Over at Overcoming Bias, Robin Hanson objects that if people really believed this argument, they’d want to criminalize lesbianism and extramarital affairs, both of which also contribute to the problem of men-without-partners.

But I think one could consistently take the position that while lesbianism contributes to the problem, it’s just not widespread enough to be worth stamping out, while polygamy (if legal) might well become so. And as far as extramarital affairs, I think Robin has it completely backward: When the wife of a 30 year old man (who is well past the prime age of violence) has an extramarital affair with an 18 year old, she is alleviating the problem, not contributing to it. Besides, most extramarital affairs do not deprive the husband of a long term sex partner.

I’m all for legalizing polygamy, because I’m all for legalizing almost everything. But I don’t think you can dismiss this argument—or the sincerity of its proponents—as easily as Robin seems to think you can.

 Print

Share/Save

A couple of bullet points from his latest:

• In response to the priorities of Senator John Kyl, Krugman writes: “So $30 billion in aid to the unemployed is unaffordable, but 20 times that much in tax cuts for the rich doesn’t count.” Oh, for goodness’s sake. $30 billion in aid to the unemployed might or might not be good policy and 20 times that much in tax cuts might or might not be good policy; that’s beside the point here. The point is that these are quite entirely separate issues and one’s position on the first need not dictate one’s position on the second. Aid to the unemployed is costly. Tax cuts are not. Didn’t I just say this?
• And Krugman goes on: “On paper, solving America’s long-run fiscal problems is eminently doable: stronger cost control for Medicare plus a moderate rise in taxes would get us most of the way there.” In the words of a certain Nobel laureate, this passage makes me want to stick a pencil in my eye. It’s like saying “Getting my family budget under control is eminently doable: fewer caramel macchiatos plus more trips to the ATM would get us most of the way there”. Yes, cutting spending will help. No, moving money around won’t.

  Like it or not, the government can always raise taxes and therefore always has a claim on your wealth. You are the government’s ATM. Making a withdrawal today (by raising your taxes) means there will be less available to withdraw tomorrow. Raising taxes does not make the government richer. Didn’t I say this already?

• Yes, I know, a bunch of silly Republicans (along with a bunch of silly Democrats) have gone around saying the deficit is all that matters, which implies that a tax increase can offset a spending increase. Yes, silly people are silly. But the existence of silly people is not enough to justify additional spending. For that, you’ve got to, you know, attempt to justify the additional spending.

Sometimes a caramel macchiato is worth the cost and sometimes it’s not. Sometimes an unemployment benefit is worth the cost and sometimes it’s not. We have useful ways of thinking about these things. Some people say: “You know, that macchiato is expensive but it’s worth it.” Others say: “I don’t think that’s a very wise expenditure right now.” Paul Krugman says: “AHA! So a caramel macchiato is unaffordable, but you still haven’t visited the ATM!” And I say: How’s that again?

Stay tuned for more Godel, more Darwin, and a little less Krugman.

 Print

Share/Save

There’s no question that extending benefits would be good for the currently unemployed, and no question that it would be bad for those who are called on to foot the bill. Economists usually deal with that kind of conflict by asking what policy you’d prefer if you had amnesia, and and didn’t know your own employment status. (You can read a lot more about this approach to policy analysis in Chapter 16 of The Big Questions.) The amnesiac is an impartial judge who is forced to care about everyone, because he/she might be anyone.

To translate this philosophical position into concrete policy choices, we have to figure out what the amnesiac wants. Fortunately, we have a lot of experience observing amnesiacs, or at least their equivalents. When you buy health insurance, you don’t know how much medical care you’re going to need; when you accept a sales job, you don’t know how you’ll perform; when you buy a share of stock, you don’t know whether it will go up or down. So you’re making choices in the dark, much like an amnesiac who doesn’t know his own health status, or his own salesmanship skills, or how his own portfolio is doing. By observing those choices, we can estimate how real amnesiacs are likely to behave.

By the industry standards of economics, to justify further unemployment benefits, you’ve got to at least to attempt to argue that an amnesiac would favor them. And you do this not by posturing a la Krugman, but by computing.

Now that’s not an easy business. You need to make educated guesses about a lot of things an amnesiac might care about, like: What’s the chance of becoming unemployed? How costly is unemployment? What utility function do people maximize? How much do people discount the future? How much deadweight loss (i.e. lost production due to disincentive effects) is caused by taxation? Different economists might make different guesses, and so get different answers. But at that point we can at least pinpoint the locus of our disagreements and try to get better estimates in the areas where we differ.

To show you how that kind of thing might work, I’ve just written down a (warning: technical!) toy model where I invented answers to the key questions, did some computations, and concluded that our amnesiac would oppose further benefits. (Honest, I didn’t know in advance what answer I would get.) These computations prove nothing, because at least some of my invented answers surely have nothing to do with reality. But my point is that if you’re claiming as an economist to support further benefits, then it’s your job to do the hard work of writing down a more realistic model and show me how the numbers work out. As far as I’ve seen, neither Krugman nor any of his ilk have even tried to do that.

Edited to add: Joe Walsh of the University of Alabama writes to tell me there are arithmetic mistakes in my account of the toy model. For those who want to understand the model, a very good exercise would be to work through it, correcting all the arithmetic mistakes.

Edited further: It was an overstatement to say that my pdf file contains arithmetic errors. In fact all it contains is a typo. In the first displayed equation, c-50 should be just c. After making that correction, all of the follow-up math is right. Thanks to reader A.J. Lenze for checking this.

 Print

Share/Save

The artwork above is courtesy of Jodi Beggs, proprietress of the lively Economists Do It With Models site, who graced us with a visit in yesterday’s comments and expanded on those comments on her own page. (That’s me kicking Paul Krugman in the gut.)

Jodi objects to the tone, and in part to the substance, of my response to Paul’s recent attacks on the “deficit hawks” who oppose various spending programs that Paul happens to favor. I’d summarized his rhetorical technique as follows:

• Identify an adversary who is concerned about the cost of some program Krugman likes.
• Label that adversary a “deficit hawk”.
• Belittle (perhaps reasonably) excessive concern about the deficit while ignoring legitimate concerns about the costs of spending and taxation, which is not at all the same thing.
• Omit any attempt at an honest reckoning of costs and benefits.
• Pretend you’ve said something relevant.
• Sneer.

I particularly objected to Paul’s labeling as “hypocrites” those who support both spending cuts and tax cuts. Paul thinks that’s hypocritical because spending cuts and tax cuts have opposite effects on the deficit. I think that’s completely ridiculous because the merit of a policy depends on many things other than its effect on the deficit. Here’s Jodi’s attempt to prove that we’re both right and both wrong:

If all people claim to care about is size of the deficit, then they are being hypocritical in advocating one method of reducing the deficit and eschewing another. If all people care about is economic efficiency, then they are by definition internally consistent if they advocate both benefits and tax cuts. The reality of the situation is that most reasonable people put some weight on both deficit reduction and economic efficiency, so people are not automatically hypocritical or consistent just because they are simultaneously in favor of cuts in unemployment aid and taxes.

I agree in principle, but I object in practice, because in practice nobody cares primarily about the size of the deficit.

Look. Any time the government spends money, there are two or three downsides (which might or might not be outweighed by the upsides). Call the downsides Thing One, Thing Two, and Thing Three. Thing One, the biggee, is that resources get consumed. Thing Two, which can also be pretty big, is that the program must be financed by (current or future) taxes, which discourage productive activity. And finally, there might or might not be a Thing Three, which is that any increase in the deficit could conceivably have some minor disadvantages that are, by any reckoning, eensy weensy compared to Things One and Two.

Because Things One and Two are so much bigger than Thing Three, it must be extremely rare for the prospect of Thing Three to sway anyone’s opinion about the overall desirability of any given spending program. So for Paul to pretend that most of the opposition to his favored programs is based on Thing Three still strikes me as, yes, pummelling a straw man.

Everyone agrees that the deficit is a relatively minor issue (though some of us have said so more consistently than others). Paul wants to pretend that his opponents believe otherwise so that he can prove them wrong. That’s easier, I suppose, than engaging the issues they might be right about.

 Print

Share/Save

In America, many self-described deficit hawks are hypocrites, pure and simple. They’re eager to slash benefits for those in need but their concerns about red ink vanish when it comes to tax breaks for the wealthy. Thus, Senator Ben Nelson, who sanctimoniously declared that we can’t afford $77 billion in aid to the unemployed, was instrumental in passing the first Bush tax cut, which cost a cool $1.3 trillion.

Where to begin?

First, no economist—let me repeat that—NO economist, not even Paul Krugman on the days when he’s being an economist—would count a tax cut as a cost for purposes of policy analysis. A cost is something that consumes resources, not something that changes the ownership of resources. My Principles of Economics students all understand this; so, presumably, does the Nobel-prize winning author of a prominent Principles textbook. (A possible exception: You could call a present-day tax cut costly if it necessitates a future tax increase which, for some reason, is costlier to collect than the present-day tax. I guarantee you this is not what Krugman has in mind. If it were,the $1.3 trillion number that he highlights would be totally irrelevant to the actual cost.)

Next, unemployment benefits are costly, both insofar as they discourage recipients from seeking work and insofar as they necessitate taxes that discourage productive activity. The cost of $77 billion worth of benefits is not $77 billion, but it’s not zero either.

So unemployment benefits are costly and tax cuts are not. Which doesn’t mean that all unemployment benefits are bad or that all tax cuts are good, but it’s plenty adequate to absolve the hypocrisy charge.

But Krugman, as is his wont lately, appears committed to the following flat-out dishonest rhetorical agenda:

• Identify an adversary who is concerned about the cost of some program Krugman likes.
• Label that adversary a “deficit hawk”.
• Belittle (perhaps reasonably) excessive concern about the deficit while ignoring legitimate concerns about the costs of spending and taxation, which is not at all the same thing.
• Omit any attempt at an honest reckoning of costs and benefits.
• Pretend you’ve said something relevant.
• Sneer.

In short: Keep on pummelling that straw man.

 Print

Share/Save

A.C. Pigou taught us that we get better outcomes when decisionmakers bear the costs of their actions. Ronald Coase taught us that Pigou’s lesson cuts two ways. The shrimp boats that are sitting idle today are sitting idle partly because BP decided to drill in the gulf, but also partly because the shrimpers chose to operate in the vicinity of an oil rig. In this case, making BP feel the costs of its own decisions entails insulating the shrimpers from the costs of theirs.

In this particular case, I’m inclined to believe that it’s a good thing for BP to pony up. But contrary to what I’ve been reading around the web, there’s absolutely nothing in economic theory to dictate that conclusion; instead the conclusion depends on the particulars of the case. Is it cheaper to deal with the problem of spills by encouraging oil companies to be more responsible, or by encouraging others to stay out of their way? That’s an empirical question. Theory can’t answer it.

The various commentators who think they can justify holding BP liable by crying the word “externality”—and stopping there—exhibit a commendable grasp of environmental economics circa 1930. But this is 2010.

 Print

Share/Save

I will leave you instead with this seven-year-old quote, and let you contemplate how history might have been different if anyone had listened:

Today, I will introduce the Free Housing Market Enhancement Act, which removes government subsidies from the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the National Home Loan Bank Board. . . . Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market.

(Hat tip to Patri Friedman.)

 Print

Share/Save

Let me start with the budget arithmetic, borrowing an approach from Brad DeLong. Consider the long-run budget implications for the United States of spending $1 trillion on stimulus at a time when the economy is suffering from severe unemployment.

That sounds like a lot of money. But the US Treasury can currently issue long-term inflation-protected securities at an interest rate of 1.75%. So the long-term cost of servicing an extra trillion dollars of borrowing is $17.5 billion, or around 0.13 percent of GDP.

Yes. That’s the long-term cost of borrowing an extra trillion dollars. (Actually, the cost is even lower than Krugman says it is.) But the long term cost of spending an extra trillion dollars is somewhere in the vicinity, of, oh, about a trillion dollars, or about 7.4% of GDP.

Now you might argue that if some of that spending puts unemployed resources to work, then the true cost of spending a trillion is somewhat less than a trillion, but Krugman, at least here, does not attempt to make that argument. Nor do I expect that even Paul Krugman would dare to argue that an adjustment for unemployed resources could reduce the cost of government spending by roughly 98%.

Krugman is right when he says that borrowing is cheap. But the issue isn’t borrowing; it’s spending—and spending is expensive. It appears that like the President, Krugman wants to divert your attention from spending to borrowing so he can dismiss legitimate concerns without even acknowledging them. It’s a cheap trick. Don’t let either of them get away with it.

Edited to add: In fairness to Krugman, he appears to be imagining that the trillion is never paid back, so that the cost of spending it is simply the debt service of 17.5 billion per year forever. But his column makes it sound like the cost is a single one-time payment of 17.5 billion, which is absurd.

 Print

Share/Save

So why the singular focus on teachers? The answer, of course, is that unlike plumbers or cab drivers or pharmaceutical workers or computer programmers, teachers, through their unions, were major contributors to the Obama campaign.

All victorious politicians engage in the unsavory practice of diverting spoils to their most vigorous supporters at everyone else’s expense. In this, the current administration may be no more blameworthy than any other. But I’m pretty sure that sending out the chair of the Council of Economic Advisors to defend these political payoffs marks a new sort of low. Traditionally, the Council is composed of first-rate academics whose job is to give good counsel and remain above the political fray. Shame on the President for debasing that noble mission, and shame on Christy Romer for going along with it.

 Print

Share/Save

To be a Times contributor, you apparently have to write like Mara Gay, who penned these lines for a front page article last week:

New York may soon become the first state to offer employment protection for nannies.

The state Senate passed a bill of rights for domestic workers this week, a measure that would require employers to offer New York’s approximately 200,000 household workers paid holidays, overtime pay and sick days.

Supporters say the step will provide needed relief to thousands of women — and some men — who are helping to raise the children of wealthier New Yorkers without any legal workplace rights beyond the federal minimum wage.

Now, you see, if I had been writing this article, it might have opened more like this:

New York state may soon become the first state to restrict employment opportunities for nannies.

The state Senate passed a bill this week that would prohibit New York’s approximately 200,000 household workers from accepting any position that does not include paid holidays, overtime pay and sick days.

Opponents say the step will bring unnecessary hardship to thousands of women—and some men—who have found employment because of labor markets that operate freely, except for constraints imposed by the federal minimum wage.

A more neutral observer might have noted that this bill, if passed, will be good for some of those nannies who retain their jobs, bad for the many nannies who will be driven out of the business, and extremely good for people like Ai-jen Poo, director of the National Domestic Workers Alliance, who will represent the winners and can conveniently ignore the losers. Instead, Ms. Poo is quoted, without apparent irony, as calling the measure “a huge step forward in reversing the long history of exclusion that domestic workers face.”

Query: Are the editors at the Times genuinely oblivious to this kind of bias? Or do they just not care?

 Print

Share/Save