Citizenship and Welfare

Is welfare something citizens are entitled to?  Perhaps it is – there is a reason we call it an entitlement.  The right to a measure of support in a time of hardship is your entitlement as an American citizen.  At least that’s the view we generally hold today, but it wasn’t always the case.

The British Poor Law reform of 1834 did not provide welfare as a right of citizenship – it provided a trade of citizenship for welfare.  It provided a system for central government support for the destitute: food and housing paid for by the state.  In exchange for this support, the destitute were required to move into a workhouse where they labored for the state.  They were denied freedom of movement and most importantly, were disenfranchised.  The intent of the Poor Law reform was in part to prevent Englishmen from starving to death – but in part to ensure that the welfare system was unpleasant enough that no one would choose it over working.  The denial of the franchise, and the enforced alienation from civil society, was intended to ensure the poor would not vote themselves more and more benefits. Later scholars of the welfare state, such as Karl Polanyi, referred to this approach as “pauperization”.

The common modern-day refrain of “a safety net, not a hammock” echoes the pauperization strategy of Victorian England; this is not a criticism so much as a description.  Pauperization is the impulse that underlies modern-day policy experiments such as endless invasive drug-testing of welfare recipients (recently struck down by an appeals court). The intent is not to save money but to discourage welfare seeking by making it terrible; not just unpleasant, but a loss of basic civil rights.  Modern proposals have not included disenfranchisement but it is not so difficult to imagine.  Perhaps it is a good idea to demand a sacrifice of civil rights in exchange for subsistence – perhaps it is really more effective at getting people to stay off welfare, and leads to a net healthier and better society.

But the idea of “a safety net, not a hammock” is not new or innovative policy – it’s in fact shocking how old it is.  And it entails a vision of citizenship very different than the ideas most of us generally claim to endorse.

Updating Priors on the Chinese Economy

Christopher Balding has a an interesting piece on Chinese statistics on growth, GDP, and consumption.  As you might expect if you have even a cursory knowledge of China, the stats are highly suspicious.  But as Balding reveals, they’re suspicious in an interesting way.  In the course of looking at rural consumption figures, he comes up against the revelation that due to changes in methodology the statistics are not really comparable from year to year.  Even more importantly, even basic figures like national GDP have frequent but unannounced methodological changes such that they are not comparable over time.

How should this alter your views on China?  First and foremost, we know much less about its recent economic history than we think.  If it is altering the methodology from year to year, then statistics both on levels and growth have huge unacknowledged error bars around them.  Secondly, it should worry people about future growth levels.  There are two possible scenarios.  One is that the Chinese government does not think it worthwhile to keep reliable economic statistics.  The second is that the “real” statistics are secret and the public statistics are manipulated to serve political interests. Neither has particularly positive implications for the quality of economic governance in China and its future trajectory.

The Political Grift Economy

Great piece from Politico this morning about the rise of “Scam PACs”.  Scam PACs are just that, a method of using PACs to scam donors.  Externally, scam PACs look just like other PACs – they are nonprofits that raise money for political causes from donors, generally relying heavily on direct mail and email fundraising appeals.  The difference between regular PACs and scam PACs happens after the money is raised, though.  Most PACs take that money and distribute it to candidates sympathetic to whatever cause the PAC is meant to represent.   Scam PACs, on the other hand, take that money and spend it on “operating expenses” – generally justified as more fundraising – and usually through vendors/”consultants” that just so happen to be controlled by PAC’s officers.  They’re a fascinating world, but there’s one particularly interesting oddity about them: they are almost exclusively a right-wing phenomenon.

In general, bad actors treat the right-wing grassroots as a piggy bank in a way that doesn’t exist on the left.  Scam PACs are just the tip of the iceberg; there are whole businesses built around exploiting donors in order to enrich pseudo-political profiteers.  Shady survivalist businesses, gold marketing, insurance scams, multilevel marketing, etcetera.  There’s a great (if somewhat polemic) article on this from Rick Perlstein, which chronicles just how far back it goes.  Basically, the political-grift business seems to have originated with and co-evolved with the conservative movement.

As an academic question, the political parasite economy seems worth studying.  There are so many interesting questions!  Is it a specific product of campaign finance regimes?  Is it a result of the United States’ rather loosely integrated party system, which relies a lot on semi-affiliated third-party organizations?  For that matter, do things like this even exist in other countries?  I certainly have no idea.  And most interestingly, why do they only exist on the right side of the spectrum?  Perlstein’s answer is that the conservative movement encourages a certain desperation that makes people more willing to open their wallets.  Perhaps – I think it might be more related to the fact that conservative voters/donors are much older, and the elderly are the top targets for fraud.  Regardless, there’s some interesting work to be done here and the fact that America’s political financing is actually quite well-documented suggests that there might be data sufficient to address it.

Skills-Biased Technological Change and Economic Outcomes

A depressing paper on labor market outcomes, via Marginal Revolution:

Does adoption of broadband internet in firms enhance labor productivity and increase wages? And is this technological change skill biased or factor neutral? We exploit rich Norwegian data to answer these questions. A public program with limited funding rolled out broadband access points, and provides plausibly exogenous variation in the availability and adoption of broadband internet in firms. Our results suggest that broadband internet improves (worsens) the labor outcomes and productivity of skilled (unskilled) workers. We explore several possible explanations for the skill complementarity of broadband internet. We find suggestive evidence that broadband adoption in firms complements skilled workers in executing nonroutine abstract tasks, and substitutes for unskilled workers in performing routine tasks. Taken together, our findings have important implications for the ongoing policy debate over government investment in broadband infrastructure to encourage productivity and wage growth.

This is another small piece of evidence in favor of “skills-biased technological change”.  In SBTC, technology changes in such a way that it is not neutral with regards to outcomes – for example, it might make unskilled workers or highly-skilled workers more valuable relative to each other.  One example is what is called the “superstar effect” – as communications improve, very gifted artists can sell their work to larger audiences and make much more money, and so the distribution of incomes in the art industry becomes much more unequal.

One interesting aspect of SBTC is that winners see the resulting distribution as natural.  They work hard, and are skilled, and make their income because of that.  It is hard for them (or anyone) to imagine a counterfactual world without SBTC, one where their skills would be less lucrative.  And so to the wealthy in a world with a lot of SBTC, they have earned every dollar of income and the resulting distribution of income represents just deserts.  To the losers, it appears as though technological change is directing income unjustly towards those winners.  And they are both right.

The politics of such a world are depressing to consider.  Though to be more optimistic, a world of SBTC may be the world in which we live today.

Why Rent Control Will Never Die

I have relatively little to add to a brilliant post by Pedestrian Observations (a fantastic urbanism blog) about the economically and politically toxic nature of rent-control regimes, and the difficulties in transitioning away from them.  It’s worth excerpting two big chunks.  The first is a good explanation for the path dependency rent regulation creates:

As the gap between the regulated and market rent grows, landlords have a greater incentive to harass regulated tenants into leaving. This is routine in New York and San Francisco. Community groups respond by attacking such harassment individually, which amounts to supporting additional tenant protections. In California, this is the debate over the Ellis Act. The present housing shortages are such that supporting measures that would lower the market rent has no visible short-term benefits, and may even backfire, if a small rent-controlled building is replaced by a large unregulated building.

 Here is what is in my mind the key section for understanding the deeper reason why rent regulation battles rip cities apart:

Instead [of market pricing], cities give preference to people who have lived in them for the longest time. Rent control, which limits the increase in annual rent, is one way to do this. City-states, i.e. Singapore and Monaco, have citizenship preference for public housing to keep rents downfor their citizens. Other cities use regulations, including rent control but also assorted protections for tenants from eviction, to establish this preference. Instead of market pricing allocation, there is allocation based on a social hierarchy, depending on political connections and how long one has lived in the city. People who moved to San Francisco eight years ago, at age 23, organize to make it harder for other people to move to the city at this age today.

I’d simply add that this is a classic situation of Polyanian fear of the market.  Polanyi’s great insight was that the “free market” was a utopian dream – when left to their own devices, people rarely self-organize into market provision for crucial goods.  In fact, when the state intervenes to attempt to bring a market where traditionally goods where provided socially, it generally provokes a violent backlash.  Rent control is a great example of this – it creates two parallel systems, one a free-market system and the other where apartments are provided via a social hierarchy primarily based on who was there first.   Ending rent control not only can raise prices for the current insiders, but much more threateningly erases a market of their social status.  I hadn’t quite ever thought of rent control as “provision via social hierarchy”, but in that light it makes it much more clear the personal rage that the subject inspires.

Anyway, read the whole thing.

The GOP’s Uber Gambit: A Theoretical Interpretation

Like Yglesias, I noticed that Republicans have been trying to politicize Uber.  I thought it was pretty neat, in large part because this is one of the cases where political science gives us pretty clear predictions.  This effort won’t work, but even if it did it would likely be bad for both the Republican Party and Uber.  First, let me explain why this is unlikely to go anywhere:

In order for an issue to become a partisan issue, it must be both salient and divisive.  Salience just means whether an issue is important enough to be near the top-of-mind for many Americans.  The economy, welfare, crime, (maybe) foreign policy; all of these are persistent salient issues for Americans.  Others become more salient at specific times – the environment, civil rights, gay rights, etc.  The mechanisms of how issues become salient is complicated, but let’s ignore that for the moment.  Uber just isn’t important enough to ever become a salient issue for most Americans – especially since it only operates in large urban areas where most Americans don’t live.  Ah, you might retort – but that’s where young voters the GOP is trying to win live!

Sure, but it fails the test of divisiveness.  Most Americans don’t see any reason why Uber should be illegal*.  In fact, outside of taxi lobbyists and trade associations, I suspect you will have trouble finding any meaningful number of Americans opposed to allowing Uber.  If the Republicans succeed in raising the salience of Uber to any degree, the Democrats will side with Uber as well.  The current state of Democrats passing anti-Uber laws is an oddity simply because legislators protect incumbents when allowed to operate without public scrutiny (i.e., low salience) and because legislators in large cities are virtually all Democrats.  If the issue became widely salient, the Democrats would not obligingly line up behind a massively unpopular policy stance.

The implicit theory here, by the way, is that Uber could drive a realignment wherein the GOP captures younger voters.  The idea here is that the public has a wide range of opinions along multiple dimensions, and there are multiple stable equilibria for dividing them.  By exploiting a highly salient cross-cutting issue where each party is internally divided, political entrepreneurs can tip the parties into new configurations.  This is what happened with slavery in the 1850s and civil rights in the 1960s.  This is basically Rand Paul’s gambit for 2016, about which I will write more soon.  A few practical problems with applying this theory to Uber – it’s not salient enough, it’s not cross-cutting, and even if it worked current party leadership would lose their jobs as the party base completely changed.  So a pretty half-assed effort here all around.

Finally, I just want to touch on the consequences for Uber if the GOP’s plan worked, because they are terrible.  If an issue successfully becomes a partisan issue, the natural implication is that the other party lines up against it.  If the GOP succeeded, then Uber would find themselves in the crosshairs of the Democratic Party after the GOP had made the issue highly salient.  Democrats happen to run the cities where Uber operates.  The consequences for their business would be highly negative.

More generally – is it a good idea for minority parties to attempt to activate new partisan issues?  If you believe elections are mostly decided by fundamentals, it is a terrible idea.  By raising the salience of these issues, minority parties make majority party action more likely and in a direction that is likely to differ from the minority party’s preference.

 

*: Poll was commissioned by Uber.  Most polls on the issue are commissioned either by Uber or the taxi lobby.  This one had the fairest wording – asked whether existing regulations are sufficient or whether it should be regulated more heavily.  

Russia, the EU, and Sanctions as Subsidy

Yglesias has a new post up on the package of sanctions the EU is preparing for Russia, and one in particular seems interesting, an EU embargo on Russian arms:

While the EU exports €300 million a year in weapons to Russia, EU countries import about €3.2 billion in Russian-made equipment. Those imports mostly go to former Warsaw Pact countries such as Poland, whose militaries have a legacy of using Russian arms. This is an appealing target because Eastern and Central European countries are also, in general, the countries most eager to see the EU take a more anti-Russian tilt.

Yglesias mentions one reason this is practical, that the brunt of this would be borne by the most militantly anti-Russian countries.  France and Italy don’t operate MiGs – Poland and Latvia do, and this embargo would cut them off from replacement parts.  If they’re interested in taking this step, there’s no visible main impediment. And it might actually make an impression. While 3.2 billion Euro comprises a whopping 0.2% of the Russian economy (by my back of the envelope estimate), it’s a fairly significant sector of the economy dominated by interests close to the state.

One thing Yglesias doesn’t mention: on this issue, the political economy lines up beautifully.    The 3.2 billion Euros won’t be lost, especially since the bulk of those imports are to Eastern European countries that are currently getting quaky and plowing money into their military.  Poland will keep buying fighter jets, but it won’t be buying MiGs – they’ll be buying Eurofighters, Saabs, and F-16s.  This embargo could function as a de facto subsidy to the big European military contractors that are mostly located in Western Europe.  I imagine that Airbus and BAE are leaning hard on their friends in the EU as we speak.

I can’t speak for the rest of the package, but this seems likely to happen.

Social Science: The Roman Frontier

There’s a big focus in academic humanities these days on ‘digital humanities’.  This can include a lot of vaguely silly stuff, like doing word counts in great works of literature in attempts to make literary analysis more sophisticated.  However, there’s also much more interesting work going on, particularly in economic history.  A traditional problem for application of social science methods to historical question is the scarcity of data, because hard data in an easy-to-digest format is pretty rare.  However, determined researchers can apply some new tools and some hard thinking in order to find out quite a lot.

ORBIS is one of the coolest projects I’ve seen in the “digital humanities” world.  It’s a reconstruction of the travel network across the Roman world.  The researchers, Walter Schiedel and Elijah Meeks, have gone to great lengths to reconstruct the methods of travel across the empire.  The topographic map is just the starting point – they’ve included information on highways, travel modes, and even seasonal weather and wind conditions for information on seasonal changes in travel times.  They’ve even incorporated historical records on Roman-era prices so that you can see the inflation-adjusted cost of various travel options, selecting for the fastest or the cheapest trip. 

This could be a great resource for social scientists or for historians looking to apply social science methods to historical problems.  If you’re interested in systematically studying the effects of, say, Roman administrative quality on local economic outcomes this data set is invaluable.  This data would allow the use of what’s called an “instrumental variable” study, which is a method for studying effects that can’t be easily untangled from causes.  Local administrative quality and economic productivity are a good example; neither is really exogenous to the other. However, you can get around this by using a third variable, an “instrument”, that is exogenous to both but only affects the treatment.  Travel time from Rome is perfect for this – it definitely has an effect on local administrative quality, but doesn’t have an obvious impact on local productivity.  This allows you to back out the effect of administrative quality on local productivity, which is a question that’s otherwise very difficult to answer.

Of course, that relies on similarly high-quality data on all three variables of interest.  That could be difficult to come by, which just goes to show the difficulty of doing empirical social science on historical topics.  However, ORBIS is an incredible step in the right direction.  It’s very cool what these researchers have done, and I hope to see more work like this in the future!

The Positive Feedback Loop of Urbanization

There is something of a debate about why people make more money in cities, and whether at the individual level it’s wisest to make more money in a higher-cost city or less money in a lower-cost city.  Emily Badger has an excellent piece on economist Rebecca Diamond’s work on the growing educational/economic divide across American cities.  Diamond found (unsurprisingly, if you’ve ever compared Boston and Detroit) that places with more college graduates are expensive, but tend to be nicer and to offer higher-paying jobs.  In short, even after you account for the higher cost of living big, well-developed cities tend to come out ahead.  That doesn’t surprise me, but this did – places with higher concentrations of college graduates tend to pay college graduates more!

This suggests that the urbanist case is actually right – that people are more productive in cities than rural areas.  There are two countervailing forces that could act on the wages of highly-skilled workers in areas with many of them, greater supply and greater productivity.  We should expect to see lower wages for college grads in cities with lots of them, and the fact that the opposite holds true suggests that there are in fact quite substantial productivity benefits gained by embedding in a local economy with more specialization and more opportunities to apply specialized skills.

Urbanization is a positive feedback loop of productivity.  Urban workers produce more – while they have to pay more in housing costs, there is a positive net social benefit that increases the more people take up the opportunity.  This is actually the opposite of a collective action problem, a situation where everyone is incentivized to take actions that make everyone else better off.  Even better, this generates surplus income that can be taxed to make rural residents better-off, something the state does now through taxing income and spending on services/infrastructure in rural areas.  The main thing standing in its way is structural constraint, namely the limited housing available in the densest and richest urban areas.

Arguably, by preventing development rich urban landholders are extracting rents from the rest of the country.  Certainly from the rest of their states.

The Goodhart’s Law Problem with Public Loan Guarantees

As a way to encourage private investment in clean energy research, the Department of Energy has extended loan guarantees to many private companies involved in renewable energy development.  While conservatives seem to believe that they are all Solyndras, in fact the portfolio is doing remarkably well.  And that’s a problem.  As Michael Grunwald says, the whole point of this program is to bankroll promising technology that offers high rewards, but is too risky for the private sector to invest in.  If almost all the loan recipients are paying it back, that means the government is not only not investing in promising-enough technologies, but is actually crowding out private investment in the sector.

The political economy of public-private research partnerships are less promising than they seem initially.  They are justified as offering lower costs than direct government sponsorship by risk-sharing, which is hypothetically true.  However, it carries with it the inherent risk of Goodhardt’s Law – when a measure becomes a target, it ceases to be a good measure.  The key measurement here is default rate – the government can hypothetically monitor the riskiness of its program by monitoring the default rate and making adjustments accordingly.  However, the default rate in a loan guarantee program is actually the only visible metric available, and it is a natural rule of organizations that you manage to what you can measure.  Even without the political pressure applied, it seems like one would naturally expect these types of programs to be managed to generate maximum return of capital rather than maximum investment in promising technology.

There are better ways to structure public investment into research.  The simplest is to fund public research, which has been used plenty successfully in the past.  There’s no monetary recovery, but it’s also not set up in such a way as to encourage it – and if the money is well-directed, the social benefit can far outweigh the accounting cost.  There are also tax incentives for R&D, which are a bit less well-directed towards basic innovation but can be relatively cheap.  There are public innovation prizes, which are likely underutilized and are a generally neat solution.  But none of these face the perverse incentives of public loan guarantees.  They’re a clunky policy tool that emerge from the contradictory desire to keep the government out of something while still using policy to drive it.