Three Axes Commentary

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Readers suggested that I check out these two posts:

1. James Pethokoukis on Arthur Brooks. Brooks writes,

the core problem with out-of-control entitlements is not that they are costly—it is that the impending insolvency of Social Security and Medicare imperils the social safety net for the neediest citizens. Education innovation and school choice are not needed to fight rapacious unions and bureaucrats—too often the most prominent focus of conservative education concerns—but because poor children and their parents deserve better schools.

Brooks appears to be suggesting that conservatives adopt the oppressor-oppressed language when talking about entitlements and about school choice. My guess is that this will not be successful. I do not think that most ordinary people respond so much to the rhetoric of the three axes. And I don’t think that political elites can be talked into changing sides with different rhetoric.

Most of the energy in political discussions goes toward closing the mind of people on your own side. This seems to work, because elites on all sides are pretty closed-minded.

Of course, if you ask me what might be successful for conservatives, I do not have an answer.

2. Scott Alexander writes,

My hypothesis is that rightism is what happens when you’re optimizing for surviving an unsafe environment, leftism is what happens when you’re optimized for thriving in a safe environment…. Leftism wins over time because technology advances over time which means societies become more secure and abundant over time.

Read the whole thing. I think there is a little bit there that is correct. That is, I think that conservativism tends to include a tendency to worry that we could go down the tubes. In terms of the civilization-barbarism axis, conservatives see many routes back to barbarism.

However, I do not think that either progressives or conservatives would recognize themselves in Alexander’s mirror. Progressives also can be pessimistic–about the distribution of income and the environment, for example. And conservatives are optimistic along some dimensions.

My goal with the three-axis model is not to explain away someone else’s beliefs. Instead, the goal is to describe political beliefs in a way that reflects how each side talks about issues, particularly as they reach a settled opinion.

Quintile Mobility: Built-in Properties

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Timothy Taylor writes,

For example, for all those born into the bottom quintile, 44% are still in that quintile as adults. About half as many, 22%, rise to the second quintile by adulthood. The percentages go down from there. … Similarly, those born into the top income quintile are relatively likely to remain in the top. Among children born into the top quintile, 47% are still there as adults. Only 7% fall to the bottom quintile. The experiences of those born into the middle three quintiles are quite different. The distribution among income quintiles as adults is much more even for those born in these three middle groups, suggesting significant mobility for these individuals. … This pattern has led researchers to conclude that the U.S. income distribution has a fairly mobile middle, but considerable “stickiness at the ends” …”

This result is nearly an arithmetical certainty. Suppose that everyone faces three equally-probable outcomes:

–their income as adults puts them in the same quintile as their parents
–their income as adults rises enough to move up a quintile
–their income as adults falls enough (in relative terms) to move down a quintile

If this were the case, then people in the top would have a 2/3 chance of remaining at the top, because those who get lucky have nowhere to go but up within the top quintile. Similarly, people would have a 2/3 chance of remaining at the bottom, because those who get unlucky have nowhere to go but down within the same quintile. People in the middle quintiles would have only a 1/3 chance of remaining in their original quintile, because they can move in either direction. This pattern would lead researchers to conclude that the U.S. income distribution has a fairly mobile middle but considerable stickiness at the ends, even though by construction everyone in all quintiles has the same probability of moving up or down the income scale.

Gun Control

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A reader familiar with the three-axes model asks,

The oppressed would seem to be victims of violence, but wouldn’t that make criminals the oppressors? How do hunters, recreational shooters, and the NRA end up being the bad guys?

1. The progressive model requires a villain who belongs to some sort of privileged class. Criminals do not fit the bill.

2. Hunting and recreational shooting are not approved activities for city-dwellers. Rural folks need to start acting like normal people and taking Zumba classes, going to restaurants run by celebrity chefs, and spending more time on smart phones.

The Dark View of Schooling

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Bryan Caplan thinks that schooling is not about education. He thinks instead it is about signaling.

Bryan’s view is benign compared with John Holt.

society demands of schools, among other things, that they be a place where, for many hours of the day, many days of the year, children or young people can be shut up and so got out of everyone else’s way. Mom doesn’t want them hanging around the house, the citizens do not want them out in the streets, and workers do not want them in the labor force. What then do we do with them? How do we get rid of them? We put them in schools. That is an important part of what schools are for. They are a kind of day jail for kids.

Thanks to a commenter on this post for the pointer.

Bryan is also mild in comparison with Ivan Illich.

A political program which does not explicitly recognize the need for de-schooling is not revolutionary; it is demagoguery calling for more of the same.

Illich’s DeSchooling Society starts with a chapter “Why We Must Disestablish School,” which opens

Many students, especially those who are poor, intuitively know what the schools do for them. They school them to confuse process and substance. Once these become blurred, a new logic is assumed: the more treatment there is, the better are the results; or, escalation leads to success. The pupil is thereby “schooled” to confuse teaching with learning, grade advancement with education, a diploma with competence, and fluency with the ability to say something new. His imagination is “schooled” to accept service in place of value. Medical treatment is mistaken for health care, social work for the improvement of community life, police protection for safety, military poise for national security, the rat race for productive work. [Does this foreshadow the classic “not about” post by Robin Hanson?] Health, learning, dignity, independence, and creative endeavor are defined as little more than the performance of the institutions which claim to serve these ends…

the institutionalization of values leads inevitably to physical pollution, social polarization, and psychological impotence…this process of degradation is accelerated when nonmaterial needs are transformed into demands for commodities; when health, education, personal mobility, welfare, or psychological healing are defined as the result of services or “treatments.” I do this because I believe that most of the research now going on about the future tends to advocate further increases in the institutionalization of values and that we must define conditions which would permit precisely the contrary to happen. We need research on the possible use of technology to create institutions which serve personal, creative, and autonomous interaction and the emergence of values which cannot be substantially controlled by technocrats.

The New Left had its vices. As with the Occupy Wall Street movement, within their smoldering discontent it is difficult to discern how they would address economic organization. In The Mind and the Market, p. 345-346, Jerry Muller writes of New Left icon Herbert Marcuse,

his work, unlike Keynes’, was less than useless in providing tangible institutional solutions. For Marcuse was fundamentally uninterested in institutions, whether economic or political….Marcuse proceeded as if these fundamental issues of modern political and economic life could simply be ignored.

The New Left also bequeathed to us an academy where the oppressed-oppressor narrative becomes the sum of all scholarship. As Muller puts it on p. 344,

Scholarship, in this understanding, was not about objectivity…The model of the professor as critical intellectual, liberating his or her audience from one or another variety of false consciousness, became institutionalized in some academic disciplines, above all literary studies and sociology. Three decades after the zenith of the New Left and the publication of Marcuse’s Essay on Liberation, for example, the annual convention of the American Sociological Association was devoted to the theme of “Oppression, Domination, and Liberation”; it focused on racism as well as “other manifestations of social inequality such as class exploitation and oppression on the basis of gender, ethnicity, national origin, sexual preference, disability and age.”

But one thing I will say for the New Left is that they were not the hard-line statists that we see on the left today. On the contrary, they viewed government technocrats as part of what they called “the system,” and opposition to this system was a centerpiece of New Left ideology.

Ken Kesey, in One Flew Over the Cuckoo’s Nest, coined the term “the Combine” to describe forces of control that deprived people of freedom supposedly for their own good. Interestingly, John Taylor Gatto, another anti-schooling radical, wrote a Cliff Notes version of the novel that emphasized its anti-authoritarian aspects.

I imagine that if universal pre-kindergarten had been proposed by Richard Nixon, the New Left would have denounced the scheme as fascist. In that sense, I miss them.

Hospital Charges

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Steven Brill has gotten the health-technocrats very excited. For example, Uwe Reinhardt writes,

hospitals are free to squeeze uninsured middle- and upper-middle-class patients for every penny of savings or assets they and their families may have. That’s despite the fact that the economic turf of these hospitals – for the most part so-called nonprofit hospitals

Pointer from Mark Thoma.

Solve the puzzle:

1. Itemized charges on hospital bills are very high. This is most obvious for items that you can buy yourself in a drugstore or supermarket.

2. Relative to these outrageous markups, profits at for-profit hospitals (and at “so-called nonprofit hospitals”) are not very high.

The explanation is that hospital costs are mostly overhead, meaning that they are not tied to billable services or events. The janitors who clean the halls and rooms once a day (or more)? Overhead. Record-keeping, billing, computer systems, communications? Overhead. Fancy medical equipment? Overhead. Nurses and other staff? For the most part, overhead.

Because most of the cost in hospitals is overhead (or fixed cost, in economic parlance), its allocation across billable items is arbitrary. That is why “tough negotiation” by Medicare does not really reduce overall health spending. Instead, it means that overhead costs have to be shifted somewhere else, including onto those who happen to be affluent but uninsured.

What would happen if we followed the prescription of Reinhardt and others, to force hospitals to bill everyone else at Medicare rates? Hospitals would either stop taking Medicare, drastically cut back on services (reduce janitorial service to once a week), or close altogether.

I am not saying that the business practices of doctors and hospitals are beyond reproach. But claiming that there is a free lunch in medical care from just paying providers a lot less money is unhealthy demagoguery.

Institutions-Intensive Economy

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My latest essay:

Over the course of Coase’s lifetime, the locus of economic activity has been shifting, from the farm to the factory floor to the office and even to “the cloud.” With each step, the concept of property has become more difficult to define, the economic entities have become more difficult to locate in time and place, the proportion of wealth that is intangible has risen, and earnings have become increasingly contingent on social constructs rather than on individual attributes.

Some of the themes circle back to the book that Nick Schulz and I wrote.

Deschooling Society

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Sugata Mitra is the subversive.

He calls it the grandmother technique, and it goes like this: expose a half dozen or so kids to a computer, and let them have at it. The only supervision required is an adult to listen the kids brag about what they learn. It’s the opposite, he says, of the disciplinary ways of many parents—more like a kindly grandmother, who rewards curiosity with acceptance and encouragement. And it is a challenge to the past century and a half of formalized schooling.

Does this idea come across as libertarian? To me, it actually owes something to the New Left of the hippie era. Anyone remember Ivan Illich?

John Cochrane on Banking, Expert Forecasting

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1. He liked Admati and Hellwig more than I did.

Ms. Admati and Mr. Hellwig do not offer a detailed regulatory plan. They don’t even advocate a precise number for bank capital, beyond a parenthetical suggestion that banks could get to 20% or 30% quickly by cutting dividend payments. (I would go further: Their ideas justify 50% or even 100%: When you swipe your ATM card, you could just sell $50 of bank stock.)

I think he is being careless. My own essay tries to consider why households would prefer to hold bank debt rather than bank equity. Keep in mind, however, that all of us agree that the relationship between government and banks is problematic, and that the problems are not solved by regulation.

2. He cites a nice essay by Alex Pollock listing statements by regulators prior to the housing crisis that showed their mindset before the crisis. They thought they had everything under control. In 2009, they changed their minds. Now, with Dodd-Frank, they tell us they have everything under control again. Note that Pollock could have included many more pre-crisis quotes, such as the “before” quote from Ben Bernanke.

Of course, Bernanke still believes that we live in mediocristan. On the outlook for long-term interest rates, the other day He said,

While these forecasts embody a wide range of underlying models and assumptions, the basic message is clear–long-term interest rates are expected to rise gradually over the next few years, rising (at least according to these forecasts) to around 3 percent at the end of 2014. The forecasts in chart 4 imply a total increase of between 200 and 300 basis points in long-term yields between now and 2017.

Of course, the forecasts in chart 4 are just forecasts, and reality might well turn out to be different. Chart 5 provides three complementary approaches to summarizing the uncertainty surrounding forecasts of long-term rates. The dark gray bars in the chart are based on the range of forecasts reported in the Blue Chip Financial Forecasts, the blue bars are based on the historical uncertainty regarding long-term interest rates as reflected in the Board staff’s FRB/US model of the U.S. economy, and the orange bars give a market-based measure of uncertainty derived from swaptions. These three different measures give a broadly similar picture about the upside and downside risks to the forecasts of long-term rates. Rates 100 basis points higher than the expected paths in chart 4 by 2014 are certainly plausible outcomes as judged by each of the three measures, and this uncertainty grows to as much as 175 basis points by 2017.

Pointer from Mark Thoma.

Jeff Sachs on the Administration’s Budget Plans

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He writes,

In effect, he would allow rising outlays on mandatory programmes such as Medicaid and Social Security and debt servicing to crowd out public investments that are vital for America’s long-term economic future…

Mr Obama probably hoped that when the moment of truth arrived, when the spending cuts started to bite, the American people would support higher taxes rather than the spending cuts long called for in his own budget proposals. And perhaps they will still do so. Yet he has never presented an alternative with more robust tax revenues in order to fund a higher sustained level of public investments and services.

Pointer from Tyler Cowen.

I know that the conventional wisdom is that Republicans and conservatives are hopelessly irrational and self-contradictory on fiscal policy. Let us stipulate that such is the case. That does not mean that the Democrats and progressives are rational and coherent. If someone on the left can point me to a budget that does what you want, does not lead to explosive deficits, and does not depend on spending an imaginary dividend of “lower health care costs, through magic,” I would like to see it.

To put it this another way, I think that even if the entire conservative side of the political spectrum were to collapse tommorrow, the left still could not govern.

Where Wages Are Stickiest

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From the National Employment Law Project:

Industry dynamics are playing an important role in shaping the unbalanced recovery. We find that three lowwage industries (food services, retail, and employment services) added 1.7 million jobs over the past two years, fully 43 percent of net employment growth. At the same time, better-paying industries (like construction; manufacturing; finance, insurance and real estate; and information) did not grow, or did not grow enough to make up for recession losses. Other better-paying industries (like professional and technical services) saw solid growth, but not in their mid-wage occupations. And steep cuts in state and local government have hit mid- and higher-wage occupations the hardest.

Pointer from Tyler Cowen (also Mark Thoma).

Focus on the last sentence. What if pay for all government workers–federal, state and local–had been reduced by 5 percent at the start of the recession? How many jobs would have been saved?

In general, I think that we mis-frame the government budget issue when we talk about taxes vs. program cuts. Instead, we should be talking about taxes vs. reductions in compensation for government workers. It is not at all clear to me that we need to reduce incomes in the private sector in order to maintain incomes in the public sector.