Just a reminder

With Obamacare, here we again find ourselves with a government-made disaster on our hands. There’s much discussion about how ‘we’ fix it or change it, how to make it workable, how the GOP has no solutions…etc.

I hear very little discussion about why we even want these buffoons to touch this stuff.

It’s a good time to remind folks of some wise words from Walter Williams.

A step in the right direction?

I’m open for opposing opinions, but at first blush the plan Obama outlined to change Fannie Mae and Freddie Mac seems like a step in the right direction.

Private investors take more of risk. Agree.

Fannie and Freddie lose the implicit guarantee of government. Agree.

While home ownership is good, affordable rental housing is also acceptable. Agree. Renting makes sense for a lot of folks.

Owning does too. You should have to prove you are responsible before owning, though. When people have a tough time getting a loan from a private investor to buy a home, those people should be encouraged to demonstrate responsible behavior.

The only part I had trouble with, so far, was that government would be secondary guarantor. That sounds like an explicit guarantee. Maybe I don’t understand that part.

But, again, a step in the right direction, no?

Could Obamacare be next?

In his speech outlining the plan, Obama quips that this plan will sound confusing for those that call Obama a socialist. For the record, I never thought he was a socialist. I just thought his view on the role of government was on par with public school sophomores. It’s not so much socialism, but the belief that solving problems can be easily accomplished by having government do something about it.

The multiplier is not prosperity

“I’m doing my part to help the economy!”

I’ve heard many folks make this joke after a big purchase. We snicker. We know they really bought it for the personal benefits they expect to gain. As we’ve been discussing in the comments, they bought it because they valued it more than what they gave up.

The joke implies the multiplier effect — the idea that your purchase stimulates economic activity. You buy a car, which means income for the car maker and workers, they spend that income on suits and shoes, and so on. And, by the time it’s all said and done every dollar of your purchase ‘stimulated’ more than a dollars worth of economic activity, which is measured as GDP.

For some reason, we don’t snicker when economists and politicians make this same claim. We should.

David Henderson, who doesn’t make this claim, does a great job explaining why we should snicker in his aptly titled essay, GDP Fetishism, which I discovered after reading a recent post of his about the ‘multiplier’ of foreign aid.

Also recommended, his latest post about subjective value, which is a topic we’ve touched on here recently in the comments.

Money for nothing

I learned a few things from this EconTalk podcast with guest Casey Mulligan discussing his book, The Redistribution Recession.

One argument from the right against unemployment benefits is that it encourages people to stay unemployed so they can keep receiving it.

A standard retort from the left to that argument is that the unemployment payout is so small that nobody would choose that paltry sum over getting a job.

Mulligan points out that the sum is not trivial. Here’s Mulligan from about 24 minutes into the podcast (bold is mine):

Typically before the recession, unless you are well into the upper half of earnings, when you lost a job you got half of your earnings replaced. So if you used to earn $600 a week, you’d get an unemployment check for $300 a week. And I guess you are referring to kind of that $300 dollar number–it seems $300 isn’t very big. Well, if you earn $600–I earn more than $600 myself–but if you earn $600, then $300 is not all that trivial. Number one.

…number two: There’s all kinds of taxes you don’t have to pay when you are unemployed. Payroll taxes–forget about it. You don’t pay it when you are unemployed. A big chunk of income taxes you are not going to pay when you are unemployed. So when you put all of that together, without even getting to other help you might get from food stamps or Medicaid, put it all together, before the recession about 70%, maybe a little more, of your earnings would be replaced. Not half. And that’s without getting into, like I said, other types of programs.

And when you start with 70% as your baseline–so you are going to get 70% on the old rule, and you are going to put a bunch of new rules* in there–it pushes the 70% up to 85 or 90%. I don’t think we can call that trivial any more.

*The new rules Mulligan mentions earlier in the podcast are expansions made in other programs during in the recession like food stamps, mortgage payment relief and health insurance subsidies.

So, think about these choices:

Choice 1: Get a job making 70% – 100% of what you use to make and give up 40+ hours a week. After paying taxes and paying for more of your food, mortgage and health insurance, you are really making about 50% – 80% of what you use to make.

Choice 2: Don’t get a job (or at least not an official job). Keep making 70%+ of what you use to make.This includes unemployment and other programs. Keep the 40 or more hours of free time during the week, where you might find things to do for others off-the-books for extra cash (which maybe brings you to more than what you use to make).

After learning this, the ‘the unemployment payout is so small that nobody would choose that paltry sum over getting a job’ argument seems much less compelling. I’d say that it would be more of a surprise for someone to give up Choice 2 for Choice 1.

The whole podcast is worth a listen.  There are a couple other points Mulligan makes that I’d like to mention.

One (and some of this may be a mix of Mulligan’s points and my own). Unemployment is more of a choice than a condition that folks find themselves in ‘through no fault of their own.’

He contends that use to be the social norm. If you lost a job, there was more expectation on you to not burden your fellow citizens and to do something productive. So, for example, you were expected to have been responsible and saved for a rainy day when you did have a job. You were expected to make tough choices in your own budget to trim the fat. And, you were expected to find another job and take it and make ends meet, even if it was for less pay that what you used to make. At least you were being productive, responsible and continuing to add to your own work experience and skill set that may lead to bigger and better things.

The ‘social norm’ seems to have shifted to view what you use to earn and the budget choices you made then were things you were entitled to keep and that being out of job is something that you have absolutely no control over.

Two. The cost-benefit analysis of unemployment benefits has shifted. Unemployment benefits use to be viewed as a stop-gap to help folks in transition. It wasn’t really thought of something that would help the economy. Now the benefit-side of the cost-benefit analysis includes stimulative effects to the economy. But, Mulligan does a good job of addressing that belief:

It does put money in a group of people’s hands; it takes it out of another group of people’s hands. And the net reduction in the economy is actually less spending. Because, you know, you have less work going on. So there’s less total income to be spent. And so the people who are going to suffer from that, depending on the industry they work in, they are going to see the drop in demand for what they make. And they may not appreciate my story; but they don’t understand–they need to appreciate: Why aren’t their customers spending? If you drill down to the bottom of that you are going to see that the safety net expansions are a big part of it.

Here Mulligan makes an atomic connection that so few others do. Income and spending derives from wealth creation (i.e. doing productive things), not the other way around. All unemployment benefits do is shift who is spending the wealth that is being created, so since you have fewer people creating wealth, there will be less overall spending.

In fact, this reminds me of a post of mine from 2011, Government is overhead.

Darth Armstrong

Sebastian Shaw as Anakin Skywalker, unmasked i...

Lance after Oprah

With a kid who loves Star Wars, I’ve become too familiar with the story of Aniken Skywalker. I find it striking how similar it is to Lance Armstrong’s story.

Aniken and Lance’s back stories are similar. No father. Humble beginnings. A close relationship with his mother. Caste-changing talent.

Aniken did what he needed to win. Lance, too. When the dark side was their best bet, they went with it and didn’t look back. Aniken murdered a room full of kids and tried to take down his master. Lance shot up and chewed up his friends and spit them out, all the while using his cancer comeback story to pad his hero persona.

I thought those were agonizingly long moments at the end of Return of Jedi as Vader watched the Emperor jolt his son, Luke, (Armstrong has a son named Luke, too). I’m sure Lucas included Vader’s slow deliberation for dramatic effect, but it looked more like Vader was evaluating his options to see which course of action would be better for Vader.

The months from when USADA stripped Armstrong of his titles and banned him from sport for life and Lance v. Oprah reminds me of those moments Vader deliberated.

Lance Armstrong at the team presentation of th...

‘I’m about to cheat, y’all! Anybody got an empty Coke can?’

What’s better for Lance? He lost his rep. He lost his future income (maybe he should lose some of his past income, too). He lost his involvement with LiveStrong. The only thing he has left to look forward to? Competition.

But, wait. He can’t. He’s banned. So, what’s best for Lance? Come clean. Maybe we’ll take pity on him.

Oh…and also, whine that you got a “death penalty” while everyone else got off with slap on the wrist (wait, didn’t they confess when they were given a chance while you tweeted a pic of yourself ‘laying around’ with your fraudulent yellow jerseys?).

Aniken and Lance are easy guys to figure out. They will do what’s best for themselves, always, and they will cross lines to do it. It’s best you not be one of those lines.

When the news of the Oprah interview broke, someone asked me, why is he doing this now? I said, because now is best for Lance. He wants to compete again. It drives him crazy that he can’t. He doesn’t have much else. 

I actually thought I was over playing that, but that was about the only reason Darth Armstrong could muster when asked by Oprah, Why now? I about fell out of my chair. I’m a competitor. I like to win. I want to be able to run the Chicago Marathon when I’m 50. It’s not fair. Waaaaaa…

I don’t think it has sunk in for him yet. YOU DIDN’T WIN. YOU CHEATED. YOU ARE NOT A WINNER. YOU’RE A CHEATER.

As an aside, Oprah played tapes from past interviews where Armstrong defiantly denied doping. I noticed one tell to his lies was saying “absolutely” twice. And I believe he said “absolutely not” twice when Oprah asked if he doped to get his third place finish at the 2009 Tour.

At least Vader’s last selfish act restored freedom to the galaxy (until the next movie comes out in 2015). Armstrong’s cancer survival story has encouraged many cancer victims to fight, which is probably the most heartbreaking for me. What are those people thinking?

Questions I wish Oprah would have asked Lance: Did you discover EPO during your cancer recovery? Was it your discovery of this drug that ignited the EPO generation in cycling?

Lance Armstrong, Johan Bruyneel, 2009

Darth Armstrong, Johan Palpatine, 2009 (Photo credit: Wikipedia)

Why we do the things we do

This Marginal Revolution post reminded me of something I encounter frequently, even with myself. The post excerpts a study:

In fact our conscious brain has surprisingly little grasp of what makes us decide to do one thing rather than another.  A telling example of this ignorance has been provided by Joe LeDoux and Michael Gazzaniga, two neuroscientists who conducted a study of patients with a severed corpus callosum, the bundle of nerve fibers connecting the two hemispheres of the brain, leaving the two sides of the brain unable to communicate with each other.  LeDoux and Gazzaniga gave instructions to these patients, via their right hemisphere (hemispheres can be targeted with instructions shown to either the left or right visual field), to giggle or wave a hand, then asked them, via the left hemisphere, why they were laughing or waving.  The patients’ left hemisphere had no knowledge of the instructions given to their right hemisphere, but the patients would nonetheless venture an explanation, saying that they were laughing because the doctors looked so funny or waving because they thought they saw a friend.  However implausible the answer, the patients were convinced they knew why they were acting in the way they were; but they were deluded in thinking so.  Their self-understanding was pure confabulation.

I often find myself in discussions with folks who can’t override their urge to start jabbing their mouth and simply say, I don’t know, why do you think what you think?

I, too, often find myself doing things that I find odd and when I search for an explanation, I find that my first explanation is usually one that would satisfy an external observer. But, then I dive deeper and find other reasons that weren’t intuitive, but were probably more important than the externally acceptable reason.

I’m cheap. I was a loyal shopper of Walmart, until Target opened across the street from it. Then I found myself in Target more often. Why? I’m cheap. I’m supposed to like the lower prices. And, at the time, there was a visible difference in most prices.

So, on several trips to Walmart and Target I “observed” myself. I asked myself questions. What’s keeping me from going to Walmart? Why am I going to Target?

Many things popped up. The Target parking lot isn’t as packed. I don’t have to walk as far. Target’s parking was clean. The store was cleaner and updated. The product displays were always in good order and the products were well presented. I would have to wait a long time to checkout at Walmart. At Walmart, it seemed like they shoved the products on the shelves.Target had some different products that I would like to browse. I wasn’t scared of the folks who shopped at Target. The folks who worked at Target seemed a bit less tired and a bit more engaged.

I came to find that it just wasn’t one reason. There were many. Some would say it was the overall experience. Maybe some mattered more than others, but they all mattered.

Walmart recognized this, too. They responded by improving on many of these things and have won me back, sometimes.

The depth and breadth of these reasons surprised me. I didn’t put conscious thought into any of these things until I first noticed my behavior was odd (not always going for the lowest price) and then decided to “observe” my behavior.

That exercise alone humbled me into being more willing to say, I don’t know, recognizing that he world is complex and the simple answer is often not the whole story. That reminds me of a favorite Oliver Wendell Holmes quote:

I would not give a fig for the simplicity this side of complexity, but I would give my life for the simplicity on the other side of complexity. -Oliver Wendell Holmes, Jr., Supreme Court Justice, 1902 – 1932

Not sure I’d give my life for it, but it’s definitely worth more.

Brooks: Redistribution v Free Markets

From Arthur Brooks’ The Road to Freedom, via Bryan Caplan at EconLog, regarding the debate between government redistribution and free markets:

Average Americans are thus left with two lousy choices in the current policy debates: the moral left versus the materialistic right.  The public hears a heartfelt redistributionist argument from the left that leads to the type of failed public policies all around us today.  But sometimes it feels as if the alternative comes from morally bereft conservatives who were raised by wolves and don’t understand basic moral principles.

While it is earned success that really matters, people are nevertheless wired to “keep score.”…

Just for fun, find a Marxist college professor – who scoffs at the idea that people work less if they lose the incentive of money – how he would feel if his name were not put on any of the academic articles he published.  Instead, the articles would be published under the name of another academic who needed the recognition more than he did.  After all, he would still have the satisfaction of having written the articles.  Why shouldn’t that be enough?  His completely reasonable response would be that he earned the right to have his name on those articles, and denying him that measure of earned success is viciously unfair.  Exactly.

I learned something new today

I didn’t realize Australia had private social security accounts and it appears to work well for them. Thanks to Dan Mitchell for this excellent post.

I like this line (emphasis added):

This system, which was made universal by the Labor Party beginning in the 1980s, has turned every Australian worker into a capitalist and generated private wealth of nearly 100 percent of GDP.

That’s what I’d call properly aligned incentives. It seems like a good way to turn a Ponzi scheme into a wealth-producer.

Update:  Here’s the Wikipedia article that contains more information about Australia’s pension program.