Shameless Society

Ours’ was once a society that expected able-bodied folks to carry their own weight and not be a burden on others. And, it didn’t take much to be considered able-bodied.

Depending on others was looked down upon, shamed. Putting up a genuine effort to take care of your responsibilities earned you respect and dignity, and those marks of character use to carry some clout.

This seems to have changed over the past few decades. The standard seems to have gone from ‘able-bodied’ to ‘no fault of your own.’ If an intellectual from an elite university, or politicians seeking re-election can make a plausible sounding argument that passes the 5 second sniff test that some poor sap wound up in a bad position ‘through no fault of their own,’ then it’s ‘our’ job to help him out.

I say 5 second sniff test, because if most of us thought about the poor sap who lost his job ‘through no fault of his own’ two years ago, hasn’t found another job and has a family to feed and a house payment to make for more than 5 seconds we might start asking questions. Has he had any job offers? How many resumes has he sent out? Did he save an emergency fund? Has he tried to take a lower paying job to make ends meet? Does he have any other skills? Did he really need to buy a house with a mortgage payment so large that he couldn’t afford to pay it if he lost his job? Did he need to take out the home equity loan to remodel the bathroom? We might start to think of this poor sap who is in a tough spot ‘through no fault of his own’ as an ‘able-bodied’ person who maybe does deserve some of the fault.

Reading this exchange between university professors Bryan Caplan and Bill Dickens (the latter was the former’s Econ 1 teacher) troubles me.

Caplan steadfastly holds that a major cause of poverty is irresponsible behavior, that correcting this behavior is a good way out of poverty and rewarding this behavior is not a good way to stop it. Rather, that’s a good way to get more of it.

That part of the exchange I had no problem with.

It’s Dickens response that troubles me. First, I find its high fallacy and emotion content unbecoming of a university professor. Second, he goes out of his way to make excuses for irresponsible behavior. One example:

I must have spoken with, in the neighborhood of, 100 welfare recipients when I was working on the reform… Overwhelmingly those on public assistance were full of regret and/or a sense of hopelessness that they are fated to their condition. They know they should have worked harder in school, they know they should be working to support their family, they know it would be better if their children’s father was there to help support their kids. There is no shortage of hectoring from society, welfare caseworkers, family members, and the media.

From Caplan’s response:

I don’t think they’re sorry for their behavior.  I think they’re sorry they’re experiencing the predictable consequences of their behavior.  I see them the same way I’d see a serial adulterer enduring a hellish divorce: “Sure you’re sorry.  Sorry you got caught!  Sow the wind, reap the whirlwind.”

I’d add that there’s also no shortage of folks like Dickens who psychologists from circa 1980 would call enablers. While Dickens sees plenty of ‘hectoring from society’, I see plenty of people telling them it’s okay. It’s not their fault. Society has just left them behind. We have a safety net to help. Please, feel no shame.

I don’t have much problem with social safety nets, with the exception that they tend to devolve into dependency reinforcement programs, rather than true anti-poverty programs.

We don’t have real safety nets. Real safety nets would look more like this. Do you want to receive unemployment benefits? Report to your local Parks & Rec guy on Monday and spend 8 hours cleaning parks. We’ll help, but we expect you to do something productive in return.

Do you want welfare? How about a drug test? Did you get a free visit to the emergency room? There’s plenty of work to be done at the hospital. Maybe you can scrub a floor. Want a student loan? Sign up for a degree program that leads to a paying job. But how will we know if it will or not? By looking at whether past students who took loans out for the same program paid their loans back.

In the old days, if you were down on your luck and needed a free meal, you at least offered to wash dishes. Now, it’s okay to get a free meal and simply ask for more.

One of the most destructive things that has happened in our society has been removing shame, which has devalued dignity. Why work to earn respect when you can get by without it? Sure, there are some parts of society where the shame and dignity feedbacks are still vibrant, but they’re dead or dying in many parts controlled by government, which is around 40% of the economy.

Later in Dickens response, he suggests that Caplan spend time with some poor people. I’d recommend the same thing for Dickens. Except, this time, don’t do it while working on the President’s welfare reform task force. Interact with them on a regular, day-to-day basis. Go to the billing departments of hospitals. Become a checkout clerk at a grocery store. See what is bought by folks with government assistance. Go visit some folks receiving Social Security disability. Or, when they are getting a payday or title loan. The stories I hear from folks in these areas would have been considered shameful by most not long ago.

I hate to throw the baby out with the bath water. There are people who still value dignity who are helped by these programs and eventually work to become self-sufficient. It’s much more palatable to me to at least attempt to direct and limit these programs for such folks. That should be what it’s about, right?

That was the whole idea of the ‘able-bodied’ standard. Get off the dole if you can so we have enough to help the ones who really need it.

Daniel Hannan addressed this in his book, The New Road to Serfdom, as well. I wrote about here. I quote myself and Hannan from that post (his is the double indent):

Then Hannan goes on to analyze why the 1996 welfare reform in the U.S. was successful.  He gives several reasons, but one of the most important was localism in the administration of welfare.  Ultimately, the reform pushed welfare administration from a centralized federal level, to a local, in some cases, sub-state level, which has many benefits.  This is probably one of the best:

…localism under-girds the notion of responsibility: our responsibility to support ourselves if we can, and our responsibility to those around us–not an abstract category of the “the underprivileged,” but the visible neighbors–who, for whatever reason, cannot support themselves.  No longer is this obligation discharged when we have paid our taxes.  Localism, in short, makes us better citizens.


Simple changes for Social Security

Here are a couple of simple changes to SS.

First, make the tax compulsory only for those saving less than 7% (or whatever threshold you’d like to pick) of their income for retirement. For example, if you save 5% in a retirement account, then you pay a 2% SS tax. If you’re saving 7% or more, then you pay no SS tax.

Second, make it actual insurance that you buy, like life insurance. A life insurance company calculates your chances of dying based on your age, health and other factors when it sets its rate.

Perhaps a SS insurance company could calculate your chances of falling short of your nest egg based on your savings and retirement habits, then price a policy to make up the shortfall.

If your savings rate and investment choices are not good, you’d pay more for this insurance. It may even encourage you to figure out why you are paying so much and make changes to lower it.

If your savings rate and investment choices are more sound, your insurance rate would be minimal.

Why are we so split?

It seems the folks in our country are split politically and generally between versions of liberals, moderates and conservatives.

This causes the political pendulum to swing back and forth every decade or so, as the moderates tend to move between the two ends.

It makes me wonder what causes this mix to be so near balanced that it teeters back and forth?  Why, after all this time, hasn’t one prevailing way of thinking about political life become dominant so that we don’t have to rehash the same mistakes over and over again?

Good example of unintended consequences

On his blog, International Liberty, Dan Mitchell wrote that he hopes Paul Krugman…

…is right in that [Paul] Ryan wants “to make life harder for the poor” if the alternative is to have their lives stripped of meaning by government dependency.  And I agree that it will be “for their own good” if they’re motivated to join the workforce.

…even though Mitchell is aware that Krugman “wants readers to draw the opposite conclusion,” that it’s wrong for Ryan to want this.

I can hear my liberal friends now. Compassionate folks should want to help the poor, right? Ryan and right-wingers aren’t compassionate. They don’t want to help the poor. 

Mitchell also linked to a previous post of his from 2010, which contains this chart:

I remember reading this compelling point about unintended consequences in Thomas Sowell’s books and columns. The poverty rate had been declining prior to government involvement to try to help it. The country was becoming wealthier and more people were being lifted out of poverty.

Then government ‘declares war’ on poverty, since the intention of helping the poor is noble and a good way to attract votes. Who wants to vote against the poor, after all?

But what about the outcome? The declining trend of the poverty rate stopped right after the war declaration and then stabilized thereafter and began exactly what I don’t like about government programs — the positive reinforcing failure feedback loop.

We’ve spent increasing sums of money, through government, to combat poverty. It’s still here. As Daniel Hannan wrote in his book, The New Road to Serfdom:

It is a stock phrase of virtually every European politician, regardless of party, that “a society is judged by how it treats the worst off.”  Plainly, then, there must be something selfish — and possibly racist — about a people who keep voting for a system that treats the most needy so pitilessly.

It rarely occurs to critics that there might be better ways to measure the efficacy of welfare state than by size of its budget.  Indeed, in a truly successful social security system, budgets ought to fall over time as former recipients are lifted into better and more productive lives.


The iPad Tax

This Marginal Revolution blog post, linking to another post by Miles Kimball, who suggested we thank the top 100 tax payers, reminds me of this post of mine from 2010 where I — less eloquently than Miles — suggested that we thank the rich for the taxes they pay, rather than demonize them.

I thought the comment discussion to that Marginal Revolution post was lively. I was intrigued by a couple of comments. MPS wrote:

The richer you are, the more you benefit from government. It’s obvious from the standpoint of if you were born out in the jungle, you wouldn’t be so rich. In more proximate terms, your wealth derives from things like intellectual property protections and other safeguards of capital that allow people to extract large sums with little physical labor. This is all very well and good as part of a system of government intrusions designed to incentive behavior that increases overall wealth, but when you become wealthy it is through a channel created by government to reward your wealth-enhancing behavior, and not because you exerted so much physical labor to earn it at true competitive market rates.

Too many people share some sort of version of MPS’s sentiment on government, which explains why it has grown well beyond the too-much-of-a-good-thing level. These people vote for politicians who use government to solve any problem, instead of electing politicians willing to make tough and responsible choices like balancing the budget and cutting programs that should be outside the scope of government.

I have few responses for MPS.

1. As I wrote in this post, government is overhead.

Our ancestors didn’t create government and then get wealthy. We got wealthy enough to afford government. How? Our hunter-gatherer ancestors weren’t wealthy enough for government. They spent most of their time scrounging up food. They didn’t have enough time to send folks off to govern. As they got better and applied innovations like cooking, preserving food and farming, they created wealth (i.e. some slack time). Eventually, they freed up enough of their calorie producing activity to go vote on bills and hob-knob with lobbyists. Government emerged from wealth.

2. As Sowell and  Boudreaux point out, rich folks already pay for whatever benefits MPS imagines they get more of. Why should they have to pay again?

3. As Boudreaux also pointed out, there are, or have been, private solutions for much of the infrastructure that MPS believes only government can provide.

4. But, for me, the most important point is that rich people who earned their success didn’t get rich by government incentive channels as MPS describes. They got rich by providing something that made the rest of us better off. They benefited because we benefited.

Those that earned their success took risks that would turn MPS’s stomach. They tried and failed at several things, shook it off and tried again, when most of us would’ve been afraid to try, and if we got up the courage to give it a go, would have stopped after our first failure.

We use to want to encourage these people because we knew it resulted in good things for us. We wanted folks to get wealthy, because we recognized that they owned their effort and ideas and its only fair that they get rewarded, but more importantly, we wanted more good things for us. We use to not be too stingy about sharing bridges with them. 

MPS doesn’t realize his belief that we got those good things from the incentives and channels that government laid out, followed to its conclusion, only ensures he will get fewer of those good things.

Folks like MPS love the iPad. I wonder if he would be willing to give it up. When he uses “the rich benefit more” reasoning to support higher taxes on them, he is paying that tax by forgoing opportunities to buy future innovations, like future iPads.

Consumption results from production, not the other way around

I recommend reading this column from Steve Horowitz.  It reminds me of this post of mine on wealth and where it comes from.

Here are some key sentences from Horowitz’s article:

One of the most pernicious and widespread economic fallacies is the belief that consumption is the key to a healthy economy.

…we only have the power to consume if we have produced and sold something in order to acquire the means to engage in consumption. Starting the analysis with consumption assumes one has already acquired means.  Contrary to that analysis, wealth is created through acts of production that rearrange resources in ways people value more than alternative arrangements. These acts are financed with savings that come from households refraining from consumption.

Folks often skip right past the true source of consumption and skip right to the consumption. They mistake consumption for wealth. Wealth first had to be created somewhere.

Even the wealth acquired by rent-seeking bureaucrat was created somewhere merit-worthy before being directed into his pocket.

The health of the economy isn’t economic activity, rather it’s value creation. There’s an old saying   that what matters most can’t be measured, but what can be measured will be managed. We measure economic activity with GDP. That’s not value creation. Much damage has been caused trying to manage GDP.


Two fine points

A few weeks ago, I wrote about a fine point made by Thomas Sowell regarding Obama’s “You didn’t build that” comment and, in general, the idea the we always owe something to “society” or “government” because government provides a plethora of infrastructure.

Sowell wrote:

Did the taxpayers, including business taxpayers, not pay for that road when it was built? Why should they have to pay for it twice?

Don Boudreaux adds to Sowell’s fine point in his column this week in the Pittsburgh Tribune-Review (bold mine).

Sure, Wal-Mart uses government-built highways to speed its inventories to its stores. But the fact that Wal-Mart would be unable to operate without the highway system doesn’t make those highways a uniquely special input to which Wal-Mart owes all, or even much, of its success.

Wal-Mart would be equally unable to operate without farmers to grow food to feed its truck drivers — or without textile producers to supply clothes for those drivers — or without oil companies to fuel its fleet of trucks.

Would Obama therefore conclude that Wal-Mart owes some special, open-ended obligation to oil companies? Would he insist that, if oil companies now squander their revenues, Wal-Mart and other retailers are morally compelled to chip in to help oil companies get back into the black?

Does Wal-Mart owe a special, open-ended obligation to oil companies?

If an oil company exec gave a speech suggesting that the oil his company provides is so valuable that they should be able to come along after someone has bought and used oil to make a profit and charge them again, that exec would be laughed off stage. Most people have a sense that oil has a price and once price has been paid, there’s no further obligation to the oil company.

So, why wasn’t Obama laughed off stage? Why have I only heard two economists point out that the folks using the services provided by government have already paid for the use of those services?

Boudreaux goes on to make another fine point, often overlooked or treated with much skepticism by folks who don’t give this a lot of thought:

Among the kinds of infrastructure that have, in fact, been supplied successfully by private businesses are city streets, highways, sewage systems, formal education, policing, money and commercial law. Government provision of such infrastructure, therefore, cannot be read as evidence that government’s role on this front is necessary.

If government failed to build highways to connect, say, Atlanta to Pittsburgh, private firms almost certainly would. (It’s easy to collect tolls from drivers who use highways.) And likewise for nearly any other pair of cities in America. So in what way is any actual, government-built highway necessary for any private entrepreneur’s economic success? None — if (as is likely) private enterprise would have done what government instead did by crowding out private efforts.

“Yes, but…”

Bryan Caplan wrote that in his first 17 years of life, he never encountered an opponent to policies like the minimum wage, FDA and social security. And he grew up in “bland Northridge, California”, not some “leftist enclave.”

He has me beat by 5 years. I, too, did not grow up in a leftist enclave. Just a “bland” midwestern town where the populist defenses for these policies that Bryan wrote more about in his post were taken as gospel.

Caplan’s post is worth reading. In it, he criticizes intellectuals who “yes, but…” the writings of French Economist Frederic Bastiat’s, who dismantles these populist defenses.

Caplan asserts that said intellectuals don’t display higher regard for Bastiat’s work for fear of damaging the political base they need to sport their solutions on the rest of us.

What ‘tax cut’ means

What ‘tax cut’ means to a…

libertarian  More freedom, more careful and value-added investment and spending in the economy that results in more jobs and an improved standard of living for everyone, less powerful bureaucrats and politicians. (More of the Baptist position in the Bootlegger and Baptist model)

conservative  Great. More money for me, or more money for me when I get rich, and less for the government. But, I might give up the tax cut if you agree not to cut defense spending. (More of the Bootlegger’s position)

moderate  I like the sound of it, but can “we” afford it with such a big deficit?

liberal If “we” give you a tax cut, who’s going to help the less fortunate?

progressive  How will I solve [my perceived] social injustices of income inequality and help the less fortunate?

What a libertarian might point out to each:

conservative  You might have more to spend on defense if the economy grows and the economy has a better chance of growing with lower tax rates.

moderate  Deficits are caused by spending.

liberal  Why not you?

progressive  See the response to a liberal and consider that only income inequality caused by your efforts is a social injustice (that is, your attempts to lessen income inequality actually causes more of it) and “earned” income inequality encourages productive behavior.