Conservatarian Dilemmas 1: Immigration

This is the first of a series of three posts, inspired by several things, but primarily by a dialogue between Nick Gillespie and Charles C.W. Cooke. I will be referring to the three-axis model, as described in my e-book The Three Languages of Politics.

The libertarian argument against immigration restrictions is that they restrict personal choice in a very fundamental way. Along the freedom-vs-coercion axis, immigration restrictions are prima facie coercive.

The conservative counter is that immigrants bring a culture of dependency and support for populist demagogues. Thus, unrestricted immigration, or even loose immigration, will end up undermining America’s commitment to liberty.

One libertarian rejoinder is to argue that, empirically, immigrants value liberty. A conservative rejoinder might be to point out that progressives are salivating at the prospect of seeing more immigrant voters, and this is not because progressives expect these voters to value liberty.

Another libertarian counter would be that restricting immigration in order to preserve liberty creates too much dissonance between ends and means. If you are for liberty, then you should be for liberty, period. Fight the battle against dependency and demagoguery by arguing against those phenomena, not by restricting the liberty of people to choose where they live.

I am inclined to go with this latter view. Also, I am not worried so much about how immigrants vote. If a libertarian society is to emerge, it is likely to result from exit rather than voice.

Don Boudreaux on Exit and Voice

He writes that it is a “weird notion” to believe

that if each individual can, on his or her own, choose which offerings of private businesses to accept and which to reject, and all without having to coordinate these choices with other individuals, people are slaves to corporations – but that individuals regain their freedom and dignity only by voting to use government power to regulate businesses, with every individual forced to abide by the ‘will’ of the majority.

By the way, there is a web site called Voice and Exit, which may represent an interesting libertarian-ish movement, but the web site seems to have been designed by stoners. I just can’t penetrate it.

Housing Policy: A Civilized Approach

Joe Gyourko writes,

They should begin by completely phasing out the FHA over some clearly defined period (for example, three to five years) and replacing it with a new subsidy program that would help the two types of households the agency is meant to serve. The new program would help prospective homebuyers amass a 10% down payment that would then allow them to obtain financing at market rates from private lenders. This could be done through a simple system in which qualified households pay into a special savings vehicle and receive some type of match from the government. These funds would accumulate on a tax-free basis until they were large enough to provide a 10% down payment on a home.

On the civilization vs. barbarism axis, this would encourage saving and responsible behavior. If you read the whole article, you will see reinforcement for this. Of course, along the oppressor-oppressed axis, the only thing holding back people from owning homes is oppression, so there is no need for requiring a down payment.

Of course, what matters here is a different axis entirely. The real estate lobby vs. everybody else. And from that perspective, Gyourko’s sensible proposal does not stand a chance. Another indication of the political impossibility of this approach is that it is one that I have long advocated.

Is Voice the Answer?

In a symposium on libertarian strategy, Jim Powell writes,

Libertarian ideas are unlikely to prevail until we get to stage three. That stage involves a peaceful mass movement to mobilize large numbers of people to pressure politicians to support liberty by enacting some laws and repealing others. A peaceful mass movement is basically what you can do in a democracy when politicians fail to respond to demands.

I am not signing that petition. To me, voice is the problem, not the solution. I prefer libertarian strategies that focus on lowering the cost of exit.

Pointer to the symposium from Alberto Mingardi, who takes a more tolerant view. He writes,

any successful strategy to change the minds of people needs different actors: pluralism, in a sense. it is not just that a “monistic” approach won’t be very libertarian, but you do actually need different kinds of people and lines of effort if you hope to have success.

TANSTAAFM (M stands for market)

So writes Yuval Noah Harari, in Sapiens.

There is simply no such thing as a market free of all political bias. The important economic resource is trust in the future, and this resource is constantly threatened by thieves and charlatans. Markets by themselves offer no protection against fraud, theft, and violence. It is the job of political systems to ensure trust by legislating sanctions against cheats and to establish and support police forces, courts, and jails which will enforce the law. When kings fail to do their jobs and regulate markets properly, it leads to loss of trust, dwindling credit and economic depression. That was the lesson taught by the Mississippi Bubble of 1719, and anyone who forgot it was reminded by the US housing bubble of 2007, and the ensuing credit crunch and recession.

There is perhaps something to be said for the notion that there is an interior optimum for trust in government. Too little, and you have weak property rights and an inability to safely make long-term investment. Too much, and government takes on too much power and creates a false impression that it can guarantee the safety of dangerous and misguided investment.

Labor Policy and Implicit Bias

Commenting on a book about behavioral considerations in public policy, Jason Collins writes,

The opening substantive chapter by Curtis Hardin and Mahzarin Banaji is on bias – and particularly implicit bias. Implicit biases are unconscious negative (or positive) attitudes towards a person or group. Most people who claim (and believe) they are not biased because they don’t show explicit bias will nevertheless have implicit bias that affects their actions.

I think that thinking in terms of the oppressor-oppressed axis is an example of implicit bias. For example, labor policies, such as the minimum wage, are based on an implicit bias that workers are oppressed. I was reminded of this by a recent Tyler Cowen post.

I am often struck by the conflict between one supposition and one fact. First, employers are supposed to be reaping some big surplus from hiring unskilled labor. Second, when a downturn comes, it is unskilled labor who are laid off.

The three-axes model would explain the supposition as a form of implicit bias.

Mixing Markets and Politics

Randall G. Holcombe writes,

As Kolko (1963) describes it, private sector actors are not merely acting within the framework given by government constraints, the “major economic interests” are designing the constraints under which they act, so that they can retain their dominant positions. . .they sought government regulation and oversight to preserve the status quo

I would say that the forgotten history is that the regulatory state began as an attempt to rein in competition. The idea of pro-consumer regulation only emerged in the latter part of the New Deal. From the start of the Progressive era through Roosevelt’s first term, the goal of progressives was to rationalize the economy by managing it. Alan Brinkley describes how regulation in the name of consumer improvement came to replace regulation in order to rationalize production. (Of course, one can question whether regulation actually achieves either goal.)

Later in the essay, Holcombe writes,

By combining Buchanan and Tullock’s (1962) analysis of logrolling for the benefit of those who are able to engage in political exchange with Coase’s (1960) notion of transaction costs, a theory can be developed in which the elite are in a low-transaction-cost group so they can engage in political exchange for their benefit, at the expense of the masses who are in the high-transaction-cost group. This happens in politics but not in markets because government is able to force people to pay for their programs regardless of whether they want to participate, whereas in markets even those with substantial economic power can obtain resources from the masses only if they voluntarily agree to participate in transactions.

In other words, there is a reason that in politics insiders are insiders and outsiders are outsiders. Housing policy reflects the real estate lobby because the transaction costs of assembling real estate agents, home builders, and mortgage lenders into a pressure group are low. The transaction costs of assembling ordinary taxpayers into a pressure group are high. (Although if 1 percent of taxpayers pay half the taxes, those transaction cost might not be quite so high. Something to watch, perhaps.)

Thus, contrary to conventional wisdom, exit is better than voice at giving power to the little guy.

Kevin Erdmann Revisits the Housing Boom

He writes,

the commonly repeated anecdotes of janitors and checkout clerks being
handed $300,000 mortgages on a hope and a prayer do not appear to be representative. On net, all the new mortgages went to families with incomes around $45,000 and higher.

And elsewhere he writes,

growth in homeownership came from high income households and that households didn’t increase their debt payment/income ratios or their relative consumption of housing during the boom. The evidence against the standard narrative is even more stark when we look at dollar levels, because, despite frequent implications to the contrary, low income households don’t tend to take on nearly as much debt as high income households.

Consider two ratios:

1. Debt-to-income.

2. Debt-to-equity.

Many narratives of the financial crisis focus on debt-to-income ratios. The oppressor-oppressed narrative is that greedy lenders imposed inappropriately high debt-to-income ratios on innocent borrowers, who then could not meet their mortgage payments. The civilization-barbarism narratives stress the use of houses as ATMs and the forced expansion of lending toward irresponsible borrowers.

It seems to me that Erdmann is suggesting that debt-to-income ratios did not got out of line, or perhaps they only got out of line for high-income borrowers. He may be right, although I would suggest looking at the Home Mortgage Disclosure Act (HMDA) data and not just the survey of consumer finances.

Ever since Bob Van Order explained the mortgage default option to me almost 30 years ago, I have viewed debt-to-equity as more important than debt-to-income. If we define sup-prime lending in terms of debt-to-income, then I am inclined not to attach much significance to the proportion of sub-prime loans. To me, the dangerous loans are the ones with low down payments. There is some overlap between those and loans with high debt-to-income ratios, but not enough overlap to equate the two.

Let’s take Erdmann’s analysis of debt and income as accurate. I see no reason to change my preferred narrative of mortgage lending and the housing boom. That is, there was a surge in lending with low down payments. I am pretty confident that the HMDA data support this. In addition, there was a surge of lending for non-owner-occupied homes (speculators).

Think of owner-occupants with low down payments and non-owner-occupants as the speculative component in the housing market. My narrative is that the speculative component soared during the housing boom. These speculators did very well until house prices started to level off late in 2006. Then what had been a virtuous cycle on the way up turned into a vicious cycle on the way down, and the speculative buyers got hammered.

Getting from that to a recession is the more difficult part for me, because I do not allow myself to use the words “aggregate demand.” Instead, to explain the recession I have to make a case that many patterns of specialization and trade became unsustainable, or were finally perceived as unsustainable, while new sustainable patterns were difficult to discover. I might argue that the surge in government economic intervention exacerbated the difficulty of discovering new patterns of sustainable specialization and trade. TARP and the stimulus were largely efforts at redistribution, and that gave people a bigger incentive to focus on grabbing some of the loot than on developing a sustainable new business. Of course, Keynesians will tell you that the problem is that the surge in government intervention should have been bigger and lasted longer.

Heritability, Left and Right

Chris Dillow writes,

there’s no conflict between leftism and a belief in the heritability of ability. In this respect at least, the left has nothing to fear from science.

Suppose that one believes that intelligence is heritable and that intelligence affects economic status. To the extent that you believe those two things, you have to maintain a somewhat lower belief in the importance of effort in determining economic status. Accordingly, in scoring a policy of pure income redistribution, as Dillow points out, you have to give it additional philosophical points because the well-off are the beneficiaries of lucky inheritance. In addition, such a policy loses fewer economic-efficiency points, because taxes that discourage effort will not diminish total wealth as much as they would if wealth were entirely determined by effort.

So Dillow would appear to be correct. And in fact Gregory Clark, who is well known for his findings supporting heritability of economic status, says that his findings support income redistribution.

Why, then, is heritability of intelligence a problem for the left? I believe that the three-axes model can help provide the answer.

In the three-axes model, progressives want to squeeze every issue into an oppressor-oppressed narrative. To suggest that ethnic groups differ in average income for reasons other than oppression would be to weaken that narrative. So even if from a policy perspective a belief in heritability is tolerable, from a narrative perspective a book like The Bell Curve represents a huge threat.

My sense is that this produces a great deal of cognitive dissonance on the left. I have many friends on the left, and I do not know a single one who would instinctively deny the heritability of intelligence. On the other hand, they have been instructed to regard Murray and Herrnstein as vile racists.

Evidence that runs counter to the oppressor-oppressed axis narrative is difficult for people on the left to process. I think that, notwithstanding Dillow’s reasoning, the left is going to continue to be uncomfortable with the science of heritability of intelligence.