All posts in category arguments

On Universal Basic Income

As democratic presidential candidate Andrew Yang is getting at least a little attention, and his major idea is universal basic income, I thought I would write a little about it.

Note that there are plenty of ways to implement UBI, and it would be difficult to address them all, so I will specifically addressing UBI as described by Andrew Yang on his website.

The basic idea of UBI is that every adult citizen will receive a certain income from the government with no strings attached (except one important one, which I’ll address in a second), in this particular case $12,000 per year.

The biggest benefit of UBI is that it doesn’t discourage earning additional income.  Current welfare is often tied to (and scaled back with) income. So for instance, people who live in public housing frequently pay a mandated 30% of their income on rent, giving them an effective 30% marginal tax rate from housing benefits alone.  If they earn 1000 more a year, their rent will go up 300, so even before other taxes or reduction in benefits, they only get to keep an additional 700 per 1000 of income. If they receive other benefits (food stamps, etc), they could easily have an effective marginal tax rate of over 50% (compared to a federal high of 37%).

UBI would not have this flaw as anyone working to get ahead would keep the entirety of the benefit (less taxes) regardless of their additional work. So a low income person who works overtime would keep their UBI plus their wages, they aren’t being discouraged from working in the same way that other welfare benefits do.

The other benefits that UBI promises aren’t as great.  UBI will potentially reduce bureaucracy, as there won’t be needs to apply stringent criteria for benefits, for instance, to claim disability, you have to demonstrate that you’re disabled. This may also reduce fraud, (harder to have fraud if everyone is entitled).

There are other claims about UBI, that it will increase entrepreneurship (as people may be more likely to take risks knowing they have a backup), would stimulate the economy, and provide various other benefits.

There’s also an argument that we will need an UBI as advances in technology will make workers obsolete, leading to gigantic increases in unemployment.

However, there are significant problems with UBI, which I’ll go into in detail:

1. As constructed, it will hurt the neediest.

I want to differentiate here between needy and low income, as although they are similar concepts with lots of overlap, they are not the same.  A needy household is one with low income and high expenses, typically either because of the need to support children, or as a result of medical issues. A low income household is (unsurprisingly) one without much income. You can be low income and not be terribly needy; for instance college students and singles without obligations may have low incomes, but I would not consider them “needy.”

The single largest method of funding the UBI would be a Value Added Tax (or VAT), which imposes a tax on the value added to each stage of a products production. The VAT is more or less passed on to the end consumer of a good. In this way, a VAT is mostly flat, in that the rich and the poor will pay the same portion of their income on it (or even potentially regressive, assuming that the rich save more than the poor).

The benefits of the UBI will go to each adult, but people will be prohibited from taking other welfare. This means that the neediest among us would get less net benefit from the UBI, while paying an equal share of their income. This will lead to small or potentially negative effects for the very poor.

Take an example; lets assume there is a single parent household that currently gets 8,000 in public assistance, and makes another 6,000 through part time work. Lets also assume that the increase in VAT will be a straight 10% increase in cost of all goods and services. Before, the household would get 14000 in income. Under the UBI, their income would increase to 18,000 (12,000 in UBI and 6,000 in wages). The general price level would increase though due to the VAT, leaving them with the purchasing power of 16,360 (paying 16,360 for goods and 10 percent of that (1,636) for increase in price due to VAT, totaling 18,000). So the needy, single parent household is better off by only 2,360 per year, less than 20% of the proposed benefit.

Compare that to a non-needy but low income person, for instance a college student. Making the same 6,000 from part time work, their new income is also 18,000; or 16360 after paying for the VAT. But the net change is 10,360; 4 times the net benefit the needy family gets.

Its also easy to imagine people who would get no benefit from the UBI; for instance those on Medicaid with chronic medical conditions. Also, I couldn’t find whether Yang considers social security “welfare” or not. Given that the average social security payout is 1,400 a month, retirees would not benefits from UBI; but again would help pay for it every time they make a purchase.

Going back to the same, theoretical household with 6,000 in income, but this time with 12,000 in benefits, they would see a net decrease of 1,630 in their purchasing power.

There are other ways the UBI can sap the neediest of buying power. For instance, it could lead to rise in rent for low income housing; further deteriorating the purchasing power of low income individuals.

2. It will discourage work via two different mechanisms while increasing the government budget by 50%.

First, as it will be associated with a large tax increase; it will discourage workers (especially higher end workers) from working, as their labor will be rewarded less. High income (and high productivity) workers would, on the margin, retire earlier, work fewer hours, and high earning foreign workers would be less likely to emigrate to the US.

Second, it will lead some people to stop working as they no longer need the money. To some extent, this is the point of the program. Yang talks about people free to be caretakers for their loved ones, for instance. And while this will be good for society, it will be bad for GDP (or at least the taxable portion of GDP).

Assuming there are 200 million adults qualifying for UBI, (my quick estimate of 252 million adults, times 93% who are citizens, less 15% who are on medicaid), the cost would be about $2.4 trillion per year, compared to a current federal budget of about $4 trillion. (incidentally this is where I get the 10% VAT number from; with GDP about 20 trillion, the program costing about 2 trillion, gives us about 10% of the economy we would need to raise in increased taxes).

So essentially, we will be drastically increasing the amount of money we need to raise while reducing the underlying tax base.

Yang argues that a UBI would stimulate the economy. This is based on a study from the Roosevelt institute, showing that a UBI would increase GDP. There are two problems with citing this. First, Yang lies about the contents of the study. Second, the study itself is highly suspect.

First, dealing with the lie. On the “about UBI” page, under the “What impact would Universal Basic Income have on the economy?” Yang says that a UBI would “permanently grow the economy by 12.56-13.10 percent” The source is clearly table 3 of the associated study, looking at scenarios 3 or (12.56 % GDP growth) and 9 (13.10 percent GDP growth). Yet those scenarios look at financing the UBI via deficit spending (essentially paying for the benefits by increasing the national debt, not by raising taxes). Yang proposes paying for the UBI by increasing taxes, which would be scenarios 6 or 12 in the table, or 0% to 2.6%, much more modest than the 12% cited by Yang. This isn’t a simple mistake regarding the signature proposal for the Yang campaign, this is telling a lie, hoping that most readers won’t read through the study, or pay enough attention to decipher the somewhat confusing tables.

Second, the study itself is, I hesitate to say anything disparaging here, well lets just say I think the study shouldn’t be considered the final word on things.

There are essentially two assumptions the study makes. First, that we are far enough away from full employment that we don’t need to consider it. Second, that people will not change behavior due to UBI, either because of higher taxes, impacts of borrowing (ie, government borrowing crowding out private investment) or people becoming less likely to work as a result of receiving benefits.

Addressing the first assumption, under this assumption, there is no way that government borrowing will not increase welfare, no matter the amount. Economic theory states that there is some capacity, based on technology, physical capital, land and human capital to how much we can produce, this is of course true; to continue to grow, we must invest in new factories, new technology, and in ourselves. We may, at any given time, be producing less than that. This is particularly true in recessions; we produce (and consume) less, not because we have seen a loss in productive capacity, but because we don’t produce everything we can. Since about the 1920’s, the dominant macro-economic theory has been that government spending, even government spending on otherwise useless things, can help us reach this potential GDP. Government spending will “inject” money into the economy, causing people to spend more, increasing the economy, causing people to spend more, etc.

Of course this can only go so far; once we’re at the capacity of the economy, we cannot increase GDP by otherwise useless spending. We can only increase GDP by increasing our ability to produce, ie building infrastructure, machinery, technology, or by teaching people new skills. The study simply assumes that we are not at this point, and will not approach it, even with an extra 2 trillion in government spending. Of course, given these assumptions, we could increase government spending by 20 trillion, and the economy would double. Simply put, the study, as constructed, will never find out how spending is too much. Therefore, we cannot trust the study when it says that the proposed plan isn’t too much.

The other assumption I’ve already touched on, namely that we won’t see any discouragement of work either through higher taxes, higher borrowing, or less need to work. I think this is also a very suspect assumption, especially given the sums of money we’re talking about.

Of course, under these assumptions, neither the UBI or any government would ever be seen as anything other than good. Building pyramids, or a giant ditch-digging and refilling program when unemployment is at 2% would both show zero real costs.

3. It will create long term inequality, and create a generational experience gap.

Yang and other supporters present the UBI as a way for people to spend more time as caretakers, artists, or students. While there are certainly a number of people who would use the UBI to pursue these endeavors, there would realistically be quite a few who use the UBI to stay home watching Netflix, playing video games, or otherwise dropping out of society. I can easily imagine somebody doing this for through their mid 20’s, then deciding that they want something else, and having a very difficult time getting out of that cycle. The skill gap caused by this would create a two tiered society; exacerbating inequality and creating a permanent underclass.

4. It isn’t needed, because robots aren’t taking our jobs.

The refrain from UBI advocates that we need it because people are losing jobs to automation, and technology will soon lead to people being unable to find work. The classic example is self checkout kiosks at grocery stores; technology allows the grocery store to run with fewer employees.

This of course nothing new. Fears about automation replacing workers have existed since at least the 1810s, when the Luddites smashed looms in order to preserve their jobs as weavers. The industrial revolution, assembly lines, and computers all were supposed to destroy jobs. Of course they did; but every time they created more jobs than they destroyed.

This is no different than today. Unemployment is at 3.6%, the lowest its been since the late 60s.

People may counter that unemployment isn’t a complete figure, that it doesn’t include “the discouraged worker” phenomenon. Since unemployment measures the ratio of people who are looking to work over those who are working or looking for work, it doesn’t include people who aren’t looking for work. There are various reasons this is appropriate, for instance retirees and students aren’t included as unemployed, nor should they be. But people who have just given up looking for work aren’t included either, meaning that the unemployment rate can be misleading.

To counteract this, we can look at the labor force participation rate; which shows the percent of civilians who are looking for work or working:

There’s been a small decrease in labor force participation since the late 90’s; but its much higher than it has been from the 50’s to the 70’s.

With unemployment near 40 year lows, and labor force participation very high, its safe to say that any displacement of workers by robots hasn’t happened, just as the assembly line or automated loom or computers haven’t permanently destroyed jobs.

Of course, as unlikely as it may sound, this time may be different. We may once and for all see a permanent displacement of workers. In that case, a UBI may be appropriate; if we are ever in a position where 20% of the workforce is permanently unemployable; the arguments for a UBI start looking much better. It just makes no sense to me why we need to start a UBI now in preparation for that. If we get massive amounts of automation, we should see a massive increase in productivity, GDP and overall incomes. In short, when we need a UBI, the question of how to pay for it will answer itself.

But implementing a UBI now because of something that might happen in the future is nonsense. It is a bit like leasing a Mercedes now because we might need a car at some point in the future.

***

The most compelling reason for UBI is that, for those families who need assistance, we can give them aid without discouraging work. This is a real benefit; but there are ways to do this which cost much less than 2 trillion. My suggestion would be to guarantee benefits for 5 year periods. So for instance, if somebody qualifies for food stamps, they cannot have that revoked for five years, no matter how high their income gets in that period.  Regardless, the problem of discouraging work among welfare recipients, while large, is not a $2 trillion problem.

Overall, I find the arguments for UBI to be lacking and the benefits of UBI greatly exceeded by its costs. There is simply no reason to create a new entitlement spending twice the size of social security.

Leave a comment
by Garrett on June 30, 2019  •  Permalink
Posted in arguments, economics, politics, The poor

Posted by Garrett on June 30, 2019

https://agallantchrometiger.wordpress.com/2019/06/30/on-universal-basic-income/

Wel (un) fare

Let’s say that you are creating a tax policy for a new society, and you come to the question of corporate taxes. Which of the following do you choose:

1. You tax more profitable companies at a higher rate (so very profitable companies pay 35% of their income, less profitable companies pay 30%, and so on), based on their margins (or if you prefer, return on equity or return on assets or some other preferred measure).

2. The opposite of 1, You tax less profitable companies at a higher rate based on margins (or RoE or whatever).

3. You say that corporate profit is too complicated to compare rich companies vs poor companies, and instead charge a flat corporate tax on net profits.
3 is pretty much where America is right now, and I would argue that it’s probably the best outcome.  You can of course make a case for 1 if you want, (although I think it would be way to complicated to actually pull off intelligently).  There is no real reason for choice 2, either from a fairness or an efficiency standard.
***

Let’s pretend that you’re a 19th century industrialist, you run a steel mill or something. For the sake of this example, let’s say that the only thing you care about is making the most money possible, you pay your worker’s as little as you can and are always looking to save money, particularly on labor.

Now lets say the government is deciding whether to enact some form of a welfare program; details aren’t really important, except that you expect most of your workers to qualify whether or not they remain employed with you. Do you, purely from a selfish perspective, want the government to enact a welfare program?

There are two competing schools of thought.

1: Yes, you do, because government welfare means that you can pay your workers even less than before.

2. No, you don’t, because welfare means that: a) your employees will have more bargaining power (they can hold out longer, have a better alternative to negotiated agreement, can take a longer time to search for a better paying job); and b) there will probably be some contraction in the total labor supply as some fraction of employees choose not to work (or choose to work fewer hours), the contraction in labor supply leads to a higher price of labor (ie wages).

1 really doesn’t make sense except under certain extreme scenarios, for instance if people are working for literal subsistence wages and a reduction in income would literally kill them. And even then, only if the welfare program is small enough, once it provides enough benefit, the effects from item 2 overwhelm the effects from item 1. In general, I am confident in saying that social welfare programs increase the cost of labor for big companies.

***

Lets say you go into a Walmart, and buy a iPhone. Who does the cashier who checks you out work for? Who do they provide value for? Well, the obvious answer is Walmart, in that Walmart chooses whether to hire them, what wages to pay, writes their paycheck and makes them wear a Wal-Mart specific uniform. But in some small sense, they also work for Apple, in that there is some amount of value that they provide to Apple. The Walmart cashier is the end-point of ten thousand different value chains; in some way Apple (and General Mills, and Reebok, and Proctor & Gamble, and virtually every other company) all employ that cashier.

***

Bernie Sanders has introduced a bill (Stop Bad Employers by Zeroing Out Subsidies), or “Stop BEZOS” act, which seeks to charge low-wage employers for the total amount of public assistance that their employees receive. (See here).  So, for instance, if a Walmart worker gets 2,000 in public assistance, they would be taxed that full amount. This has been picked up by, of all people, Tucker Carlson, (See here).

I think this is an extremely bad bill, for three major reasons.

First, a purely moral/fairness reason. As a society we have decided that people should have some minimum standard of living, and have implemented various programs to pay for them. I strongly believe that we as a society should pay for them, that in effect everybody who can should contribute towards such benefits.

Apple has about 123,000 employees and yearly revenue of 229 billion dollars, or about $1.8 million in revenue per employee. (source, Apple financial statements). Walmart, on the other than, has about 2.3 million employees, and yearly revenue of about 500 billion dollars, or about $217,000 per employee. Apple in turn makes about three times more money ($61 billion in operating income vs $22 billion for Walmart). I’m sure that the average Apple employee makes a lot more than the average Walmart employee, but that has little or nothing to do with the generosity of the employer, and almost everything to do with the type of business they’re in and the difference in skills needed to be a hardware engineer vs a greeter. This bill would in effect place a major tax on the comparatively poorer corporation (Walmart, in one of the few comparisons where Walmart is considered relatively poor) while leaving the comparatively richer corporation (Apple) at a lower tax rate. Why? This goes back to the first question I posed, about tax rates for corporations why should the more profitable company pay less in taxes than the less profitable company? It’s not even that Walmart chooses to use lower-skilled labor, Apple does as well, they just outsource it to China or Foxconn (on the production side) and sellers such as Walmart on the distribution side.

Sure, you can say that Walmart can afford to give employees more, but you can say that so much more about Apple, Google, Facebook, Microsoft etc. The commanding heights of the economy are in information technology and finance. To suppose that retail should bear the burden of welfare is arbitrary and makes little sense. If we are going to support the poorest among us, then I think we should all contribute, (including through personal income taxes), but certainly there is no reason to suppose that Mark Zuckerberg has less means to give than the Walton family.

The second reason is the fact that, as demonstrated in my second example, employers don’t benefit from the welfare at least not in terms of reduced labor costs. In fact it probably raises their costs. Without a reduction in labor costs, there shouldn’t be

The third reason is that this policy would create horrible incentives from just about every angle. With greatly increased labor costs, companies would reduce low-skill employment, either by substituting with capital (more self checkouts, for instance), or just less staffing, as in reducing staffing in off-peak hours, for instance.

It would mean that there is a powerful lobby for reducing government subsidies, there would now be a major rich constituent for reducing all government benefits.

There would be a very bad incentive for employers to avoid giving jobs to the most needy. Some companies will find a way to ensure their employees aren’t needy, dont’ have kids, or are otherwise better off. This bill would make teenagers of wealthy parents a better option for many companies than a single mother of three. Finally, there are truly ghoulish incentives, some employers will insist that employees must not apply for welfare. This will no doubt be very illegal, but it will no doubt also still happen.

There is of course no countervailing incentive; this won’t increase the total amount of welfare available to the poor, it will only shuffle around dollars somehow, while moving more people off paying jobs, increasing their total welfare cost while reducing their total income.

Overall, the bill makes no sense, it is based on bad economics. It supposes that the burden of welfare should be on the employers closest to the employees, instead of to society in general (including to the most profitable companies). It assumes incorrectly that welfare programs decrease the cost of labor for major companies. And it ignores incentives which will lead to fewer low skill jobs and further reduces opportunities for the unfortunate.

Leave a comment
by Garrett on September 8, 2018  •  Permalink
Posted in arguments, current events, economics, politics, Uncategorized

Posted by Garrett on September 8, 2018

https://agallantchrometiger.wordpress.com/2018/09/08/wel-un-fare/

A Skeptical Audience

So Donald Trump fired FBI director James Comey, as everybody knows by now. This immediately drew parallels to the Saturday Night Massacre, where Nixon ordered his Attorney General to fire special prosecutor Archibald Cox.

At the heart of the matter are three questions. First, whether Comey was the best person for the job. The second question is whether this will hinder any ongoing investigations, specifically the investigation into Russian involvement in the Presidential election; and what if anything will be done to safeguard these investigations.

The third question is the most important, and is simply; which of the first two questions did Trump answer when firing Comey? That is, did he fire Comey because he felt Comey wasn’t a good director? Or did he fire Comey specifically to stop the Russian investigation (or any other)?

If it’s the first, and Comey wasn’t the best fit for the job (or even if Trump just honestly thinks so), then there’s no real problem. If it’s the second, then basically Trump is abusing the office to enact a personal agenda, using the department of justice as a political tool, and obstructing justice. Essentially, what Trump did is either a standard (if somewhat unusual) way of acting as President, or an impeachable offense; either it was as bland as Bill Clinton dismissing FBI director William Sessions, or as corrupt as Nixon firing Cox.

* * *

Having just finished a class on negotiation; I was struck by an study by Huthwaite inc, called “The Behaviors of Successful Negotiators” which looked at (no surprise here) the behaviors of successful negotiators. It was one of those truly great readings, the point of which seems obvious to me after reading it, but never once occurred to me beforehand. There were some behaviors which were kind of boring, (such as skilled negotiators talking more about long term topics), some which were somewhat reasonable but not much use elsewhere (skilled negotiators don’t have a predetermined sequence of when they wish to discuss which issue), but some which were meaningful and profound.

The fact I was most impressed with were the fact that skilled negotiators rarely used words like “generous,” “fair,” or “reasonable” to describe their own offers. Within a negotiation, calling something “fair” which you present, even if you think it is fair, is unlikely to convince your counterparty; it will only serve to aggrevate him or her if they don’t think its fair.

The second fact which I thought was really valuable was that skilled negotiators often made fewer arguments in their favor; but those were typically better quality. That is, if you’re trying to convince a hostile (or even skeptical) audience of a fact, and you present 5 arguments, they’re naturally going to latch on to the weakest argument you make. People are not rational Bayesian calculation machines, 2 strong arguments in favor are greater at convincing humans than 3 strong and 3 weak arguments in favor.

In both cases, the lesson is similar, in convincing a skeptical audience less is often more. Using more neutral language is more persuasive than persuasive language, and using fewer arguments is more persuasive than using many. The stronger you believe something (or come across as believing that thing), the less persuasive you can be to a skeptical audience.

* * *

Today, while packing up my apartment, I was listening to a several months old episode  of Bill Simmons’ podcast, the BS report. Simmons’ guest was one of my favorite essayists, Chuck Klosterman. In it, they were discussing who the NBA MVP will be, Russell Westbrook or James Harden. Klosterman had a very intriguing argument, which essentially went like this (I am of course paraphrasing):

1: The people who favor Westbrook think its obvious that the MVP should be Westbrook and there’s no other choice. (Westbrook averaged a triple double over the season, something that hasn’t been done since the legendary Oscar Robinson).

2: The people who favor Harden think its an interesting question and there are arguments for multiple candidates, but Harden is overall their favorite.

3: The people who are undecided will see the above two arguments, and almost tautologically will relate to 2nd one more. Because (by definition) they haven’t made up their mind, they can relate to those who think its a close race, who favor Harden.

Its an almost brilliant idea, and I have no idea if it will be correct or not, but it has a certain logic to it. Underlying it all is the same lesson, your ability to convince a skeptical party of something can be inversely related to the strength of your own belief.

* * *

Trump’s approval rating is low, but its not historically low. 538.com has him at 41%; Gallup had Obama at the low 40’s for much of 2011 and 2014 (of course this time in 2009 Obama was in the low 60’s, 20 points better than Trump is now.) Gallup had W Bush’s low at 25%, HW Bush at 30%, Clinton at 40%, Reagan at the mid 30’s, Carter at 30%, and Ford at 40%. (the counterclaim is that none of these Presidents were this unpopular this soon in their Presidency, but that’s kind of beside the point).

I’m not a Trump fan, and I certainly don’t think I will be. I see a number of things which Trump has done as being bad, corrupt, or incompetent, and the demeanor in which he has conducted himself has at times seemed unhinged and almost crazy. This to go with his numerous scandals, problems, gaffes, and remarks he made while campaigning and as a public figure.

Yet as much as 41% of American voters still approve of Trump. Why is this?

* * *

All this brings us back to President Trump and James Comey. If you’re already inclined to believe that Trump is a despot you will probably see the Comey situation as analogous to the Saturday Night Massacre, and Trump as obstructing justice. If you’re a fan of Trump you’re much more likely to see the situation as nuanced, or as analogous to Bill Clinton dismissing Director Sessions. And if you’re in between? Well, articles like this probably won’t convince you.

I think that those people who either support Trump or at least still giving him the benefit of the doubt just see all the criticism blending together, drowning itself out. They see Trump detractors reacting to firing Comey in the same way the reacted to Trump’s February 16 press conference. As long as they see the tone and not the substance of their opponents’ arguments, they’ll get no new information, and of course won’t change their minds.

Take an article like this, very anti-Trump, which purports to list all the bad things Trump has done. Yet it seems like half the things listed aren’t things Trump has done, but rather things he’s said or tweeted. Going back to the fact about skilled negotiators, how they will use fewer stronger arguments. Then compare that to the list in the nymag article. For many of the “Trump said this” arguments, if you’re not convinced now, you may not be ever. And if that argument won’t convince a skeptic, then making it will probably make better arguments less convincing.

With a skeptical audience, the strength of your beliefs can often work against you. There’s no shortage of liberal antipathy towards the Trump administration, yet I wonder if the strength of the left’s beliefs is actually hindering its ability to make a convincing argument.

Leave a comment
by Garrett on May 14, 2017  •  Permalink
Posted in arguments, current events, government, sports, Uncategorized

Posted by Garrett on May 14, 2017

https://agallantchrometiger.wordpress.com/2017/05/14/a-skeptical-audience/

Bad Arguments vs Bad Faith Arguments

There is a bit of an argument between Scott Sumner and Jason Smith, its a couple months old because I saw it and filed it away somewhere to be used later because I think it illustrates a point. The post is an argument about the sequestration and macroeconomics; read it if you want to.

I’m not really going to comment on the post itself, but on a single sentence of it, which reads “Now that Sumner is on his way to Mercatus, I can only assume it will get worse.”

Mercatus, for those of you who don’t know, is “world’s premier university source for market-oriented ideas—bridging the gap between academic ideas and real-world problems.” Its a libertarian/market oriented think tank located at George Mason University, and is funded in part by none other than the Koch brothers.

So, if I parse the argument from Jason Smith correctly, its that Scott Sumner is dishonest in his opinions, but going to the Koch funded Mercatus center will only make it worse; which on a quick read kind of makes sense, but if you examine it closely, it really doesn’t.

A bad argument is one that is wrong. If I believe that the moon is a hologram and argued so because stuff like this happens, then I would be making a bad argument. If I didn’t believe that the moon is a hologram, but argued that it was anyway, I’d be making a bad faith argument. Bad arguments can be harmful, but the problem is that its impossible to tell a bad argument from a good argument until after you’ve examined it. They’re a necessary evil, after all, many “bad” arguments can turn into good ones after years of examination.

A bad faith argument is different, and they can be more harmful. The Koch brothers, for instance, own large interests in logging companies, one can make a case that they would therefore profit from denying global warming, and that the profit motive, not their actual belief, is partially driving the debate.

Now, why might this be a bigger problem than other arguments? Countering a bad faith argument with evidence will never work, as he was is arguing in bad faith will only ever change when the underlying incentives for arguing in bad faith change (in the global warming case above, the profit motive, but there can be other causes). Whereas if people were simply arguing because of what they believe, then as soon as the weight of evidence changes, people will change their mind. (ding ding ding ding! most naive thing I’ve ever written on this blog award goes to… the previous sentence!). The one arguing badly in good faith can still present ideas which may be missed otherwise or prove a testing ground for good theories, while the arguer in bad faith will twist arguments and attempt to confuse rather than illuminate ideas.

Looking at the original statement in this lens, its pretty clear that Jason Smith is arguing that Scott Sumner will be arguing in bad faith (if he isn’t already). That because not only his opinions but also his economic well being depend on agreeing with market based though, he will compromise himself and his scholarship.

But this can’t be right; if it were it’d essentially be saying that studying with people you argee with or taking a job to advocate a position is inherently bad faith. A logical extension would mean that any environmental activist would be arguing in bad faith so long as they worked for a environmental organization, which in effect would by saying that we can’t trust the sierra club when the speak about preserving the environment, because they only care about preserving the environment. The same principle holds true for the Mercatus center, should we not trust them with regards to market based solutions, because they only care about market based solutions?

One could argue that its the Koch influence which is the problem, and that Mercatus is only a mouth-piece for Koch industries. (I doubt that it is, but at least that’s a plausible story). This may hold true for Mercatus issues in general, but not in macroeconomics. The Kochs may lose if people decide to stop cutting down trees, but nobody wins because of a recession. If the Kochs are backing Scott Sumner for their own selfish reasons, well that just means they think NGDP targeting will prevent recessions/cause growth, and if that’s true that everybody should be for it. If its false, everybody, including Koch brothers, should be against it.

Of course there are differences in opinion on controversial issues, (that’s pretty much a tautology if I’ve ever seen one), and maybe the Kochs are right about NGDP targeting (or maybe they just fell that the Mercatus center is doing good work in general and are happy to help fund it), maybe they’re wrong. But regardless, so long as neither they nor Dr. Sumner are arguing because of a hidden incentive then they’re simply part of the debate. We can’t commit to evaluating only good arguments, because we can’t tell if an argument is good or not until after we evaluate it.

Leave a comment
by Garrett on March 19, 2015  •  Permalink
Posted in arguments, economics

Posted by Garrett on March 19, 2015

https://agallantchrometiger.wordpress.com/2015/03/19/bad-arguments-vs-bad-faith-arguments/

Why I’m not a Keynesian

After world war II, the decline in government spending was enormous. Government spending as a percent of GDP went from over 45% to around 15%, which threw the US into a terrible recession, where GDP fell by over 12% in 8 short months. To put this in perspective, the “Great Recession” which lasted from 2007 to 2009, and which was the second worse recessions in the drop of GDP since WWII, only saw GDP decline by 4.3%.

This recession saw unemployment skyrocket to 5.2%. The average person was hurt by this, in 1946, while the GDP in 1946 fell by 11.6%, personal consumption grew by a paltry 12.4%, to put that in perspective it was the 85th worse year since 1930 (source: http://www.bea.gov//national/nipaweb/DownSS2.asp).

So what actually happened? We see that the decline in government defense spending after World War II caused the measured GDP to fall a lot, but what this meant is that the government stopped building tanks, aircraft carriers, rifles and ammunition. This meant that the US “produced” a lot less in 1946 than it did in 1945 or 1944, but that production was for military purposes only. While this created a recession, it was a recession on paper only. If you haven’t noticed, that 85th worse year for personal consumption growth? Out of a period of 85 years, (ie, the best).

The decline in one sector of GDP (government spending) was great enough to cause GDP to significantly retract (worse year for GDP since the great depression), but it did not make other sectors of GDP fall. In fact, not only did personal consumption have its best year eve (or since 1930 when the BEA statistics start), so did Gross Private Domestic Investment (same source as above). Unemployment did increase, but not to a very high level (we’ve seen a steady fall in unemployment for 6 years, but we’re still above the 5.2% immediate post war peak). Basically, the idea that the end of the war would throw the US back into depression was wrong, the only fall in GDP was only a reduction in anti-Nazi spending. Its a bit like saying that the best measure of a person’s economic well being is his consumption spending. And that in year 2, when he was healthy, he spent significantly less than in year 1, when he was fighting cancer. It was good that he was able to spend money fighting cancer in year 1 no doubt, but it was better that he didn’t have cancer in year 2.

If we’re to tell the story more, the drop in government defense spending allowed resources to be dedicated to other areas, such as business investment, new home construction, and creation of consumer goods. But this this the opposite of what is supposed to happen according to Keynesian economics. The fall in government spending is supposed to depress incomes in general, as all the soldiers return home and the tank builders are laid off, the total demand for goods and services wil fall, causing GDP to fall, not just in terms of fewer tanks and rifles, but everything else as well. This didn’t happen.

Now, this may not be the best case. You can argue that the proper Keynesian government level was still much lower in the war than actual government spending, or that the special circumstances dominate in immediate aftermath of the war.

More recently, we saw two major changes in government spending in the past 8 years. The first was the stimulus bill of 2009, which was supposed to jolt us to recovery and keep unemployment below 8%. The second was the sequestration, which, due to the Republican preference for lower government spending and political fighting about the debt limit, caused government spending to be reduced (and taxes to raise, both of which are considered anti-stimulative effects by Keynesians). Let’s look at how this effected the economy:

GDP Growth 2009 to present

Unemployment 2009 to present

It looks to me like government spending had little to no effect on GDP growth, and unemployment looks totally unaffected. It went up during the recession and a little bit afterwards, and has fallen consistently since, regardless of what the government tries to do.

This is my biggest complaint against Keynesian economics, or I guess fiscal stimulus to be specific. We had an $831 billion government program, and nothing to show for it. The Keynesian economist can make the case that things would have been worse without the stimulus or better without the sequester, that’s certainly a possibility and I don’t want to dismiss it. But I do think that the burden of proof should be on the people proposing trillion dollar expenditures. And I don’t think that the burden of proof was at all met. This is the strongest case I have against fiscal stimuli, they have enormous costs and very unclear benefits.

None of this is a counter to the idea that we shouldn’t have government spending.  There are many great things that government has provided, including roads, schools, police.  To return to the World War II example, we basically prevented a madman from conquering the world, which is a worthy a goal as there can be.  But what I am arguing against is the idea that government spending by itself typically stimulates the economy; the idea that we’re better off having the government hire people to do useless things.

There may be instances when this is true, that simply borrowing and spending money by the government can counteract a bad economic environment.  But as of right now, I’m convinced that it’s probably not true generally (ie, that any bad economic environment can be improved by the government spending more money), and that we can’t distinguish the instances where government spending helps from when it hurts or has minimal effect.

Leave a comment
by Garrett on March 7, 2015  •  Permalink
Posted in arguments, economics

Posted by Garrett on March 7, 2015

https://agallantchrometiger.wordpress.com/2015/03/07/why-im-not-a-keynesian/