Curt Doolittle

Theme: Subsidy

  • How Is An Economic Stimulus Package Supposed To Work?

    There are a series of possible stimuli available from the short term to the long term.
    1) Spending – Fiscal Policy: the government borrows money, then spends it on any number of projects.  This puts money in the hands of consumers, consumers spend on things not related to the projects, and businesses respond in order to serve demand. Their employees spend too, and the cycle expands.  Problem? It takes a long time for money to move into the economy.
    2) Monetary Policy: the government borrows money and then auctions it off at low rates.  Bankers buy this ‘cheap’ money and sell it as lower cost loans to business and the public.  Problem? Sometimes (now) no matter how low you make the cost of credit (effectively zero) people will not borrow it.
    3) Trade Policy. Sometimes you can tax or reduce taxes on goods and services to make them cheaper or more expensive. So, for example, if you want to create jobs in say, clothing manufacture, you highly tax clothing imports.  Problem: this just makes goods and services more expensive for consumers, so it has to be paired with monetary policy.
    4) Industrial policy: what we did with the auto companies. You find a way to create or expand industries that create jobs or create demand.
    5) Education policy: train or retrain your population to produce goods and services that are desired, when the goods and services they produce are no longer as desirable.

    Most of the time, governments quickly adjust monetary policy then they try spending policy.  The argument today is that we should spend more. The problem is that people don’t trust their government to spend it wisely, and they therefore prefer to suffer a slower economy than fund bad behavior in government.

    https://www.quora.com/How-is-an-economic-stimulus-package-supposed-to-work

  • Cain And Able On An Island: Justifying Redistribution?

    Interesting posts on Modeled Behavior in response to this post by Bryan Caplan on Econlog

    Suppose there are ten people on a desert island. One, named Able Abel, is extremely able. With a hard day’s work, Able can produce enough to feed all ten people on the island. Eight islanders are marginally able. With a hard day’s work, each can produce enough to feed one person. The last person, Hapless Harry, is extremely unable. Harry can’t produce any food at all. Questions: 1. Do the bottom nine have a right to tax Abel’s surplus to support Harry? 2. Suppose Abel only produces enough food to support himself, and relaxes the rest of the day. Do the bottom nine have a right to force Abel to work more to support Harry? 3. Do the bottom nine have a right to tax Abel’s surplus to raise everyone’s standard of living above subsistence? 4. Suppose Abel only produces enough food to support himself, and relaxes the rest of the day. Do the bottom nine have a right to force Abel to work more to raise everyone’s standard of living above subsistence? How would most people answer these questions? It’s hard to say. It’s easy to feel sorry for the bottom nine. But #1 and #3 arguably turn Abel into a slave. And #2 and #4 clearly turn Abel into a slave. I suspect that plenty of non-libertarians would share these libertarian moral intuitions. At minimum, many would be conflicted. Yet bleeding-heart libertarian Jason Brennan doesn’t seem conflicted. At all. He begins by quoting one of his earlier posts:

    Imagine that your empirical beliefs about economics have been disconfirmed. Imagine that a bunch of economists provide compelling evidence that life in a strictly libertarian polity would go badly. Imagine that they showed conclusively that if people everywhere were to live in a Nozickian minimal state or a Rothbardian anarcho-capitalist civil society, with everyone strictly observing property right rules, that 10% of people would starve (through no fault of their own), 80% would be near subsistence (through no fault of their own), and only 10% would prosper. However, imagine that they also show that in a liberal social democracy with significant redistribution or social insurance, most people would prosper, just as many people living in such welfare states are doing pretty well right now.

    In a followup, Brennan adds:

    If you are a hard libertarian, you respond to this thought experiment by saying, “Well, that’s too bad things turned out that way. But, still, everyone did the right thing by observing property rights, and they should continue to do so.”… If you have at least some concern for social justice, you respond by saying, “If that happened, that would be strong grounds to change the economic regime. In that kind of society, it’s unreasonable to ask people to observe the basic institutions and rules. They have a legitimate complaint that the rules works as if they were rigged against them. Perhaps we’d need to tweak property rights conventions. Perhaps we’d even need some sort of redistribution, if that’s what it took.”

    This is a good example of what puzzles me most about bleeding-heart libertarians: At times, they sound less libertarian than the typical non-libertarian.* I’m not claiming that the “hard libertarian” intuition is certainly true. But in a thought experiment with ten people, the hard libertarian intuition is at least somewhat plausible. And once you start questioning the justice of the islanders’ treatment of Able Abel, questions about the justice of the modern welfare state can’t be far behind. Needless to say, bleeding-heart libertarians usually sound a lot more libertarian than the typical non-libertarian. Yet this just amplifies the puzzle. Unjust treatment of the able may not be the greatest moral issue of our time. (Then again…) But unjust treatment of the able is a serious moral issue. And it’s a serious moral issue that mainstream moral and political philosophy utterly ignores. My question for bleeding-heart libertarians everywhere: Why don’t your hearts bleed for the able slave? * The most egregious example is Andrew Cohen’s musings on parental licensing.

    Lets extend the Parable a bit: If Able needs to wear a shirt to get into a store, that’s an exchange. Cause and effect. It is a cost of entry. If Able needs to respect property rights to participate in the local market. That is a price of entry into the market. If Able needs to respect manners, ethics and morals, then that is a price of entry into the group that cooperates — even if their only cooperation is negative: to respect life and property by avoiding theft, fraud and violence. If able wants something that he canot produce, he must exchange something for it. These are all voluntary exchanges. If Able works harder than others, and they take from him, that’s involuntary taking. It’s a theft. If Able works harder than others and others exchange something with him for it, It’s not a theft. It’s voluntary exchange. If others are materially unproductive, and have nothing to trade with Able, then what else do they have? They have status. Status signals increase Able’s opportunity to be even more productive by assisting him in concentrating human capital. With that human capital he can exercise his mind, his abilities and his knowledge further. He can eventually control 80% of the resources simply because he knows best how. And others have voluntarily given that control to him. Status also improves his access to desirable mates. Desirable mates further increase his status. And with that status people who are not productive like Able, will attempt to imitate him. Since, that is the purpose of status in our evolutionary system: to inform others who to imitate. Status is our natural compensation. Status has been our compensation since before we had money, and a division of knowledge and labor. Very likely before we had speech. Perhaps before we were sentient. But wait. Now, what happens in the Parable of the island? Instead, one of the other nine people specializes not in being productive, but in preaching. In preaching redistribution. His name is Cain. Cain makes the argument that it is a moral duty to support the less productive people. Cain offers Job and Lot jobs if they forcibly take from Able in order to fulfill the moral demands of the non productive that Cain has been preaching. Cain then redistributes half of what he takes from Able, and demonizes Able for his reticence. Able is deprived of the status, the future productivity he could create with control of his assets, his influence on the others in making them more productive through imitation, and deprived of the mates he could enjoy. And his genetic legacy is even deprived of the better genes he might capture. Not only is he deprived of these things, but Cain has now stolen that status. Job and Lot have stolen his productivity, and status. This has all been involuntarily transferred (stolen) from Able, in order to profit Cain, for the benefit largely of Job and Lot, and for some symbolic benefit of everyone else. On the horizon are nine other islands. Eight of those islands succumb to the proces of involuntary transfers. One does not. On that one Island Erik is ten times as productive as all the others, and they herald Erik at the quarterly festivals. Erik organizes the other people on his island in exchange for the product of his efforts. Over time, the people on Erik’s island become increasingly more productive, and genetically more competitive. On the other islands, the opposite happens. Because it’s dysgenic. Humans object to involuntary transfers and are highly agitated by them. If the taxes are used for purposes that the productive agree with, then this objection usually disappears. But status is the human currency and money and ‘objects’ are just means of obtaining it. Because in the end, we are just gene factories algorithmically searching by trial and error for better solutions than those we have today. And we cannot alter that behavior. We will simply create black markets. This is the insight of the Propertarians. That human nature is little more than emotions attached to changes in property. On another much bigger island, the Crusoe tribe develops respect for property, but then, afterward Kevin discovers a hoard of coal that can be used for cooking fires on his property. And simply sells buckets of it at high prices to everyone on the island. The Friday tribe wants it very badly and so the Crusoe tribe must defend it. Furthermore, the Crusoe tribe already pays the cost of respecting property by forgoing opportunities for theft fraud and violence. These are a high cost for any society to develop. So, since they pay to defend the territory, and pay for property rights, they see his high prices as an involuntary transfer. The locals object because the resource is part of the island, the product of Kevin’s labors. They are comfortable paying a high price for his labor, but not for the resource, in which by any and all accounts they are shareholders. He’s not actually adding anything of value. He’s just created a toll booth, and an expensive tool booth, in order to gain access to a precious resource. He’s no different from an extortionist. This parable can be extended to answer all moral and ethical questions of politics. The reason for that explanatory power, is that human nature is propertarian in origin. We are property calculators, and our emotions reflect changes in the state of our perceived property. THe primary difference between individuals is just which property we categorize as shareholder, and what we see as individual. But emotions are descriptions in changes in state of individuals’ perceptions of property. We could not have evolved as sentient beings otherwise. It would be impossible. The change in politics over the past century and a half, has been driven largely by the inclusion of women into the work force and the voting system. They have expanded government. They have done so by using the government not to resolve conflicts in priorities, and not to concentrate productive capital, but to redistribute from the productive to the non productive using the artificie of government. The classical liberal model of institutions was designed for farmers heading nuclear families: business owners who participated in the market. But very few people actually participate in the market as business owners today. Most sell effort or skill for wages, or join bureaucracies to seek rents rather than participate in the market and its risk. And the productive class who participates in that market cannot defend itself from the unproductive classes using the institutional model built for egalitarian farmers. So the society polarizes as the factions compete over futures that are diametrically opposed to one another: one which appropriates money without status compensation, and one wich desires status compensation, and control over norms, in exchange for money. Mediterranean, Russian and Slavic men have abandoned their societies because of endemic corruption. i.e., because of Involuntary transfers. The black market won and the society is not impossible to fix. Status signals in southern italy, spain and greed are anti-social. In ireland they’re anti-productive Luddic signals. In the states, vast numbers of hispanic and african american males have developed alternative masculine signals outside of the market and outside of the nuclear family. These signals are spreading to other males who are disenfranchised. Males over 50 are dropping out of the work force (and not voting over 50 and under 34) out of hopelessness. The wealthy abandoned society in the sixties, and have been out of sight since then. We do not even know their names. Many people do not know that they even exist. Their status has been totally appropriated. And they are only members of society in sense that they reside here. You can redistribute money, but not status. Status, not money is our motivator. Society is constructed of a web of signals. otherwise it’s just a mechanical process that we each exploit for our individual benefit.

  • THE PAINFUL EXPLANATION 1. Low IQ puts people at risk of poverty 2. Virtue can c

    THE PAINFUL EXPLANATION

    1. Low IQ puts people at risk of poverty

    2. Virtue can compensate for low IQ

    3. The welfare state removes incentives for virtuous behavior

    Source date (UTC): 2012-03-13 05:02:00 UTC

  • A Hobby Can’t Be A Market Failure

    On economics help, we get to see a how political failure is cast as market failure.

    Agriculture often appears to be one of the most difficult industries, frequently leading to some form of market failure. In the EU, agriculture is the most heavily subsidised industry, yet despite the cost of the subsidy, it fails to address issues relating to agriculture.

    Then the author compounds the error by stating that the volatility of weather creates a volatility in prices:

    The problem of volatile prices is that: 1. A sharp drop in price leads to a fall in revenue for farmers. Farmers could easily go out of business if their is a glut in supply because prices can plummet below cost. 2. Cobweb Theory. The cobweb theory suggests prices can become stuck in a cycle of ever-increasing volatility. E.g. if prices fall like in the above example. Many farmers will go out of business. Next year supply will fall. This causes price to increase. However, this higher price acts as incentive for greater supply. Therefore, next year supply increases and prices plummet again!. 3. Consumers can be faced with rapid increase in food prices which reduces their disposable income.

    To which I replied: Fascinating. Fascinating that you would consider any of these properties a market failure. 1) Farming has declined as an employer of people since 1900 to the point where it is now little more than a subsidized hobby industry that we support for purely aesthetic reasons. For that reason alone, it cannot experience ‘market failure’. It’s a commoditized industry. Farming is an industrial occupation for conglomerates. Everyone else in the business is in it out of love or habit not profit. 2) The US western expansion was created in an era of farming, and the land settled by farmers (and ranchers). The era of industrial expansion was created to support the expansion of farming. Now that farming has become mechanized and industrialized, people are leaving the breadbasket for the commercial and technological centers – that’s why those parts of the country are being depopulated. 3) It is impossible for farming to experience ‘market failure’. It is only possible for people to cling to an unproductive means of production, and to fail to develop alternative careers. The problem is political failure. Not market failure. Markets can’t fail. They can be insufficient to solve certain problems of capital concentration that only governments can accomplish. The political failure of attempting to persist farming is a failure because the market is telling us that farming is no longer valuable as an occupation. The political system is failing because it cannot develop alternatives to farming fast enough. It’s a problem of political failure not market failure. And it’s human failure. The romantic and luddite desire for antiquated means of production.

  • A Hobby Can’t Be A Market Failure

    On economics help, we get to see a how political failure is cast as market failure.

    Agriculture often appears to be one of the most difficult industries, frequently leading to some form of market failure. In the EU, agriculture is the most heavily subsidised industry, yet despite the cost of the subsidy, it fails to address issues relating to agriculture.

    Then the author compounds the error by stating that the volatility of weather creates a volatility in prices:

    The problem of volatile prices is that: 1. A sharp drop in price leads to a fall in revenue for farmers. Farmers could easily go out of business if their is a glut in supply because prices can plummet below cost. 2. Cobweb Theory. The cobweb theory suggests prices can become stuck in a cycle of ever-increasing volatility. E.g. if prices fall like in the above example. Many farmers will go out of business. Next year supply will fall. This causes price to increase. However, this higher price acts as incentive for greater supply. Therefore, next year supply increases and prices plummet again!. 3. Consumers can be faced with rapid increase in food prices which reduces their disposable income.

    To which I replied: Fascinating. Fascinating that you would consider any of these properties a market failure. 1) Farming has declined as an employer of people since 1900 to the point where it is now little more than a subsidized hobby industry that we support for purely aesthetic reasons. For that reason alone, it cannot experience ‘market failure’. It’s a commoditized industry. Farming is an industrial occupation for conglomerates. Everyone else in the business is in it out of love or habit not profit. 2) The US western expansion was created in an era of farming, and the land settled by farmers (and ranchers). The era of industrial expansion was created to support the expansion of farming. Now that farming has become mechanized and industrialized, people are leaving the breadbasket for the commercial and technological centers – that’s why those parts of the country are being depopulated. 3) It is impossible for farming to experience ‘market failure’. It is only possible for people to cling to an unproductive means of production, and to fail to develop alternative careers. The problem is political failure. Not market failure. Markets can’t fail. They can be insufficient to solve certain problems of capital concentration that only governments can accomplish. The political failure of attempting to persist farming is a failure because the market is telling us that farming is no longer valuable as an occupation. The political system is failing because it cannot develop alternatives to farming fast enough. It’s a problem of political failure not market failure. And it’s human failure. The romantic and luddite desire for antiquated means of production.

  • but we all KNOW that healthcare costs are the long term problem with the US budg

    http://www.multiplier-effect.org/?p=3351Yes, but we all KNOW that healthcare costs are the long term problem with the US budget.

    We also know WHY healthcare costs are the problem:

    1) extending the last year of life.

    2) experimental procedures.

    We also know why it’s a difficult problem to fix healthcare costs:

    3) Because there is no market system by which doctors can choose to deny coverage for experimental procedures and extending the last year of life. Because it is expressly against medical ethics. Because it is profitable for businesses to deliver services. Because it is bad for business to reject a customer, who will just go elsewhere for the service.

    4) Because there is no market system for controlling extension of the last year of life and experimental procedures, we must create a non-market system (a bureaucratic system) or “DEATH PANELS” to deny coverage for experimental procedures and extending the last year of life, in order to contain costs.

    We also know why bureaucratization of experimental procedures is dangerous:

    5) Because experimental work is expensive, research and development conducted by trial and error – most of which fails to produce beneficial results.

    We also know why conservatives (republicans) dislike the bureaucratic method:

    6) Because it is impossible to work harder, apply more discipline, and use one’s own initiative and resources, in order to secure access to the best doctors, facilities, and experimental treatments.

    And it’s disingenuous to argue that this is a financial problem. It is in fact, a series of moral hazards – in the broadest sense of the term.

    (The technical, mixed-economy solution, would be to transfer the costs that were rejected by the Death Panels for experimental procedures and extension of life to those poor people in need of health care. I’m not advocating that. I’m just suggesting that it’s the only known solution that avoids perverse incentives for all parties, while maintaining a closed healthcare ecosystem.)

    We already solve the problem of transfers by subsidizing insurance companies for automobile drivers. There is no reason that we cannot sponsor (insure) non-profit, insurance companies that specialize in coverage for the underclasses, and make use of the visa/mc network to manage payments for services. We insure banks. Why can’t we insure insurance companies as a proxy for serving the disadvantaged?

    Source date (UTC): 2012-01-20 14:35:00 UTC

  • WORTH READING: DEFINE ‘RICH’. What is rich? Is ‘Rich’ something we can define or

    WORTH READING: DEFINE ‘RICH’.

    What is rich? Is ‘Rich’ something we can define or calculate? And how much can we tax them?

    It is certainly possible to calculate who is ‘rich’. The goal of every individual is to exit the market. Whether that individual studies hard to get a good (protected) job in big company, or works for the government which by definition is extra-market (and protected), or seeks a (protected) union job, or whether that person does none of that rent-seeking, and instead, exits the market through saving or investment.

    “Rich” means ‘exiting the market’. To exit the market one needs roughly on hundred times the median income, or about 4.5-5M today. It used to be that a million dollars meant something meaningful, but it doesn’t. You can easily burn through it if you’re the kind of person that can make it in the first place.

    Rich is a balance sheet calculation, not an income calculation. If a person’s balance sheet exceeds about one hundred times the median income (which is by definition, the 1%) then realistically, it doesn’t matter how much of their income you tax.

    I suspect that the various means of calculating maximum utility taxation is closer to 60 or 65% based upon what I can find.

    But if you tax the income of a small business person who is trying to exit the market, then we certainly have the right to wipe out social security, wipe out pension programs, fire federal workers and wipe out their savings. Because unless those assets are counted, the definition of ‘rich’ is asymmetrically used to punish people who participate in the market.

    Source date (UTC): 2011-12-13 20:38:00 UTC

  • Q: “So why is everyone so opposed to inflation? Don’t they realize that inflatio

    Q: “So why is everyone so opposed to inflation? Don’t they realize that inflation reduces debt in real terms?”

    This is why people are opposed to inflation:

    1) Moral hazard – punishes people who save and live within their means

    2) Fixed Income Punishment – Harms those on fixed incomes who are impoverished by inflation.

    3) Business Risk Taking Impediments – planning becomes difficult because of price variability (this can be good and bad).

    4) Interest Rate Peaks – barrier to rates. Effectively inflation helps big companies with fixed capital costs, and hurts small businesses who need cheap access to capital. This is why Paul Krugman’s chart was effective in 1935 and is ineffective today.

    Source date (UTC): 2011-12-10 15:06:00 UTC

  • Keynesian Absurd Optimism

    From Modeled Behavior

    The desire of the expanders to expand is always exponential. In the end you only need one of them and they will attempt to take over the entire economy. What’s stops them is competition, scarce real resources and financing. Thus if you are in a world where no one else is looking to expand, and real resources are slack, financing is all that’s holding one of these folks back. Practically speaking the price of slack resources also matters because if they actually collapsed in price then at some point you could simply self-finance your empire. But, there is never a shortage of empire builders. There is only a shortage of people willing to lend to empire builders.

    Well, first lets understand that it is entirely possible to saturate all opportunity within any economy unless there is some sort of asymmetry of either resources, information, or technology. The typical keynesian assumption is that we will continue to discover opportunities by the application of technology. And that we can keep doing so forever. I’ll have to answer that obviously historical falsehood in a later posting. But the choice sentence elsewhere in the article was this one:

    “If people genuinely couldn’t find good ways to employ resources then everyone would get poorer but as long as financing is available there need be no recession.”

    That’s the whole point now, isn’t it? Are you sure you understand the implications of that sentence? I don’t think so. Whenever one group of people (a) flocks to an opportunity in significant numbers that they deny access to another group of people (b), the group (b) will work against the interests of group (a) in order to gain their own opportunity. If you view society as a collective consisting of a community of common interests, then perhaps you might favor your progressive bias. However, if you see society as consisting of groups engaged in perpetual and unrelenting class and cultural warfare over the distribution and means of obtaining status and opportunity — where each group uses the state to apply coercion against other sects, then one would develop an entirely different conclusion. Furthermore, if you view yourself as a minority competing with foreign groups, then you would increase your bias in favor group persistence. And from that position, you would see people who ally with the state as your competitors, not members of your community. You (Keynesians) assume the state is a benefit, and apply a methodology that confirms that the state is a benefit, because it serves to confirm your bias. But that benefit is working AGAINST as many preferences as it is in FAVOR of it. Because we have no community of common interest. There is no community of common interest in an empire. The meaning of empire is precisely that people do not share common interests. Small homogenous states are egalitarian because of the status economy – which determines access to mates, people, and opportunity. The status economy is also the natural accounting system of many. People value money and culture, morals,ethics and manners, (that set of forgone opportunity costs we all pay in each moment of our day) as well as different I don’t think you grasp the importance of the fact that almost all decisions consist of far more than prices. In fact, at any given point, market prices are only one factor in any transaction. People actively seek circumstances where they can avoid price consideration – either to demonstrate their status, or to gain human attention, or to simply avoid existing in the monetary economy. In complex decisions, all sorts of different biases are ‘funded’ by choices between one provider of goods and another whenever prices are not marginally different. Assuming all prices are equal for a particular good or service, people generally do business with those people with whom they can exchange status signals, or options on future discounts due to loyalty. It’s not that you’re mistaken in your understanding of the monetary models, or the benefit of monetary policy. It’s that you’re not accounting for the friction in that model that is determined by the signaling economy. And that friction can approach the infinite whenever you do not have a homogenous society. And if you have a homogenous society, you then need a common currency. Because a currency is the means of shared investment, risk and reward among a people with a set of common interests. (Homogenous: meaning the shared mythology, the shared methods of signaling within the methodology, the shared definitions of property, the shared methods of paying for the informal institutions that perpetuate those property definitions: manners, ethics, and morals, the shared institutions for resolving conflicts over the transfer of property, and the shared institutions for concentrating and applying capital toward shared ends. All of which is bounded by the complexity of the division of labor in in turn which is determined by the percentage of the population with an of IQ over 105.) 🙂 Curt

  • Is The US Any More Or Less Redistributive Than Europe?

    On the Economist’s View, a Dr Why, a commenter says

    In the United States, countercyclical fiscal and monetary policies redistribute income mainly from the rich to the poor, which is politically acceptable. In Europe, countercyclical policies also redistribute income from the German pensioners to the Greek civil servants and the Italian Mafia, which is much less acceptable. Eventually, Germany will probably have to capitulate, since it needs the euro more than anyone else; but for now German politicians have no choice but to play this game of chicken in order to get the best possible deal for their voters.

    This is true ideologically but not not in practice. The resistance we see in the states is driven by a redistribution from white to non-white. Today’s poll numbers, divided along racial lines, illustrate natural human tribal sentiments. And that any concept of ‘fair’ is governed by the transfer of status signals in exchange for money. This means that groups with different status signals will never permit monetary transfers. And since racial groups contain different status signals, they will, at least under duress, fail to be charitable with their money. The status signal economy provides all human incentives because it determines access to mates and experiences. THe status signal economy is as real an equilibrium as are supply and demand or IS-MP curves. It is unscientific to believe otherwise.