Category: Public Policy
Conservatives for Pele
Many cultures throughout human history, baffled by the origins and causes of natural phenomena, have come to devise bizarre and exotic explanations for them. Lacking a thoroughgoing understanding of planetary formation, plate tectonics and fluid dynamics, even cultures as advanced as the Romans had Vulcan, god of fire, from which the English word volcano is derived. And while tossing virgins into craters is largely a Hollywood invention, many cultures have practiced low-impact sacrifices, including Hawaiians to Pele and Indonesians to Mount Bromo.
In the West, several centuries of scientific tradition have eliminated most such practices. A few persist, however – among the most remarkable is conservatives’ belief that, during recessions, natives should sacrifice government services and jobs to appease mighty Inflation, a modern-day analog to Pele.
Science progresses in a similar fashion across most disciplines. Data are collected; theories are offered to explain the data. Those theories are then used to generate new predictions. New data are collected, and if it squares with prediction, then the theory is said to have been substantiated, and is strengthened. But if the it goes off in some other direction, the theory must be retooled, if not discarded.
The problem with conservative macroeconomists is that, as their models have been contradicted again and again by newly arriving data, they hold fast to their theories – a practice more akin to religion than science; as their theories become more and more like religious beliefs. Philadelphia Fed President Charles Plosser is the poster child for scientists-turned-theologians. He began worrying publicly about “imminent” inflation back in April 2008. Six and a half years later, while US inflation has averaged 2% annually, Plosser is still worrying, unfazed that his one-time theories – now, more aptly described as dogmas – have fallen and cannot get up.
Martin Feldstein, Reagan’s first chief economic adviser, has a similar record. Feldstein, who left the Reagan Administration because they werent sufficiently conservative, started worrying about inflation in 2009, and is still beating the drum. The repeated failure of his economic models to predict the low inflation that the US has seen over that period has not motivated him to find a model that actually works.
Theories exist to explain the data we have, and to predict the data we hope to gather. That’s it. A theory that fails in both respects should not be kept around to stink up the house like some beloved-but-incontinent family dog. Bad theories need to be euthanized to let the discipline move forward. Clinging to old, failed theories can have terrible consequences. The practice literally killed George Washington, whose doctors bled him to death to “treat” his cold. Doctors bled patients for centuries, until sound scientific methods demonstrated the procedure’s destructiveness.
Some commentators have mockingly dubbed the policies of inflation-phobic economists as “sado-monterism.” It’s expressed as a preference for high interest rates and budget cuts in the face of a weak economy, in the absence of inflation or even its threat. It is in fact very much like bleeding a sick patient, in that it strikes at the economy’s very ability to correct itself, by making capital scarce and spending weak when both are needed most.
Belief in gods of volcanoes and inflation survive via the same process: shoddy reasoning. Economists like Plosser and Feldstein, and the entire governing council of the European Central Bank, are probably no more or less dishonest or well-intentioned than the people who worshiped Pele. Like 18th century Hawaiians, they’re just exceptionally poor scientists.
Refs:
Plosser 2008: http://blogs.wsj.com/economics/2008/04/18/fedspeak-highlights-plosser-on-inflation-and-fed-actions/
Plosser 2013: http://www.marketwatch.com/story/plosser-inflation-risks-unless-fed-tightens-2013-01-11
Plosser 2014: http://www.cnbc.com/id/101938255
Feldstein 2014: http://online.wsj.com/news/articles/SB10001424052702303978304579471472849459860
http://www.salon.com/2014/04/21/paul_krugman_on_the_latest_major_victim_of_sadomonetarism/
http://www.nytimes.com/2014/09/12/opinion/paul-krugman-the-inflation-cult.html
http://www.forbes.com/sites/johntharvey/2014/09/17/wheres-the-hyperinflation/
http://en.wikipedia.org/wiki/Pele_%28deity%29
This post’s title is a tribute to Boys for Pele, among the greatest pop albums ever recorded.
The Pox on Both Your Houses of Congress
Congress is dysfunctional because a significant fraction of Congressmen lack the requisite education, training, judgment and-or intelligence to acquit themselves of the task of modern governance. Their inadequacies are attributable to an electorate that lacks the wherewithal to choose good representatives. Ultimately, the fault lies not in our reps, but in our voters.
Taking the time to learn about current events; forming cogent, coherent opinions on disparate subjects; and, finally, evaluating candidates for office in light of that information – according to their positions, their acumen, their character, and other factors – is extremely time-consuming. Given the miniscule consequence of a single vote, one’s time is more profitably spent advancing one’s own private affairs. An individual vote, well or poorly cast, has so vanishingly tiny an effect, that it is quite rational to not be troubled over it – to leave educated voting to those with the time and inclination.
The good news is that this is not a problem for democracy. An enormous proportion of the electorate can rationally choose to remain ignorant to the issues, free riding on other citizens’ educated decisions at the ballot box, and better candidates should nonetheless prevail. That’s because, all things being equal, ignorant voters cancel each other out by casting votes randomly for one candidate or another – their votes split nearly equally. And thus a very tiny fraction of educated voters, whose voting is not random, should tip the balance in favor of the better candidate. Indeed we’re fortunate that democracy can function in environments with exceptionally low signal-to-noise ratios: even if just 1% of all voters are informed, elections should still produce good results.
But the wheels come off the bus if ignorant voters are biased. If they, as a group, err in a particular direction, their errors will not cancel out – and the number of educated voters required to tip the balance in favor of better candidates increases dramatically. With 99% of all voters ignorant and splitting 50-50, a 1% informed minority is mathematically sufficient to choose superior candidates. However if ignorant voters are ever so slightly biased, such that their votes dont randomly split 50-50, but shake out at 51-49, e.g., the proportion of informed voters required to obtain the desired result triples from 1% to 3%. And as you ratchet up bias and ignorance by tiny degrees, the proportion of informed voters required for a healthy democracy escalates dramatically – bias can readily become insurmountable, and elections will be determined not by the knowledge and insight of the few, but by the direction of the bias of the many.
And that is the nature of the pox on both houses of congress. Its name, of course, is conservatism. A decades-long bombardment via nauseatingly familiar outlets has rendered many electoral districts across a vast swatch of country so thoroughly biased, that the knowledge of the few can longer be heard above the biased din of the ignorant – and those districts are sending increasingly poor representatives to Washington. It is no coincidence that this phenomenon is concentrated in the US south, which for two centuries has lagged behind the north in development, education, and most other socio-economic measures. Likewise it’s no coincidence that liberalism, education, wealth and better Congressional representation occur together on the coasts and across much of the midwest.
American democracy, by the most rudimentary observation, still functions well enough on the national scale. Since 1992, liberal Democrats have received the most votes in every presidential election except 2004 – when an incumbent Republican narrowly won while the US was fighting two wars. But on the district level, gerrymandering now guarantees a voice to the biased ignorant. The US Congress, by any measure, is more dysfunctional today than it’s been in 150 years. The cure will only come when the thrall of conservatism holding not quite half the country is broken.
Ref:
These themes are thoroughly explored in “The Myth of the Rational Voter: Why Democracies Choose Bad Policies” by Bryan Caplan – a maddening but worthwhile read.
The Fight for Liberalism in Syria
The US may have been tempted to support Bashar al-Assad, Syria’s nominal head of state, in his fight against Islamic State (IS). His army remains the best trained and best equipped of the many belligerents fighting for control of Syria. If the US had the single goal of wiping out IS, then backing Assad would be a good strategy. But the US, prudently, is not fighting militant Islam at any cost – surely not at the cost of aiding a secular authoritarian who has himself demonstrated exceptional brutality. The Obama administration and a majority in Congress are wise to eschew that unsavory liaison, and to support the Free Syria Army (FSA) instead.
There are many factions competing for control of Syria. But the Syrian National Coalition (SNC) stands out as by far the best bet for the cause of liberalism and democracy. Not coincidentally, a growing number of countries have recognized the SNC as Syria’s government, and have been arming their fighting force, the FSA. By denying aid to Assad, and instead favoring the weaker SNC/FSA as part of its newly elaborated campaign against IS, the US affirms that the era of convenient dictators is over.
While grappling with the USSR during the Cold War, the US faced the threat of total annihilation: of civilization, the species, the planet’s ability to support life. And so from Batista to Somoza to Trujillo to Pinochet to the Shah to Hussein to Mubarek, no dictator was too brutal – so long as a regime opposed the USSR and opened its markets to US firms, it could count on unfettered US support. Thus it was that US foreign policy during the Cold War frequently served to subvert democracy and liberalism abroad, as winning the Cold War took precedence. Liberalism within the US took a beating too, with the McCarthy era’s war on free speech and assembly, and the lingering scar that is the phrase “under god” inserted into the Pledge of Allegiance in 1954 – ostensibly to distinguish the US from “godless communists.”
Today the stakes are different. While the rise of theocracy in the Middle East – and the ability of terrorists to project power out of that region – are real and serious threats, they are not existential threats; and they therefore cannot justify the abandonment of what must be the US’s long-term interest in the worldwide proliferation of liberalism and democracy.
It’s for this reason that the Obama administration’s newly devised policy – aiding the FSA in its ground war against IS, Assad, and others (such as the Islamic Front, another nasty Islamist faction fighting in Syria); while itself prosecuting an air campaign against IS across Syria and Iraq – is a good one, and deserving of support.
Like the Cold War, the “War on Terror” has also taken a toll on American liberty, with Americans, under the auspices of the Patriot Act, subject to an outrageous degree of electronic surveillance. One hopes that that ill-considered law will be allowed to lapse next year. As for the Pledge of Allegiance, Americans may have to endure its bastardized form for another 60 years, albeit while (cynically) savoring the irony that religious zealots have replaced godless communists as America’s enemy du jour.
Militant Islam, like communism, shall also pass – as will the next affront to liberalism, whatever form it takes. But our commitment to liberalism must not be compromised along the way.
Refs:
http://news.yahoo.com/u-congress-poised-approve-aid-moderate-syrian-rebels-150528851.html
http://en.wikipedia.org/wiki/Free_Syrian_Army#Location
http://en.wikipedia.org/wiki/National_Coalition_for_Syrian_Revolutionary_and_Opposition_Forces
http://www.theguardian.com/world/2014/may/05/us-syria-opposition-diplomatic-foreign-mission-status
http://en.wikipedia.org/wiki/Fulgencio_Batista
How Israel Sustains Hamas
About 10 years ago, Senator Barack Obama gained national attention when he talked about the social stigma young blacks acquire when they “act white” by devoting too much time to schoolwork. Around the same time a young academic was making a name for himself with his work on the economics of “acting white” versus “acting black.” One of the questions his research addressed was why, given that “acting black” is associated with poor socio-economic outcomes, do so many urban youths nonetheless neglect their studies.
Among his findings, economist Roland Fryer demonstrated that in certain circumstances people rationally choose to strive for popularity within a community by conforming to local cultural norms – instead of seeking to escape that community via good grades and mainstream cultural norms. Or as one commentator put it, “some individuals can receive social benefits large enough to outweigh benefits they might otherwise receive via education and wages. In a purely rational sense, these individuals prefer peer acceptance to the benefits of education.”
In a certain environment, the long-term promise of college and a career dont outweigh the short-term social cost of “acting white.” Reciprocally, the short-term rewards for “acting black” are not easily sacrificed for the long-term gains potentially realized by being a more conscientious student. Fryer’s research has yielded great insights on the persistence of American urban subcultures associated with poverty, violence, drug abuse, low educational attainment, and poor long-term life outcomes. And it is no less powerful in helping to understand the popularity of Hamas in Gaza.
One begins by asking why Hamas is so successful at recruiting young men to its cause. Assuming that young men everywhere have similar interests – power, popularity, money, women, etc. – the obvious answer is that Hamas offers young men a shorter path toward their goals than other options. The big problem, common also to America’s poorest urban areas, is that in Gaza there’s scant opportunity to improve one’s life via education and hard work. People rationally choose to go about improving their lot through undesirable means, such as affiliation with Hamas.
The good news from Fryer’s research is that people are sensitive to their options – one might therefore be able to steer them away from making bad choices simply by providing them with superior alternatives. (There’s an analogous line of research in the social sciences showing that, across the globe, women with more education tend to have fewer children – that if you give women the option of choosing school and career, fertility drops like a rock.)
Israeli policies toward Gaza created and now unwittingly sustain Hamas. The blockade leaves young Gazans with few possibilities for work or commerce. It used to be one could acquire skills and sell one’s labor in Israel, or produce goods for export to Israel or elsewhere. But the blockade forecloses either of those two ordinary avenues, leaving individuals with few options to obtain the things they want, literally driving the population into the arms of Hamas.
Refs:
http://educationnext.org/actingwhite/
http://en.wikipedia.org/wiki/Acting_white#Case_studies_and_research
http://insight.kellogg.northwestern.edu/article/acting_white_or_just_acting_rationally/
http://en.wikipedia.org/wiki/Gaza_Strip#Economy
http://en.wikipedia.org/wiki/Blockade_of_the_Gaza_Strip
Inequality’s Cure is Good for All
Inequality’s myriad problems dont end with justice and politics – it’s bad for the economy too. Everyone, rich and poor, does worse over the long haul when the distribution of wealth and-or income is too extreme.
The empirics behind this assertion are solid. Economies with extreme inequality grow more slowly and are more prone to recession. To understand why this is so, consider an economy with twenty families, each with an annual income of $50,000. They are likely to spend every last dollar they have – and maybe borrow and spend a few dollars they dont have too. By comparison, consider two families, each with $500,000 in annual income. Total income is the same – but those two families are likely to spend much less, and save a significant fraction of their income.
In the aggregate, when a huge share of national wealth and income are sucked up by a handful of wealthy families, you get a very high savings rate, and relatively low spending. And that’s exactly what the US economy looks like today. And too much saving is a problem because my spending is your income; therefore my savings is your lost income. One reason the US economy has expanded so anemically following the Great Recession (one-half the ordinary rate) is the enormous concentration of wealth and income in the hands of the rich, who are not inclined to spend it – their high savings rate is killing everyone else’s income. Corporations – perceiving, correctly, that people of ordinary means lack the income to buy more – are sitting on a mountain of cash, unwilling to invest.
So we know that inequality is bad for growth, and we’ve even identified the mechanism that holds growth back. But the remaining issue is whether we can get from here to there – from an unproductive distribution of wealth to one that’s more growth-friendly – without damaging the economy with our redistributive efforts. And the latest research shows that we can.
Classical economists – AKA conservatives – believe that the economy runs like a Swiss watch: its every operation self-correcting and self-sustaining. In the way that the universe weirdly bestowed just the right physical forces in just the right strengths to make life possible (if not probable!), classical economists believe human nature is somehow weirdly wired to facilitate an economy like a grand perpetual motion machine, without centralized governing agencies. According to classical theory, anything a central planner tries to do to “improve” an economy will necessarily do more harm than good. Analogous to the second law of thermodynamics, their effort to enhance one aspect of an economy will result in degrading the system as a whole to an even greater degree.
For good reason, no one fully subscribes to classical economics. Anyone who did would have to oppose public education as a grand waste of resources – since the education of children might as well be left to private markets, as is baking, brewing and butchering.
Conservatives like to claim that there’s nothing to be done about inequality – because any attempt to fix it will do more harm than good. But like the rest of classical economics, this assertion’s relationship with reality is growing ever more tenuous. The latest research shows that we can, in fact, take positive steps to reduce inequality without harming the economy as a whole. Classical economics is wrong here too.
The upshot is that the government should not be timid about tackling inequality head-on – by increasing marginal tax rates on the wealthy, big estates, and investment income; and by reducing taxes on working people, whose incomes have been stagnant for decades. In the long run, everyone comes out ahead. This is consonant with the Liberal Field Guide’s concept of Self-Interested Liberalism. Modern liberalism, after all, is not about selfless generosity. Inequality is bad for everyone. Combating it through fiscal policy is good for all of us. Liberal policies like educating poor children, guaranteeing healthcare to everyone, and combating inequality make us all better off – rich, poor and in between.
Refs:
inequality bad for growth: https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1351366&SctArtId=255732&from=CM&nsl_code=LIME&sourceObjectId=8741033&sourceRevId=1&fee_ind=N&exp_date=20240804-19:41:13
fixing inequality will not do more harm than good: http://blog-imfdirect.imf.org/2014/02/26/treating-inequality-with-redistribution-is-the-cure-worse-than-the-disease/
http://carltonthurman.me/2014/04/11/the-self-interested-liberal-and-trickle-up-economics/
http://www.nytimes.com/2014/08/08/opinion/paul-krugman-inequality-is-a-drag.html
Platinum Plus Citizenship
It’s been nearly 17 years since the Onion ran its epic, “US Offers PlatinumPlus Preferred Citizenship.” It was biting at the time – and like many a good Onion satire, it’s only become more ironic.
Money buys influence, and always has – and thus as the wealth distribution becomes more unequal, influence becomes more unequal. The US Supreme Court, in cases such as Citizens United, has only made things worse by opening up more conduits through which money can buy influence.
Take two rather well-conceived TSA programs that allow travelers to escape long lines at US entry points and airport security. TSA’s Global Entry and PreCheck programs are available to just about everyone, subject to commonsense restrictions. If you undergo a background check, and satisfy TSA officials that you’re not a risk, you can cruise through airport security before the gate; and when returning from abroad, you can sail through US customs and immigration. It’s a win-win: TSA gets to focus its limited resources on catching bad guys, not wasting time and money harassing ordinary travelers; travelers save time and skip the extra hassles.
But Global Entry and PreCheck arent free – 5 year passes cost $100 and $85, respectively. That isnt a lot of money to frequent travelers, especially as a function of sky-high airfares; and it’s literally nothing to business travelers and-or carriers of pricey premium credit cards, who will have their fees paid for them. But to an ordinary American family that takes one vacation per year, it means shelling out $350-500, or waiting in line like everyone else.
Express toll lanes on highways are similarly efficient, in that they allow people who value their time more to buy a faster trip. We could apply the same logic to courts, the post office and DMV. And if you can pay a fee to get through airport security faster – why cant you pay to have the police or fire department respond more quickly to a distress call? (There’s evidence this is already happening, in effect – police respond faster to calls in more affluent neighborhoods.) Why not have a paid express lane at the ER of public hospitals?
Economics supports all of these measures because they make for a more efficient allocation of resources. But in the aggregate, they erode our civil society, because rich and poor cease to meaningfully share in the same public institutions. When it comes time to vote, they will naturally have different positions, because each has a radically different experience of government. And when it comes time to talk to one’s elected representatives, one must furthermore recognize that the same economic logic applies to political access. It is indeed economically efficient for politicians to listen to the highest bidders for their attention – because the person who is willing to pay most for a thing, ipso facto, values it most.
These programs – real and hypothetical – are all highly efficient uses of resources. And it’s a bit of a stretch to assert that our common experience of getting stuck in traffic, enduring the tedium of airport security, and waiting on line in DMV is what unites us as a people. But auctioning public services to the highest bidder – including face time with elected representatives – destroys our common experience of government, and as such undermines the basis we might have to agree on public policy. Within the same national boundaries, we see the emergence of two nations governed by two distinct governments: an affluent nation with a dutifully attentive government; and a second-class nation, with an indifferent one. PlatinumPlus citizenship for the few, and plain-vanilla citizenship for the rest.
Refs:
http://www.theonion.com/articles/us-offers-platinumplus-preferred-citizenship,889/
http://www.huffingtonpost.com/fodors/global-entry-vs-tsa-prech_b_5722612.html
http://www.huffingtonpost.com/george-hobica/tsa-precheck-expanding-br_b_3559419.html
http://www.huffingtonpost.com/dylan-ratigan/platinum-citizenship_b_1015571.html
The Look and Feel of Inequality
Ten years ago, John Edwards’ stump speech described “two Americas” – one for the wealthy, and one for ordinary working people. It had enough resonance to secure the freshman senator his party’s nomination for VP. Those two Americas have only since diverged further, and the division is increasingly visible in everyday life.
Recently, in New York City, there was an uproar over a new residential skyscraper. In order to obtain lucrative tax breaks and zoning variances, the builder set aside a number of units for middle-income residents – a commonplace in New York. However the builder took the unusual step of creating entirely separate entrances: one for the rich and a “poor door” for the rest. The rich might suffer having the same address as commoners – but they neednt be subject to the indignity of riding in the same elevator.
In the gilded age, the rich built fabulous townhouses in American cities – splendid three- and four-story, single-family residences. Then came the Great Depression and World War II, which wiped out much of the wealth and income inequality in America. And a funny thing happened: as the economic facts shifted beneath those single-family townhouses, many were broken up into apartments and condos – reflecting the postwar demographic shift in America toward the rise of the middle class.
Over the past 25 years, that trend has been reversing, and townhouses in cities like New York and Chicago are being consolidated back into single-family residences. Meanwhile, “modest” million-dollar single-family homes in LA’s most desirable neighborhoods are being torn down for multimillion dollar McMansions. Consonant with the demographic changes in the US, the middle-class are literally being pushed out of town by the growing wealth concentration of the rich and super-rich.
One natural consequence of rising inequality is increased demand for private security. Unsatisfied with the protection offered by public police departments, as the rich get richer, they increasingly have the means and desire to procure their own police force. The number of private security workers in a given nation is roughly predicted by income inequality, and the US is indeed a world leader, with more than 1 million guards-for-hire – opposite fewer than 800,000 police officers. US private security workers have doubled in number since 1980, and have quintupled as a fraction of the workforce since the 19th century.
One of the most insidious manifestations of inequality is the tax code’s bias against work. Despite conservatives’ pretended esteem for “hardworking Americans”, their tax policies discriminate against workers, by shifting the tax burden onto them and off of investors. A hardworking American earning the minimum wage is subject to a flat 15.3% FICA tax on income – no exceptions, no deductions. Mitt Romney – poster-child for the rich who dont pay their fair share – paid a 14% tax rate on his $13.7 million income – less than that of any burger-flipper or supermarket stockboy, or indeed Romney’s own personal secretary. A worker making $100,000 per year will typically pay federal taxes on top of FICA, bringing his total federal tax burden north of 30%. But a wealthy heir living on portfolio earnings of up to $400,000 would pay less than 15%.
No one questions that wealth should be allowed to fetch what it can on the private markets – but we can fairly ask whether it should also buy preferential access to public services – on Monday, when the Field Guide returns.
Refs:
http://www.planetizen.com/node/64754
http://articles.latimes.com/2013/nov/17/business/la-fi-rv-living-nyc-20131117
http://nypost.com/2013/12/15/upper-west-siders-in-an-uproar-over-rv-invasion/
Thanks to LFG faithful Mary and Chuck for their input and inspiration on this series on inequality.
Ruth Didnt Build This House For You
Wealth and income inequality in the US are now at their most extreme since the 1920s, in the last years of the gilded age. Their best and simplest measure – the Gini curve – graphically reveals the wide and burgeoning spread between winners and losers in the US economy, which suffers from much worse inequality than most other developed countries. However the Field Guide is stepping back from its usual quantitative treatment of the issues, to take a look at one way in which inequality physically manifests itself. Numbers are great, but sometimes nothing quite tells the story like… a story.
The New York Islanders are about to begin their final season in the Nassau Coliseum – the venue that’s been the team’s home since its 1972 inception. The Coliseum is the NHL’s second-oldest venue, and indeed it’s lacking the whistles and bells of a modern facility. But the beauty of the Coliseum is that there isnt a bad seat in the house – because it was built before the term “luxury box” was even a part of the lexicon.
It used to be that people with cash to burn would buy the expensive seats down close to the ice, while working people could afford the cheap seats all the way at the top – which in the Coliseum are decent seats. Ordinary middle class people would, not surprisingly, sit in great seats wrapping around the middle.
Like a metaphor for the country as a whole, that middle band of seats has disappeared from the modern sports arena. In its place are luxury boxes. The seats down low for the rich are still there – but middle class seating is drastically reduced, if it still exists at all; and the nose-bleed seats are now much higher up and farther away. Middle class people are forced to choose between paying exorbitant sums for the seats down close, or sitting in crappy seats under the rafters, 150 feet above the game. The worst arenas include LA’s Staples Center (home to the Kings, Clippers and Lakers) and Dallas’ American Airlines Center (home to the Mavs and Stars), each with multiple tiers of luxury boxes that have entirely eliminated the best, moderately priced seats, and pushed the upper tier into the stratosphere.
This phenomenon isnt specific to hockey and basketball. Take a look at the space occupied by luxury boxes in any modern stadium: that’s middle-class real estate usurped by the wealthy. In baseball, the Yankees tore down the house that Ruth built, to build the new Yankee Stadium. What did $1.89 billion buy? 10% fewer seats – but twice as many luxury boxes as the old, iconic park. Plus there are now “club seats” near the field, available for a cool $1 million, on a five year lease. To add injury to injury, taxpayers will be picking up 60% of the total cost. Across town, the Mets reduced seating capacity by 20% when they moved from Shea to Citifield – to gain more, better luxury boxes and “club seats.” Taxpayers will again take a big hit on a venue that clearly wasnt built for their enjoyment.
Things look even worse in the NFL. Because income from luxury boxes is exempted from revenue sharing, big market NFL teams now have an even bigger incentive to build more of them, eliminating ordinary seats as they go. While the new Yankee Stadium has a conspicuous 68 luxury boxes, MetLife, home to the Jets and Giants, has 218; and the Cowboys’ new home has 300! One glance at designs for new stadiums in the works reveals that the worst is yet to come.
In the end, we couldnt resist throwing a few numbers out there. More images of American inequality on Friday, when the Field Guide returns.
Refs:
http://en.wikipedia.org/wiki/Luxury_box#Use_in_the_NFL
http://usatoday30.usatoday.com/money/economy/story/2012-02-04/cnbc-super-bowl-suites/52948968/1
http://www.nytimes.com/2008/11/05/nyregion/05stadiums.html?pagewanted=1&_r=0
http://www.forbes.com/2008/03/24/suites-sport-luxury-forbeslife-cx_ls_0325sports.html
The Experiment is Done – Conservatives are Wrong
A liberal and a conservative are having a heated debate. The conservative rails against government: that it’s always the problem, never the solution; that it sucks money out of private enterprise, and squanders it according to the prevailing political winds of the day. Not so, replies the liberal: government gives us public education, infrastructure, and many kinds of insurance that would not be supplied by private markets. Who’s right?
It would be great if we could simply do an experiment: take a country, jack up the size of its government, and then wait around for a few decades to see what happens to economic growth. We’re not talking about a few measly percentage points – we’re talking about tripling, quadrupling, even quintupling the size of government.
Unbeknownst to many, the experiment has already been done – in the US, and practically every other country in the West – and the results are in. Government, it turns out, is really good for growth.
Back in 1900, US government spending on all levels totaled 7.5% of GDP, as it had since the 1870s. By 1928, on the eve of the Great Depression, government spending had crept up to about 11%. By 1950, government spending reached 23% of GDP – triple what it was during most of the 19th century. In 1960 it reached 28%; in 1970, 30%, in 1980, 33%; in 1990, 35% – and remains at about 36% today, almost quintuple what it was in 1900.
How did that impact growth? We look at long-term measures – 25 and 50-year growth rates in real per capita GDP – so that the results dont get skewed by year-over-year ups and downs. During 1870-1928, the growth in per capita GDP for any given 25-year period ranged from a low of 12% (for 1889-1914) to a high of 82% (for 1877-1902). Through the 1920s, 25-year growth rates were below 40% every year except 1904-29, when it touched 42%.
By comparison, 25-year growth rates in per capita GDP during 1950-2008 never fell below 61% (1968-93), and peaked at 88% (1961-1986). Even when looking at 1950-2013 – to see the effects of the Great Recession – 25-year growth rates never drop below 44% – still better than the best 25-year growth rates seen during the so-called roaring 20s. 25-year growth as of 1932, Hoover’s last year in office: negative 8%.
50-year growth rates paint a more compelling picture. Between the 1870s and 1920s, real per capita GDP expanded about 125% over any given 50-year period (ranging from 114% to 143%). Between the 1950s and today, 50-year growth rates never fell below 167%, were often greater than 190%, and peaked at 209%. (50 year growth as of 1932: 36%. Those were the days….)
This isnt a close case. After the US tripled the size of its government – and while it was eventually quintupling the size of its government – economic growth dramatically accelerated. What’s more, the quality of that growth has also been far superior. In the 60 years between 1870 and 1930, the US went through 3 depressions (1873, 1893, 1929). Since then: not one depression. And if you think 2009’s Great Recession was bad, recessions in 1884, 1904, 1908, 1914 and 1920 were worse!
You might imagine an analogous experiment, in which we ask whether a certain food is good or bad for rats. So we feed them hundreds of pounds of the stuff for years on end. At the end of the study, the rats are bigger and healthier in every measurable way. Now imagine some joker standing up in the back of the room to rant about how this food nonetheless is really, really bad for rats. That’s a conservative. It was never about the facts, after all – theirs is just naked belief in a vacuum of fact.
Economics is a science, not a religion. Our theoretical constructs must in the end be based in fact, and surely must yield to the facts once they’re brought to light. Conservatives can bleat all they like about how government is bad for the economy – but they have no scientific arguments to offer; they can only recite their religious beliefs, which are not merely lacking any basis in fact, but persist in spite of them.
Refs:
data on the size of government:
http://www.usgovernmentspending.com/total_spending_2012USpn
data on real per capita GDP growth:
http://www.measuringworth.com/usgdp/
The Field Guide wishes a happy birthday to Rose. Have a lovely liberal Labor Day weekend – we’ll return Wednesday.
Sound Policy in a Luckocracy
Perhaps it’s for the better that we, as individuals, have an exaggerated sense about the degree of control we exercise over our own destinies. Ignoring the room’s 800-pound gorilla – that our sense of free will and autonomy are almost certainly illusory – how our lives turn out is significantly not about innate talent, but dumb luck.
On Monday the Field Guide discussed some of the macro-level facts that almost entirely determine your quality of life, length of life and income: where you were born, who you were born to, and what sex organs you got. But there are many, many other “shocks” that individuals are subject to, which, while smaller in magnitude, have an enormous combined effect, to overwhelm the relatively minor contribution of individual talent. The world is a luckocracy.
Graduating in a recession year has a devastating effect on income. The effect follows an individual through their entire working life, reducing lifetime earnings by as much as 10%. Simply being in utero during a weak economy will also take a bite out of your lifetime wages and lifespan. The increased mortality that comes after you’re laid off stays with you for the rest of your (shortened) life. Exposure to radiation has been measured to reduce IQ not just for the person actually exposed, but for two generations to follow! Kindergarten class size is predictive of future income, even when controlling for other factors. Taken individually, each of these shocks are significant. But when you combine them over the course of a human life, their net effect is overwhelming.
It isnt practical to neutralize all the inequities of life – any cure would likely be worse. But one good policy guideline is to strive for “equality of opportunity” – to provide excellent education, nutrition and medical care to all young people, to give them the chance to fully realize their potential, that their talents might be more determinative of their level of success than the happenstance of their birth.
No matter an individual’s skills or industriousness, in the course of a life, sh** happens – and that’s what social insurance is for. Like every other form of insurance, social insurance is something every reasonable person should want to have – while hoping that they never need to use it! Next time you hear a conservative foolishly complaining that he’ll never “get his money back” on what he’s paid into social security – ask him if he’s also concerned his house will never burn down and his car will never get stolen – that he may never “get his money back” on his homeowners and auto insurance policies either. Or ask a billionaire if he’s distressed that he’ll never get to use Medicare or food stamps – because billionaires are covered by those social insurance programs too. (They’re just not very likely to use them – for which they should be happy.)
More than 40 years ago, the philosopher John Rawls posed an interesting solution to a problem many had struggled with. Rich people, like the infamous Koch brothers, commonly oppose social insurance programs. This may not be very nice, but it is superficially in their interest to not see their taxes go to support public programs that they’re not likely to benefit from directly. Poor people are frequently guilty of the opposite species of self-dealing: voting for politicians who promise to be generous with programs they expect to rely on. (Though trailer parks across the American heartland are filled with folks worried to death about estate taxes….)
Rawls’ novel resolution of the problem is the “veil of ignorance.” He would ask, “How generous would you want social insurance programs to be, if you didnt know your own circumstances?” Imagine you’re an unincorporated spirit, about to be cast at random into a live birth in the US. If you study the income distribution of Americans, you’ll find you’re much more likely to be born middle class or poor than super rich. If you’re perfectly rational, you’ll probably be glad to give up a little extra income in the event that you’re lucky enough to get tossed into a rich family – so you’ll have a little more insurance just in case you land at the bottom of the luckocracy, along with the 25% of American children who are born into poverty.
The fact is that the rise of social insurance coincides with the golden age of capitalism. Western economies never grew so rapidly – and without as many wild booms and busts – before the age of the welfare state. And so while insurance is extremely desirable for individuals, it’s also a big positive for the economy as a whole. Rawls called his book “A Theory of Justice” – but it’s also a formula for success, which we’ll discuss on Friday, when the Field Guide returns.
Carlton Thurman's Liberal Field Guide 