Monthly Archive for December, 2011

Thoughts On Inequality

NYU economist Mario Rizzo gives a list of some of the questions and issues that serious people ought to consider on inequality:

  1. There seems to be very little concern, in the popular press, for the causes of unequal distribution. This includes, especially, the causes of the increasing unequal distribution over the past few decades. (However, recessions seem to be good for reducing income at the top.) Reformers should always consider causes before advising cures.
  2. There is a confounding of the results of a process that produces a distribution with the process itself. If person A steals money from person B, I object to the process (theft) first and foremost, and not to the resultant distribution of wealth. I really don’t care if it results in a more equal or less equal distribution.
  3. If there is something wrong with the rules-of-the-game, that is, the process that generates wealth and income distribution, let us attend to that. For example, if people are getting rich because of the warfare state or because the institutions they work for are bailed out by taxpayer money, let us address those issues.
  4. What exactly constitutes a more just distribution? The economist Paul Samuelson (and other amateur “moral philosophers”) used to equate, in his textbook, equity with greater income equality. (He famously, but ignorantly, said that the Soviet Union “chose” greater equity at the expense of efficiently – but nevertheless they would surpass us in wealth soon, anyway.)
  5. Justice does not simply imply equality. Sometimes it implies equality and sometimes inequality (as when the criminal gets his punishment, but the rest of us do not).
  6. Is it important that the positive entitlement to resources must be bought with the effort of others who might believe they have better uses for their money?
  7. Why should the hierarchy of values that emerges out a political system — based on favors, special interests, power-plays, (rationally) ignorant voters, self-interested politicians, and people much less moral than you and me – dominate  over my and your moral judgments?
  8. Do the putative moral claims of the “poor” stop at the water’ edge? Given that the poor of the US are rich by world standards, what kind of objective morality of distributive justice allows that “our” poor get preference over, say, North Korea’s poor? Do we have a tribal morality?
  9. To what extent are the commentators (law professors and economists especially included) trying to publicly signal their “goodness” by using their technical skills to come up with schemes that pander to unthought-out popular prejudices. After all, how much respect from the general public can academics get by coming up with some theorem on the quasi-transitivity of preferences, or what not?
  10. Last, but not least, do the redistributioners have any idea how the so-called welfare state works in practice? Do they know how the state uses one hand to make the poor poorer (unseen) and uses the other hand to help them out (seen)? Do they see the coming bankruptcy of the welfare state?

Full post can be found here.

The Problem With Public Sector Unions

Bloomberg Businessweek reports:

Moments before a single-engine aircraft and a helicopter collided over the Hudson River near Manhattan in 2009, an air-traffic controller who should have been advising the plane’s pilot was on the phone, joking with an airport worker about a dead cat.

Nine people, including three teenage boys, died. The Teterboro, New Jersey, controller, whom safety investigators said was distracted and partly to blame for the accident, still works for the Federal Aviation Administration. Although the agency tried to fire him, his punishment was reduced to a suspension, a transfer and a demotion.

What happened to the controller isn’t surprising, according to data obtained by Bloomberg News under the Freedom of Information Act. More than four of every 10 air-traffic workers the FAA tried to fire over almost two years kept their jobs or were allowed to retire, the data show. That included two-thirds of those targeted for firing over drug or alcohol violations.

The FAA’s firing rate, as a percentage of its total workforce, is similar to that of other federal agencies, where disciplinary terminations are also rare, government data show.
Federal workers have due-process protections to prevent wholesale firings when a new administration comes to power. Union contracts provide another layer of protection.

The full article can be found here.

Two Economic Models For The Poor

Leftists like to portray the European economic model as more “poor” friendly than the United States  economic model. But that depends on what your preferences are: if you are poor and would prefer less disposable income with more government services, then yes, the European model would be preferable. However, if you are poor and would prefer more disposable income with less government services, then no, the European model would not be preferable. It all depends on your preferences.

Economist Tim Taylor, in contrasting government redistrubition trends around the world points this out:

On the tax side, the U.S. tax code is already highly progressive compared with these other countries. The OECD published at 2008 report called “Growing Unequal: Income Distribution and Poverty in OECD Countries, which states (pp. 104-106): “Taxation is most progressively distributed in the United States, probably reflecting the greater role played there by refundable tax credits, such as the Earned Income Tax Credit and the Child Tax Credit. … Based on the concentration coefficient of household taxes, the United States has the most progressive tax system and collects the largest share of taxes from the richest 10% of the population. However, the richest decile in the United States has one of the highest shares of market income of any OECD country.After standardising for this underlying inequality … Australia and the United States collect the most tax from people in the top decile relative to the share of market income that they earn.”

This finding is surprising to a lot of Americans, who have a sort of instinctive feeling that Europeans must be taxing the rich far more heavily. But remember that European countries rely much more on value-added taxes (a sort of national sales tax collected from producers) and on high energy taxes. They also often have very high payroll taxes to finance retirement programs. These kinds of taxes place a heavier burden on those with lower incomes.

If Supermarkets Were Like Public Schools

A great analogy by economist Don Boudreaux:

Suppose that groceries were supplied in the same way as K-12 education. Residents of each county would pay taxes on their properties. Nearly half of those tax revenues would then be spent by government officials to build and operate supermarkets. Each family would be assigned to a particular supermarket according to its home address. And each family would get its weekly allotment of groceries—”for free”—from its neighborhood public supermarket.

No family would be permitted to get groceries from a public supermarket outside of its district. Fortunately, though, thanks to a Supreme Court decision, families would be free to shop at private supermarkets that charge directly for the groceries they offer. Private-supermarket families, however, would receive no reductions in their property taxes.

Of course, the quality of public supermarkets would play a major role in families’ choices about where to live. Real-estate agents and chambers of commerce in prosperous neighborhoods would brag about the high quality of public supermarkets to which families in their cities and towns are assigned.

Being largely protected from consumer choice, almost all public supermarkets would be worse than private ones. In poor counties the quality of public supermarkets would be downright abysmal. Poor people—entitled in principle to excellent supermarkets—would in fact suffer unusually poor supermarket quality.

How could it be otherwise? Public supermarkets would have captive customers and revenues supplied not by customers but by the government. Of course they wouldn’t organize themselves efficiently to meet customers’ demands.

Responding to these failures, thoughtful souls would call for “supermarket choice” fueled by vouchers or tax credits. Those calls would be vigorously opposed by public-supermarket administrators and workers.

Opponents of supermarket choice would accuse its proponents of demonizing supermarket workers (who, after all, have no control over their customers’ poor eating habits at home). Advocates of choice would also be accused of trying to deny ordinary families the food needed for survival. Such choice, it would be alleged, would drain precious resources from public supermarkets whose poor performance testifies to their overwhelming need for more public funds.

As for the handful of radicals who call for total separation of supermarket and state—well, they would be criticized by almost everyone as antisocial devils indifferent to the starvation that would haunt the land if the provision of groceries were governed exclusively by private market forces.

Quote Of The Day

“Even among recipients of bachelor’s degrees, 90 percent manage to graduate with less than $40,000 of debt. What happened to the other 10 percent is no particular mystery: they are less likely to come from wealthy families, but they attended pricier schools and paid for more years of tuition (see chart below). Compared with other graduates, these students are 20 percentage points more likely to have attended schools costing $20,000 or more a year (including room and board), and 20 percentage points less likely to have attended a public institution. Ten percent attended a private for-profit institution, compared with only 1 percent of their lesser-borrowing peers. High-borrowing students also took significantly longer to finish their degrees.” — Judith Scott-Clayton, assistant professor at Teachers College, Columbia University writing in the New York Times Economix blog

Quote Of The Day

“In general, anything that increases economic well-being, according to McKenzie, makes us fat. While the standard of living increased over the past several decades, the price of food relative to other goods has fallen about 17%. Research has shown that for every 1% drop in the price of food, people increase food consumption by .6%. Food may become cheaper and more readily available, but our 20,000-year-old metabolisms don’t adjust for the added intake of calories. — John Goodman blog

Megan McArdle On Fiscal Stimulus

McArdle makes a decent case to be cautious about fiscal stimulus here:

Starts to pick up at the 3 min mark.