Five Point Plans Open Thread

Finally the weekend.  Well, Matthew Yglesias is on vacation, but before he departed he left us with his latest, “My five-point plan to fix all the economic problems is America“.

As an aside, in the internet age, I’m never sure how to title posts – by their headline, by the html page title, or by what’s embedded in the link url itself.  Media websites are notorious for making all these things different and then repeatedly jiggering with them.

The Comments Thread is Hereby Proclaimed Open for you all to nominate your own big-bang-for-the-buck policy fixes.  It doesn’t have to be economic.  Be creative and/or amusing, but never boring.  You can stop reading now as what follows is mere musing:

I, however, will be boring just this once and side with Brandeis and suggest repeal of the 14th Amendment, and also explicit renunciation of incorporation, and the narrowest possibly reading of the privileges and immunities and full-faith-and-credit clauses.  Repeal the 17th Amendment too, and ban all grant transfers to state governments.  You might just see the tiniest glimmer of actual federalism reemerge as an emasculated SCOTUS tends to its tender crotch.  Just imagine … actually independent states doing their own thing!  Diversity!  And, alas, pure fantasy…

Matt would:

  1. Suspend the Social Security Payroll tax and replace the lost funding with newly created dollars until NGDP returns to the extrapolated point of its trend prior to the Great Recession.
  2. Switch to property taxes and excise/sin taxes on everything socially undesirable, but minimize taxes on, or heavily subsidize, low-wage labor because:

    There are meaningful positive externalities associated with people having jobs

  3. More Manhattans, especially for the District.
  4. Amnesty and More Immigration
  5. Prizes not Patents.

There a certain amount of overlap between his positions and my own.  I also favor a NGDP level target and the elimination of SS payroll taxes.  I also favor a shift away from income taxes and towards ad valorem land assessments, VAT’s, consumptions taxes, and a few excise taxes.  Poll taxes are not an available option, alas.

If upzoning makes the District into a middle class, urban affordable-family formation paradise, I’m all for it, and I think there’s some potential for this to work.  It would make the most expensive areas cheaper (but not too cheap!) to live in by creating thousands of new apartments, but it would also open up the poorest areas for development, which would make them just expensive enough to encourage the current residents to cash in their windfalls and pack their bags.  Win-win-win.  Just don’t let those ‘affordable housing’ folks get their hands on the urban plan zoning code and ruin the party Matt!

I haven’t formed any opinion on the wisdom of number 5, but plenty of folks on the right aren’t big IP fans either.  The patent system seems to have worked out ok historically, but things may have changed, and it also presents another opportunity to rent-seek by lobbying big government for special favoritism (concentrated benefit) at the expense of the public (dispersed costs) – so I’m open minded about it.

But numbers 2 and 4 are, ahem, a bit incompatible.  Saying that everyone should have a job because it creates big social externalities is a notion the Left now claims as their own, but it seemed awfully Right during the whole workfare / welfare-reform debate two decades ago.  And it’s not just about helping the ‘innocent, deserving, low-reservation-wage yet still involuntarily unemployed’ find work.  The devil is both in the details and the idle hands.  What are those negative and positive externalities?  Who is doing what to whom when they’re not occupied by employment?

Well, we need not speak too specifically of those ugly matters here.  Only to say that there is nothing leftist about a wise government finding it perfectly reasonable to select policies that maximize labor force participation.  Also Moldbug’s already spoken of them:

Solution B is not the culmination of human civilization, it turns out, but its destruction.  Even in terms of mere Pig-Philosophy, it is destructive, because it ruins a human asset.  If we appraise humans as robots, we see that this is a special kind of robot: it rusts up if not continually operating.  As beasts, we are beasts who evolved to work.  Our species achieved world domination as a result of our capacity for work.  To feed and entertain a human being, without requiring productive effort or at least some simulation of it, is in the end just a way to destroy him …

Beyond the creepy A and B, all solutions to the problem involve a State which compels, through economic or other means (it hardly matters), humans who are not economically productive to submit to work or some simulation thereof….

… we enter the domain of solutions which involve distorting labor markets to integrate these human liabilities into some semblance of a normal institution of production.  Solution D is the obvious approach and has been practiced by regimes around the world since Cheops was a little boy: to keep the peasants fit, healthy and happy, pay them to do otherwise unnecessary work.

…The purpose of Solution D is to lose as little money as possible, while maintaining the human quality of your assets and preventing them from degenerating into Hardcore Pawn customers, 10th St. zombies or other revolting parodies of the human condition.

Just so.  But look, the reality is that the robots are coming and it’s the strangest mix of certainty and uncertainty.  Everybody knows they’re coming, everybody knows there will be massive social disruption, and everybody also knows that while increasing numbers of intellectuals are thinking about it, no one is really planning intelligent policy for how to best manage the fallout. And without any plan but hope (oh, excuse me, ‘HOPE’), nobody knows anything at all about how it’s all going to go down.  It could get pretty rough.

No one really wants to think about such ugly topics – I once suggested something amounting to a tiny subsection of a planning effort like that and everyone looked at me as if I had said ‘Voldemort’ aloud.  Sometimes when I’m pessimistic I think that the entire spectrum of left-right argument is about to become completely overtaken by events and utterly moot in the face of these matters.

But in the meantime, it seems both the reactionaries and Yglesias-sympatico progressives have settled on plan D.  And there are many ways to distort the market to accomplish it.  Yglesias says super-EITC negative taxation rates and no payroll taxes.  You just need to find the set of real purchasing power reservation wages (incremented above living on welfare without having to work) that is sufficient to attract the marginally unattached into the labor force and incentivize them to keep working.  You could also abolish the minimum wage, which hardly matters, because it’s not the actual wage people are receiving anymore because their income is mostly kicker.

Or, a near equivalent and my personal preference, you could conduct a ‘full employment auction’, and have employers bid wages for the unemployed.  Say the government has one million unemployed low-skill workers.  It says, “Our research indicates a reservation wage of $15 per hour.”  A farm lobby says, “I can employ one million people profitably at $3 an hour,” which is the highest offer.  The government takes the deal, and gives the farm lobby an additional $12 an hour.  The farm lobby advertises the jobs at $15 an hour and one million people feel dignified and ‘middle class’ working ‘productive jobs’.

It’s just a step more market-sophisticated (ok, fascist corporatist) than crude, Socialist direct hiring for make-work.  Under this government-as-silent-partner-co-employer partnership plan, the subsidy is indirect and obscured and invisible which enhances the feeling that they earn their living by themselves.  This is an government illusion and a kind of open-secret-noble-lie which has all kinds of ‘positive social externalities’, and before you go criticizing it too much, you might want to do a very thorough accounting of who controls the origins of your own cash flow.  These days it’s a small fraction of us who are not the beneficiaries of some obscure subsidy transfer somehow.

Progressives might even like this plan because it’s anti-cyclical fiscal stimulus directly targeting unemployment in the most market-efficient way possible, and Reactionaries might like it because it keeps the thugs working instead of thugging and it avoid the very slow and indirect monetary method of currency inflation.

But there’s a problem.  The problem is that, while obscured and efficient, the program is still actually welfare; a subsidy and a transfer.  It is expensive, but it’s expense depends on numbers.  And so, more to the point, like all other welfare in a rich society, it is attractive to several billion poor foreigners who have much lower reservation wages than the rich-country unemployed, and who may even be more content to live a life of rich-country welfare-and-idle destitution than poor country exertion-yet-still-even-worse-destitution.

Yglesias wants to use a super-EITC to increase the incentive for work, but he’s also willing to import million of poor immigrants who will work for less, and I’m guessing he’s unwilling to refuse to extend to these undocumented Americans the benefits of all our public welfare programs and subsidies.  Furthermore, as has been demonstrated elsewhere, more immigrants means lower wages for the low-skilled than the counterfactual, which means we need even more super-EITC funding to compensate if we still want to employ those deadbeat natives.  His policies oppose each other and greatly expand the price of plan D, but our goal was to minimize the cost.

But it is by considering immigration in this way that we can see yet another equivalent way of distorting the free market to accomplish plan D.  A border.  Restricting immigration and trade helps us manage the labor supply and the trade balance.  All else being equal, a lower and inelastic low-skilled labor supply raises the labor share of income; the insight unions have relied upon for generations.  Wages rise and prices adjust which naturally pulls more people into the labor market and incentivizes full employment.  Of course, higher domestic wages will make foreign imports more competitive, so ‘protectionist’ policies such as import-certificates or tariffs are necessary to make the policy effective.  But it’s worth remembering what it is that you’re protecting with your protectionist policies, which is full employment within your nation, which has lots of ‘positive social externalities’.

In the Protectionist Plan D, to achieve near-full employment through higher effective compensation, the government doesn’t need to tax or ‘work-auction’ in order to provide a kicker subsidy transfer.  Or at least the need is reduced by an order of magnitude.  Oh, there is still a subsidy and transfer and cost, but it is even more obscured (and thus probably even more effective at accomplishing social stability through benign tolerance of people holding mistaken beliefs about having ‘earned’ their living fair and square).

High wages mean high prices (unless you happen to have a huge amount of cheap natural resources per capita available, like Franklin noticed. HT: Sailer), and distortions mean dead-weight losses in production and efficiency.  Consumers are paying for policy in their lowered purchasing power, though they are also benefiting from those ‘positive social externalities’, so it may be worth it.  They’d be paying for those social policies through their taxes anyway, except that would also involve the heavy burden of bureaucratic administration unnecessary with a market-automatic strategy.

But if subsidy policy is embedded in distorted, but not centrally-set prices (Obamacare does it with obvious price-fixing), then maybe nobody realizes that they are paying for this, and maybe because they aren’t economists they don’t realize what’s going on or where their material interests lie.  And maybe because of this confusion and the reigning spirit of patriotism and prevailing political formula they are even found to be in favor of the wildly popular ‘Buy American!’ policy itself.

In this way, the government’s figured out a pretty clever way to get Protectionist Plan D done with the minimal amount of social friction or resistance. For those of you who own trainable pets or have had the experience of raising and ‘governing’ young children, this is the equivalent of ultimate moment of victory with potty training, when you’ve conditioned your little mess-creators to do the thing that is maximally beneficial to both of you when they want to clean up after themselves.

Now folks, that’s a powerful tool of governance.  Like any sword, it’s double-edged, and can be used for good or evil, but the good is important enough (maybe indispensable to the human social psychology) that we should be cautious before deciding to dispense with the tool altogether.

That is, until the rotten economists show and and start explaining and drawing graphs with little blacked-out triangles and suddenly everyone in charge is worshiping free-trade and open-borders as dogmatic religions instead of mere ideals which are to be balanced against other compelling and competitive social interests.  And suddenly … the plan-D party is over.

Protectionist Plan D was probably a good way to buy Westerners a little more time to figure out what to do before the 1-IQ-point-per-year trend of automation starts to hit the middle of the bell curve and begins to catch millions in its annual net and turn them into Moldbug’s, ‘liabilities’.  We have less time to figure it out now.

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18 Responses to Five Point Plans Open Thread

  1. Vladimir says:

    I also favor a shift away from income taxes and towards ad valorem land assessments, VAT’s, consumptions taxes, and a few excise taxes. Poll taxes are not an available option, alas.

    Speaking of taxation, it’s funny how tariffs are nowadays seen by libertarians as the utmost evil, even though they are the most libertarian sort of taxation imaginable, by all reasonable standards. (Certainly as opposed to sales, income, and property taxes, and arguably even the inflation tax — none of which will however elicit anywhere as strong an emotional reaction from libertarians.) It just goes to show how much the wannabe-respectable right is eager to find issues where they can try to perform the impossible task of outflanking the mainstream progressives from the left.

    • Handle says:

      Some Libertarians address this argument by saying that tariffs are more distortionary / have a great deadweight loss than general consumption taxes. They also say that while tariffs could be implemented fairly and uniformly in practice, they become too enticing political target for private interested to lobby and rent-seek the big government for special favors. There are also lots of them that believe in what Cordell Hull claimed, which is that more free and open trade means less war. Do we have enough data to make a strong case one way or the other? I’m not convinced we do.

      But on the other hand – the Libertarians also admit that there will be some ‘creative destruction’ in the labor market if they get their way. Theoretically the gains captured by recapturing that loss could be distributed to compensate the ‘losers’ who experience lower wages or unemployment through the opening of trade, but in practice it doesn’t happen that way.

      The overall question of how to collect taxes in the most socially beneficial and efficient way possible is an interesting subject in Economics. But I prefer the landlord theory of tax as laffer-curve-maximizing rent because it gives government a rational incentive to pursue that binds it’s policies to effectiveness and performance in a competitive marketplace.

  2. Vladimir says:

    I also favor a NGDP level target…

    This is a point where I’m still awaiting your previously announced argument. Frankly, I can’t imagine how one could come to this conclusion without accepting that progressivism is right on all issues that really matter. You certainly don’t seem to be in this category, so it must be at least one of us whose reasoning goes badly off the rails here.

    • Handle says:

      I’m afraid I’ll have to ask you to keep waiting for a while until it gets to the top of my pile, but I assure you I will honor my promise. I hope you’ll be patient as I take the time to craft it well. Life gets in the way of writing all I’d like. I suspect this is why we don’t have Vladimir’s blog, which I would very eagerly read. Please, establish it.

      Now, you may notice that most prominent progressive economists are not market monetarists, and in fact heartily disagree publicly with them, and so I’ll ask you to clarify that loose statement ‘all issues that really matter.’ Which are the issues that ‘really matter’ and where, by implication of your statement, there is also coincidental overlap in positions.

      Now, for my upcoming NGDP post, I have a basic outline where I work through the detail of a private financial corporation, “The Money Company” trying to offer a competitive product that substitutes for fiat money and satisfies the properties people desire for currency. My Company issues Handle-Marks. You can come up with your own VlaDinars formula too. Bitcoin is a ‘real world’ effort of that kind, but it’s possible to simulate the comparative performance of an alternative hypothetical basis for the business, or track some market-based proxies over time.

      Now, one of those principal desires of human nature when it comes to currency, whether it is sensible or not, is as a short-to-medium term medium of ‘savings’ – a low-risk instrument redeemable in the marketplace on demand for a predictably narrow path of purchasing power over time. The perception of an ability to deliver faithfully on this feature is, after all, one of the main generators of the demand for the instrument and the willingness to utilize it as a medium of exchange and account.

      The question becomes how The Money Company can satisfy this property on the basis of claims on uncertain future production and fluctuations in demand for redemption, because physical warehousing is inefficient (though I personally maintain a small stockpile of ammo and whiskey). A sovereign, of course, backs it’s semi-illusory promise to accomplish this with its fiat currency through it’s power to tax and confiscate real resources out of that future production to satisfy outstanding liabilities. The Money Company would have to play in the futures market. But as alternative money becomes current in the marketplace (placing fiat-sovereign-taxation complications aside, for the moment), then Handle-Marks liabilities (including debts and claims accounted for in HM) begin to track overall production in the economy.

      Anyway, more to follow … eventually.

  3. rightsaidfred says:

    have employers bid wages for the unemployed

    One problem is that many in this pool are at negative utility: to get employment at $15 an hour, the gov’t has to pay $16 an hour.

    And, they reproduce, sometimes at a prodigious rate. If the world is shambling towards an Egypt writ large, we need to grapple with some kind of cap on this cohort. (In some projections of a machine future, that cohort becomes all of us.)

    • Handle says:

      Well, yes, the spectrum is continuous when it comes to non-independently-productive individuals, eventually descending from mild supplement into something akin to either daycare, nursing homes, or prison, depending on the reason for the dependence.

      A rational society’s grand strategy it to minimize the ratio of the costs of these various schemes of ‘social management’ to overall production. There are many perfectly humane and enlightened paths to reducing the weight of the burden. Paths of quality and paths of quantity. But by whatever standard of humane response, a rational society does not simply abandon the effort. We have. Gimmedat wins elections and begets more gimmedat. That’s the problem.

  4. jamesd127 says:

    What makes you think that automation is raising the employability requirement by one IQ point per year?

    Looking backwards to 1970, seems to me that there has been no large change in the employability of conscientious but stupid people. The increase in the underclass has been through a decline in conscientiousness.

    • asdf says:

      I don’t see how you make this claim. I know a large number of conscientious people of average intelligence who have either lost their jobs or taken massive paycuts (the kind that make raising a family difficult).

      • Handle says:

        I agree. I’ll respond more fully to Jim when I have more time.

      • jamesd127 says:

        Looks to me like a widspread fall in living standards, due to general economic decline, not specifically affecting the low IQ part of the spectrum. That we use less electricity per head, eat less meat per head, is not a problem specific to the wrong edge of the bell curve. If anything, the stupid are suffering less than the medium smart.

        Hence, not automation related, technological decline related.

      • jamesd127 says:

        That people are, in general, poorer, as measured by their ability afford transport, housing, schooling, medicine, and food, reflects the technological decay of the west, not automation raising the IQ limit for employability. America is getting dirtier, shabbier, and poorer. If automation was raising the IQ limit on the underclass, it would be getting cleaner and shinier, and building tall buildings like the skylines of Shanghai and Singapore.

        Third world has a look and a smell. You can tell how third world a place is by a photo of the cityscape. And the west is looking more third world, more nineteenth century, while Singapore looks increasingly like the city of tomorrow.

  5. Note: My ideas are US-specific so keep that in mind.

    I’ll do this as a full post elsewhere, since it’s getting long but here’s the bit on economics.

    Summary: The goals are threefold — free up capital, move to a volkish economy and make it so that people no longer live to work but instead work to live since various scams and other malinvestment(tablets, bloated computer programs, suburbia, “Web 2.0”, telemarketing, smartphones, the “college cult”, fast food, etc) that waste resources and make life increasingly either difficult(It doesn’t have to be barriers to entry, but things that cause people to get into extortionate debts like say pawn shops will do it) or annoying for people will be gone.
    1) Get rid of 90% of the regulatory state. What regulation that remains would see a good chunk of it being to promote better aesthetics and a more localized/regionalized business environment via discouraging chains. Higher prices, a bit more inefficiency but also a volkish economy that’s not dominated by cookie-cutter megacorporations producing garbage. The other purpose for these regulations would be promoting both increased low or medium-skilled employment along with pushing companies to invest in R&D.
    2) Give everyone a citizen’s dividend — say 12 grand a year for citizens. This means everyone, from the fattest plutocrat to the most bestial detroit knave gets their $12k a year distributed without riders or qualifications. Couple this with a one-time buyout of people’s estimated medicare/medicaid/social security/welfare/other sundry payouts — pay everyone either the average or what they’d be expected to get based on their contribution whichever is higher. Once everyone has gotten this buyout, then begin a process of tapering off the non-citizens dividend programs 10% a year. A fast cutoff would just get you marxist revolution and or a sudden dieoff.
    3) Move to an actual hard currency. The basic concept of bitcoin is sound, so something like that. It gets you the benefits of gold, but without the risk of gold suddenly becoming no longer a reliable store of value if asteroid mining takes off. Fix the initial number of Tehcoins at whatever the actual amount of money in the economy was pre-takeover and slowly deflate from there to a lower level. Perhaps wither 1913 or 1860 might work as goals.
    4) Get rid of credentialism for the most part. Limit it to jobs with actual reasons for it and I don’t include “to keep doctors/lawyers overpaid and overworked” as a valid reason. Make any such licensing requirements involve passing a test and not be able to be limited/monopolized by any organization. As part of this, set up functional healthcare system combining the best models from around the developed world — some sort of singlepayer with letting people buy insurance/pay for care with cash as an option. Once you’ve cleared up the problem of licensing the cost will drop to make it affordable.
    5) Have a clear and simple 30% VAT. No exemptions, no deductions or other ways to game it. A 10% flat income tax, with the only deductions being for having dependent children(in today’s economy, we’re going to have to factor it in until whatever age is the average for completing a PhD.(this bit is sarcasm, plus an added incentive to have multiple children)) if you’re intelligent(1 kid = 1%(parents are 110 and up)2%(120 and up),3%(130 and up),5%(140 and up) with it being potentially possible to get down to 0%(2 140+ IQ parents having 4 kids).

  6. anon666 says:

    Hong Kong and to some extent Singapore and Taiwan seem to employ the Land Value Tax to good effect. The government of Hong Kong is the official owner of all land within its borders, and leases it out to private businesses, who of course have an incentive to fully develop their areas in order to afford the leases, rather than speculating on weed-covered vacant lots, as we see in downtowns throughout North America. With the revenue stemming from Land Rents (and from the lowest income and corporate taxes in the world) they finance their transport infrastructure, public hospital network, and a large supply of public housing, while ranking in the top ten for GDP per capita, life expectancy and and in the various economic freedom indexes.

    I recognize that nation states and city states face different demands, and I’d rather live in a country less densely populated and with a greater percentage of Caucasians than in Hong Kong (although I always appreciate an East Asian influence). However, the model is rather appealing to me, and I expect we will probably never adopt it.

  7. My bias is a night-watchman state, as befitting a country carved by Anglo-Celt frontier capitalists out of pure wilderness. Lew Rockwell’s old 30-day plan still sounds good to me.

  8. Anthony says:

    From a little way outside the Overton Window:

    Eliminate corporate taxes. Completely. Their profits get taxed when they become some person’s income. Eliminate the special rate for capital gains, but index the basis for inflation.

    Single rate income tax on all income. A Guaranteed Minimum Income on the order of $12k/year in lieu of all federal welfare programs. This, too, is taxable. If we want to do something for the descendants of slaves or the aboriginal inhabitants of this land, do it here – maybe an extra $4 to $6k a year. But only for those two groups.

    After you’re done firing all the people that the tax and welfare simplification allows, cut all federal worker pay above $20k by 20%. All – soldiers, Senators, scientists, and shipping clerks.

    Significantly restrict immigration. For at least 15 years, only those people who will hire Americans get to come in permanently.

    Reduce anti-discrimination law to something manageable. Proof of intent will be required to make a case; no more proof by disparate impact. Allow firms to hire all-make or all-female workforces, but mixed workforces are subject to the regular rules.

  9. Dan says:

    Abolish the Federal Reserve and replace it with a software bot that aims for constant prices or 1% or 2% inflation based on some non-governmental index such as the the MIT billion prices project. ‘Full employment’ is scratched as a goal.

    You still get the flexibility of fiat money and you can even get a little bit of QE if you need it.

    The ‘dual mandate’ including full employment brings the potential for monetary collapse. What if the goal of full employment is not ever achievable? It seems likely that the proportion of people whose economic value is less than minimum wage is greater than the ‘full employment goal’.

  10. VXXC says:

    Economics is War by Money. Begin by asking who the enemy is…if you don’t know, it’s you.

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