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…
- 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.
- 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
- More Manhattans, especially for the District.
- Amnesty and More Immigration
- 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.