Will the Swiss Support a BIG Welfare State?

From Newsweek,

Despite tentative bipartisan support for basic income in the U.S, the concept has gained greatest traction outside America. Switzerland has become the first country to hold a referendum on basic income at a national level; in 2015, the Swiss Parliament will vote on whether to extend a basic income of 2,500 Swiss francs (about $2,600) per month to every Swiss resident.

The article discusses radical versions of the Basic Income Grant for the U.S., in which $15,000 per household would be provided instead of Social Security as well as means-tested programs such as food stamps. It was hard for me to tell whether Medicaid would have to go, too. One commenter even thinks that Medicare would be axed to help pay for the income grant.

Anyway, although political judgment is not my specialty, it seems to me that tying a basic income grant to getting rid of Social Security would make it much harder to pass.

Meanwhile, if Switzerland pulls it off, it will be another victory for small states having better government/

The Cuba Opportunity

The WSJ writes,

The country has been hit by economic crises in its major patrons, Venezuela and Russia. The net oil importer has depended heavily on subsidized energy imports from Caracas. But Venezuela’s economic turmoil is deepening, making it increasingly unable to afford its subsidy of Cuba. Russia, as one of the country’s largest creditors, is facing its own financing problems. And Europe, whose open trade with Cuba made it the second-largest export market for the country, has struggled to avert a third recession in five years.

I was struck by the fact that the opening to Cuba came at a point where Russia is reeling. It seems to me that this is an opportunity to pull Cuba out of Russia’s orbit. Free trade with Cuba seems to me like a great idea. But I am not running in any Republican primaries.

Plus, I bet that the Marlins and the Rays would draw better if they played some of their home games in Havana.

How Computers Might Conquer the Game of Go

MIT Technology Review writes,

thanks to the work of Christopher Clark and Amos Storkey at the University of Edinburgh in Scotland. These guys have applied the same machine learning techniques that have transformed face recognition algorithms to the problem of finding the next move in a game of Go. And the results leave little hope that humans will continue to dominate this game.

Pointer from Tyler Cowen. As I read the article, they have been following a strategy very similar to what I proposed six months ago.

If they are as close to success as the article indicates, then the world of Go is about to be completely upended. With Othello or Chess, most of what is knowable had already been articulated by humans by the time that computers came along. At least as far as Othello is concerned, computers did not come up with any new strategy or tactics. They just got more skillful than humans at making the best choice in close situations. With Go, my guess is that there may still be a lot left to be discovered about the game. If so, then computers will soon be in a position to make the discoveries. Even if there is nothing new to be discovered, once computers start making fewer mistakes than humans, human Go players will soon be studying computer games.

Yes, Blame Oil Speculators

James Pethokoukis writes,

If greedy speculators were to blame for the $7.50 per barrel (and 10.6%) increase in oil prices during the first half of this year that motivated your anti-speculation bill in early July, do oil speculators now get any of the credit for the $43.60 (and 41%) drop per barrel in oil prices during the last half of 2014?

1. Oil is a speculative asset. The price of oil today and the price expected for oil ten years from now are necessarily linked. See Hotelling pricing of natural resources.

If you believe that the oil price is going to be high ten years from now, then you try to leave more of it in the ground today, raising its price today. If you believe that the price is going to be low ten years from now, you try to sell it now, while you can still get a decent price. This drives the price down today.

2. Although I cannot find the post now, I recall James Hamilton suggesting that the oil market is subject to speculative overshooting and undershooting. More recently, he wrote,

It’s just a matter of how long it takes for the high-cost North American producers to cut back in response to current incentives. And when they do, the price has to go back up.

3. Why would someone expect oil prices to be low for the next several years? Perhaps low-cost energy supplies will emerge (note that fracking is not low-cost) rapidly. Perhaps world economic growth will be very slow for many years. However, it strikes me as at least plausbile that low-cost energy supplies will not emerge and that world economic growth will be decent, in which case I would expect the price of oil to rise. Most important, there is still the possibility that all the money-printing going on in the world will amount to something, and even if the supply-demand balance in energy markets stays where it is, the nominal price of oil will go up a lot. If I were a speculator now, I would be inclined to be long oil.

4. It is possible that what is going on is a cave-in on the part of speculators who had been betting that money-printing would cause a lot of inflation. One can interpret the decline in interest rates and the softness in commodity prices as reflecting speculators giving up on those positions.

5. As is often the case, in looking at financial markets I find myself feeling confused and out of synch.

Budget Uncertainty

CBO Director Elmendorf writes,

in some situations, legislators might want to adopt policies with a smaller variance of budgetary effects in order to reduce the risk of large fiscal problems. For example, understanding the extent of uncertainty about future federal spending that arises from uncertainty about lifespans might affect whether policymakers want to index eligibility ages for certain programs to lifespans.

Pointer from Mark Thoma.

A couple years back when some CBO staff invited me to have a discussion of their work, I gave two complaints. One was that their macroeconomic forecasting was treated as “scoring” by the public, and I thought that they needed to make clear the tenuous nature of macro modeling. The other was that I thought that they should be augmenting point forecasting of the budget with scenario analysis.

I think that reporting a number like “forecast variance” would not be helpful to politicians. However, reporting what would happen under particular scenarios, such as increased longevity, higher interest rates, or lower house prices, could be very useful.

Green Rent

In today’s news:

The Department of Commerce slapped high tariffs on solar products from China and Taiwan yesterday in a decision intended to address dumping and unfair subsidization of imports to the United States. The final ruling marks another victory for petitioner SolarWorld Americas in a lengthy solar trade battle.

We also have trade barriers against Brazilian sugar, which otherwise might be used in biofuels. So, on the one hand, we subsidize our producers of green energy (which one can argue is a WTO violation). But we use trade policy to raise the cost of green energy to consumers. It’s almost as if the environmental concern is just a smoke-screen used by rent-seeking producers.

A Postal Service for Spectrum?

Richard Bennett writes,

I propose the creation of a Federal Spectrum Service to address these issues. The FSS could be chartered as a corporate entity distinct from the government with a specific mandate, similar in concept to the Postal Service. The FSS’s charter would focus on the overriding goal of reducing the federal spectrum footprint by 50% over a five-year period, and then reducing it a further 50% over another five-year period.

Pointer from James Pethokoukis.

Nowadays, a large share of the available underutilized spectrum is controlled by government agencies, so this proposal may be on the right track. My own thinking was that we should privatize all of this spectrum, and then force the government agencies to lease it back. My rationale is that the government agencies might have to think about using spectrum more economically if they have to pay for it. But perhaps they would not show much price sensitivity.

The Two Languages of Libertarians

Daniel Klein classifies libertarians into challengers and bargainers. (He has a third category, “royalty,” to describe Milton Friedman and Adam Smith, who managed to achieve very high status.) Klein uses as an example of a topic the minimum wage. A challenger is someone who will say that the minimum wage should be abolished, while a bargainer is someone who sill say that the minimum wage should not be raised. Pointer from Tyler Cowen, who Klein pegs as a bargainer (I would agree).

Some comments:

1. I would describe challengers and bargainers in terms of language. Challengers use the language of certainty. “This is what I think, and people who disagree are just wrong.” Bargainers use the language of doubt or compromise. “Here is where my opponents and I agree, and here is where I think they are mistaken.”

2. I am mostly a bargainer. However, when I write posts using challenger language, I get a lot more praise and mention among libertarians. In fact, I have tried to keep myself from being influenced by such reinforcement.

3. You might be able to adapt these linguistic differences to other parts of the political spectrum. For example, I imagine that Paul Krugman evolved into the writer he is because he could not resist the positive reinforcement he received for expressing anger and certainty.

4. I think that Klein’s disctinction explains why I prefer having my own blog. I think it is fair to describe Bryan Caplan as more of a challenger, and when we were both at EconLog our styles clashed.*

5. Klein is never clear on whether the he is drawing an intellectual distinction between bargaining and challenging or whether he is making sociological observations. In fact, most of the talk strikes me as observations about differences between challengers and bargainers in terms of their personalities and social circumstances. For example, he says that the challengers tend to draw cult-like followings. On the other hand, he does say that an individual can make a choice about which stance to adopt, and it may even be possible to adopt different stances in different circumstances. That makes it sound more like an intellectual distinction. Bargainer that I am, I am trying to split the difference between making an intellectual distinction and making a sociological distinction, so that I want to emphasize linguistic differences.

6. I think that one difference, which can be viewed as intellectual but is probably grounded in personality, is that of certainty vs. doubt. The libertarians who Klein classifies as challengers strike me as highly certain. The bargainers have doubts. For example, challengers are quite certain that the world would be a better place with open borders, if drug laws were abolished, and so on. As a bargainer, I think that this is likely to be the case, but I am not so all-fired certain. Since challengers do not give much thought to being wrong, the fact that they are in a minority on an issue never bothers them. When I am in the minority, I question my own position–although I try to question my own position in any event.

7. In terms of what Jeffrey Friedman calls “the libertarian straddle,” challengers rely more on the philosophical a priori case for liberty. Think of Rothbard and the non-aggression principle. Bargainers rely more on the empirical economic case for liberty, which is that societies with more economic liberty tend to be more prosperous.

*This is all hindsight, in that I left EconLog primarily to pursue an ed-tech start-up. That did not go well, although I did learn a lot about how software had changed in the 15 years since I had been out of it.

What Do We Really Know About the Cost of Living?

In an article on consumers’ expectations for home prices, Robert Shiller writes,

with the median home price under $200,000, according to RealtyTrac…

Pointer from Mark Thoma.

My question is: Where are these homes that are priced at less than $200,000? My niece in LA, my daughter in DC, another daughter in NY, and my third daughter in Boston would sure like to know.

This gets back to the issue of widening differences in income and housing costs within and across metro areas. I mentioned that issue last month, when I cited Joel Kotkin’s finding that much of the population growth in recent years has been in the far suburbs.

Suppose that housing cost is 25 percent of income, and suppose that close to the center of a city housing cost is 5 times what it is in the outer suburbs. That means that the cost of living is 1.25 times as high close in as it is far out. Yes, you should adjust for commuting time and cost, the value of different amenities, and so on. But that is a huge difference.

Consider that, at a national level, economic experts soberly analyze changes in trend productivity growth of 0.5 percent per year. To measure productivity changes, you need to have accurate measures of real GDP. To measure real GDP, you need to have accurate measures of “the” rate of inflation.

But what if inflation is 5 percent higher in downtown LA than it is 30 miles away? Which is the accurate measure of inflation? Even a slight mistake in aggregating across different areas could completely change the picture for national productivity growth.

I find myself thinking that the multiplicity of economies within the U.S. really matters. For example, I could imagine that the minimum wage would have a much bigger effect on employment in the locations with those sub-$200,000 houses than in higher-cost areas, where employers probably have to pay above the minimum, anyway. I can imagine that downward stickiness of wages matters a lot if you have inflation differentials across areas of 5 percent or so.

In trying to view the U.S. economy, I am tempted to drop the macroeconomic lens and replace it with the international trade lens.

The 2017 Project

The mission statement:

Neither a think tank nor an electioneering organization, we operate in the middle ground between policy and politics, seeking to make things happen by taking ideas and helping to put them into action. We believe that a principled yet prudent conservatism that gears its efforts toward the well-being of Main St. Americans can unite a wide range of citizens, from the Tea Party to the centrist independent, who are looking for an antidote to big-government liberalism. In that spirit, we are working to advance a conservative reform agenda that will secure the blessings of liberty and promote the happiness of the citizenry.

Pointer from Greg Mankiw.

This looks like it is in the spirit of my idea of Setting National Economic Priorities, which is still vaporware. Their initial work seems to be on replacing Obamacare.

If I were doing Project 2017, I would prefer to replace Obamacare en passant, as part of a larger effort to get rid of the uncoordinated set of means-tested programs. That is, I would use multi-purpose savings accounts to replace most forms of government assistance, including food stamps, Medicaid, housing subsidies, and so on.

The Federal government would contribute to these savings accounts a cash amount of, say, $3000 per adult and $1000 per child. However, this amount would be reduced by 20 percent of household income. So, if a family of four had an income of $30,000, it would receive $3000+$3000+1000+$1000 minus $6000 (20 percent of $30,000), or $2000.

Some further thoughts.

1. State and local governments could provide additional assistance.

2. Households could only spend these savings accounts on “merit” goods, meaning food, medical care, child care, housing, and education.

3. To induce households to buy health insurance, they would not be allowed to spend any of the money in these savings accounts on anything other than health care until they can show that they have a catastrophic health insurance policy.