Undocumented Founders

By Robert H.

So I just got linked to this post from over a year ago, pointing out that a lot of our ancestors were illegal migrants (people started illegally settling unclaimed land on the frontier well before the government started giving it away for free).

But this doesn't go nearly far enough!  Americans have a long and proud heritage of illegal migration/immigration, and it should be recorded.  The stuff I can think of off the top of my head:

1. Before America banned Mexicans from migrating to Texas, Mexico banned Americans.  Freaked out by all the yanquis moving in up North, President Bustamente banned American emigrants from settling in Tejas in 1830.  This did not work, and by the time the ban was rescinded thousands of anglos had illegally settled in el estado de la estrella solitaria.  No doubt their descendants fight tirelessly on behalf of undocumented workers to this day.

2. Boomer Sooner.

3. In 1763, Britain banned American settlement West of the Appalachians, declaring the whole region an Indian territory.  Needless to say, this did not stick, on the one hand because the King kept carving out exceptions and on the other hand because anyone with a mind to move West simply ignored the ban, emigrating joyfully and illegally into the vast, unpeopled wilderness  some miffed Native American's back yard.

4.  America abolished the importation of slaves in 1807.  Nevertheless, between 1810 and 1851, about 50,000 African slaves "immigrated" to the US.  By 1865, most of these illegal immigrants had been granted amnesty.

What have I missed?

P.S. Apologies for not blogging Friday and for waiting so late to blog today.  Work has been busy, but I'll try to stick to weekdaily blogging.

1. Bad incentives 2. ? 3. Crisis!

By Robert H.

I am made very nervous by public choice stories that end in doomsday.  Take these examples: 1. As soon as the people realize they can vote themselves subsidies, they will vote themselves more and more until the economy collapses.  2. Because a possible debt crisis is a long way off but tax hikes and budget cuts happen now, politicians will always face pressure to please current voters and hurt future ones, never getting serious about the deficit until crisis is upon us.  3.  If markets start poking up interest rates and servicing our debt becomes a crushing burden, the fed will feel pressured to enact looser and looser policy to keep rates down until an inflationary disaster.

To state the obvious, in a rich, transparent democracy like America, there is a huge and powerful constituency that wants to avoid doomsday (everyone) and widespread access to good data about the likelyhood of doomsday.

So, to take one example, are politicians pressured to borrow now at the expense of future generations?  Probably.  Will this lead to a fiscal crisis?  Probably not.  You would expect rational voters likely to see a fiscal crisis in their lifetime push for balanced budgets.  If it looks like the debt to GDP ratio won't be sustainable in 20 years, maybe the 80 year olds don't care (they will be dead by then).  But the 20, 40, and maybe 60 year olds do.  As we approach fiscal crisis danger territory, older and older voters should start getting politically involved for austerity until the fiscal crisis is averted, later than would be optimal but far earlier than is dangerous.

Because the constituency against doomsday is so large and powerful, it is hard to tell public choice stories where rational actors end up dooming America.  Doomsday takes either 1. Ignorant voters (and why do you think you are so much smarter) or 2. Bad institutions that a.  hide key facts from voters, b. make coordination hard (IE, climate change is a global problem but there are no global institutions capable of dealing with it), or c. Put power in the hands of people who prefer doomsday to the alternative (IE, ruling junta would rather control a collapsing economy then risk losing control of a free one).  I would say Europe has suffered from a mix of all three factors under 2, hence the crises there.

How I know Work Requirements are Mean

By Robert H.

People who want to couple wealth redistribution with work requirements (making people look for a job to get UI, redistributing wealth with wage subsidies rather than hand outs, whatever) often say they are trying to fix incentives.  Just giving a low income person money removes a lot of his incentive to work.  So it makes sense to require the people we are giving money to to work.  From an "economic efficiency" standpoint, anyway.

But this is pretty much the only place I hear that argument?  For example, the money we are giving the poor person was taxed (or borrowed, in which case it will be payed for with a tax later).  If it was taken as an income tax, it lowered the incentive for rich and middle class people to work, since their post-tax salary is going to be less for the marginal hour worked.  So why not just require them to work more hours!  Make people in the top tax bracket work 80 hour work weeks, the bracket below that 60 hours, etc., with a big tax penalty for people who don't work  the "right" amount.  Problem solved!  Instituting a sales or VAT tax?  Command people to consume more!  Problem solved!  Spending money on a sugar subsidy?  Just order people to eat more sugar substitutes!  Problem solved!   It's a bright new day for economics, and we can finally tax and subsidize people with no dead weight loss!

This is crazy, and would not work.  Everyone knows it wouldn't work.  Bureaucratic orders simply aren't a substitute for actual market incentives, and if you are going to tax or subsidize someone you should just accept that that is going to screw up incentives and move on.  But, for some reason, when we turn to subsidizing poor people, free-market types see it as a self-evidently correct to try to stamp out the disincentive to work.  Why does so much effort go into coming up with ways to give a poor person money while requiring them to work more hours, and so little effort go into figuring out ways to tax a rich person's income in a way that requires he work more hours?  I can't really explain that, other than as moralizing (people don't deserve hand outs unless they are willing to work) attitudinal bias (of course ordering those poor people to work makes sense.   Of course it doesn't make sense with us middle class and rich people) or a sort of fuzzy argument form history (panem et circenses!).

I honestly feel like I am missing something, though.

Basic Guaranteed Job

by Robert H.

Morgan Warstler has a plan to replace a bunch of our current welfare programs with a new, more economically efficient scheme.  He thinks it will be able to woo liberals with it.  Well, I'm a liberal already wooed by Milton Freedman, so let's see how he does.  I'll put the basics of his plan here, but it is worth reading the whole thing.  Anyways, the basics (long):

The Basic Plan
Using the Paypal and Ebay platforms, the US govt. should establish a Guaranteed Income of $240 per week. Anyone who wants to work registers, receives a Paypal Debit Card, and each Friday at 5PM has their GI deposited.
All GI recipients have their labor weeks auctioned online. 
Job offers begin at $40 per week ($1 per hour).  Offers increase by .50 cents per hour ($20 increments).
At $40 per week, there’s no able bodied / able minded person that some rational returns bidder won’t find use for.  The 70 yr old woman in a wheelchair who wants to work to keep busy?  Plenty of teleservice operators have work for her to do from home for $1 per hour.
Note: I solve for the criminally lazy.  Identifying and fixing them is one of my plan’s advantages. I’ll get to it a bit later in the What Abouts plan.
So minimum take home cash under GI is $7 per hour or $280.  $240 is the social commitment paid out of taxes and $40 is the winning job offer.
To perfectly align incentives, for each $20 per week offer increase over $40, the govt. gets back $10 of our $240 social commitment, and the auctioned employed keeps $10.
So, on a offer of $100, the govt. is paying $210 and the auctioned receives $310.  A offer of $200, hits the govt. for $160 and auctioned receives $360.
The system ends at $10 per hour.  The maximum offer allowed in the GI Auction is $280 and the govt. is still kicking $120 netting the auctioned $400 per week.

So, I have some questions.  Keep in mind that my current preferred policy is a basic guaranteed income coupled with a negative income tax.  I think this should replace most forms of subsidies for low income folks (college subsidies, food stamps, TANF, unemployment, etc) with healthcare and educating children left as big expenses (and boy howdy, how we educate children also needs to be reformed too).

So, with that as my alternative, I have some questions.:

1. Surely there are, sometimes, more socially useful things someone can do with their time than work?  What if someone wants to go to school?  What if they want to stay home and take care of their kids?   Take an unpaid  internship?  Under my plan people can spend their lump to support themselves while they do these things and to cover their expenses (IE, tuition).  Under Warstler's plans either no one can devote themselves to those things or else we will need some separate  convoluted government programs to subsidize higher education, work training, etc.

2. What about part time workers?  Surely for some people working an amount lower than 40 hours a week is efficient?

3. Are we not trying to maximize utility?  It seems to me letting an old blind granny have 280 a week to live off of and + all of her free time is much more utility maximizing than giving her 280 a week and making her work for very marginal social gain 8 hours a weekday.

4.  What does Warstler think is a better way to have 1000 dollars allocated efficiently:  give it to someone who hasn't earned it, or give it to someone who hasn't earned it along with some preconditions on how they can spend it, what they can do with their time, etc?

5. If Warstler is worried about poor people getting money who haven't worked for it, what does that imply about the optimal inheritance tax?

6. What about parasites?  In eastern Europe under communism, another system in which everyone was required to work, there was a class of people called parasites (that link talks about anti-parasite laws as a pretext for oppressing social dissidents, which happened, but they were also used to go after actual parasites.  A few seconds googling can't find a better source).  They didn't work hard so no one wanted to hire them, and when firms were forced to hire them their bosses hated them.  At their jobs everyone had to cover for them in order to make the communal work norms, so their co-workers hated them.  They were fired at the first opportunity, at which point they were technically breaking the law.  Generally a judge or social worker would at first try to encourage them to get work, but at some point it would become clear that the person simply wasn't interested and they would be sentenced to jail.   The end result was that they tended to bounce from job to unemployment to prison in a sort of depressed, alcoholic haze.  Eventually they would die young.  This was a relatively large class of young men, and was often the fate of the non-functioning alcoholic in the GDR.

Under my system, people like that stay at home and try to scrape a little bit of happiness out of life.  Maybe they drink themselves to death, maybe they reform.  Under Warstler's system, they apparently don't exit?  This is how he describes lazy people:

That guy right now hides amongst 30M good people who want to work.  The first step is to expose him.  The second step is ostracizing and singling him out.  The third step is firm but forgiving punishments until his behavior is altered.

On day one, he signs up with everybody else, and never shows up at job.  His feedback is bad, he gives an excuse, or he ignores it.  The bidder doesn’t lose anything.  He’s just disappointed. 

After 4 weeks of taking the $240 GI, never being rehired, and given negative feedback, the criminal lazy is suspended, cut off for 6 weeks on first infraction.  Where does he go?  How does he eat?  Who’s couch does he sleep on?

Now all around him are 30M people waking up and going to work, getting their GI + Bid. They are happily employed, they are choosing between multiple jobs.  They are productive members of society.

He lives amongst them and they hate him.  They are getting louder and angrier with him.  He’s no longer able to hide amongst them complaining about the bad economy.  His support system crumbles.

Finally he breaks, after 6 weeks, maybe then 12, maybe then 26, he is put back to auction, and if he is rehired, he’s back in the game!  Take pictures of the work he did, prove he arrived early, stayed late by his own choice!  The system quickly exposes any positive effort and rewards it.

26 weeks to go from alcoholic bum to the new soviet man!

***

So yeah, I could keep going, but those are my big questions.  In general Warstler confirms a pet theory of mine: we can blame both liberals and conservatives for not having a more rational welfare system.  Liberals are too paternalistic and aren't willing to just give low income people money and trust they will know what to do with it.  But free market types are often too righteous, and aren't willing to give people money who haven't worked for it.  Obviously there are exceptions to the rule.

HT: Scott Sumner

I say goodbye, you say Helot

By Robert H.

Matt Yglesias has a post in which he off-handily says that the "legalize but don't give a path to citizenship" approach to existing illegal immigrants, seen in Jeb Bush's book, for example, threatens to create a new Helot class.  This is unfair but, more importantly, bad classics.

Laconia had three broad classes in classical antiquity: helots, who were basically slaves; perioeci, who were basically free people with relative economic liberty and the ability to serve in the army, but who were not citizens; and spartiates, who were citizens and could vote and kick people down wells and stuff.  Obviously Bush wants to create more of a perioeci class than a helot class, since he doesn't want immigrants to be serfs or murdered by children or anything.

But we can do better!  Classical Hellas actually had a word for the class of people made up of resident aliens (usually) unable to acquire citizenship and (often) made to pay a fine (tax).  What Jeb Bush wants is a Metic class.

Fascist Libertarians

by Robert H.

I continue to be worried by the trend of libertarians dismissing the idea that democracy might be, you know, good.  From Arnold Kling:

Lindberg also notices the hard-line stance of today’s left. This may be the key quote of the essay:

The notion of an invincibly center-right electorate was anathema to the emerging Left 3.0. A key moment in its reconciliation with the Democratic Party was the latter’s abandonment of policies designed with a center-right electorate in mind. For the foreseeable future, the party would lay claim to the center not on the basis of adopting positions to appease moderates and independents, but on the basis of winning more than 50 percent of the vote on election day for candidates congenial to Left 3.0 and garnering majority public support for positions congenial to Left 3.0.

I see this hard-line stance evident in the progressive’s resistance to any suggestion for reducing government spending. You cannot suggest cuts in the short run, because that would mean austerity. You cannot suggest trimming entitlement promises, because Social Security is sacred and control over health care spending is a job for technocrats.

The radical hardliners!  Claiming they should get to enact policies just because they win elections and have policies most people support!  What is this, some sort of representative democracy?

To be fair, this is really common in the "explain why the people who won the last election have novel strategies, an unstoppable political coalition, and will dominate politics forever" genre of writing.  "Unlike in the past, the people who won the last election have hit on the crazy idea of seeking majority support for their policies and candidates, then pushing those policies through while conceding as little as possible to the other side!"  Back under Bush, liberals were all complaining about how divisive Carl Rove's "50 percent plus 1" strategy was.  That was basically the same thing, "These mean old republicans are just trying to win elections and then pass the policies they like.  If they really cared about America they would make huge concessions to our policy positions for the sake of national unity."  Maybe!  Or, you know, we could let the majority rule so long as it respects human rights and our governmental institutions.

I'll let pass Kling's claim that Social Security is sacred to the new left, unfortunately made at the same time the President is calling for chained CPI as a policy concession democrats are willing to make for Republicans.

And my usual caveat: Arnold Kling is the person with whom I most disagree while still enjoying his writing, so I critically comment on his posts a lot.  I'm not trying to stir up some weird internet grudge or something.  Indeed, you can generally assume that if I *don't* write about one of his posts, I basically agreed with it.

Against All Efforts, Nate Thayer Goes Viral

Nate Thayer did a recent post on his blog describing an exchange with The Atlantic.  Nate posted a story for free on his blog, "25 Years of Slam Dunk Diplomacy" that now appears for free at NK News.  The Atlantic offered to post a condensed version of the story for free on their blog with reference to the original source, offering exposure to an audience of 14 million people.  Nate becomes offended that they would like to use his material without compensating him.

This has been covered from several sides already, and I think my framing of the above hints at where I stand.  I am already writing for free, and would love one of my posts to go viral.  I would love the exposure of getting linked to by Tyler Cowen.  I'm half tempted to offer him $50 for linking to one of my posts, just in hopes that he would use it for a "Markets in Everything" post (maybe I should make it $500).  I don't really have any plan for monetizing the extra eyeballs, but it would help build my personal brand, and it would be cool to have some influence.

What struck me in the exchange is a minor point that Thayer kept repeating,

If you ever are interested in  a quality story on North Korea and wiling to pay for it, please do give me a shout. I do enjoy reading what you put out, although I remain befuddled as to how that particular business model would be sustainable to either journalism and ultimately the owners and stockholders of the Atlantic.

I think he is misunderstanding a major part of The Atlantic's value added.  The Atlantic (among other things) is a filter sending interesting content to its audience.  There is, in fact, already a high quality story on North Korea already available for free on the internet.  The Atlantic is seeking to maintain the influence and eyeballs it has by both delivering new content, but also filtering through a tremendous amount of noise and delivering high quality content from around the web to its readers.  Usually, I think it is win, win, win.  Nate Thayer gets exposure.  NK News gets free marketing and a chance to gain new viewers.  And The Atlantic continues to satisfy eager customers.