The Other Dunce

I tried listening to Mitt Romney on the radio Sunday morning, but after a few minutes it just got too depressing.

Here’s what I heard in that few minutes:

1) We need to maintain defense spending because (among other reasons) it “creates jobs”. If Mitt Romney does not understand that the creation of jobs — i.e. the consumption of resources that could be valuably employed elsewhere — is the downside of defense spending, then he has no better chance of “fixing the economy” than a blue-bottomed monkey.

2) It is “immoral” for us to “pass on debt” to future generations — future generations who will almost surely be richer than we are. Note that in this context, “pass on debt” means exactly the same thing as “leave a smaller inheritance”. So Romney’s view is that there’s a moral imperative for the relatively poor — namely us — to transfer income to the relatively rich — namely our grandchildren. What’s interesting about that is that Romney is already on record in favor of a more progressive tax code, the sole purpose of which is to transfer income in the opposite direction — from the relatively rich to the relatively poor. (More precisely: Romney would tax capital income at a lower rate for the “middle class” than for the “rich”. Since there is no conceivable efficiency-based justification for such a policy, his position can only indicate a pure preference for rich-to-poor redistribution.) Either Romney has just declared himself immoral, or he’s just spouting random words. (Or, just possibly, he has a good argument for why we have a moral obligation to redistribute from the rich to the poor in some situations but not others. I would like to hear him articulate that argument.)

I wrote last week about President Obama “playing the dunce” with his assertion that lowering tuition rates will allow more students to attend college. I am 99% sure the president isn’t that dumb himself; he’s just making a cynical ploy for dumb voters. In Romney’s case, I’m less sure he’s playing.

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46 Responses to “The Other Dunce”


  1. 1 1 João Neto

    “It is “immoral” for us to “pass on debt” to future generations — future generations who will almost surely be richer than we are.”

    Are you really convinced of this? History present us with several cases of social and economic collapse. Also, the progress of the last hundred years were based on the availability of cheap energy, namely, fossil fuels. At the current levels and *rates* of consumption, they will deplete during this century. Probably you are expecting something that will solve the problem (like nuclear fusion). But if we assume, for the sake of conversation, no cheap energy, would you still be convinced that future generations would be able to be richer than us?

    Also, we are creating a global environment problem without historical precedence. I’m not so sure our grandchildren will be able to solve that.

    Cheers,

  2. 2 2 nobody.really

    Well, if Landsburg is going to give equal time for each candidate, I guess I’ll do my part.

    We need to maintain defense spending because (among other reasons) it “creates jobs”. If Mitt Romney does not understand that the creation of jobs — i.e. the consumption of resources that could be valuably employed elsewhere — is the downside of defense spending, then he has no better chance of “fixing the economy” than a blue-bottomed monkey.

    All politicians make a virtue of job creation. Is this really so hard to understand the distinction between idle steel and idle people?

    Yes, labor is a resource. Yes, in general, we want to use resources efficiently to get the most bang for the buck. I doubt we’ll get much dispute on that.

    Yet concerns about “the consumption of resources that could be valuably employed elsewhere” are more potent when, in fact, there is an “elsewhere” that is actively seeking to employ those assets. Right now a lot of those assets are on the couch. I’ll worry about crowd-out effects when unemployment is closer to 5%.

    Moreover, Landsburg’s analysis seems to imply that we “consume” more labor resources by employing people than by leaving people unemployed. This may be a sound conclusion – assuming you don’t subscribe to the view that the skills and professional connections of unemployed people atrophy. Or the assumption that loss of work leads to a loss of social identity and integration that depresses future labor force participation and productivity. Or that the stress of being without work had medical consequences that affect future labor force participation and productivity. Or that the loss of income associated with unemployment triggers a reduction in consumption that exacerbates the current economic slump – triggering more of the problems noted above.

    In short, employing people contributes to maintaining the labor force; leaving people idle contributes to depleting it. Just one more way that the resource we call labor differs from other resources.

    Here’s another way labor differs from other resources: I have compassion for unemployed workers; I don’t have compassion for unemployed steel. I humbly suggest that for some share of the population – perhaps a large share — leisure has a diminishing marginal return, and that return can even turn negative. As the saying goes, “There is no joy in having nothing to do; the joy is in having things to do – and not doing them!”

    Yeah, I’m acquainted with the supply-side argument: If only we had MORE unemployed people, wage rates would fall and jobs would bloom. Suffice it to say, I’m not yet persuaded that optimal public policy consists of sitting around, waiting for returns to labor to be further depressed.

    Finally, even if you’re not a Keynesian, surely you can appreciate the wisdom of buying staples when they’re on sale. If government needs capital assets – roads or jets or whatever – doesn’t it make sense to build them while labor and capital are cheap? Should we wait for a booming economy and THEN crowd out other economic activity to building these things?

    I’m not a big Romney booster, but this doesn’t strike me as the goofiest thing he’s said.

  3. 3 3 Bob Murphy

    Steve, suppose you catch me saying, “It is immoral for the government to take money from me and give it to others in the form of food stamps.” Then you see me writing a check to a food bank. Am I going to be next week’s dunce?

    (Obviously I’m not denying that Obama/Romney say dumb stuff for political effect. I just don’t think you really nailed Romney on the debt stuff.)

  4. 4 4 Steve Landsburg

    Bob Murphy: But Romney is not saying it’s immoral for the govt to take from our kids and give to us; he’s saying it’s immoral for us to *not* leave larger inheritances to our kids. In your situation, you are saying that redistribution is immoral; in Romney’s situation he’s saying it’s required.

    So: You say forced redistribution is immoral, and then engage in voluntary redistribution. I don’t see the problem there. Romney says that we have a moral *obligation* to redistribute in one direction and then redistributes in the opposite direction. That seems contradictory.

  5. 5 5 Harold

    I am not sure we have quite enough evidence for the “almost surely” richer than us. The history of economic growth is relatively recent. We have 1 million years of stagnation, followed by a couple of hundred of growth where large proportions of resources laid down over geological times are utilised and the environment radically changed. It is possible, maybe even probable, but extrapolation a hundred years into the future is very uncertain.

    In these terms, using up all the resources is rather like “passing on a debt”.

    The defense spending comment is very much a justification of much Democrat policy.

  6. 6 6 Kevin L

    Isn’t there a difference between passing on public debt incurred in providing durable goods that future (perhaps richer) generations will benefit from, and passing on public debt incurred on non-durable goods, services, and benefits that today’s politicians benefit from?

  7. 7 7 Al V.

    The justification for the 2009 stimulus bill was that the U.S. would borrow $750B for the purpose of creating jobs, or really of keeping jobs in place to prop up the economy. And while we’re at it, we get some nice infrastructure that helps the economy in other ways.

    Romney’s statement seems to parallel the justification for the stimulus: we spend a bunch of money on defense, creating or keeping jobs, and we get some really nice military hardware and improved security.

    However, in my mind, it’s a lot harder to validate the value of additional hardware and security. What is the benefit of spending more on defense, when the U.S. spends 5 times what China spends, and 40% of the global expense.

  8. 8 8 Ken Arromdee

    Romney says that we have a moral *obligation* to redistribute in one direction and then redistributes in the opposite direction.

    I don’t think this holds water. I’m reminded of the classic description of the Turing test where the questioner claims the computer is being contradictory when it says that someone would not like to be compared to a winter’s day, but would like to be compared to Christmas, even though Christmas is a winter’s day.

    Wanting to redistribute from the rich to the poor in general is not incompatible with wanting to redistribute from the poor to the rich in a specific type of case. There is no inconsistency.

  9. 9 9 Al V.

    In “The Big Questions”, Steve questions why we prioritize our children’s and grandchildren’s welfare over the welfare of people alive today. What is wrong with borrowing from our children to increase the prosperity of people alive today? Heck, the poor of today are already alive, whereas my grandchildren and great-grandchildren are only theoretical. If my kids choose not to have children, I may not have any grandchildren, so what do I care about borrowing from them?

    Given that the U.S. population would be declining if we didn’t have high levels of immigration, we’re not wholly borrowing from our children anyway. We’re also borrowing from the children of legal and illegal immigrants, and why shouldn’t they pay for the benefit of living in the U.S.?

  10. 10 10 Bob_Mac

    @Kevin L – if by durable goods you mean infrastructure then yes, I think there is difference between investing in long term infrastructure that will benefit multi-generations and other short term and questionable benefits. However, you can go broke the same way regardless of if you spend it on infrastructure or just burn the money.

  11. 11 11 Patrick R. Sullivan

    ‘What is the benefit of spending more on defense, when the U.S. spends 5 times what China spends, and 40% of the global expense.’

    Lead times. It takes years to get a weapon functional. If we were caught today as unprepared for conflict as we were in 1941, we’d be finished.

    Not to mention that the events of the past week in the mideast should show us that what other sovereign governments spend could be irrelevant.

  12. 12 12 Seth

    ‘It is “immoral” for us to “pass on debt” to future generations — future generations who will almost surely be richer than we are.’

    ‘almost surely’ wasn’t compelling for me. I might feel different if more folks didn’t believe government was the answer for everything.

    Also, defense creates value if it keeps us safe. It’s hard to determine where we are at any given time on that opportunity cost curve. It seems like we are well along on it, which to me is a more compelling argument.

  13. 13 13 Al V.

    Patrick R. Sullivan, for more than a century, the U.S. has had the strongest military in the world. And yet, we have only been prepared for 1 of the 7 wars we fought (Desert Storm), in my view. The failures were of mind, not technology.

  14. 14 14 Matthew

    Romney’s support of eliminating capital gains taxes on the middle class can’t possibly be driven by an efficiency preference, and therefore must be indicative of his preference to redistribute from the rich to the poor…or your analysis is wrong and it’s indicative of politics. Romney enjoys a low marginal tax rate since his income is through capital gains. Could you imagine the outrage if he came out and proposed that he shouldn’t pay any taxes? Now, of course, I realize that taxing capital is essentially taxing it twice since you already hit him when it was a wage, but most people don’t. Given his personal circumstances, I think it’s a smart way to position himself.

  15. 15 15 Draco

    Patrick R. Sullivan makes a great point, one which also occurred to me when reading the umpteenth Reason.com article today about how we are really spending too much on the military.

    I don’t think a lot of people who aren’t military historians realize the extent of unpreparedness for both World Wars that America experienced. In the case of World War II, we were able to spin up a vast war machine by converting most of the economy to war production (as did the USSR), fortunately in enough time to stop the Axis powers. If Hitler had not launched the war so hastily – if he had waited until 1943 or so, as counseled by some of his generals, it’s not clear to me that he wouldn’t have been able to conquer all of Europe and the European part of Russia, and then hold onto his gains.

    I tend to agree with Martin Feldstein that military spending is one of the least bad “stimulus” options out there. I think we’d have been in much better shape now if in 2009 there was a $1.6T stimulus made up of mil spend and tax cuts (including reducing FICA to zero). But unlike most other internet commentators who spout their preferred counterfactuals, I’m not sure.

  16. 16 16 Harold

    “I tend to agree with Martin Feldstein that military spending is one of the least bad “stimulus” options out there”

    At least Democrats and Republicans agree that stimulus is the right way to go, just arguing about the details is all.

  17. 17 17 nobody.really

    At least Democrats and Republicans agree that stimulus is the right way to go, just arguing about the details is all.

    –Mr. Churchill, what kind of woman do you think I am?!

    –Madam, we’ve already established that. Now we are merely haggling about the price.

  18. 18 18 iceman

    I’m never sure which is worse, if they know they’re spreading economic disinformation or if they don’t?

    Of course Ken A #8 may be right that it’s sometimes possible to compartmentalize. But in general I guess I just don’t expect much more from politicians other than they too respond to incentives (economists can dig that right?). As long as most people believe debt is bad per se, the argument that ‘it’s the spending not how it’s financed’ is pretty esoteric for soundbite media so we can look forward to pandering instead. It’s understandable, sometimes even clever (so enjoy the inherent entertainment value), certainly not laudable or a stirring example of ‘leadership’, but not necessarily deserving of a dunce cap either IMO.

    Yesterday I heard both sides trying to outdo each other to bash China over ‘currency manipulation’ (i.e. giving US consumers a better deal).

  19. 19 19 Doc Merlin

    “Bob Murphy: But Romney is not saying it’s immoral for the govt to take from our kids and give to us; he’s saying it’s immoral for us to *not* leave larger inheritances to our kids.”

    No. He is saying its immoral to pass on debt to someone without their choice. If I pass on to you a house and also a mortgage, without your consent, have I acted immorally? Yes.

    ‘It is “immoral” for us to “pass on debt” to future generations — future generations who will almost surely be richer than we are. ‘

    What does their wealth have to do with anything. They didn’t have any say in it, its still immoral.

  20. 20 20 nobody.really

    ‘It is “immoral” for us to “pass on debt” to future generations — future generations who will almost surely be richer than we are. ‘

    What does their wealth have to do with anything? They didn’t have any say in it, it’s still immoral.

    And while we’re at it, how dare people reproduce? Unless you secure permission from your unborn children beforehand, it’s simply immoral to impose life upon them. (This American Life has a nine-minute story about the lengths people would go to in 17th and 18th century Europe to escape the burden of living — given that many of them also regarded willful suicide as immoral.)

    Moral: Consent-based philosophies tend to fray at the edges when applied to multiple generations.

  21. 21 21 David Wallin

    @Doc Merlin r19
    “No. He is saying its [sic] immoral to pass on debt to someone without their choice. If I pass on to you a house and also a mortgage, without your consent, have I acted immorally? Yes.”

    OK, I’m old, have a $1 million (and nothing else), have one child, Mitt, and about to die. Consider the following options. A) I leave the $1 million to Mitt. B) I consume the $1 million before I die. C) I consume half a million and leave half a million to Mitt. D) I consume half a million and buy and leave a half-million house (free and clear) to Mitt. E) I buy a $1 million house, take out a half million dollar mortgage, consume that half million, and leave the million dollars house (with a half million mortgage) to Mitt.

    I’ve got to assume Mitt prefers A over all others and likes B the least. C, D, and E are pretty much equals to Mitt. But, you suggest E is immoral. I think they are all moral. And, E (the one you seem to think is immoral) is better liked by Mitt than B (though I find B moral).

  22. 22 22 iceman

    #20 – If the alternative is a ‘non-consent-based’ philosophy, does that eliminate all considerations of intergenerational interests?

    I think the edges get frayed when we use personal intergenerational examples, to which people can apply personal moral principles (e.g. what do I think my kids, if any, should inherit from me), to draw parallels with collective issues of public finance.
    It does seem fair at some point to ask how much LT growth we’re willing to sacrifice to smooth out a current recession (although I’ve learned here an ‘extreme’ Keynesian might argue / rationalize there is no trade-off because we’re borrowing from ourselves or something). But at a minimum it seems clear with or without consent the analogies to personal finance can easily break down.

  23. 23 23 nobody.really

    If the alternative is a ‘non-consent-based’ philosophy, does that eliminate all considerations of intergenerational interests?

    Uh – perhaps. It would depend upon which non-consent-based philosophy you chose. If you choose a philosophy that gives no weight to intergenerational interests, then the answer is yes. Otherwise, the answer is no.

    But I think the personal finance metaphor works adequately. I have no duty to assume my parents’ debts – but I also have no entitlement to inherit assets from my parents. If my parents leave me a house with a mortgage, I can choose to accept both the house and the mortgage, or neither. But as far as I can tell, it makes no legal, logical, or moral sense for me to expect to claim ownership of a house without accepting responsibility for the debts associated with the house.

    Similarly, no generation has a duty to accept the debts incurred by the prior generation, or the government. Indeed, various nations have repudiated their national debts – often on the theory that the prior government acted wrongfully in incurring the debts. True, lenders may then become reluctant to do business with those nations. But people in those nations had no right to receive credit from lenders.

    So I fail to see how any individual or generation can claim to have been harmed by the debts of the prior generation.

    Moreover, the idea that inheriting debt is unusual is clearly ahistorical; darned near every citizen of the US has been born into a nation with debts.

    But more importantly, these concerns are clearly eclipsed by the HUGE advantages bestowed upon people born into the US. Ponder, for a moment, the price people pay to come to the US. Consider the amount paid to smugglers. Consider the credentials that people must leave behind when they come to the US illegally. Consider the truncated lives they must lead, living far from family, working in a foreign language, living under constant threat of discovery and deportation. And yet they come, and come, and come, to receive a tiny FRACTION of the benefits that are bestowed upon Americans upon birth. If life in the US – life including a national debt – is so terrible, why do they come?

    For someone to complain about the injustice of burdening future generations with national debts, while ignoring the vast blessings that are inherited along with those debts, is simply myopic.

  24. 24 24 Frozen

    @Al V “Patrick R. Sullivan, for more than a century, the U.S. has had the strongest military in the world. And yet, we have only been prepared for 1 of the 7 wars we fought (Desert Storm), in my view. The failures were of mind, not technology.”

    Where on Earth do you get that notion? A century would be 1912. The US had a feeble military at the onset of WWI and scrambled to catch up when we declared war on Germany. We were not unprepared because of mindset, we were unprepared logistically, technically, and numerically. Post WWI the military was again severely downsized and build up was only accelerated just prior to the outbreak of hostilities in 1939, repeating exactly the same pattern in WWI but with a larger population and industrial base to help mask the repeat failure. After WWII the military was again severely downsized but was still larger than before the war and a shift in strategic posture to using more “cost effective” nukes was made. The problem with that is that nukes are wholly overkill (pun intended) for the brush wars that followed WWII. Korea again demonstrated the folly of massively spiking defense spending followed by significantly drawing down immediately in peacetime.

    I completely agree that military spending is ripe for reform (including the 15% of the DoD budget that is entitlement spending in disguise as well as the significant corporate welfare), but your statement about a century of military dominance just isn’t correct.

  25. 25 25 Frozen

    @Al V
    “What is the benefit of spending more on defense, when the U.S. spends 5 times what China spends, and 40% of the global expense.”

    That 5 times number is a bit dubious. One has to make a comparison with purchasing power parity taken into account. China can field a lot more bodies for the same amount of money as the US. Plus, the actual Chinese expenditures have a fair amount of uncertainty around them. Without a doubt we spend more than they do, but the factor of 5 likely overstates it.

    The other reality is that we are the world’s cop. Pax Americana is here and the world is a more peaceful place for it. Much as the the world hates American dominance and arrogance too, they know we’re still the best game in town when a neighbor is misbehaving. Is it sustainable? Depends on what choices you’re willing to make. Do we benefit from the global reach tremendously? Absolutely. Do lots of other countries freeload off of the US. I’m looking at you, Europe. Yes. Is that any different than prescription drug and medical device research? Still looking at you, Europe. Not really… These are all debatable choices.

  26. 26 26 Frozen

    @nobody.really

    “In short, employing people contributes to maintaining the labor force; leaving people idle contributes to depleting it. Just one more way that the resource we call labor differs from other resources.”

    Hmm, not sure if I buy that. Seems to me that labor is the ultimate “renewable” resource. I understand your arguments based on compassion, but not ultimate resource depletion. Certainly the labor pool of a particular generation could be depleted through shifting labor demands and unmatched skills sets, but with fresh young workers constantly entering the workforce the situation always has the potential to self correct, presuming that those young workers paid attention and learned the right skills…

    “Finally, even if you’re not a Keynesian, surely you can appreciate the wisdom of buying staples when they’re on sale. If government needs capital assets – roads or jets or whatever – doesn’t it make sense to build them while labor and capital are cheap? Should we wait for a booming economy and THEN crowd out other economic activity to building these things?”

    This assumes that government is going to spend the money wisely and build its capital stock. History has not proven that out particularly well, but let’s keep going with that thought. So the government repaves all roads and replaces all bridges generating employment and useful infrastructure. The structural deficit problem is due to mandatory entitlement spending, so you either have to assume very significant economic growth to pay the cost of this additional debt just in time, or you face the problem of having to roll that debt over into likely more expensive debt at a future date. The pump priming has to work or we’re screwed, basically. Personally, I’m feeling more screwed than primed.

  27. 27 27 Frozen

    Steve,

    What if the debt/inheritance is a little less economically defined? Let’s say we develop a renewed craze for radium laced ceramic plates. We consume billions of them for years. We mine millions or billions of tons of ore to make these plates and leave future generations with mountains of waste to deal with, but we also double the economy and the per capita wealth at the same time. Is that responsible? Is the argument that it’s OK to pass along any debt as long as the net wealth increases from generation to generation no matter how small that increase is?

  28. 28 28 Steve Landsburg

    nobody.really:

    “Finally, even if you’re not a Keynesian, surely you can appreciate the wisdom of buying staples when they’re on sale. If government needs capital assets – roads or jets or whatever – doesn’t it make sense to build them while labor and capital are cheap? Should we wait for a booming economy and THEN crowd out other economic activity to building these things?”

    I don’t have the exact quote, but Tyler Cowen once responded to a similar argument more or less as follows: “Suppose you hear they’re having a fabulous 60%-off-everything-sale at the mall. Does it make sense to rush out and buy a lot of stuff? Maybe. But now what if the rule is you can only get into the mall if you bring along your three insane cousins, and let them all vote on how to spend your money?”

  29. 29 29 nobody.really

    “Finally, even if you’re not a Keynesian, surely you can appreciate the wisdom of buying staples when they’re on sale. If government needs capital assets – roads or jets or whatever – doesn’t it make sense to build them while labor and capital are cheap? Should we wait for a booming economy and THEN crowd out other economic activity to building these things?”

    I don’t have the exact quote, but Tyler Cowen once responded to a similar argument more or less as follows: “Suppose you hear they’re having a fabulous 60%-off-everything-sale at the mall. Does it make sense to rush out and buy a lot of stuff? Maybe. But now what if the rule is you can only get into the mall if you bring along your three insane cousins, and let them all vote on how to spend your money?”

    Ok. And let’s further assume that 1) the mall is the sole place where you can buy food, and 2) you have your three insane cousins with you whenever you go to the mall. So your options are 1) go when food is on sale, 2) go when food is expensive, or 3) do without food. Which strategy do you prefer?

    In short, whatever shortcomings you find in government procurement practices, I find little reason to think that those shortcomings magically cure themselves when the economic is booming and things get more expensive.

  30. 30 30 nobody.really

    Frozen, @25:

    Do we [the US] benefit from the global reach [of our military] tremendously? Absolutely. Do lots of other countries freeload off of the US. I’m looking at you, Europe. Yes. Is that any different than prescription drug and medical device research? Still looking at you, Europe. Not really…

    I’ve had a similar thought.

    Landsburg noted in the prior Dunce discussion that institutions of higher ed tend to be very good price discriminators – using pricing formulas to demand from consumers pretty much what they can afford to pay. In this manner, these institutions effectively engage in progressive taxation, causing more affluent students to “subsidize” poorer ones.

    I wonder if the same dynamic applies to drugs. Big Pharma tends to charge more for drugs in the US than elsewhere. Is this an irrational and sub-optimal pricing structure – or is it merely another form of progressive taxation, with the world’s most affluent nation “subsidizing” poorer ones? Sure, there’s rough justice for low-income Americans within the US, but perhaps the optimal remedy is to target subsidies to them, rather than to tear down the Robin Hood pricing structure. After all, if drug companies were forced to charge uniform rates throughout the world, would prices in the US really come down much? Or would they simply rise everywhere else – producing no benefit to anyone?

    Ok, how much further off topic can we push this discussion?

  31. 31 31 Steve Landsburg

    nobody.really: Point well taken.

  32. 32 32 iceman

    nobody.really #23 — OK I was more interested in whether, out of a ‘multiverse’ of possible philosophies, you were in fact expressing a preference for something based on ‘non-consent’ (i.e. coercion), on moral grounds. I find consent to be an important moral criterion. For example the advantages / blessings you describe seem largely in terms of being ‘less bad’ relative to some more coercive system…I might describe them as results of a system based on consent. So I think it’s possible to celebrate the virtues of a system while also criticizing actions that might mitigate those positives. (And if some of the people you describe come here not expecting to pay taxes, they may not feel they are affected by the debt…but I guess that leads to today’s post.)

    Sounds like in any event you’re taking a fairly amoral view of the intergenerational weighting issue. But clearly there can be some costs imposed – e.g. we consume real resources today (perhaps facilitated by the state’s unique abilities to borrow and print money, versus the personal financial analogies), and/or they incur higher interest rates if they choose to default (neither generation had a ‘right’ to credit but one still has to pay more because of actions by the other).

    P.S. On the tangential drug issue, I think allowing re-importation into the US could be the worst thing that could happen to Canada in terms of their current free-riding status (by virtue of having a much smaller market)

  33. 33 33 Jimbino

    Lots of us are non-breeders who have no interest whatsoever in relinquishing our hard-earned wealth in order to pass it on the the kids of the breeders.

    Especially now that there’s hardly any world problem–from pollution to water scarcity–that wouldn’t be solved by putting a stopper in the Big Vagina.

  34. 34 34 Frozen

    @nobody.really 30:

    “After all, if drug companies were forced to charge uniform rates throughout the world, would prices in the US really come down much? Or would they simply rise everywhere else – producing no benefit to anyone?”

    I don’t know how to guarantee that prices would come down in the US, but I can certainly guarantee that price controls imposed in other rich countries in Europe at a minimum transfer R&D costs to the US and likely additional costs as well. And simply rising prices would at least benefit the shareholders in the drug companies. I’m not advocating for charging uniform rates. I’m advocating for allowing the markets to find their own equilibrium as with any other commodity.

    @iceman 32:
    “P.S. On the tangential drug issue, I think allowing re-importation into the US could be the worst thing that could happen to Canada in terms of their current free-riding status (by virtue of having a much smaller market)”

    Ooo, that’s deliciously evil if you could rig it such that the drug companies only supply a fixed amount of product into their market AND allow re-importation at even a modestly higher price. Devious way to get around their price controls! :)

  35. 35 35 nobody.really

    I find consent to be an important moral criterion. For example the advantages / blessings you describe seem largely in terms of being ‘less bad’ relative to some more coercive system…I might describe them as results of a system based on consent.

    Not sure I’m following this.

    Hypothetical A: A bunch of guys in the late 1700s feel coerced by a monarch and a system that involves taxation without representation. They overthrow that system and establish the US of A. But in the process, they incur a national debt, and that debt gets passed on to their children. Are the children justified in complaining? Would the children have been better off if no debt had been incurred, and no independence had been gained?

    Hypothetical B: Same scenario, but independence is gained without incurring debt. Instead, debt is incurred later due to lavish living. The children of Hypothetical B find themselves in exactly the same circumstances and the children of Hypothetical A – same degree of freedom, and same debt. Are they somehow more aggrieved? In other words, are the children of Hypothetical B somehow entitled to something more than the children of Hypothetical A? And if so, whence comes this sense of entitlement?

  36. 36 36 nobody.really

    After all, if drug companies were forced to charge uniform rates throughout the world, would prices in the US really come down much? Or would they simply rise everywhere else – producing no benefit to anyone?

    I’m not advocating for charging uniform rates. I’m advocating for allowing the markets to find their own equilibrium as with any other commodity.

    When some people speak of “any other commodity,” they may imagine commodities we see modeled in traditional supply & demand curves – that is, with an increasing supply curve that creates a market-clearing price that exceeds the aggregate cost of production.

    Drugs involve high sunk costs and low incremental costs – so low that marginal-cost pricing may NEVER recoup the sunk cost. (“Making the first pill cost $27.3 million; making the second pill cost $0.03.”) If competition can drive the cost of the drug to the marginal price, the producer is doomed. But if the producer can maintain a monopoly on the drug, she can charge a price above marginal cost – perhaps permitting recovery of the initial investment, and perhaps permitting recover of monopoly profits.

    But to maintain price above marginal cost, the producer must restrict output below the market-clearing level. That is, the producer must withhold the drugs from people who would be willing to buy it at a price that equals or exceeds that it would cost the manufacturer to make. This is clearly inefficient – but apparently necessary if the manufacturer has any hope of recouping her costs. Arguably, THIS woudl be the result of “allowing markets to find their own equilibrium”.

    However, if someone – the monopolist, or perhaps a regulator – can implement price discrimination, then prices can be designed such that some people pay the above-marginal-costs that enable the whole system to work, while others can something less – perhaps the marginal cost – thereby permitting the benefits of the drug to be spread more widely. The system depends upon creating a structure that limits arbitrage between these two groups.

    The people who are paying the higher price will feel aggrieved. But it’s unclear that their feelings are justified – that is, it’s unclear that we could design a pricing structure that would permit them to pay any less than they already do, and yet permit the manufacturer to recoup her costs. Sure, the low-cost-payers are benefitting, but it is unclear they are benefitting at the expense of the high-cost-payers. The low-cost-payers may simply be free riders; or they may actually contribute something above marginal cost, but just not as much as the high-cost payers pay. In any event, the relevant fact for the high-cost payers is not what other people pay, but what price the high-cost-payers would pay under some other price design. If there is no other price design that would permit the high-price-payers to pay less while also permitting the manufacturer to recoup her costs, then the high-price-payers really don’t have cause for complaint; they’re just “dogs in the manger.”

  37. 37 37 iceman

    nr — If I was going to give you $5 out of the goodness of my heart but then change my mind, do you have a basis to feel aggrieved? I think the disconnect is that I can feel like maybe I should do something for you, or not do something to you, but not necessarily out of any sense that you are *entitled* to a particular outcome. In that respect it might matter to me on some level whether a debt was incurred as an investment that will benefit both of us, or “lavish living” that benefits me at your (future) expense. And using the tools of state power can raise the stakes / scope of such decisions. But in general I’m agreeing with you that framing these intergenerational issues in terms of personal morality tales gets subjective and messy.

    I was more intrigued by the idea that, to paraphrase #23, “for someone to laud the vast blessings that we inherit, while seemingly downplaying the virtue of the ‘consent-based’ philosophy that IMO underlies them, is simply myopic.” That may be unfairly over-interpreting your comments.

  38. 38 38 Ken Arromdee

    Hypothetical A: A bunch of guys in the late 1700s feel coerced by a monarch and a system that involves taxation without representation. They overthrow that system and establish the US of A. But in the process, they incur a national debt, and that debt gets passed on to their children. Are the children justified in complaining? Would the children have been better off if no debt had been incurred, and no independence had been gained?

    For the original question, the answer is that if hypothetical B is possible, then the debt is not actually necessary to win the revolution, and therefore the debt can’t be considered a cost of the revolution. A essentially would be the same as B except that instead of lavish living it’s mismanagement.

    Also, consider hypothetical C: A bunch of guys in the late 1700′s decide they want some slaves and import them from Africa. Africa is poor, so the children of the slaves, by virtue of now being located in the United States instead of Africa, are much better off on the average than they would have been if their ancestors had not been enslaved and had remained in Africa. In fact, since some tribes sold captured enemies into slavery as an alternative to killing them, some of these children may not have existed at all if there was no slavery. Are the children justified in complaining?

  39. 39 39 nobody.really

    Some good analogies today!

    [F]or someone to laud the vast blessings that we inherit, while seemingly downplaying the virtue of the ‘consent-based’ philosophy that IMO underlies them, is simply myopic.

    Touche! Yes, some of the blessings of living in the US derive in part from the value we place on consensual arrangements – more or less, from contract law. That’s a fine point.

    Yet I suspect others would argue that the blessings of living in the US derive more directly from property rights. Unlike contracts, which bind only the people who consent to be bound, property rights presumably bind everyone in the world regardless of their consent. If I own X, I presumably have the power to exclude everyone else from using X. And especially in the context of land, this power is typically exercised via force or threat thereof.

    For what it’s worth, I regard consent as a wonderful policy to govern many of the details of my life. But overwhelmingly, the outcome of my life is governed by circumstances over which I exert no consent whatsoever – my race, age, gender, intellectual capacity and genetic make-up; the time, place, and manner of my birth; indeed, the fact of my birth at all. That doesn’t mean that I shouldn’t focus on consent as one of the strongest levers I can move; but I try not to let the strategic importance of consent mislead me about its potency.

    And then there’s that whole determinism thing….

    [I]f hypothetical B is possible, then the debt is not actually necessary to win the revolution, and therefore the debt can’t be considered a cost of the revolution. A essentially would be the same as B except that instead of lavish living it’s mismanagement.

    Fair enough. And what do you conclude from that? Specifically, do the children have a right to demand that their parents pay off the nation’s debts? And do the children have a right to demand that their parents deliver them from living under a monarch?

    As far as I can tell, no and no.

    Let’s take it further. Which would be more burdensome to you: living with the national debt, or living with unmediated pain? Aspirin wasn’t invented (in the West?) until 1898. Should all human beings born before that time remonstrate against their parents for leaving them in such circumstances?

    Face it: We’re all born into circumstances largely out of our control. Beyond anything we could influence, we are heirs to all of accumulated history – aspirin, democracy, and debts. To pick out any one aspect as a point of grievance just seems goofy. “Hey mom and dad, thanks for fixing the Great Depression; defeating the Nazis, the Soviets and al Quida; making strides against discrimination based on race, religion, gender, and sexual orientation; cleaning the air and water; inventing transistors, antibiotics, and the internet; increasing life expectancy; and creating a $15 trillion GDP. I know that your parents didn’t leave any of this stuff to you, so I really appreciate what you’re managing to leave to me. But dammit — how do you explain this phone bill?”

    [H]ypothetical C: A bunch of guys in the late 1700′s decide they want some slaves and import them from Africa. Africa is poor, so the children of the slaves, by virtue of now being located in the United States instead of Africa, are much better off on the average than they would have been if their ancestors had not been enslaved and had remained in Africa. In fact, since some tribes sold captured enemies into slavery as an alternative to killing them, some of these children may not have existed at all if there was no slavery. Are the children justified in complaining?

    Excellent example. It’s not clear to me that they are justified in complaining that they are in a worse circumstance than if the slave trade with the US had not existed.

  40. 40 40 contra

    It is “immoral” for us to “pass on debt” to future generations — future generations who will almost surely be richer than we are.
    ——-

    It seems to me that Romney’s remarks can be defended.

    /1/ In absolute terms, future generations may be richer – but by the standards of their time, and compared to future generations in other countries, they may be poorer than we are. Entailing them with debt may impoverish them relatively – and make the nation’s future less promising.
    /2/ Some people not only want their children to be better off than they are – but consider working for this goal a moral imperative. Previous generations did this for us – we may feel morally obligated to do the same. Romney’s assertion makes sense as an appeal to this moral standard, which he, quite possibly, shares.
    /3/ If future generations will be richer than ours, it’s because they will be more productive. Is it right to shift wealth from a more productive enterprise (theirs) to a less productive one(ours)? In which case will it do the greater good to the greater number?

  41. 41 41 Steve Landsburg

    contra:

    /1/ In absolute terms, future generations may be richer – but by the standards of their time, and compared to future generations in other countries, they may be poorer than we are. Entailing them with debt may impoverish them relatively – and make the nation’s future less promising.

    I am not terribly sympathetic to the notion that “relative” impoverishment matters very much.

    Some people not only want their children to be better off than they are – but consider working for this goal a moral imperative.

    It seems to me that it would be very hard to hold this view without also holding the view that having children is a moral imperative. My daughter could have met with any of three fates: A) Not be born. B) Be born and receive no inheritance. C) Be born and receive an inheritance. I believe she’d have preferred B) to A). So if it’s immoral to put her in position B), I’d expect it also to be immoral to put her in postion A). Yet very few people are willing to assert that having children is a moral imperative.


    /3/ If future generations will be richer than ours, it’s because they will be more productive. Is it right to shift wealth from a more productive enterprise (theirs) to a less productive one(ours)? In which case will it do the greater good to the greater number?

    This is an excellent point. We might not want to give up a dollar to make our rich descendants a dollar richer, but might still be willing to give up a dollar to make our rich descendants ten dollars richer. But I still see that as a matter of preference more than a moral imperative.

  42. 42 42 nobody.really

    /3/ If future generations will be richer than ours, it’s because they will be more productive. Is it right to shift wealth from a more productive enterprise (theirs) to a less productive one(ours)? In which case will it do the greater good to the greater number?

    This is an excellent point. We might not want to give up a dollar to make our rich descendants a dollar richer, but might still be willing to give up a dollar to make our rich descendants ten dollars richer. But I still see that as a matter of preference more than a moral imperative.

    Also, recall the context in which this discussion arose: Landburg observed that a progressive tax code tends to shift dollars from the relatively affluent to the relatively poor, whereas reducing the national debt has the opposite consequence. If Romney favored shifting dollars to people who are more productive, and if he regarded wealth as a measure of greater productivity, then Romney might well favor reducing the national debt – but presumably also would also oppose a progressive tax code.

    Yet very few people are willing to assert that having children is a moral imperative.

    Would you tell that to my mom?

  43. 43 43 Steve Landsburg

    nobody.really (#42): Great comment, but I can’t figure out which half is greater.

  44. 44 44 nobody.really

    You’re very kind; I’ll pass this along to my mom.

    For what it’s worth, Romney seemed to be getting in touch with his inner redistributionist during Sunday’s interview on 60 Minutes:

    I want to keep the current progressivity in the code. There should be no tax reduction for high income people [because the reduction in tax rates would be offset by the elimination of (as yet unspecified) tax deductions].

    * * *

    [W]hat I do in my Medicare plan for younger people coming along is say this, “We’re going to have higher benefits for low income people and lower benefits for high income people. We’re going to make it more means tested.”

  45. 45 45 iceman

    NR #39 — “my life is governed by circumstances over which I exert no consent whatsoever – my race, age, gender, intellectual capacity and genetic make-up; the time, place, and manner of my birth…I try not to let the strategic importance of consent mislead me about its potency.”

    All true, and true for all systems. Yet under any set of such circumstances, history suggests that consent lever is quite potent. So why not focus on optimizing the things we *can* control? Again for my part, the overall context here is that this intergenerational debt stuff doesn’t have to be about grievances or rights for me to want to think about doing the right thing. That depends on what we’re spending the borrowed $ on.

    However, near as I can tell, those who claim that health care is a “right” do in fact believe people were entitled to aspirin before it was invented.

    BTW on property rights – a system based on consent = not based on non-consent, so still requires a rule of law. We might consent to you selling me your lawnmower, not to someone else coming along and taking it.

  46. 46 46 nobody.really

    /3/ If future generations will be richer than ours, it’s because they will be more productive. Is it right to shift wealth from a more productive enterprise (theirs) to a less productive one(ours)? In which case will it do the greater good to the greater number?

    If Romney favored shifting dollars to people who are more productive, and if he regarded wealth as a measure of greater productivity, then Romney might well favor reducing the national debt – but presumably also would also oppose a progressive tax code.

    Matthew Yglesias argues that (at least one interpretation of) Mitt Romeny’s (vague) tax plan would reflect this dynamic.

    Romney proposes a revenue-neutral reduction in tax rates, offset by the elimination of (unspecified) deductions. The Tax Policy Center ran scenarios eliminating various deductions. They showed that the BEST CASE scenario for the middle class still has the effect of leaving them with lower after-tax income. And all scenarios leave the wealthy (households with incomes > $200,000) with higher after-tax income. But everyone gets a lower marginal tax rate.

    Yglesias reasons that the combined effect of reducing people’s wealth while reducing marginal tax rates would have the effect of encouraging greater productivity, and “the idea that high-end tax cuts are more socially beneficial than increased public services is a longstanding American conservative position.

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