Monthly Archives: August 2014

James Manzi on a Basic Income Guarantee

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He writes,

There was a further series of more than 30 randomized experiments conducted around the time of the welfare debates of the 1990s. These tested many ideas for improving welfare. What emerged from them was a clear picture: work requirements, and only work requirements, could be shown experimentally to get people off welfare and into jobs in a humane fashion. These experiments were an important input into the decision to make work requirements a central tenet of the new welfare regime when the welfare system was converted from AFDC to TANF in 1996.

In spite of these studies, I suspect that the long-run response of work effort to incentives is high. Imagine two children, one growing up in a household where parents work at low-wage, low-status jobs, and the other growing up in a household that lives primarily on government support. Suppose that the consumption basket of the two households is approximately the same. Do we believe that the child of the parents who work will want to work when he or she grows up?

That said, I recommend the entire essay. Manzi also writes,

if part of the motivation for giving adults income is that they spend it supporting their children, would we really allow parents receiving taxpayer money to spend it any way they want with no requirements for child welfare beyond child abuse laws? And as another, a huge and growing portion of the cost of the welfare state is health care. Suppose we gave every adult in America an annual grant of $10,000, and some person who did not buy health insurance with it got sick with an acute, easily treatable condition. Would we really bar them from any urgent medical care and just say “Tough luck, but it’s time to die”?

I tend to agree that large cash transfers with zero paternalistic oversight is not a likely political outcome.

A Quiz on American Poverty Policy

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From Catherine Rampell. One sample question:

Which income group receives more than half of federal housing subsidies?

A) Households with incomes below $30,000

B) Households with incomes between $30,000 and $100,000

C) Households with incomes above $100,000

Overall, what I think the answers point to is that the government’s role in income distribution is not purely technocratic. Political considerations are important.

Good Sentences from Timothy Taylor

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He writes,

I fear that most people have reacted to Dodd-Frank as a sort of Rorschach test where the word “financial regulation” are flashed in front of your eyes. If you look at those words and react by saying “we need more financial regulation,” then you are a Dodd-Frank fan. If you look at those words and shudder, you are a Dodd-Frank opponent. odd-Frank allowed a bunch of pro-regulation Congressmen to take a bow by passing it, and a bunch of anti-regulation Congressment to take a bow by opposing it. But for those of who try to live our lives as radical moderates, the issue isn’t to be generically in favor of regulation or generically against it, but to try to look at actual regulations and whether they are well-conceived. In that task, the Dodd-Frank legislation mostly used fairly generic language of good intentions, ducked hard decisions, and handed off the hot potato of how financial regulation should actually be written to others.

He points to the fact that many of the rules called for by Dodd-Frank had yet to be written four years after the law passed. He also notes,

A completed rule doesn’t mean that business has yet figured out how to actually comply with the rule. For example, there is a completed rule which requires that banking organizations with over $50 billion in assets write a “living will,” which is a set of plans that would specify how their business would be contracted and then shut down, without a need for government assistance, if that situation arose in a future financial crisis. The 11 banks wrote up their living wills, and the Federal Reserve and the Federal Deposit Insurance Corporation rejected the plans as inadequate. They wrote up second set of living wills, and a few days ago, the Federal Reserve and FDIC again rejected the plans as inadequate.

I have said many times that if the big banks are not going to be contracted and shut down now, then it is not going to happen during a crisis.

The Case for a Basic Income Grant

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Matt Zwolinski writes,

Unlike other welfare programs which encourage or require recipients to consume certain specific kinds of good – such as medical care, housing, or food – a BIG simply gives people cash, and leaves them free to spend it, or save it, in whatever way they choose.

He lists four main advantages of this over the current approach: less bureaucracy; lower cost; less rent-seeking; and less paternalistic.

The “lower cost” is a bit of a swindle. He cites Ed Dolan’s suggestion that we cut middle-class entitlements while reforming programs for the poor, and counting those cuts the cost is indeed lower.

There is a significant contrast with Paul Ryan’s block grant proposal, which we have been discussing. Ryan’s vision is unapologetically paternalistic, and we have seen arguments that it would actually increase bureaucracy.

My proposal for a flexible benefit is somewhat paternalistic, since funds could only be used for “merit goods.” Compared to a BIG, my proposal would require more bureaucracy, in order to qualify the providers of merit goods. That in turn could lead to some rent-seeking, as businesses on the margins claim to be providing health care or education. However, there would be less bureaucracy than the current system.

Doubts About Devolution

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Callie Gable finds that John J. DiIulio, Jr., has concerns with Paul Ryan’s idea of turning anti-poverty funds to the states.

He mentions Pennsylvania’s Summer Food Service Program, a federal program intended to replace the nutrition kids get during the school year from free or subsidized lunches, to illustrate how complicated tracking aid and its impacts can be. The program is funded through the U.S. Department of Agriculture, which gives the money to the state of Pennsylvania, which then distributes the money to three major cities in Pennsylvania, which pass it on to Pennsylvania school systems, which give it to individual schools, which then work with any number of local providers.

This money changes hands five times before finally being translated into lunches for kids. And after that, it’s hard to be sure that the community providers are using the funds efficiently and providing a quality service. That’s just one, ancillary program.

My preferred approach to consolidating anti-poverty programs is to send lump-sum funds to individuals, while limiting the use of such funds to “merit goods” such as health care, food, housing, and education. However, I do think that state and local governments must then play a role in identifying specific needs in their jurisdictions and coming up with programs to address those.

Gable point to an article DiIulio wrote in 2012, where he said

About three-quarters of non-profit organizations, including most faith-based ones, spend under a half a million dollars a year and receive little or no government grant or contract money. But the quarter of the sector’s organizations that boast its biggest annual budgets are highly dependent on direct government funding, meaning that one-third of all non-profit dollars are from government, paid through grants or contracts.

This gets back to a point that I have made, which is that I do not think we want to put non-profit organizations on some kind of pedestal.

New York City Pensions

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The NYT reports,

Next year alone, the city will set aside for pensions more than $8 billion, or 11 percent of the budget. That is an increase of more than 12 times from the city’s outlay in 2000, when the payments accounted for less than 2 percent of the budget.

I could see the same thing happening where I live, in Montgomery County, Maryland. At some point, citizens will be paying much of their taxes not for current services but instead to try to keep unsound pension systems afloat.

Megan McArdle writes,

The core problem is that returns have not tracked with the city’s optimistic projections. In 2012, the city finally lowered its projected return to 7 percent from 8 percent, but after decades of excessive optimism, that left it with a giant hole; the payments had to be stretched out over more than two decades in order to minimize the fiscal hit. Yet this still may not be enough; it’s possible that 7 percent is still too rosy.

And of course, as many people have pointed out, a private firm’s auditors would not sign off on this sort of pension accounting.

A Sentence to Ponder

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From Reid Hoffmann, during a podcast with Russ Roberts.

The whole notion of separating the academy from the work life is insane.

That is a radical statement. It is even more radical than the view that I associate with the Montessori movement that separating students by age is insane.

The radical view goes something like this: in ordinary life, people learn naturally. The academy is an artificial environment, which tries to stimulate learning in an alternate reality, a sim if you will.

If so, what does that make educational software? A sim of a sim?

I think that there are some deep issues here.

Anti-Poverty Consensus?

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I write,

There seems to me to be a close alignment of Ryan’s block-grant approach with the many instances in which the authors of the Hamilton Project volume propose flexible, low-cost, small-scale, locally administered programs, rather than large-scale, federally administered universal solutions. In addition, I was struck by the way that both Ryan and the Hamilton Project focus on rigorous evaluation of results as well as the need for further experimentation.

I do not expect to see a bipartisan reform of anti-poverty programs any time soon. If it were up to policy experts, yes. But politically, improving anti-poverty efforts takes a back seat to offering goodies to the middle class and to the clout of people with a stake in the existing programs.

The Macroeconomics of Unobservable Expectations

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Scott Sumner writes,

A big demand slump isn’t just an economic disaster; it’s also a prediction of an economic disaster. And that means it’s a prediction of policy failure. At least that’s the implication of the Woodfordian view of macro (which I accept.) Changes in current AD are mostly driven by changes in the future path of AD. Changes in near-term NGDP are mostly driven by changes in expected NGDP 1, 2, 5 and 10 years out in the future. Call it the term structure of NGDP. And those are driven by the future expected path of monetary policy.

And of course whenever we have crashes like 1920-21, 1929-30, 1937-38, 2008-09, we also tend to have asset market crashes. Asset markets aren’t perfect (1987) but when there’s a very big economic slump on the way they are pretty good at sniffing it out.

Unfortunately, this puts a huge emphasis on something that is unobservable, namely “expected NGDP 1, 2, 5 and 10 years out in the future.” Any time you have a theory that relies on such an unobservable, you drift further away from the realm of science and nearer to the realm of circularity.

In Sumner’s defense, he wants expectations for nominal GDP to be observable, by having tradable NGDP futures contracts. Even so, it is rare for any such contracts to go out more than a year ahead.