Archive for the ‘Economics’ Category

How conservatives and liberals both miss the boat on poverty

December 3, 2019

Ask Americans about “poor people” and they’re generally sympathetic. About “people on welfare?” Not so much.

Those on the right tend to see social spending as basically taking from deserving people and giving to the less deserving. Who are thought mainly responsible for their poverty. It doesn’t help if they’re less white.

For the left “inequality” is a cri de couer. But while “poverty” used to be one too, that’s actually largely forgotten. They seem obsessed not about the poor but the rich, and how much they have (with big dollops of resentment and envy). That’s their inequality concern. And also their focus is less on the poor than the middle class. Where their own bread happens to be buttered; but it makes political sense too because that’s where the votes are. Poor people are smaller in numbers and they don’t vote much.

We could argue over how the middle class is actually doing. But, even with admitted challenges, they’re able to live a life that’s, well, middle class. Which in a rich 21st century country, historically speaking, is quite decent. It’s the poor — around 15% of the population, depending how you measure — anyway, those on the bottom — who are obviously in tougher shape. Tougher, indeed, than the corresponding population slice in other advanced countries. This is a special American problem. Concerning our fellow human beings.

“Inner city poverty” was long seen as a thing. But as a recent report in The Economist highlights, “outer-city poverty” has become a bigger thing. Poverty too has been moving to the suburbs. While a lot of the non-white poor do remain urban, the suburban poor includes more whites and Hispanics. And it’s harder to deal with, because while big cities can deploy resources, smaller non-urban jurisdictions tend to be cash-strapped and lacking the necessary public infrastructure.

Sneering at poor people as responsible for their plight is easy when you’ve been handed all the advantages. Mostly, people are poor because they’ve been dealt lousy cards. Poverty is heritable: growing up in a poor family, especially in a poor neighborhood, messes you up in a thousand ways that make it much much harder to achieve the American dream. One pilot study showed that just moving a family from a poor neighborhood into a more affluent one results in 31% higher income for their kids in adulthood.

So let’s focus on children. You cannot argue that children, at least, who are in poverty are somehow personally responsible for that. And even put altruism aside. The fact is that a person who grows up into lifelong poverty costs us all a huge amount — for all the welfare, social services, health services, and don’t forget the cost to society of the crime that goes with the territory. Compared against one who becomes a contributing member of the community, holding a job that grows societal wealth, and pays taxes.

So doesn’t it make sense to invest in kids, so they’ll grow into the latter, not the former? The payoffs would vastly exceed the costs. One California study calculated that the cost to end deep child poverty by simply handing out enough cash would be a quarter of what the state spends on prisons. Not doing this was deemed “insane” by the study’s author.

Education looms large here. America’s poverty scandal is mainly an education scandal. Rather than investing to lift children out of the poverty trap, we disinvest, actually giving poor children inferior education.

Liberals won’t face up to this. They assail charter schools for “draining” money from public schools, which they idealize — as though public schools were providing decent service to underprivileged kids. They are not. Many parents in poor neighborhoods see charter schools as their only hope of escaping the school-to-prison pipeline.

School segregation is a big factor. Poor minority children do poorly when ghettoed in their own schools; better when educated with middle-class kids, whose schools tend to be fine. It’s because those, their own schools, are fine that liberals battle for public schools and against charters. And while liberals notionally endorse integration, they seem oblivious to the reality that America’s schools in recent decades have grown ever more segregated.

That segregation is partly a consequence of high rents in better areas with better schools. “Affordable housing” is another liberal cry. Yet their prescription for it is snake oil: rent control. Sure, it’s tempting to regulate rents to prevent gouging by greedy landlords. But it doesn’t take an economic genius to realize rent control disincentivizes landlords from maintaining apartments and building new ones. This results in housing supply shortages which of course actually drive up rents. Keeping poor people poor — and out of decent schools.

Conservatives meanwhile say all this talk about education is futile because the real problem is families. A kid won’t do well in school if his family situation is dysfunctional. And conservatives blame parents for that, being again averse to helping people whose problems are perceived as their own fault. So for the kids: tough luck. While liberals, for their part, are unwilling to see anything to criticize concerning single motherhood.

So what’s the answer? We have to get past our ideologies and do what it takes to get kids born into poverty onto a better track. This does mean attention both to schools and to family. But that’s not some utopian fantasy. An excellent model for it is Harlem Children’s Zone, a private effort spearheaded by Geoffrey Canada, which has produced great results.

America is a very rich country and can amply afford to do this. We really can’t afford not to; it would actually make us even richer, with every dollar spent coming back many times over. And anyhow, the cost would be far less than what we spend on welfare for the rich.

Medicare for All: a critical look

November 21, 2019

Bill Hammond gave a talk on this to the Capital District Humanist Society. He’s the Empire Center’s Director of Health Policy, and is critical of the single payer concept. CDHS members being mostly well to the left, Hammond was received like a skunk at a picnic.

He started by quoting Bernie Sanders that “Health care must be recognized as a right, not a privilege.” Which Hammond said nobody really disputes; but Sanders and his fans equate it to a “single payer” system. (The “single payer” — seems they’re afraid to say this plainly — would be government, responsible for all health care.)

Hammond noted that a “right to health care” would have been unintelligible to our founders. Health care itself was not even a concept; he described how George Washington was really killed by the medical “care” he received. We’ve advanced a lot since. But meantime they saw “rights” as things the government should notget involved with, whereas for Sanders backers a right means an entitlement. And his “Medicare for All” plan goes even beyond a “universal access” model (e.g., schools, libraries, and indeed existing Medicare), with only government being allowed as a payer for health services.

Hammond also saw equality of access as a big part of it; the idea that people should get the same care regardless of income. This, he said, is a kind of extreme egalitarian moral reasoning we don’t apply in any other sphere (for example, food).

He presented some figures illuminating the status quo. Private insurance penetration is 67%, the bulk of that employment-based. Most of the rest is public coverage — Medicare and Medicaid. Medical costs are paid roughly half from private sources and 42% from taxes. Nine percent is self-pay and charity care.

Major flaws in the existing landscape include millions uninsured; out-of-pocket costs too high even with insurance; a fragmented, poorly integrated delivery system; and health care is 17% of our economy, an excessive burden far above other countries’, with no corresponding benefit in health outcomes. Hammond said “single payer” would not tackle the latter two problems.

He also cited some misconceptions. First, that our private insurance model is the cause of high costs, with too much profit. One audience member, a friend of mine, insisted no one should be allowed to profit providing something as vital as health care. I would turn it around: why should anyone be forced to provide her with any service (let alone one so vital) without compensation? People get paid for their work (she does). Those who expend effort to set up, invest in, and operate health care systems surely deserve compensation in the form of profits too.

But are they excessive? Hammond presented numbers showing that while compared to other countries, our health care overheads, including all administrative costs, arehigher, they’re only about 8% of total outlays, with the bulk of the cost difference being what we actually spend on care. And that’s not for more or better care but, rather, in the prices paid for care — mostly due to much higher salaries for medical professionals than in other advanced countries.

It’s also often asserted that all other advanced nations have single payer systems. Not so. Most actually have mixed systems (which ours is), but are more tightly regulated (hence their lower price levels). Obamacare was a step toward convergence with those other countries. But Hammond noted that even in Britain, which does basically have a single payer system, you’re still allowed to buy private insurance, which many Brits do. Sanders (and Warren) would disallow that.

Another notion is that their plan would merely be an expansion of the existing and successful Medicare system. Hammond pointed out that existing Medicare actually entails a lotof cost sharing; it’s far from free*, and there are out-of-pocket costs at point of service too.

He also discussed the proposed New York Health Act, seemingly on the verge of passage. In Hammond’s telling, this would be a “Medicare for All” plan on steroids; a “carte blanche” with the state simply paying allhealth related costs for all residents. He presented various studies attempting to estimate the costs. While there might be some cost savings, increased demand for health services would likely raise overall spending levels. Total taxation would have to double or triple. Hammond acknowledged that a majority of New Yorkers would probably come out ahead after higher taxes are set against lower health bills. But this would require richer people paying dramatically more. (A notion garnering vocal approval from attendees; but it was pointed out that rich people could simply leave the state.)

A comparable federal plan would, he said, entail similar ramifications. [Though presumably richer people would be less apt to leave the country than the state — FSR.] Hammond cited an Urban Institute estimate that over ten years, $34 trillion in higher federal taxes would be required, replacing $27 trillion in current outlays.

Questioners from the audience gave Hammond a rough time. My own question said I agreed with him about single-payer, but that we’re a rich country and can afford to somehow make sure every citizen gets a minimum level of basic care. (This elicited applause!) Hammond responded that actually this can be achieved with modest tweaks to our existing system. In particular, the Medicaid program already aims to do it for low income people; a problem is that many of those eligible simply don’t sign up for it. [Also, Medicaid requires money from states; red state Republican regimes hate it and try to limit it — FSR.]

Hammond concluded with a story about Fidelis Care, a New York health insurer run by the Catholic Church, which received a $3.75 billion buyout offer. Long story short, Gov. Cuomo figured out a way to get control of $2 billion of that, which he used as a kitty to hand out goodies to favored entities in the health care industry; in return for which he glommed unprecedently large political contributions.

Hammond said that single payer advocates seem to imagine that having the entire health care industry under government control would be a good thing. They idealize government. But the Fidelis story is a cautionary tale about how things really work; tending to be run for the benefit of insiders; and big players in this industry have tremendous clout to make it work for them.

After his talk, Hammond was taken outside, where he was tarred and feathered.

* My own monthly Medicare payments were high enough that I opted out.

Elizabeth Warren’s candidacy

November 9, 2019

Democrats love government; Republicans hate it. Of course that’s a big oversimplification. But in this respect Elizabeth Warren is the quintessential Democrat.

I was long a Republican, with a libertarian/conservative perspective. Not hating government, but seeing unconstrained government power as a problem. Warren doesn’t share that viewpoint.

The word “socialist” is thrown around a lot by people who don’t actually know what it means. It’s not “social welfare” or government regulating the private sector; it’s government replacing it.

Warren says she’s no socialist, and seems to mean it, actually having good things to say about the role of the private sector in creating economic dynamism. At least in concept. However, she does propose what amounts to socialism for one major economic sector: health care, prohibiting private insurance.

There’s much to hate about private health insurers. Typically in free market capitalism, a company makes money by making customers happy. But health insurers perversely make money by limiting what customers get. Nevertheless, it remains a principle of a free society for people to choose for themselves, and many Americans seem satisfied with their health insurance arrangements.

Taking that freedom away, with a government-only system, is not only wrong but unnecessary. Let Democrats instead create a government option as an alternative. If, as they believe, it’s so much better, it will outcompete private insurers and put them out of business that way. Warren’s refusal to accept that logic is politically stupid. Pointlessly so, because her plan can’t be enacted.

She targets inequality, her centerpiece proposal being a wealth tax (also impossible to enact). This reflects the standard left wing mindset of seeing the problem as what the rich have, as if it’s gotten at the expense of the rest (a basic fallacy). Thus their approach of beating down the rich rather than finding ways to uplift the others.

Actually, Warren does have some proposals in the latter vein, and some are actually reasonable. And I actually agree that richer people like me should pay more tax, especially after Trump’s disgraceful tax giveaways. But a wealth tax is a terrible idea, as several countries trying it have found out. Will an army of federal assessors be sent out to evaluate the worth of all rich folks’ assets — all the mansions, yachts, art collections? Which would invite stratagems to hide wealth and otherwise avoid the tax.

Far better to resuscitate the moribund estate tax. That makes much economic and social sense, and the counter-arguments are bogus. But the estate tax has gotten politically toxic. Though I cannot fathom how a wealth tax sounds better.

More broadly, a cause of inequality is corporate power, which Warren seeks to curb. And I find much to agree with here, free market champion though I am. “Free market” really means free, with open competition. With that, consumers capture the lion’s share of wealth creation. But too many big corporations use their power to squelch competition, especially by enlisting government in that effort. It’s one of the reasons I’m leery of government in general. Warren does have some plans, like stronger antitrust enforcement, breaking up “crony capitalism,” that I endorse; yet her idealization of government seems oblivious to how it’s in the very nature of big government to be captured and suborned by powerful businesses in the ways she herself decries.

And when it comes to coddling businesses, Warren herself does exactly that with her protectionist stance toward trade. Historically, Democrats were the party of free trade, understanding how that benefits consumers and the country as a whole, whereas Republicans were the protectors of businesses. But somewhere the left lost its way on this issue — while Republicans saw the light — until Trump came along and blinded them. Warren would not roll back his insane trade policies, that so harm the global economy and our own.

But most fundamentally, I don’t like the tenor of her campaign. The us-against-them stridency. That if you’re not on board with her program, totally, you stand for nothing, you’re weak, part of the problem, even morally deficient. It’s just this sort of scorched-earth partisan bloody-mindedness that’s tearing the country apart. Warren’s favorite word is “fight.” I think America’s had enough fighting; let’s have some peace.

I have endorsed Joe Biden, whose moderation and centrist reasonableness are far more in line with what we so desperately need. And, notwithstanding all the whining about Biden’s supposed electoral weaknesses, I continue to see him as the best candidate to beat Trump. (That’s why Trump viciously targets him.) National polls show Biden beating Trump soundly; with Warren it’s a toss-up. Her high-octane ideological shrillness (not to mention, alas, her gender) turns off a lot of voters. Whereas Biden is seen as a calm safe pair of hands, an antidote to the sturm und drang of Trump’s presidency.

Pete Buttigieg scores even higher on centrist reasonableness. He’s actually by far the best of all the candidates. His being gay would repel some voters, but I think most would be able to get past that when they see his admirable qualities. I believe he too would do better against Trump than Warren. And if Buttigieg did manage to rise to the top and get the nomination, it would be America at its best. Gosh how I miss that America.

And if it’s Warren nominated? What’s at stake in this election far transcends matters of ideology or policy. America’s soul will be dead if — after every monstrous vile thing he’s done — Trump is re-elected. It would repudiate every good principle this country used to embody. Warren understands those principles, and is everything Trump is not: honest, well-informed, competent, responsible, a decent and sane human being. For all I’ve said against her, we’d be far better off with her than Trump.* Another four years of him would be the end of America.

An imperfect world presents imperfect choices. If it’s Trump versus Warren, I will support her more strongly than I’ve ever supported any cause in my life.

* And if Republicans’ Trumpmania winds up resulting in their worst nightmare of a left-wing president, it will be poetic justice.

End Road Work? No!

November 8, 2019

We’ve all seen those signs along highways, saying “End Road Work.” This movement seems very misguided. I can think of many things that should be ended, but road work surely isn’t one of them. In fact, most people would consider it a very good thing if not, indeed, vitally necessary. Having myself sustained a flat tire recently due to a pot hole, count me as strongly in support of road work. What can these people be thinking, wanting to end it?

Sure, it can be an annoyance, slowing up traffic. But traffic would ultimately become a lot slower if the campaign against road work succeeds! One of the many things about modernity we blithely take for granted is good serviceable roads. But there’s no free lunch, everything has a cost.

Maybe road work opponents have been confuzzled by all the rhetoric trying to soft-soap socialism, by claiming that anything government does is socialism. So they think road work is socialism. Well, I’d be happy to see it done by the private sector. But failing that, I still want roads repaired, even if it is socialism. There are a lot worse ways for government to use taxpayer money.

Fortunately, years of “End Road Work” signs seem to have had little or no impact on curtailing the practice. These foolish cranks should give up and find a different issue to protest about.

Corporate Social Responsibility versus profits

September 12, 2019

For decades it’s been gospel that a corporation’s mission is just to maximize shareholder value. But now a group of over 180 heads of top U.S. companies has met and signed a statement saying they must also serve the interests of employees, customers, suppliers, and the wider society.

Perhaps a response to capitalism being assailed for “putting profits ahead of people,” blamed for growing inequality and environmental problems; some Democratic presidential contenders seem to run more against corporations than Republicans.

“Profit” is a dirty word; often coupled with “obscene.” We’re told X corporation or X industry “sucked” X dollars from the economy, as if the plain numbers bespeak evil. What’s never said is how much (or how little) return on invested capital those profits represent. Who’d invest in a business, with all the risks, without the prospect of a reasonable return?

That’s what creates the cornucopia of goods and services making our lives what they are. And the jobs enabling us to pay for them. Some of my friends fantasize a utopia where we get all that without anyone “sucking” profits. But I don’t see them forgoing earnings on their own industriousness.

Adam Smith made the point in 1776: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” That is, earnings or profits.

Maybe you have a different idea that didn’t occur to Smith — government providing everything. That’s what “socialism” actually means. Like in the USSR — where goods and services were notable for their absence. (People said, “we pretend to work and they pretend to pay us.”)

But do businesses in fact garner “obscene” profits? Well, there’s one salient test. I’ve invested in corporate stocks for three decades, and I’ve done nicely, but certainly not obscenely. If corporations were really “sucking” exorbitant returns, we could all easily get rich by buying their stocks. That’s obviously not so.

Which brings us back to the concept of companies existing basically to benefit shareholders. Here are two key points:

First, corporate managers actually work for shareholders, entrusted with a fiduciary duty to serve shareholder interests. Anything they do that’s inconsistent with shareholder interests is an unethical breach of that fundamental duty, an abuse of their trust. Remember too that shareholderincludes pension funds, retirement accounts, university and charity endowments, etc. Earning them a return on their investments is by itself a social good (with no conceivable substitute).

Second, as Adam Smith again showed, the quest for profit benefits society by incentivizing the supplying of things people need or want. When a corporation takes raw materials costing $10, and pays a worker $10 in wages to assemble them into something it can sell for $25, it creates $5 of added societal value. More in fact if you buy it because its value to you exceeds the $25 you pay. While the worker gains as well. So the $5 profit entails something good happening.

This wealth creation is the fundamental logic of free market capitalist economics. Assail capitalism all you like, but this has raised global average real dollar incomes around sixfold in the last century. It wasn’t socialism.

So where does corporate social responsibility, and the recent declaration by all those CEOs, fit in?

It’s lately fashionable to speak of employees, customers, suppliers, and the broader public as a corporation’s “stakeholders” along with shareholders. But this is not a novel or abstruse concept. Rather, it has always held; simply part of the basic understanding we all share as members of a society.

You don’t need a code of “corporate social responsibility” to know that profit maximization doesn’t allow for ripping off customers with shoddy products or failing to pay workers or contractors what they’re due, like Trump. Et cetera. Profit maximizing is always constrained by the universal rules of societal participation. A corporation is in reciprocal relationships with its stakeholders like workers and customers, and such relationships entail responsibilities. Fulfilling them is the necessary premise for being an enterprise operating in a society.

My own business is selling coins. I try to treat my customers according to the golden rule, not only because it’s the right thing to do, but It’s also good for business. And it enables me to gain satisfaction not just from earning profits, but earning them justly. If I had workers, the same would apply. A recent study showed that a firm’s employee satisfaction correlates with its customer satisfaction.

Economist Milton Friedman was the leading voice who saw profit maximizing and a company’s social responsibility as two sides of the same coin. He argued (like Smith) that a business making money does advance the public interest; and also stipulated the assumption that profits are earned legitimately, that is, by creating customer value (and not, for example, by fraud). And, further, that businesses compete.

This is another key concept. It’s competition that holds companies to account. One free from competitive pressures can do whatever it wants. Such untrammeled power is never a good thing. Moreover, free and open competition among businesses ensures that the lion’s share of the value created is reaped by consumers, with profits being only just enough to sustain their operations. Fierce competition forces supermarkets, for example, to set prices to allow a profit of only a few cents on every dollar of sales. So customers actually gain more from supermarkets than their owners do.

Capitalism’s critics say competition is often far from perfect. A big reason for that is actually government intervention, typically at the behest of some powerful corporate interest, seeking to screw competitors. Call this “corporate socialism.”

I always remember one of my first cases as a government regulatory lawyer. My agency went after a small upstart moving company for breaking the rules. Its crime? Rates too low! Who were we protecting? Certainly not the public. Rather, the established movers who hated competition.

Is China our enemy?

June 15, 2019

In 1989, China’s regime followed Mao’s dictum, “power comes from the barrel of a gun,” shooting many hundreds of democracy proponents in Tiananmen Square. (Trump has called this a “strong, powerful government” quelling a “riot.”) Since then, even as China has modernized in many ways, its regime has become increasingly repressive, tolerating not the slightest chink in its absolute power. Its police state in Xinjiang is an Orwellian nightmare. Xi Jinping has made himself president-for-life. China bullies its neighbors, tightening its unlawful grip on a wide swath of the Pacific. It abuses world trade rules, its advance fueled by theft and dishonesty.*

So is China our enemy? Not exactly.

The Communist bloc, during the cold war, was our enemy. Its aim was world domination, ideologically, seeing the U.S. as a bete noir and wanting our failure or destruction. Putin’s Russia today, while non-ideological, has a similar outlook.

This again is not exactly true of China. While some regime elements do see us as conspiring to keep China down, that’s not exactly true of America. Wise heads in both countries understand there’s room in the world for both to prosper; indeed they’re in it together. Not a zero-sum game where one nation’s gain is the other’s loss. China becoming more prosperous and powerful doesn’t necessarily require America becoming less so. To the contrary, trade with a prosperous America is good for China. Thus a win-win mentality.

It’s not Trump’s mentality. This is why he’s a bull in the China shop. A lot of voices say he’s right to confront China on trade, and I actually agree, up to a point. However, Trump sees every thing we buy from China as China raping us; he wants it to stop. That’s idiotic.

The win-win logic is a key concept of economics, called comparative advantage. We buy from China what China is better at producing; China buys from us what we make best. Both countries benefit — even if one buys more than the other.

Do we lose some jobs to China? Sure. But the money U.S. consumers save buying cheaper Chinese goods enables more spending on local products and services, creating jobs. More than are lost. By messing with that dynamic, Tariff Man loses us jobs.

Nations are enemies when their interests clash, in a zero-sum sense. That’s not our situation with China. Again, we have a mutual interest in our bilateral trade. That doesn’t mean we don’t fight China on intellectual property theft, human rights, or territorial aggression. We can have those arguments while still expanding mutually beneficial trade and without being enemies. You have fights with your spouse but you still have intercourse.

The tragic stupidity of Trump’s China stance is that it’s the opposite. He wants no fights with his “great friend” Xi over things like Xinjiang or silencing dissent. Nor is he even really confronting China over intellectual property theft, which is the trade fight we should be having. Instead, it’s the intercourse he wants to curtail.

“Intercourse” doesn’t even begin to cover it, as elucidated in a recent Thomas Friedman column (https://www.nytimes.com/2019/06/04/opinion/us-china-trade.html). Our two economies are totally intertwined. We have huge investments in each other. Both economies rely heavily on vast, interlinked supply chains, each supplying to the other things necessary for their productivity. For example, Apple has products assembled in China; Chinese technology firms need U.S.-made chips. If we rip all that apart, Friedman says, “we’ll all end up living in a less secure, less prosperous and less stable world.”

But he fears that’s happening; stumbling into a new cold-war-enemy relationship with China that’s totally unnecessary. “The erecting of an equivalent of the Berlin Wall down the middle of the global technology market,” dividing it into separate and mutually hostile spheres.

Instead we should be working to coax China into full partnership with the rules-based globalist economic order. Which is really in China’s own long-term best interests. In this, a united front with all our allies would help. But Trump has antagonized them, picking trade fights with them too. (Britain, for one, now sees its trade relationship with China as economically central.) So we’re on our own.

Bad enough that Russia is a big enemy. China would be far bigger. Its economy is already as large as America’s and will soon outstrip it. Its population is more than thrice ours. China’s increasing global importance is an inevitability we must live with; making the best of it. And we can. If instead we opt for all-out battle, we will lose.

* Counterfeiting is a big industry — a major problem in my own business field, rare coins. Maybe bigger than we even know.

“Automating Inequality” — Using technology to screw the poor

June 7, 2019

Automating Inequality is a book by local researcher Virginia Eubanks; I attended a talk she gave. The focus was upon three initiatives ostensibly aimed at using technology to improve delivery of social services to needy people — that in practice do the opposite.

I’ve written about how it’s expensive to be poor in America — the many ways we actually penalize poverty. I discussed the criminal justice system actually preying upon the disadvantaged, extracting money from them. While banks and credit card companies exploit poorer people’s financial precariousness to load them with fees.

“Well, they’re mostly bad people,” remarked a guy sitting beside me at the talk. Referring to the poor. No, they are not mostly bad. They are mostly unlucky people — especially in their choice of parents. It’s easy to be smug if you’ve grown up with all the advantages (like me, and probably him). But if you’re born into lousy circumstances, there are huge obstacles (starting with rotten schools) to rising out of them, even if you are smart and responsible.

The bureaucrats in Eubanks’s reporting are mostly not bad people either. Most are well intentioned in trying to serve the public (somehow or other). Especially the “line workers” in actual contact with the disadvantaged people they’re tasked with helping. But it’s others who design the “advanced” systems she discussed.

One was Indiana’s, for processing applications for public benefits. It moved caseworkers from local facilities into regional ones, putting them in front of computers rather than the human beings they previously dealt with face-to-face. No more single point of contact; applicants would now speak to a different person every time they called. (Ever been in that situation? A recipe for frustration and run-arounds.) Meantime, the whole process was moved online. Fine if you have ready computer access; half of welfare recipients don’t.

The upshot was a million applications denied over three years. Mostly for some error in the process, often not the applicant’s fault. A notice of denial would give them ten days to fix the problem. Would the notice explain the problem? Nope!

Eubanks commented that the system couldn’t have worked better at kicking people off welfare if it had been designed to do exactly that.

Next was Los Angeles County’s “Coordinated Entry” system to evaluate homeless people for their vulnerability and match them with resources. Eubanks mentioned 58,000 LA County homeless people living in “encampments.” Only about a quarter get housing through the new system. A problem is that “higher functioning” homeless people get low vulnerability scores, so they’re de-prioritized. On the other hand, the kinds of things that give you a high score are often considered crimes, so people have to incriminate themselves to get a better chance at housing. And the info going into the system also goes to the police. But meantime, incarceration actually lowers one’s score — being in jail rates as “housing.”

Seems like one giant Catch-22. It’s really a way to ration — however irrationally — available housing resources that can accommodate only a fraction of the homeless.

The third case study was the “Family Screening Tool” used by Pennsylvania’s Allegheny County; here the scoring is to identify children at risk for abuse or neglect, based on information collected by social service agencies, incorporating factors that correlate with such risk. A family’s high score makes an investigation mandatory.

What actually results is a big feedback loop. Even if that investigation shows no problem, the fact that it occurred goes into a family’s score going forward. And the scoring really fails to distinguish poor parenting from parenting-while-poor. Non-poor and, especially, white families don’t even go into the database. And the system has real consequences — it’s all geared toward taking kids away from parents, in the guise of protecting them. Poor and non-white families are at constant risk for this.

And where do those kids go? To foster care. And the reality is that children are, generally, better off with biological parents, however less than ideal that situation may be, than in foster care, which tends to be far worse. The Nanny State on stilts. Here, it’s the Nanny from Hell.

Our entire system of public benefits and social safety nets is a crazy quilt of bureaucratic complexity that costs us way more — supposedly to make sure people are entitled to what they receive — than if we just handed a check to everyone who asks. Likewise, simply giving every homeless person an apartment would cost far less than we actually spend, not only on bureaucracy, but on the costs of people being on the streets, which include police, courts, and constant emergency interventions.

The system reflects our fundamental societal schizophrenia between, on the one hand, recognizing an obligation to help the needy and, on the other, seeing them as unworthy moochers (like that guy sitting next to me did).

This is a very rich country. We could amply afford to take care of every unfortunate person in the country if we would overcome that schizophrenia and decide to do it because it’s just humanely right. We give way more welfare to the well-off. Welfare for all the needy, without all the nonsense, would cost less than the waste in the defense budget. Less than we’ve thrown away in Trump’s tax cuts for the rich.

Plan-free fact-free anal sphincter foreign policy

May 16, 2019

Everyone before was stupid. He knows everything. Intelligence briefings, consulting experts, careful planning — loser stuff. The great deal-maker’s own great instincts alone would make America great again.

Are we there yet?

I’ve written about big-picture foreign policy — how since 1945 America’s painstaking construction of a cooperative global order has served our interests while also making a better world. And how Trump is nihilistically smashing it.

Bob Woodward’s book Fear explains that Trump likes to “fly by the seat of his pants . . . did not want to be derailed by forethought. As if a plan would take away his power, his sixth sense.” It portrays a man ruled by anger and ego, impervious to facts, incapable of focusing. For a time, adults around him struggled to forestall disaster. Now they’re all gone.

Let’s see how plan-free foreign policy is working out:

NORTH KOREA. The great deal-maker imagined just schmoozing his way to triumph. Returned from his first summit with Kim Jong Un declaring victory, problem solved, no more nuke threat. Nobel prize! Turns out (surprise) the “deal” was bullshit. North Korea agreed to nothing and continues testing missiles. Kim harvested valuable prestige at no cost. The great deal-maker has no plan.

IRAN. It took years for the U.S. and five other leading powers to negotiate a deal that would significantly slow Iran’s nuclear weapons development. Trump tore it up to replace it with . . . nothing. He had no plan. Now Iran will get a bomb sooner. While the regime hardliners, who hated the deal, are strengthened. Our allies are antagonized. And now too, with our modus vivendi with Iran shredded, there’s looming military conflict. Not a war we could “win;” almost certain to be a horrible mess and disastrous for American strategic interests.

VENEZUELA. Trump loves dictators. (Just hosted Viktor Orban who’s destroyed Hungary’s democracy.) So why not Maduro? Simple: his regime made the mistake of calling itself “socialist.”

Trump imagined pressure would cause Venezuela’s military to flip and oust Maduro. Didn’t understand the military is the regime, its leaders profiting, and terrorizing lower ranks against defections. And what about our threat of military intervention? Also sure to be a horrible bloody mess and disastrous for our larger interests.

So while loudly proclaiming Maduro must go, Trump has no plan.

SYRIA. What is the plan?

CHINA. Trade wars are easy to win? Tell that to the 1930s. What’s especially stupid is a democracy picking a trade war with a dictatorship that’s much more able to endure economic pain. Trump blundered into this battle with no plan for winning it.

He insists his tariffs on Chinese imports will be paid by China. Just like Mexico would pay for his wall. In fact American consumers will pay, through higher prices at the cash register. Estimates range up into the thousands per family. This will also mean U.S. job losses — estimated up to a million or more.

And this doesn’t count our economic damage from the retaliatory tariffs China is slapping on us.

True, our economy is doing great. No thanks to Trump’s trade war, but in spite of it. Without it we’d be doing even better. (And our prosperity actually owes far more to Obama than to Trump.) A 600 point fall in the Dow shows the market realizes how bad for us the trade war is.

Meantime, we might fare better against China if our allies presented a united front. The TPP deal would have been just that, but Trump ditched it, while further kicking our friends in the teeth, even picking trade fights with some of them too. So we’re now on our own battling China.

We do have real trade issues with China, but tariffs are not the remedy. Trump literally doesn’t understand global economics. He imagines if we buy more from China than we sell them, they’re ripping us off. No economist (except liar Peter Navarro) thinks that. If China can sell us widgets cheaper than we can make them ourselves, it’s to our advantage to buy theirs and make other things. What consumers save on widgets enables them to spend more elsewhere — creating jobs.*

ISRAEL & PALESTINIANS.  For half a century, very smart knowledgeable people couldn’t solve this. So Trump tapped son-in-law Jared Kushner, with zero relevant knowledge and experience, to create a plan. Soon to be unveiled as the greatest thing ever. Apparently it will avoid the issue of a Palestinian state. Why did no one think of that before? But meantime Trump’s pro-Israel actions have already scotched America being seen as an honest broker, so there’s no way Palestinians will buy into whatever fabulous plan Kushner concocts.

I didn’t vote for Obama and heavily criticized his foreign policy. But Obama was a foreign policy genius compared to this anal sphincter.

* Woodward’s book details how economic advisor Gary Cohn failed to make Trump see he’s screwing the 84% of our economy that’s services to benefit (a little of) the 16% that’s manufacturing. Cohn finally resigned. The book shows Trump believes trade is bad, full stop. So willfully stupid it’s insane.

Venezuela’s tragedy: lessons for America

April 18, 2019

Javier Corrales is the Dwight Morrow professor of political science at Amherst. I recently heard him give a talk about the situation in Venezuela, divided into three parts: what he called “democratic backsliding;” economic collapse; and lessons for America.

Corrales explained that the democratic decline preceded and led to Venezuela’s economic disaster. And he saw reasons for concern that the story could repeat even in well-established democracies like ours.

Corrales started with “Democracy 101.” America, in the 1700s, basically invented the modern concept of liberal democracy. (Not to be confused with the “liberalism” that’s a political orientation of some Americans.) It’s rooted in the Enlightenment, with government accountable to people, and limited, to prevent tyranny by either a minority or a majority. A key means is to divide power among different government branches to check each other, with constraints upon government as a whole to leash its authority.

For a time, after WWII, and especially after the Cold War, liberal democracy was spreading. But then came a “democratic recession” beginning around 2006. Notable cases are Turkey and Hungary, and of course Venezuela. What we see is not the “old fashioned” putsch, but something that more insidiously starts in ambiguity — what Corrales called “executive aggrandizement,” with other centers of power being neutered or co-opted. The picture may ostensibly seem at first more democratic, with a majority thinking they’re getting what they voted for.

Then the regime uses and abuses laws, and creates new ones, to make an uneven political playing field. Elections are still held, but they’re manipulated by a host of measures to produce the desired results. The ruling party becomes a rubber stamp cheering section. The opposition is demonized and delegitimized. Press freedom and public debate are suppressed.

Political scientists use a host of criteria to measure a nation’s degree of democracy. Corrales presented a graphic timeline of Venezuela’s scores. They started low, with a dictatorship until the 1950s, when they jumped to a sustained democratic plateau. Then in 1999 Hugo Chavez (a former would-be putschist) got elected president, and Venezuela’s democratic score fell off a cliff. (Corrales also displayed Cuba’s graph — basically flatlined since the 1959 Castro takeover — and America’s, starting high and rising higher through the period, but with a noticeable drop in the last few years.)

Another set of criteria encompasses all the specific ways in which undemocratic regimes subvert fair elections, and here again a detailed chart was presented for Venezuela. At the start of the Chavez era, voting was still pretty much fair. But then the regime utilized ever more of the measures on the chart, to the point where today, Venezuela’s voting is a cynical charade.

The manipulation became necessary because whereas Chavez was actually popular for a while, the regime’s popularity faded, and nosedived under his successor Maduro. This leads us to the matter of the economic disaster. Venezuela is an oil state; that is, almost all its national earnings are from oil. Chavez was the beneficiary of a big spike in the global oil price, and he used the windfall to buy off political support from the poorer classes. Then the oil price collapsed with the 2008 global financial crisis. As Warren Buffet said, when the tide goes out, you see who’s been swimming naked.

In Venezuela’s case, the regime’s economic mismanagement became tragically evident, plunging the once-rich nation into poverty, with an inflation rate measured in millions of percent, and a tenth of the 30 million population escaping to other countries. Corrales explained that Chavez not only imprudently spent all the oil windfall (saving nothing), but went deep into debt besides. While some of this profligacy did trickle down to the poor, most was frittered away through corruption and incompetence. None was allocated to investment to build the economy.

So Venezuela suffered from an unrestrained state — and that was combined with a restrained private sector. The regime’s “socialism” led it to regulate private business so as to destroy it. Thus food, medicine, and all sorts of other goods (which Venezuela, so oil-concentrated, used to import) have disappeared from the shelves. While the regime’s fiscal indiscipline brought forth hyper-inflation. It made things worse by responding with price controls and even more punitive anti-business measures.

Corrales rejected any idea that America somehow bears responsibility for Venezuela’s travail. To the contrary, he said, the U.S. actually helped finance the regime by buying its oil (now stopped). Meantime its oil income has plunged due to its mismanagement, stuffing the state oil company with political hacks.

We keep hoping Venezuela’s military will oust Maduro. After his talk, I suggested to Corrales it won’t happen because the generals too are profiting from the corrupt system. He agreed. So, I said, the only path is the opposition taking up arms and starting a war. He smiled and nodded (somewhat to my surprise). Then I added, “Some things are worth fighting for.” He smiled and nodded again (ditto).

The lessons here for America should be obvious by now. I have written about the burgeoning phenomenon of political populism (https://rationaloptimist.wordpress.com/2017/12/28/what-is-populism/.) Corrales said the world’s democratic backsliding is driven by populism, defined by its perceived political betes-noires. On the left (epitomized by Venezuela) it’s anti-capitalism, anti-imperialism, anti-Americanism. Bernie-style populism inveighs against “neoliberalism,” corporations, and the rich. Right-wing populism typically demonizes the intelligentsia, elites, immigrants, ethnic minorities, and crime. For both right and left, the stomping on hated enemies can excuse the stomping on democratic norms. (Many Western lefties still defend Maduro.)

Also obvious is Trump’s following the playbook Corrales outlined: executive aggrandizement, undermining governmental checks and balances, demonizing and delegitimizing opponents and the free press. We even see election manipulation, with voter suppression. All this is how it starts. Be afraid. Be very afraid.

Irrationality in the U.S. Coin Market

March 9, 2019

This is posted mainly for my numismatic friends. It concerns crazy high prices being paid for coins based on increments of condition perfection that are actually meaningless. The “slabbing” mentioned refers to coins in sealed capsules whose authenticity and grade is assigned by certification services. A version of this piece was just published in Coin World, but much condensed, omitting some significant points (and, oddly, the first line). So here is my complete text:

This Emperor has no clothes.

The U.S. coin market, that is — when it comes to the highest grades — especially for modern coins and the “top of the pop” thing (coins graded highest in the slabbing services’ population reports).

Let’s start with what’s rational about coin prices. They’re keyed to rarity and quality.

Rarity is a matter of supply and demand. The fewer the examples available to desirous buyers, the higher they’ll bid the price up.

The quality factor might seem similarly straightforward: better quality brings a higher price. That’s true of any goods. Numismatics in particular entails an aesthetic aspect. Better condition coins are nicer to look at. Thus, “eye appeal.” But note the complication that beauty is in the eye of the beholder, and collectors differ in what attracts them. There’s also a pride-of-ownership factor. Our collecting is a reflection of ourselves. (In my own collecting of world and ancient coins, I’m something of a condition snob.)

The rarity and quality factors are synergistic: in general, higher quality is rarer. Though not always. For 1883 “No Cents” nickels, or 1997-S Proof dimes, lower quality is actually the rarer. Of course, nobody will pay extra for that kind of rarity (except those pursuing “worst of” sets for the sake of numismatic perversity). But in the more usual situation — say, 1897-S dimes — high grade (mint state) coins are far rarer than well-worn ones, and command correspondingly higher prices.

There is also the concept of “condition rarity” where a coin otherwise common is hard to find in the best grades.

In all such cases the price disparity is rational and understandable to anyone. But what about, say, MS-67 versus MS-66 for modern coins? PCGS may have graded ten times more 66s than 67s. Does that make 67 a condition rarity? Should the price be ten times that of 66? Let alone a hundred times or more?

Basic human psychology comes into play here. I’ve mentioned pride of ownership. There’s a part of us — especially men, and coin collectors are mostly men — that wants to be the best and have the best. We call it “bragging rights.” And there’s also competitiveness, the desire to beat out the other fellow and thump one’s chest.

I see this in my own auctions. Some guys just don’t like the idea of being outbid, as though it’s losing a competition, even a knock to their manhood. They will top someone else’s bid just for the sake of claiming a victory. Probably they don’t consciously think this way, it’s unconscious. But it sure helps my prices realized.

Hugely feeding this is the advent of registry sets (a cunning invention by the grading services, to get fees on many common date coins that wouldn’t otherwise be worth slabbing). Now one can actually literally be certified as having the best collection of, say, Lincoln cents. So if you’re in that game, and suppose there’s only a few 1954 cents slabbed as MS-67, you’ve gotta have one. And you’ll pay way more than for a “common” MS-66. Way way more. Would you believe $31,200? That in fact is what an MS-67 1954 cent realized at Heritage’s 2018 FUN auction.

To be clear, 1954 is not even a scarce date. The bid price for MS-66 red is $55; though outside of a slab a BU, even if really nice, goes for maybe a buck. Meantime, for $31,200 you could literally buy a full roll of key date 1885 nickels — in Proof!

Something is seriously out of whack.

This carries the concept of condition rarity to an extreme that’s beyond irrational. Let’s take a deep breath and remember that while the difference between, say, EF and mint state 1897-S dimes is obvious and material (and the price difference is not huge), the distinction between MS-66 and MS-67 1954 cents is nothing of the kind. I am talking not about the market difference, but the actual physical quality difference. It’s awfully close to being a distinction without a difference.

We must also remember that this is all ultimately about aesthetics. People do not need coins. We collect them only because it is in some way pleasing to do so. Upon this foundation a gigantic economic edifice has been built, but at the end of the day, coins have no value except insofar as they confer pleasure on their owners. (Thus I sometimes say in my auction catalogs, “Love your coins for what they are, not for what they’re worth.”)

We do, once more, pay higher for better quality coins because they confer more pleasure. Again a matter of how a coin looks to the eye. But distinguishing between MS-66 and MS-67 requires close examination under magnification with special lighting. Otherwise they look just about identical — apart from any toning, which may actually have a far bigger impact on visual appeal than the bare number grade. Moreover (as Q. David Bowers keeps reminding us), those numbers don’t take account of strike either, a big aspect of a coin’s true quality. Thus the number grades reflect what is really a peculiar sort of tunnel vision. And still further, the numbers falsely imply a sort of scientific precision, when in fact they are a matter of subjective judgement, upon which even experts typically disagree.

Given all that, it might make sense to pay a little bit more for a coin that a grader at some grading service, on a particular day, after a particularly good lunch, decided to call MS-67 than for one in an MS-66 slab. But to pay multiples more — indeed, many hundreds of times more — is insane. In the fullness of time, collectors will come to their senses. As did the Dutch tulip speculators.

The original Sheldon scale contemplated just three quality levels for mint state coins (with one of them an almost impossible nirvana of perfection). Maybe a couple of finer differentiations would be reasonable. But expanding it to 11 (and even more, really, with pluses and Wings) stretched the concept of quality differentiation beyond what makes reasonable sense, given the subjectivity involved. Especially when a fetishistic obsession has emerged over distinguishing among inconsequential gradations of virtual perfection. This has sent U.S. numismatics down a rabbit hole pursuing an illusory holy grail (if I may mix my metaphors, and alliterate).