Private versus Government

In his textbook Public Finance, 7th edition, 2005, Princeton University emeritus professor of economics Harvey S. Rosen, discussing the idea that incentives to monitor are better in the private sector than in government, quotes Adam Smith’s statement to that effect in The Wealth of Nations. He also gives a famous modern example. Rosen writes:

Anecdotal evidence for this viewpoint abounds. One celebrated case involved New York City, which spent $12 million attempting to rebuild the ice-skating rink in Central Park between 1980 and 1986. [DRH note: think about that–that’s 6 years.] The main problem was that the contractors were trying to use a new technology for making Iceland it did not work. In 1986, after spending $200,000 on a study to find out what went wrong, city officials learned they would have to start all over. In June 1986, real estate developer Donald J. Trump offered to take over the project and have it completed by December of that year for about $2.5 million. Trump finished the rink three weeks ahead of schedule and $750,000 under projected cost.

I remembered this passage when I was preparing for a Zoom interview on Monday with a high school senior in Arizona. He asked good questions and I gave him this example and a number of others.

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What the Success Sequence Means

[continued from yesterday]

…This is a strange state of affairs.  Everyone – even the original researchers – insists that the success sequence sheds little or no light on who to blame for poverty.  And since I’m writing a book called Poverty: Who To Blame, I beg to differ.

Consider this hypothetical.  Suppose the success sequence discovered that people could only reliably avoid poverty by finishing a Ph.D. in engineering, working 80 hours a week, and practicing lifelong celibacy.  What would be the right reaction?  Something along the lines of, “Then we shouldn’t blame people for their own poverty, because self-help is just too damn hard.”

The underlying moral principle: You shouldn’t blame people for problems they have no reasonable way to avoid.  You shouldn’t blame them if avoiding the problem is literally impossible; nor should you blame them if they can only avoid the problem by enduring years of abject misery.

The flip side, though, is that you should blame people for problems they do have a reasonable way to avoid.  And the steps of the success sequence are eminently reasonable.  This is especially clear in the U.S.  American high schools have low standards, so almost any student who puts in a little effort will graduate.  Outside of severe recessions, American labor markets offer ample opportunities for full-time work.  And since cheap, effective contraception is available, people can easily avoid having children before they are ready to support them.

These realizations are probably the main reason why talking about the success sequence so agitates the critics.  The success sequence isn’t merely a powerful recipe for avoiding poverty.  It is a recipe easy enough for almost any adult to understand and follow.

But can’t we still blame society for failing to foster the bourgeois values necessary to actually adhere to the success sequence?  Despite the popularity of this rhetorical question, my answer is an unequivocal no.  In ordinary moral reasoning, virtually no one buys such attempts to shift blame for individual misdeeds to “society.”

Suppose, for example, that your spouse cheats on you.  When caught, he objects, “I come from a broken home, so I didn’t have a good role model for fidelity, so you shouldn’t blame me.”  Not very morally convincing, is it?

Similarly, suppose you hire a worker, and he steals from you.  When you catch him, he protests, “Don’t blame me.  Blame racism.”  How do you react?  Poorly, I bet.

Or imagine that you brother drinks his way into homelessness.  When you tell him he has to reform if he wants your help, he denounces your “bloodless moralism.”  Are you still obliged to help him?  Really?

Finally, imagine you’re a juror on a war crimes trial.  A soldier accused of murdering a dozen children says, “It was war, I’m a product of my violent circumstances.”  Could you in good conscience exonerate him?

So what?  We should place much greater confidence in our concrete moral judgments than in grand moral theories.  This is moral reasoning 101.  And virtually all of our concrete moral judgments say that we should blame individuals – not “society” – for their own bad behavior.  When wrong-doers point to broad social forces that influenced their behavior, the right response is, “Social forces influence us all, but that’s no excuse.  You can and should have done the right thing despite your upbringing, racism, love of drink, or violent circumstances.”

To be clear, I’m not saying that we should pretend that individuals are morally responsible for their own actions to give better incentives.  What I’m saying, rather, is that individuals really are morally responsible for their actions.  Better incentives are just icing on the cake.

This is not my eccentric opinion.  As long as we stick to concrete cases, virtually everyone agrees with me.  Each of my little moral vignettes is a forceful counter-example to the grand moral theory that invokes “broad social forces” to excuse wrong-doing.  And retaining a grand moral theory in the face of multitudinous counter-examples is practically the definition of bad philosophy.

Does empirical research on the success sequence really show that the poor are entirely to blame for their own poverty?  Of course not!  In rich countries, following the success sequence is normally easy for able-bodied adults, but not for children or the severely handicapped.  In poor countries, even able-bodied adults often find that the success sequence falls short (though this would be far less true under open borders).  Haitians who follow the success sequence usually remain quite poor because economic conditions in Haiti are grim.  Though even there, we can properly blame Haitians who stray from the success sequence for making a bad situation worse.

Research on the success sequence clearly makes people nervous.  Few modern thinkers, left or right, want to declare: “Despite numerous bad economic policies, responsible behavior is virtually a sufficient condition for avoiding poverty in the First World.  And we have every right to blame individuals for the predictable consequences of their own irresponsible behavior.”  Yet if you combine the rather obvious empirics of the success sequence with common-sense morality, this is exactly what you will end up believing.

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Great Moment in Public Service Number 12,933

I live in Monterey County, where the Monterey County Health Officer, Dr. Edward Moreno, has had a lot of control over our daily lives since last March. Many of us were hoping that at least he would do his job and get Monterey County its pro rata share of the Covid-19 vaccines allocated to California.

No such luck.

Here’s what a local weekly publication, the Carmel Pine Cone, reported in an email on February 13:

On Thursday the Wall Street Journal, citing data from Feb. 9, reported that Alabama had the worst vaccination rate in the nation, with just 10,013 doses administered per 100,000 residents. But on the same date, Monterey County said only about 8,000 doses had been administered here per 100,000 county residents. Nationwide county-by-county vaccination data doesn’t seem to be publicly available, but if Monterey County is that far behind Alabama, the county’s vaccination rate has to be one of the worst in the country.

Many of us suspect that Dr. Moreno has not been aggressive in pushing our county’s case and getting more vaccines.

And in a front-page news story in the February 12 Pine Cone, we might have found out why. Here’s a paragraph from a story about the grilling that Monterey County supervisor Mary Adams got in a recent town hall:

As for Moreno, who is often under fire for his poor communication skills, failure to crack down on the county’s hot spots and dysfunctional vaccine rollout, she [Supervisor Mary Adams] said, “I hear so many people say Dr. Moreno is not the greatest communicator. Dr. Moreno is the most shy person I have ever met, and this is agony for him to have to speak publicly. He also is very conscious of giving precise and correct answers.”

The reporter, Mary Schley, adds:

Unmentioned during the call was the fact that Moreno’s job description requires him to be able to “prepare clear and concise written and oral reports,” and “speak effectively before large groups.”

 

 

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Will Walmart Save America?

My question is only partly rhetorical. Just two days after I published my post “Vaccine Adventures,” I read in the Wall Street Journal that the federal and state governments had started allocating vaccines to large pharmacy chains, including Walmart (Sharon Terlep and Jaewon Kang, “CVS and Walmart Decide Who Gets Leftover Covid-19 Vaccine Doses,” February 11). After reading this story in the wee hours of February 12, I went on Walmart’s website and, in just a few minutes, made myself an appointment for six days later. Appointments are available at 20-minute intervals during the whole day.

The efficiency of Walmart is legendary despite its being a behemoth, just as the inefficiency of the government is legendary because it is a behemoth (and other reasons explored by the economics of public choice).

Yesterday, another Wall Street Journal story described the rollout of Walmart’s Covid-19 vaccination (Sarah Nassauer, “Walmart’s Covid-19 Vaccine Rollout Heads to Small Town,” February 14). To get an idea of “what the weather [is] really like on earth” (le vrai temps qu’il fait sur la terre) to borrow an expression from Saint-Exupéry (in his novel Southern Mail or Courrier Sud), a few quotes from this Wall Street Journal story are useful:

Skowhegan, Maine—Pat and John Thomas were watching the news one night last week when they saw that Walmart in this central Maine town of 8,000 people was taking appointments for the Covid-19 vaccination. They had signed up for shots at a hospital about a month ago but still hadn’t heard back. Ms. Thomas, a 74-year-old retiree, jumped on the computer.

On Friday the couple got the Skowhegan Walmart’s first doses …

Walmart Inc., the U.S.’s largest retailer and private employer, is set to become one of the biggest distributors of the Covid-19 vaccine as the federal government enlists retail pharmacies to accelerate what has been a choppy rollout. …

Walmart is likely to benefit in other ways. Many of the people getting the vaccine at the Skowhegan store Friday didn’t previously have patient profiles in Walmart’s system, said [regional Walmart manager] Mr. Tozier. “We are making relationships with new patients,” he said.

Ann Jackson and her husband, Norman Jackson, 73 and 76 years old respectively, arrived for their vaccine appointment midmorning after waiting for weeks to get an appointment at the local hospital, said Ms. Jackson. Later, she added chips, bananas and T-shirts to her cart. “You never want to waste the trip to Walmart,” she said.

Contrary to what I implied in my previous post, there seem to be incentives enough for private pharmacies, at least those with a Walmart sort of efficient logistics, to administer Covid-19 vaccines when Big Brother releases them.

Such recourse to private enterprise could partly protect us from the central planners in DC and the state capitals. But why give the vaccines to some private organizations but not others—say, to Walmart but not to Hannaford? Is it because the central planners know better where demand is most intense or where low-cost distribution is most likely? That would possibly be a first in the history of mankind.

It would have been much more efficient, from the beginning, if the government had sold the vaccines to whoever was willing to buy them in order to make a profit and had given vouchers to whoever wanted to be vaccinated. After this redistribution of purchasing power, the market—that is, individual demands—would have decided where the vaccines should go.

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Redford on Qualified Immunity and Moral Hazard

 

A few weeks ago, Virginian Audrey Redford, an assistant professor of economics at Western Carolina University, learned that the Virginia House of Delegates solicited open comments on a bill to end qualified immunity in Virginia. The comments would be read aloud to the delegation. So she wrote a comment.  The bill failed by a considerable margin, but she got some satisfaction from knowing that someone read her statement to the delegates. Here it is.

Qualified immunity completely alters the incentive structure for law enforcement officers. It presents a significant moral hazard problem to the community. The inability to punish an officer who misbehaves and harms members of the public creates significant distrust in the community. In no other occupation is an individual protected for “doing their job” when they wantonly step outside of what is permissible. If policymakers are at all concerned with “weeding out the bad apples” in policing organizations, this is the way to do it. The claim that policing is so dangerous that it requires officers to sometimes act in egregious ways is false. The BLS and other non-partisan organizations consistently show that many occupations are significantly more dangerous than policing, including garbage collecting. [DRH note: also farming.] Yet the same immunity is not offered to them. In reality, policymakers afford law enforcement officers such an exception because they are a powerful interest group. They lobby effectively and raise significant funds for their preferred elected officials. To the many delegates who claim to not be in the pocket of any interest group, I implore you to examine the true motivations of why you might be opposed to passing such a bill that protects villains with badges in the community. Law enforcement officials ask ordinary citizens all the time, “if you’re not breaking the law, what do you have to worry about?” Now is the time to hold them to the same standard. Who, if not you, will guard the guardians? I suspect that if legitimate means to resolve this imminent issue are not taken, the community will step in and find a way to solve it for themselves. However, delegates, that may mean they find alternatives outside of the political sphere to stand up for themselves, and we know the government doesn’t like competition.

 

 

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The Economics of Violence: A Short Introduction

The simplistic declarations about violence heard after the “insurrection” of January 6 at the Capitol invite a reflection on the economics of violence. The economist’s starting point is that an individual uses violence when it is in his personal interest to do so—when, given his circumstances and constraints (including subjective moral constraints or the lack thereof), he finds the net expected benefit of violence greater than the net expected benefit of peaceful exchange for him. This is a positive observation about what is, not a normative statement about what ought to be, an important distinction to always keep in mind.

As the late UCLA professor Jack Hirshleifer argued, we must not overlook “the dark side of the force” (of the force of self-interest), which includes “crime, war, and politics.” (I am quoting from the mimeographed July 28, 1993 version of his article “The Dark Side of the Force.”) Cooperation (such as trade) happens but “with a few obvious exceptions, occurs in the shadow of conflict.” Hirshleifer wrote. In positive economics, violence is important:

All aspects of human life are responses not to conflict alone, but to the interaction of the two great life-strategy options: on the one hand production and exchange, on the other hand appropriation and defense against appropriation.

Which strategy one individual chooses depends on his preferences, his abilities in voluntary cooperation, the defensive or offensive production technologies available to him and to others, and his evaluation of the future. But how should we think about political violence?

Open violence—“the war of all against all”—has dire consequences for prosperity. Virtually all individuals have good reasons to want it minimized. Thomas Hobbes formalized the idea that such minimization is what gives legitimacy to the state. Populations accepted the burden of the Roman Empire or the medieval lords or the king or the modern democratic state because these governments were deemed not as bad as attacks from the “roving bandits,” private or governmental, who would have otherwise proliferated and attacked them. The “roving bandit” concept belongs to the theory of economist Mancur Olson, notably in his article “Dictatorship, Democracy, and Development” (American Political Science Review 87:3 [September 1993], 567-576).

Governments do not abolish violence as its threat underlies their injunctions and bans. But the most useful governments prevent violence from degenerating into open violence. They replace the latter with a more subdued, formal, and at least partly constrained form of violence.

This does not mean that revolution is never in the interest of some or many or even—under the worst governments—a majority of the ruled. The collective action necessary to organize a revolution, however, faces daunting problems. Which individuals will start the revolution and pay the necessary personal costs, often with their lives? (On the theory of collective action, a milestone in economics, see Olson’s book The Logic of Collective Action: Public Goods and the Theory of Groups, 1966].)

Revolutions do occasionally happen, though. At some tipping point, the National Guard or other praetorians do not shoot on demonstrators or on the mob attacking the “City of Command,” as political theorist Bertrand de Jouvenel called the center of government power (in his book On Power [1945 for the original French edition]). Bodyguards decamp where the signs become unmistakable that the regime is crumbling, because it is in the private interest of each of them to not be on the losing side. In Romania, Nicolae Ceausescu had no more praetorians when he was arrested by revolutionaries and executed with his wife. In different circumstances, Saddam Hussein was found in a rabbit hole, alone. Syrian ruler Bashar al-Assad did crush the revolution by shooting on the crowds but, perhaps most importantly, by becoming a vassal of the Russian government.

The threat of revolution or revolt can lead some governments to rule by terror, but it can also exert a restraint on state power. The factors at play include the technology (guns and such), the propensity to violence on both sides, and the existing political institutions. Olson provides a historical example of how the threat of revolution can be useful:

In Venice, after a doge who attempted to make himself autocrat was beheaded for his offense, subsequent doges were followed in official processions by a sword-bearing symbolic executioner as a reminder of the punishment intended for any leader who attempted to assume dictatorial power.

Thomas Jefferson would have agreed. He famously wrote:

I hold it that a little rebellion now and then is a good thing.

Interestingly, once he was president, he did not even support ordinary smugglers.

One problem with revolutions, illustrated by the 1789 French revolution and the 1917 revolution in Russia, is that they can strengthen power instead of limiting it. In America, the jury may still be deliberating. Many thinkers, including most economists of the public choice school as well as Anthony de Jasay, have argued that the state as an institution has a logic that leads to growing power.

Even a liberal social contract as Nobel economist James Buchanan theorized it is ultimately based on threats of violence. When some individuals think that the contract is not in their best individual interests and that they would fare better in anarchy, they will want to renegotiate the deal or walk out of it. Only new rules and/or some bribes can prevent a civil war or a revolution. As Hirshleifer said, the option of violence is always lurking in the background.

Classical liberalism claims that individual liberty under the rule law and the prosperity that follows are the best set of institutions to minimize violence—a potent argument. However, Anthony de Jasay, a liberal anarchist (or perhaps a conservative anarchist), has dampened the liberal enthusiasm by emphasizing the need for an effective balance of power between the ruler and the ruled:

Self-imposed limits on sovereign power can disarm mistrust, but provide no guarantee of liberty and property beyond those afforded by the balance between state and private force.

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Romney’s child allowance proposal

Mitt Romney has proposed a child allowance of $4200/year for children under age 6 and $3000/year for children age 6 to 17, which is gradually phased out for people making over $200,000 (depending on the child’s age.) It is to be paid for without boosting the budget deficit, by reducing certain other poverty programs and also eliminating certain tax deductions, such as what’s left of the SALT deduction. (This last element is one of my favorite parts of the plan.)

I don’t know enough about the plan to have a firm opinion, but from a utilitarian perspective it seems to have some positive features:

Equity: The net effect is to shift money from the affluent to the poor, which probably results in a significant gain in aggregate utility.  (Yes, we can’t measure utility, but it seems likely that this factor is a net plus.)

Efficiency: It’s hard to say whether Romney’s plan improves or reduces efficiency, and that’s where I’ll focus the rest of the post.  But the mere fact that “it’s hard to say” is a sort of plus for the plan, because the equity considerations seem to be pretty clearly utility improving. With most welfare proposals, greater equity comes at a cost of lower efficiency.  I think it’s fair to say that either Mitt Romney is a very clever guy, or he has smart advisors, or both. At the end I’ll suggest a modification that would boost the equity of the plan, without any clear loss in efficiency.

1. Some conservatives like the fact that these child benefits would boost the birth rate, pointing to the fact that people say they want more children than they actually have.  I don’t share their worry that the birth rate is too low, and I don’t trust polls.  Some conservatives worry that paying poor people to have kids would cause so-called “inferior” people to reproduce.  I also don’t share this worry.  For me, the effect on births is a non-factor.

2.  Work disincentives can come from either the income or the substitution effects.  The substitution effect in Romney’s proposal is small, as parents don’t lose the child allowance until their income rises to well above $200,000.  So on that basis it won’t discourage poor people from getting a working class job.  There is a very mild work disincentive for upper middle class people experiencing the phase-out of the benefit.  The income effect refers to the fact that poor people might no longer work because they feel they can live on the child allowance without working (perhaps combined with other programs like food stamps.)  It seems to me that this disincentive would be quite modest for the size of benefits proposed by Romney.  Still, in net terms there’s probably a mild work disincentive from the issues I’ve discussed thus far.

3.  Many of the other provisions actually boost efficiency.  Several other (inefficient) poverty programs are either reduced or eliminated.  Furthermore, there’s a substantial gain from reducing the complexity of both the welfare system and the income tax system.  Eliminating the SALT deduction also discourages wasteful state and local spending.  So the various provisions that pay for the benefit have a significant positive impact on economic efficiency.

Combining points #2 and #3, I see no clear evidence of either an overall gain or loss of efficiency.  And again, the equity benefits seem pretty clear to me.

One final comment.  Why not make the child allowance fully universal, and then slightly boost the payroll tax (on wage income only) on people making over $200,000 a year to pay for it?  On an equity basis, that would redistribute money from the very rich down to the upper middle class, as people with very high wage income would pay more extra tax than they’d gain from the child allowance, while the opposite is true for the upper middle class—those making modestly above $200,000.

On efficiency grounds, my proposed modification would make the income tax system much simpler, so that’s a net gain.  The increase in the payroll tax rate would be smaller than the implicit marginal income tax during the phaseout range of Romney’s proposal (which mostly applies to people in the $200,000s), so extremely affluent people would face slightly higher MTRs while modestly affluent people would face significantly lower MTRs.  Overall, I doubt there’d be much change in economic efficiency, maybe even an increase.

 

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The Beatings Will Continue Until Morale Improves

How to slow the recovery.

The Biden plan should provide enough relief to carry the economy through the worst of the pandemic. One concrete example is the supplemental unemployment benefit, which Mr. Biden proposes to increase from $300 a week to $400. More important, the extra benefits will last at least through September, then phase out automatically as the labor market improves. Both changes are wise. (emphasis added)

This is from Alan S. Blinder, “Biden’s Stimulus Hits All the Right Notes,” Wall Street Journal, January 20, 2021 (print edition.) The article is gated.

With federal benefits of $400 per week, this translates into $10 an hour for a 40-hour week. That’s on top of state unemployment insurance benefits, which are typically somewhere between $250 and $500 per week. Take even the low end of $250 and that translates into $6.25 per hour for a 40-hour week. So that’s $16.25 an hour. Although unemployment benefits are subject to income taxation, they are not subject to payroll taxes. The employee’s share of payroll taxes is 7.65 percent. So to break even by taking a job, a worker getting $16.25 per hour for not working would have to get at least $16.25/(1 – 0.0765) = $17.60 for working. And if the worker wants to net at least, say, $3 an hour before tax (but after payroll tax) for working, he would have to be paid at least $20.84 for working.

But that very fact means that a few million people, especially those making below $20 an hour, will take their time getting a job. That means that the labor market improvement that Blinder depends on, though it will happen, will be slower than otherwise precisely because of the extra $400 per week. Thus the title of this post.

Blinder claims that this policy is wise; it is anything but.

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Will the Vaccines Mess With Our DNA?

 

A friend on an email group I’m on asked my friend and co-author Charley Hooper the following question about the COVID-19 vaccines:

Are you sure that the vaccine won’t mess with our genes?

Charley allowed me to share his answer:

No, I’m not 100% sure. But I’m one minus epsilon (a very small number) sure.

Biological reason:

I’m not an expert in this area. This is from my reading…RNA is a notoriously fragile molecule. Delivering mRNA successfully to the cells inside our bodies and ensuring that enzymes within our cells do not degrade it are key challenges in vaccine development. Chemical modifications during the manufacturing process can significantly improve the stability of mRNA vaccines. Encapsulating mRNA in lipid nanoparticles is one way to ensure that a vaccine can successfully enter cells and deliver the mRNA into the cytoplasm. 

mRNA does not linger in our cells for long. Once it has passed its instructions to the protein-making machinery in our cells, enzymes called ribonucleases (RNases) degrade the mRNA. mRNA dies a quick death once in human cells.

It is not possible for mRNA to move into the nucleus of a cell as it lacks the signals that would allow it to enter this compartment. This means that RNA cannot integrate into the DNA of the vaccinated cell. There is no risk of long-term genetic changes with mRNA vaccines.

Clinical reason:

Moderna’s Phase 3 clinical trial of its COVID-19 vaccine enrolled 30,420. We haven’t seen any genetic damage to these participants. Ditto for Pfizer and BioNTech’s trial that enrolled 43,448 participants. How have we not seen any genetic damage in over 70,000 closely monitored individuals?

Economic reason:

Why would a company market a vaccine that could mess up the genetics of its customers? I shudder to think of the lawsuits. This goes against everything I’ve learned from spending the last three decades in the pharmaceutical industry.

Genetic reason:

If the vaccines do alter human DNA, what is the result? To make us healthier, stronger, smarter, more beautiful? That would be extremely difficult to accomplish. To make us mutants? If the vaccines do alter our DNA, I think it’s virtually certain that the alterations would be harmful and perhaps fatal. Who other than an extreme environmentalist or a mass murderer would want this? However, these vaccines were developed by drug companies, not mass murderers. There’s no group of people that I know of that had both a motive for such a crime and the ability to perpetrate it.

Insider information reason:

Have we heard of large numbers of employees at Moderna, Pfizer, and BioNTech avoiding the new vaccines? No.

 

 

 

 

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The new (center) left

In recent years, the reporting at The Economist has moved somewhat to the left. Here’s a recent example:

But the assumption of rational self-interest constrains the welfare state significantly. Generous benefits, and the high taxes needed to fund them, will put rationally minded people off work, undermining economic growth and the government’s capacity to help people in need.

In practice, though, Mr Saez explained, the world works differently. . . .

Employment rates for prime-age men are remarkably similar across rich countries, Mr Saez pointed out, despite big differences in tax and welfare systems. Average tax rates in France are roughly 20 percentage points higher than those in America across the income distribution, yet about 80% of middle-aged men work in each country. (Americans do work more hours, but, as Mr Saez noted, this too reflects social choices, such as the shorter working week specified in French law.) There is strong social pressure for healthy men not to be seen as “freeloaders”, which pushes against the incentives created by higher taxes or bigger welfare cheques. Where social pressures to work are more ambiguous—as for the young or old or, in many places, women—generous benefits tend to have larger effects on employment decisions, Mr Saez noted. But this reinforces rather than undercuts the idea that social factors have important effects on economic decisions.

This isn’t exactly wrong, but it seems a bit misleading.  The tone of the article is sort of dismissive of conservative arguments that the welfare state discourages work, but the actual empirical evidence suggests that it discourages work among the young, the old, women, and among men it leads to shorter work hours.  This is one reason why per capita GDP (PPP) is far lower in Europe than in America. It’s not true that “the world works differently”; it works exactly the way that classical economic theory predicts.  The European welfare state makes Europe a much poorer place.  That may be fine (perhaps people prefer the extra leisure time), but it’s foolish to minimize the effect.

And to head off criticism, note that while some European welfare states have incomes well above the European average, so do some American states.  Lots of things affect income, not just welfare and taxes.

Over the past quarter century, the center left has shifted a bit left on public policy issues:

1990s-style neoliberalism                                2021 post-liberalism

1. Singapore style forced saving                  Expanded social insurance programs

2. Private infrastructure projects.              Public infrastructure projects

3. Progressive consumption taxes              Progressive income/wealth taxes

4. Fiscal responsibility                                   Deficits don’t matter

5. Monetary stabilization policy                 Fiscal stabilization policy

6. Low wage subsidies                                   Higher minimum wages

7.  Privatization                                                More aggressive antitrust

In 1996, Clinton ran for re-election on ideas such as “the era of big government is over” and “ending welfare as we know it.”  Fiscal stabilization policy was a complete non-starter.  We were moving toward budget surpluses, with an eye on the demographic time bomb created by lower birth rates and longer life expectancy.

Why the recent move toward a slightly more socialist approach to policy?  (Yes, it’s far from outright socialism, but for the most part the list above is not a move toward the Nordic model, at least the post-1990 Nordic model.)

Some might quote Keynes’s famous remark about how to respond to new information, but I’m not convinced that this can explain the shift.  I’m only an expert on one of the 7 areas above (stabilization policy), but in that one area I’ve seen a lots of bad arguments for the move toward fiscal policy, arguments that reflect a misunderstanding of macro theory and an ignorance of macroeconomic history.  So I have little confidence that the other 6 examples are any better justified.  Especially when I see dubious claims that a less effective policy (minimum wages) can be justified on the basis of being more politically acceptable than a more effective policy (low wage subsidies).  We have an EITC program!  And we have a new government where the Democrats have an easier time with new spending programs (requiring 50 senators) than regulatory changes (requiring 60 senators).

So what explains the shift?  I suspect it’s a mix of various factors.  Monetary policy failures like the Great Depression and the Great Recession are almost always misdiagnosed as a failure of capitalism.  The move toward an information economy has made income less equal.  The zero lower bound makes monetary policy seem less effective than it is.

More speculatively, the center right might feel increasingly comfortable viewing the center left as their “tribe”.  The days of P.J. O’Rourke’s “Republican Party Reptile” is long gone.  It’s no long cool to be associated with an ideology that has become increasingly nationalistic and anti-intellectual.  Meanwhile, the demise of communism has removed some of the taint from the left.  Media outlets such as The Economist and the Financial Times, and think tanks like the Niskanen Center, seem increasingly at home in the center left.

PS.  I used the term “post-liberal” as its relationship to liberalism is analogous to the relationship of post-Keynesian to Keynesianism. Similarly, modernism was followed by postmodernism.  In any case, neoliberalism is already taken, and neo-neoliberalism just sounds stupid.

 

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