world, a modest-sized welfare state isn’t a good idea, but at least it is mathematically sustainable.

Today, by contrast, such a welfare state is a problem because we’re living longer and having fewer children.

And in the future, that kind of welfare state is a recipe for a Greek-style fiscal crisis because demographic trends will be even less favorable. To be blunt, there won’t be enough people pulling the wagon compared to the mass of people riding in the wagon.

At the risk of beating a dead horse, here’s some additional data on this global problem. We’ll start with this look at how the population pyramid is becoming a population cylinder. The key thing to notice is the growth of the over-65 cohort.

And here’s a different way of looking at the same data, but stretching out to 2100.

I didn’t add a red line at age 65, but it’s easy to see that the number of older people will dramatically increase without a concomitant increase in the number of working-age people who are expected to pay the taxes to finance pensions and health care.

So what’s all this mean? Here’s a sobering thought from Prospect.

The ageing populations of the advanced economies and the larger emerging ones combines with past falls in the birth rate to mean that the share of total world population who are of prime working age has been falling since 2012. After a four-decade rise, the trend has reversed with that fall projected to last throughout the 2020s, 2030s and 2040s. A slower-growing global workforce will be a big challenge for the global economy.

A “big challenge” may win the prize for understatement.

Bloomberg has a column on the implications of this massive demographic shift. Notice the data on the number of workers per retiree in various nations.

Rising dependency ratios — or the number of retirees per employed worker — provide one useful metric. In 1970, in the U.S., there were 5.3 workers for every retired person. By 2010 this had fallen to 4.5, and it’s expected to decline to 2.6 by 2050. In Germany, the number of workers per retiree will decrease to 1.6 in 2050, down from 4.1 in 1970. In Japan, the oldest society to have ever existed, the ratio will decrease to 1.2 in 2050, from 8.5 in 1970. Even as spending commitments grow, in other words, there will be fewer and fewer productive adults around to fund them.

The bottom line is that there are enormous unfunded liabilities.

Arnaud Mares of Morgan Stanley analyzed national solvency, or the difference between actual and potential government revenue, on one hand, and existing debt levels and future commitments on the other. The study found that by this measure the net worth of the U.S. was negative 800 percent of its GDP; that is, its future tax revenue was less than committed obligations by an amount equivalent to eight times the value of all goods and services America produces in a year. The net worth of European countries ranged from about negative 250 percent (Italy) to negative 1,800 percent (Greece). For Germany, France and the U.K., the approximate figures were negative 500 percent, negative 600 percent and negative 1,000 percent of GDP.

Wow, it’s depressing that the long-run outlook for the United States is worse than it is for some of Europe’s most infamous welfare states. Though I guess we shouldn’t be totally surprised since I’ve already shared similarly grim estimates from the IMF, BIS, and OECD.

I’ll close with some (sort of) good news.

Notwithstanding some of the estimates I’ve shared, America actually is in better shape than these other nations. If we enact genuine entitlement reform, ideally sooner rather than later, the long-run numbers dramatically improve because spending and debt no longer would be projected to rise so dramatically (whereas government already is an enormous burden in Europe).

This isn’t idle theory. Policymakers don’t have much control over demographics, but they can reduce the fiscal impact of demographic change by adopting better policy.

To cite the most prominent examples, jurisdictions such as Hong Kong and Singapore have very long lifespans and very low birthrates, yet their public finances don’t face nearly as much long-run pressure because they never made the mistake of setting up western-style welfare states.

The solution, therefore, is for America and other nations to copy these successful jurisdictions by replacing tax-and-transfer entitlements with systems based on private savings.

P.S. For what it’s worth, I’m not overflowing with optimism that we’ll get the reforms that are needed with Trump in the White House.

Read Full Post »

Most economic policy debates are predictable. Folks on the left urge higher taxes and bigger government while folks on the right advocate lower taxes and smaller government (thanks to “public choice” incentives, many supposedly pro-market politicians don’t follow through on those principles once they’re in office, but that’s a separate issue).

The normal dividing line between right and left disappears, however, when looking at whether the welfare state should be replaced by a “universal basic income” that would provide money to every legal resident of a nation.

There are some compelling arguments in favor of such an idea. Some leftists like the notion of income security for everybody. Some on the right like the fact that there would be no need for massive bureaucracies to oversee the dozens of income redistribution programs that currently exist. And since everyone automatically would get a check, regardless of income, lower-income people seeking a better life no longer would face very high implicit tax rates as they replaced handouts with income.

But there are plenty of libertarians and small-government conservatives who are skeptical. I’m in this group because of my concern that the net result would be bigger government and I don’t trust that the rest of the welfare state would be abolished. Moreover, I worry that universal handouts would erode the work ethic and exacerbate the dependency problem.

And I have an ally of the other side of the ideological spectrum.

Former Vice President Joe Biden…will push back against “Universal Basic Income,”… UBI is a check to every American adult, but Biden thinks that it’s the job that is important, not just the income. In a blog post…timed to the launch of the Joe Biden Institute at the University of Delaware, Biden will quote his father telling him how a job is “about your dignity. It’s about your self-respect. It’s about your place in your community.”

I often don’t agree with Biden, but he’s right on this issue.

Having a job, earning a paycheck, and being self-sufficient are valuable forms of societal or cultural capital.

By contrast, a nation that trades the work ethic for universal handouts is taking a very risky gamble.

Let’s look at what’s been written on this topic.

In an article for the Week, Damon Linker explores the importance of work and the downside of dependency.

…a UBI would not address (and would actually intensify) the worst consequences of joblessness, which are not economic but rather psychological or spiritual. …a person who falls out of the workforce permanently will be prone to depression and other forms of psychological and spiritual degradation. When we say that an employee “earns a living,” it’s not merely a synonym for “receives a regular lump sum of money.” The element of deserving (“earns”) is crucial. …a job can be and often is a significant (even the primary) source of a person’s sense of self-worth. …A job gives a person purpose, a reason to get up in the morning, to engage with the world and interact with fellow citizens in a common endeavor, however modest. And at the end of the week or the month, there’s the satisfaction of having earned, through one’s own efforts, the income that will enable oneself and one’s family to continue to survive and hopefully even thrive.

Dan Nidess, in a column for the Wall Street Journal, opines about the downsides of universal handouts.

At the heart of a functioning democratic society is a social contract built on the independence and equality of individuals. Casually accepting the mass unemployment of a large part of the country and viewing those people as burdens would undermine this social contract, as millions of Americans become dependent on the government and the taxpaying elite. It would also create a structural division of society that would destroy any pretense of equality. …UBI would also weaken American democracy. How long before the well-educated, technocratic elites come to believe the unemployed underclass should no longer have the right to vote? Will the “useless class” react with gratitude for the handout and admiration for the increasingly divergent culture and values of the “productive class”? If Donald Trump’s election, and the elites’ reactions, are any indication, the opposite is likelier. …In the same Harvard commencement speech in which Mr. Zuckerberg called for a basic income, he also spent significant time talking about the need for purpose. But purpose can’t be manufactured, nor can it be given out alongside a government subsidy. It comes from having deep-seated responsibility—to yourself, your family and society as a whole.

An article in the American Interest echoes this point.

…work, for most people, isn’t just a means of making money—it is a source of dignity and meaning and a central part of the social compact. Simply opting for accelerated creative destruction while deliberately warehousing the part of the population that cannot participate might work as a theoretical exercise, but it does not mesh with the wants and desires and aspirations of human beings. Communities subsisting on UBIs will not be happy or healthy; the spectacle of free public redistribution without any work requirement will breed resentment and distrust.

Writing for National Review, Oren Cass discusses some negative implications of a basic income.

…even if it could work, it should be rejected on principle. A UBI would redefine the relationship between individuals, families, communities, and the state by giving government the role of provider. It would make work optional and render self-reliance moot. An underclass dependent on government handouts would no longer be one of society’s greatest challenges but instead would be recast as one of its proudest achievements. Universal basic income is a logical successor to the worst public policies and social movements of the past 50 years. These have taken hold not just through massive government spending but through fundamental cultural changes that have absolved people of responsibility for themselves and one another, supported destructive conduct while discouraging work, and thereby eroded the foundational institutions of family and community that give shape to society. …Those who work to provide for themselves and their families know they are playing a critical and worthwhile role, which imbues the work with meaning no matter how unfulfilling the particular task may be. As the term “breadwinner” suggests, the abstractions of a market economy do not obscure the way essentials are earned. A UBI would undermine all this: Work by definition would become optional, and consumption would become an entitlement disconnected from production. Stripped of its essential role as the way to earn a living, work would instead be an activity one engaged in by choice, for enjoyment, or to afford nicer things. …Work gives not only meaning but also structure and stability to life. It provides both socialization and a source of social capital. It helps establish for the next generation virtues such as responsibility, perseverance, and industriousness. …there is simply no substitute for stepping onto the first rung. A UBI might provide the same income as such a job, but it can offer none of the experience, skills, or socialization.

Tyler Cowen expresses reservations in his Bloomberg column.

I used to think that it might be a good idea for the federal government to guarantee everyone a universal basic income, to combat income inequality, slow wage growth, advancing automation and fragmented welfare programs. Now I’m more skeptical. …I see merit in tying welfare to work as a symbolic commitment to certain American ideals. It’s as if we are putting up a big sign saying, “America is about coming here to work and get ahead!” Over time, that changes the mix of immigrants the U.S. attracts and shapes the culture for the better. I wonder whether this cultural and symbolic commitment to work might do greater humanitarian good than a transfer policy that is on the surface more generous. …It’s fair to ask whether a universal income guarantee would be affordable, but my doubts run deeper than that. If two able-bodied people live next door to each other, and one works and the other chooses to live off universal basic income checks, albeit at a lower standard of living, I wonder if this disparity can last. One neighbor feels like she is paying for the other, and indeed she is.

In a piece for the City Journal, Aaron Renn also comments on the impact of a basic income on national character. He starts by observing that guaranteed incomes haven’t produced good outcomes for Indian tribes.

…consider the poor results from annual per-capita payments of casino revenues to American Indian tribes (not discussed in the book). Some tribes enjoy a very high “basic income”—sometimes as high as $100,000 per year— in the form of these payments. But as the Economist reports, “as payment grows more Native Americans have stopped working and fallen into a drug and alcohol abuse lifestyle that has carried them back into poverty.”

And he fears the results would be equally bad for the overall population.

Another major problem with the basic-income thesis is that its intrinsic vision of society is morally problematic, even perverse: individuals are entitled to a share of social prosperity but have no obligation to contribute anything to it. In the authors’ vision, it is perfectly acceptable for able-bodied young men to collect a perpetual income while living in mom’s basement or a small apartment and doing nothing but play video games and watch Internet porn.

Jared Dillian also looks at the issue of idleness in a column for Bloomberg.

I do not like the idea of a universal basic income. Its advocates fundamentally misunderstand human nature. What they do not realize about human beings is that for the vast majority of them, a subsistence level of income is enough — and those advocates are blind to the corrosive effects that widespread idleness would have on society. If you give people money for doing nothing, they will probably do nothing. …A huge controlled experiment on basic income has already been run — in Saudi Arabia, where most of the population enjoys the dividends of the country’s oil wealth. Saudi Arabia has found that idleness leads to more political extremism, not less. We have a smaller version of that controlled experiment here in the U.S. — for example, the able-bodied workers who have obtained Social Security Disability Insurance payments and are willing to stay at home for a piddling amount of money. …the overarching principle is that people need work that is worthwhile, for practical and psychological reasons. If we hand out cash to anyone who can fog a mirror, I figure we are about two generations away from revolution.

By the way, it’s not just American Indians and Saudi Arabians that are getting bad results with universal handouts.

Finland has been conducting an experiment and the early results don’t look promising.

The bottom line is that our current welfare system is a dysfunctional mess. It’s bad for taxpayers and recipients.

Replacing it with a basic income probably would make the system simpler, but at a potentially very high cost in terms of cultural capital.

That’s why I view federalism as a much better approach. Get Washington out of the redistribution racket and allow states to compete and innovate as they find ways to help the less fortunate without trapping them in dependency.

Read Full Post »

Let’s consider some good news about America.

Some folks on the left like to claim that the middle class is shrinking and that therefore we need bigger government and more redistribution to protect these Americans from falling into poverty.

Well, the first half of that statement is true. The middle class is becoming smaller. But here’s the good news. As I noted in 2015 when sharing some data from Pew, the middle class is shrinking because more and more households are earning six-figure incomes.

Now we have more confirmation. Courtesy of Mark Perry of the American Enterprise Institute, here’s a nice chart based on data from the Census Bureau’s new report on income and poverty in the United States.

Want to feel even better?

In a column for CNBC, Professor Daniel Smith of Troy University explains that government data understates the improvements in living standards. He points out that total compensation has increased much faster than wages.

Complaints that the rich are getting richer while the majority have hit a brick wall in wage growth have led to calls to impose regulations and taxes aimed at creating a “fair” economy. This mantra, however, is wrought with holes and erroneous interpretation of the data… Over the last few decades, employees have been receiving an increasingly larger portion of their overall compensation in the form of benefits such as health care, paid vacation time, hour flexibility, improved work environments and even daycare. …Total compensation, which adds these benefits to wages and salaries, shows that earnings have actually increased more than 45 percent since 1964.

And he notes that income gains are understated if measured against the PCE index rather than the consumer price index.

Furthermore, “purchasing power,” the amount of stuff people can buy with each dollar, has changed dramatically… CPI is notorious for overstating inflation, and thus understating the growth of real wages received by workers. Adjusting the data with the more appropriate Personal Consumption Expenditure index brings the growth in average hourly wages from 5.58 percent to more than 35 percent and the growth in total compensation of employees from more than 45 percent to more than 87 percent.

The bottom line is we’re able to buy more and better for less work.

But even that index fails to grasp the drastic increase in what workers get for their wages. …100.5 hours of work was required to purchase a washing machine in 1959 compared to just 23.3 hours of work (for the average worker) in 2013. Purchasing a TV demanded an astounding 127.8 hours of work in 1959, whereas a worker in 2013 could purchase one with only 20.7 hours of work. Moreover, the improved quality of these goods over the past few decades is staggering. …Today’s iPhones and other smart-phone models seem like a different species from their predecessors… We’ve seen the same progress in knee-replacement surgeries, computers, the Internet, vacuum cleaners, and other technologies we’ve come to rely on.

Professor Smith wrote this piece back in 2014, but these arguments apply just as well today as they did back then.

Though I don’t want to be a Pollyanna. There are very worrisome trends in our economy, especially increased dependency and reduced labor force participation.

So if you prefer to look at the glass as being half empty, Nicholas Eberstadt of the American University authored an article that is very pessimistic assessment about recent trends.

It turns out that the year 2000 marks a grim historical milestone of sorts for our nation. For whatever reasons, the Great American Escalator, which had lifted successive generations of Americans to ever higher standards of living and levels of social well-being, broke down around then—and broke down very badly. …it should be painfully obvious that the U.S. economy has been in the grip of deep dysfunction since the dawn of the new century. …It took America six and a half years—until mid-2014—to get back to its late 2007 per capita production levels. And in late 2016, per capita output was just 4 percent higher than in late 2007—nine years earlier. By this reckoning, the American economy looks to have suffered something close to a lost decade. …Between 2000 and 2016, per capita growth in America has averaged less than 1 percent a year. To state it plainly: With postwar, pre-21st-century rates for the years 20002016, per capita GDP in America would be more than 20 percent higher than it is today. …If 21st-century America’s GDP trends have been disappointing, labor-force trends have been utterly dismal. Work rates have fallen off a cliff since the year 2000 and are at their lowest levels in decades.

I don’t disagree with any of this. Growth has been weak this century.

Which is hardly a surprise since we’ve seen an erosion of economic liberty (thanks Bush and Obama!).

But I also want to keep things in perspective. Weak growth is better than no growth. Our living standards are increasing, even if they could – and should – be rising at a faster clip.

So let me swing back to the Pollyanna side by sharing a chart which ostensibly is bad news because it shows rising inequality. But I view it as good news because it shows that all of us are at least 40 percent richer – in real terms – than we were back around 1980.

By the way, Thomas Sowell has pointed out that higher-income households tend to do better because they have more people working, while lower-income households feature lots of dependency. Moreover, if Professor Smith and others are right, the increase in living standards is far greater than what this chart shows anyhow. But even if you accept this data at face value, we are all getting richer over time.

Yes, growth rates should be faster and incomes should be climbing more rapidly. Especially at the bottom. Whether you look at global data or country-specific data, that’s an argument for free markets and small government.

As I wrote last year, we don’t need perfect policy to get more prosperity. Just give the private sector some breathing room.

Read Full Post »

I confess that I’m never sure how best to persuade and educate people about the value of limited government.

Regular readers presumably will put me in the second camp since most of my columns involve data and evidence on the superior outcomes associated with markets compared to statism.

That being said, I actually don’t think we will prevail until and unless we can convince people that it is ethically wrong to use government power to dictate and control the lives of other people.

So I’m always trying to figure out what motivates people and how they decide what policies to support.

With this in mind, I was very interested to see that nine scholars from five continents (North America, South America, Europe, Asia, and Australia), representing six countries (Canada, United States, Argentina, Netherlands, Israel, and Australia) and four disciplines (psychology, criminology, economics, and anthropology), produced a major study on what motivates support for redistribution.

Why do people support economic redistribution? …By economic redistribution, we mean the modification of a distribution of resources across a population as the result of a political process. …it is worthwhile to understand how distributive policies are mapped into and refracted through our evolved psychological mechanisms.

The study explain how human evolution may impact our attitudes, a topic that I addressed back in 2010.

The human mind has been organized by natural selection to respond to evolutionarily recurrent challenges and opportunities pertaining to the social distribution of resources, as well as other social interactions. …For example, it was hypothesized that modern welfare activates the evolved forager risk-pooling psychology — a psychology that causes humans to be more motivated to share when individual productivity is subject to chance-driven interruptions, and less motivated to share when they think they are being exploited by low-effort free riders. Ancestrally, sharing resources that came in unsynchronized, high-variance, large packages (e.g., large game) allowed individuals to buffer each other’s shortfalls at low additional cost.

Here’s how the authors structured their research.

…we propose that the mind perceives modern redistribution as an ancestral game or scene featuring three notional players: the needy other, the better-off other, and the actor herself. …we use the existence of individual differences in compassion, self-interest, and envy as a research tool for investigating the joint contribution of these motivational systems to forming attitudes about redistribution.

And here’s how they conducted their research.

We conducted 13 studies with 6,024 participants in four countries to test the hypothesis that compassion, envy, and self-interest jointly predict support for redistribution. Participants completed instruments measuring their (i) support for redistribution; (ii) dispositional compassion; (iii) dispositional envy; (iv) expected personal gain or loss from redistribution (our measure of self-interest); (v) political party identification; (vi) aid given personally to the poor; (vii) wealthy-harming preferences; (viii) endorsement of pro-cedural fairness; (ix) endorsement of distributional fairness; (x) age; (xi) gender; and (xii) socioeconomic status (SES).

Now let’s look at some of the findings, starting with the fact that personal compassion is not associated with support for coerced redistribution. Indeed, advocates of government redistribution tend to be less generous (a point that I’ve previously noted).

Consider personally aiding the poor—as distinct from supporting state-enacted redistribution. Participants in the United States, India, and the United Kingdom (studies 1a–c) were asked whether they had given money, food, or other material resources of their own to the poor during the last 12 mo; 74–90% of the participants had. …dispositional compassion was the only reliable predictor of giving aid to the poor. A unit increase in dispositional compassion is associated with 161%, 361%, and 96% increased odds of having given aid to the poor in the United States, India, and the United Kingdom. …Interestingly, support for government redistribution was not a unique predictor of personally aiding the poor in the regressions… Support for government redistribution is not aiding the needy writ large—in the United States, data from the General Social Survey indicate that support for redistribution is associated with lower charitable contributions to religious and nonreligious causes (61). Unlike supporting redistribution, aiding the needy is predicted by compassion alone.

But here’s the most shocking part of the results.

The people motivated by envy are often interested in hurting those above them than they are in helping those below them.

…consider envy. Participants in the United States, India, and the United Kingdom (studies 1a–c) were given two hypothetical scenarios and asked to indicate their preferred one. In one scenario, the wealthy pay an additional 10% in taxes, and the poor receive an additional sum of money. In the other scenario, the wealthy pay an additional 50% in taxes (i.e., a tax increment five times greater than in the first scenario), and the poor receive (only) one-half the additional amount that they receive in the first scenario. That is, higher taxes paid by the wealthy yielded relatively less money for the poor, and vice versa… Fourteen percent to 18% of the American, Indian, and British participants indicated a preference for the scenario featuring a higher tax rate for the wealthy even though it produced less money to help the poor (SI Appendix, Table S3). We regressed this wealthy-harming preference simultaneously on support for redistribution… Dispositional envy was the only reliable predictor. A unit increase in envy is associated with 23%, 47%, and 43% greater odds of preferring the wealthy-harming scenario in the United States, India, and the United Kingdom.

This is astounding, in a very bad way.

It means that there really are people who are willing to deprive poor people so long as they can hurt rich people.

Even though I have shared polling data echoing these findings, I still have a hard time accepting that some people think like that.

But the data in this study seem to confirm Margaret Thatcher’s observation about what really motivates the left.

The authors have a more neutral way of saying this. They simply point out that compassion and envy can lead to very different results.

Compassion and envy motivate the attainment of different ends. Compassion, but not envy, predicts personally helping the poor. Envy, but not compassion, predicts a desire to tax the wealthy even when that costs the poor.

Since we’re on the topic or morality, markets, and statism, my colleague Ryan Bourne wrote an interesting column for CapX looking at research on what type of system brings out the best in people.

It turns out that markets promote cooperation and trust.

…experimental work of Herbert Gintis, who has analysed the behaviours of 15 tribal societies from around the world, including “hunter-gatherers, horticulturalists, nomadic herders, and small-scale sedentary farmers — in Africa, Latin America, and Asia.” Playing a host of economic games, Gintis found that societies exposed to voluntary exchange through markets were more highly motivated by non-financial fairness considerations than those which were not. “The notion that the market economy makes people greedy, selfish, and amoral is simply fallacious,” Gintis concluded. …Gintis again summarises, “movements for religious and lifestyle tolerance, gender equality, and democracy have flourished and triumphed in societies governed by market exchange, and nowhere else.”

Whereas greater government control and intervention produce a zero-sum mentality and cheating.

…we might expect greed, cheating and intolerance to be more prevalent in societies where individuals can only fulfil selfish desires by taking from, overpowering or using dominant political or hierarchical positions to rule over and extort from others. Markets actually encourage collaboration and exchange between parties that might otherwise not interact. This interdependency discourages violence and builds trust and tolerance. …In a 2014 paper, economists tested Berlin residents’ willingness to cheat in a simple game involving rolling die, whereby self-reported scores could lead to small monetary pay-offs. Participants presented passports and ID cards to the researchers, which allowed them to assess their backgrounds. The results were clear: participants from an East German family background were far more likely to cheat than those from the West. What is more, the “longer individuals were exposed to socialism, the more likely they were to cheat.”

All of which brings me back to where I started.

How do you persuade people to favor liberty if they are somehow wired to have a zero-sum view of the world and they think that goal of public policy is to tear down the rich, even if that hurts the poor?

Though the internal inconsistency of the previous sentence maybe points to the problem. If the poor and the rich are both hurt by a policy (or if both benefit from a policy), then the world clearly isn’t zero-sum. And we now from voluminous evidence, of course, that the world isn’t that way.

But how to convince people, other than making the same arguments over and over again?

P.S. Jonah Goldberg and Dennis Prager both have videos with some insight on this issue.

Read Full Post »

Older Posts »

%d bloggers like this: