Bryan Caplan's Blog, page 87

The Chamber of No, by Bryan Caplan

Once you agree that limited government provides valuable insurance against future bad policies, the next question is: "How can government be limited?"  As my last post mentioned, there's a standard list, with supermajority rules, division of powers, judicial review, and federalism at the top.  But this is only the beginning.  How about creating a special review board with the power to block (but not pass) legislation?  Think of it as the "Chamber of No."

If the Chamber of No were elected by the usual processes, its partisan composition would oscillate just like the rest of the government.  But what if the Chamber's members had long-terms appointments like the Federal Reserve Board - or lifetime appointments, like the Supreme Court?  Activists would naturally complain about the "dead hand of the past."  But if you desire insurance against future bad new policies, the dead hand of the past is your friend.

But who should receive these appointments in the first place?  Let's back up a bit.  Economists have a standard story about selecting central bankers.  Since there's a bias towards inflationary finance, even liberals have a good reason to favor conservative central bankers, often known as "inflation hawks."   As my old macro teacher Ken Rogoff explains in his famous article, "The Optimal Degree of Commitment to an Intermediate Monetary Target":

It can be entirely rational for society to structure its central bank in such a way that the monetary authorities have an objective function very different from the social welfare function. Whenever a distortion causes the time-consistent rate of inflation to be too high, then society can be made better off by having the central bank place "too large" a weight on inflation rate stabilization. The model presented here may help explain why many countries set up an independent central bank and choose its governors from conservative elements of the financial community.

If you buy Rogoff's logic for central bankers, who should staff the Chamber of No?  Anyone in search of political insurance should want someone with a strong general inclination to veto new legislation.  Who has that inclination?  Not liberals.  Not conservatives.  Not socialists.  Not populists.  The correct Rogoffian answer in this case is... libertarians.  Whatever your political views, the best people to protect you from future bad government policies is people ideologically committed to the idea that government policies tend to be bad. 

To be fair, this doesn't mean non-libertarians would want to appoint extreme libertarians to the Chamber of No.  Rogoff explains why normal people wouldn't want their conservative central bankers to be too conservative:

Although society does want the central bank to place a large weight on inflation rate stabilization relative to employment stabilization, society will not (in general) want the weight to be infinite. By having the central bank place an infinite weight on inflation stabilization, society could succeed in bringing inflation down to its socially optimal level. But the central bank would also end up responding very inappropriately to supply shocks, allowing them to pass entirely through to employment

The same logic holds for the Chamber of No: You want its members to be more libertarian than you, to bolster insurance against future bad policies.  But if they're too radical, they'll veto everything - and few non-libertarians want that.

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Limited Government as Insurance, by Bryan Caplan

Imagine going back in time to January 20, 2009.  Obama's Inauguration Day.  You're a cheering fan.  On that day, an angel appears and makes you this offer: If you give up on Obama's best ideas, none of Trump's worst ideas will happen either.  Obamacare will never happen - but neither will Trump's immigration policies.  Would you take that deal?

I know, it's a galling hypothetical.  You want the good stuff without the bad stuff.  Why can't that be on the menu?  In theory, of course, it could be.  But in practice, it wasn't - and never has been.  If government has the power to do big good things you like, it will also have the power to do big bad things you don't like.  And in a democracy, your side's grip on the reins of power is always temporary.  (Anyone want to re-bet me on the duration of Unified Government in America?)

On reflection, the angel in my hypothetical is offering insurance.  He's guaranteeing a stable mediocre outcome, rather than the wild democratic oscillations we've been experiencing.  You'll no longer be able to get excited about great political victories, but you can stop worrying about great political defeats. 

Now consider: This insurance policy is very similar to a seemingly unrelated idea: limited government.  While it doesn't invalidate any existing government policies, it shackles government's power to do any big new thing. 

In American political culture, conservatives have traditionally praised "limited government," though libertarians are the main people who take it seriously.  But it seems like almost everyone, regardless of ideology, should be interested in getting insurance against bad future uses of government power.  What are the best reasons to spurn the angel's offer?

1. The arc of the moral universe.  If, like MLK, you believe, "The arc of the moral universe of long, but it bends towards justice," you're not just avoiding bad stuff by giving up good stuff.  You're avoiding a shrinking stock of bad stuff by giving up a growing stock of good stuff.  If you're going to eventually win anyway, insurance isn't so important.

2. Asymmetric hyperbole.  Political rhetoric normally paints your good stuff as great, and your opponents' as awful.  If you're overstating across the board, the case for insurance remains intact.  Suppose, however, that your good stuff is genuinely fantastic, but your opponents' bad stuff is only a moderate pain the neck.  Then again, accepting limited government for insurance purposes is a bad deal.  (The insurance case for limited government gets even stronger, of course, if you oversell your own policies, but accurately rate your opponents' policies).

If neither of these responses seems especially credible, you'll probably feel tempted to impatiently respond: "This is a stupid hypothetical, because there are no angels."  Sure, it would be nice to contain the oscillations of democracy.  But there's no way to do it.  Limited government has to be enforced by someone - and the "someone" is democratically determined, too, right?

Wrong!  If you want the insurance of limited government, there are well-tested mechanisms to deliver it.  You all know them.  Supermajority rules require more than a majority to act.  Division of powers makes it hard for government bodies to accomplish anything on their own.  Judicial review allows judges to invalidate acts of government.  Federalism greatly reduces the cost of "voting with your feet."  If you think these institutions aren't working, the obvious solution is to strengthen them.  Impose more supermajority requirements.  Divide more powers.  Overturn legislation that fails to get support from six, seven, eight, or all nine Supreme Court Justices.  Make states pay for their own spending with their own taxes, not federal grants.

So why are the limits on government so weak?  I blame myopia.  Limited government helps everyone in the long-run, but immediately hurts the ruling party.  They fought hard to win power; now that they have it, they yearn to flex their muscles.  Logically, they could support limited government starting ten years from now ("Lord, grant me chastity and continence, but not yet"), but that's not very exciting compared to riding the wave today.  The insurance of limited government would make most of our lives better, but sadly, it's not sexy.

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Trump's Immigration Policies: My Default Reaction, by Bryan Caplan

Vox voxplains leaked drafts of Trump's executive orders on immigration.  Reading the fine print, it's not as bad as I'd expect, but of course this is only the beginning.  The Vox analysis seems careful, except for this:

Libertarians sometimes suggest "building a wall around
the welfare state" instead of the country -- restricting access to public
benefits to US citizens. This executive order proposes that President
Trump, who's already building a wall around the country, build one
around the welfare state as well.

Legal immigrants currently get access to some public
benefits in some circumstances. But the federal government can bar
someone from coming to the US, or from becoming a permanent resident, if
there's any evidence he or she will become a "public charge."

When libertarians like me or Alex Nowrasteh advocate building a "wall around the welfare state," we absolutely do not mean "exclude foreigners likely to use public benefits."  We mean "admit them, but don't give them public benefits."  Trump's order does precisely the opposite, and it's rather unfair to hint that libertarians provide any intellectual inspiration for what he's doing.

Looking forward, the short-run best case scenario for immigration is that Trump writes a vast number of largely symbolic and easily evaded orders to create the impression of nativist activism.  The bad scenario is that he makes repeal of the Glorious Lasting Accidental Liberalization of 1965 one of his top three legislative priorities.  Why?  Because this would probably lock in sharply lower immigration for a generation or more.  The 1965 act liberalized immigration by accident, and the awesome results have never been popular.  If it were repealed, I seriously doubt the Democrats would dare to reinstate it the next time they regain power.  But frankly, Trump seems too mercurial and myopic to care about fundamentals, so I only give this scenario a one-in-three chance.

In the social media age, observers tend to equate silence with approval, or at least disinterest.  At least in my case, you shouldn't.  By default, please assume I think all of Trump's immigration policies are terrible.  But I won't be blogging about the latest immigration news unless I can also provide some novel analysis - or someone proposes a bet.

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Better Market-Oriented Proposals That Reduce Income Inequality, by Bryan Caplan

I was initially excited to see that progressive Dean Baker has written a piece on "Eight Market-Oriented Proposals That Reduce Income Inequality" for AEI. It begins promisingly by criticizing overly strict occupational licensing for high-skilled workers.  But it then studiously avoids the really big wins.  Namely:

1. Immigration.  High-skilled immigration reduces conventionally measured inequality by making high-skilled workers more abundant relative to low-skilled workers.  And low-skilled immigration drastically reduces properly measured inequality by moving the absolutely poor to First World prosperity.  Estimates of the size of this effect are vast.

2. Housing deregulation.  Letting developers build more housing in expensive areas of the country directly reduces inequality by making housing more affordable.  And it indirectly reduces inequality by making it more affordable to live in high-wage areas of the country.  Estimates of the size of this effect are also vast.

To be fair, Baker does discuss occupational licensing as a barrier to high-skilled immigration.  But that's only the tip of the immigration iceberg.  And his only "market-oriented proposal" for real estate, bizarrely, is a surtax on vacancy!  On the surface, he's got a decent case:

A vacant property tax can have a similar effect on the real estate market to that of reducing unemployment benefits and other supports on wages.

But this misses the bigger picture: A vacancy tax also reduces the incentive to build housing in the first place, so it's a lot more like a tax on firing workers than a reduction in unemployment benefits.  In the short-run, such a tax saves jobs, but in the long-run, it makes employers nervous about hiring.  A vacancy tax, similarly, keeps rental units on the market during bad times, but reduces the long-run payoff for construction.  Baker is flatly wrong to say, "Unlike most taxes, all the side effects of this tax are positive."

Governments around the world willfully create poverty and inequality.  I'm glad to see Baker calling attention to these ugly facts.  But focusing on relatively minor and not-so-market-oriented examples spreads the false impression that government-sponsored poverty and inequality is but a marginal issue.  Alas!

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The Many Faces of Means-Testing, by Bryan Caplan

Isn't a Universal Basic Income just another name for a negative income tax, such as Tax = -$10,000 + .3*Income?  If so, isn't a Universal Basic Income means-tested by definition?

The answer to the first question is Yes.  UBI is just Milton Friedman's negative income tax in new packaging.

The answer to the second question, however, is more equivocal.  The UBI is means-tested in the weak sense that your net payment falls with income.  But the UBI dispenses with many other traditional forms of means-testing.  Most notably:

1. Means-testing by age.  Most welfare states prioritize children and the elderly.  The implicit theory is that, unlike prime-age adults, the very young and the very old are unable to provide for themselves.

2. Means-testing by dependents and marital status.  Most welfare states prioritize single moms with minor children.  The implicit theory is that single moms have reduced opportunities to work due to their family responsibilities.

3. Means-testing by health.  Most welfare states prioritize the disabled.  The implicit theory is that they're not healthy enough to work.

4. Means-testing by job history.  Most welfare states prioritize people who recently lost their jobs over people who have never worked, or lost their jobs a long time ago.  The implicit theory is that the short-term unemployed are unlucky, while the long-term unemployed are lazy.

If your UBI proposal includes factors like these in its formula, it's very hard to see what makes it a UBI. 

If your UBI proposal dispenses with most or all these factors, then it is a distinctive reform indeed.  But "distinctive" is a far cry from "good."

Advocates correctly note that dropping multi-faceted means-testing reduces moral hazard: If your monthly payment doesn't depend on your health, you have no reason to fake bad health.

But there is also an gargantuan disadvantage: Dropping multi-faceted means-testing greatly increases the number of eligible recipients.  If perfectly able-bodied, childless adults are eligible for free money, plenty will take it - and many won't work at all.  Taxes on remaining workers have to rise to pay for them.  This probably won't create a "UBI death spiral," but a milder sloth spiral definitely kicks in, especially over the longer run as stigma against idleness erodes.  And the burden of supporting able-bodied non-workers is also very likely to cut into funding for the more deserving poor.

Frankly, given the bleak long-run fiscal forecast for the U.S., I'm baffled that anyone with libertarian sympathies takes the UBI seriously.  The welfare state is already unsustainable, largely because our means-testing by age and health isn't stringent enough.  The elderly may have trouble working now, but since they had a lifetime to save for their own retirements, few of the indigent elderly are victims of circumstance.  And given the huge long-run rise in the share of U.S. adults on disability despite rising health and less strenuous jobs, its clearly far too easy to plead disability.

What's especially strange is that the bleak long-run fiscal forecast makes old-school libertarian austerity more relevant than ever.  Why are so many libertarians running away from our core ideas when conditions are nearly ripe for mainstream America to finally listen to us?



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Caplan-Wilkinson Universal Basic Income Debate, by Bryan Caplan

At this year's 10th Anniversary Students for Liberty conference, I'm debating Will Wilkinson on, "Should libertarians support a Universal Basic Income?"  My answer is an emphatic no.  Not only libertarians but liberals, conservatives, and reality-based socialists should oppose this populist earworm.  In a world of limited resource, means-testing is always the way to go.  Indeed, I struggle to pass the Ideological Turing Test here, but I'll sincerely try.

Question: Any sub-topics you'd like us to address?  Please share in the comments.

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The Most I'll Admit, by Bryan Caplan

Since I think that most news is overblown fluff, I have little sympathy for the endless pieces about "What we've learned about the world in 2016."  Against the background of all of human history, 2016 taught us next to nothing.  If you just discovered that horrible people often gain vast political power with widespread popular support, you're in dire need of remedial history.  If you've just discovered that politicians' personalities matter at
least as much as their policy views, you're in dire need of remedial
political science.  If you've just discovered that demagogic appeals to national identity work, you're in dire need of remedial psychology.  I am only a messenger.

Still, if you compelled me to articulate what I learned in 2016, here is the most I'll admit.

1. American voters are at the moment even more irrational than I thought they were in 2015.

2. Republicans are at the moment even more nationalist than I thought they were in 2015.

3. Democrats are at the moment even more socialist than I thought they were in 2015.

4. My ability to discern human nobility is markedly worse than I thought in 2015.  I've probably always been this bad, but 2016 helped me see my limitations clearly.

5. While I'm confident we'll muddle through, my odds of a major disaster (nuclear war or something comparable) have risen from 1% to 2% for 2017-2021 (cumulative, not annual).

Since tomorrow is a major news day when people are even less interested in serious thinking than usual, I'll delay my next post until Monday.

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The Great Californian Bag Surplus, by Bryan Caplan

I just got back from a long vacation in my home state of California.  The bad news about California is that its people and government have unusually severe economic illiteracy.  The good news is that their severe economic illiteracy provides enough illuminating examples to fill a textbook.  This trip, my favorite case in point has been California's law requiring stores to charge at least ten cents per bag. 

Economically speaking, what is this law?  Most non-economists call it a "tax on bags," but it's totally not.  A seller is legally allowed to absorb a tax if he is so inclined.  If the government imposes a  $1 tax on a $10 product, for example, a seller is legally free to cut the list price to $9 so the price with tax stays at $10.  But California merchants are not allowed to charge customers less than $.10 a bag.

If the law isn't a tax, what is it?  A price control.  What kind of price control?  A minimum price, also known as a price floor.  And since bags used to be free, this is clearly a binding floor.

The primary effect of a binding price floor is to create a surplus.  At a price of $.10 per bag, sellers want to sell a lot more bags than customers want to buy.  This may sound strange to California residents: "It's really hard to get bags now.  What do you means there's a 'surplus'?"  But that only shows they don't understand the textbook concept.  A surplus doesn't mean abundance; it means abundance from the seller's point-of-view, combined with scarcity from the buyer's point-of-view.  In fact, textbook econ implies that the bigger the surplus, the less human beings consume.

But binding price floors also have a secondary effect: they raise quality.  If merchants can't make their bags more attractive to consumers by cutting their price, the next-best strategy is to make their bags better.  This abstruse textbook prediction was uniformly fulfilled in every grocery store I saw in California.  Indeed, I've never had better bags in my life!  Every bag was sturdy, pristine, and decorated.  This bag says it all:

But aren't high-quality bags a good thing?  The general answer is: not necessarily.  Quality costs more; markets let people decide for themselves whether the extra quality is worth the extra cost.  When price floors spur higher quality, however, the extra quality is normally not worth the extra cost.  How do we know?  Because before the law was passed, sellers were free to offer higher-quality, higher-cost bags, but rarely did, demonstrating that consumers place little value on extra quality.

Defenders of California's law who know a smattering of economics will no doubt appeal to the negative externalities of plastic bags.  But in this case, a little knowledge is a dangerous thing.  If you're doing practical policy analysis, you can't just point to a negative externality.  You've got to do quantitative cost-benefit analysis: How much cleaner will the $.10 bag law make the planet - and much aggravation will it inflict on consumers?  I can't find any decent numbers on Google or Google Scholar, but it's pretty obvious that bags are a tiny fraction of all plastic, and plastic a tiny fraction of all potentially hazardous trash.  And it's even more obvious that bringing your own bags to shop is a pain in the neck.

Even if environmental costs heavily outweigh convenience benefits, however, price floors are almost always inferior to simple taxes.  See any decent intro econ textbook: When firms can't efficiently compete on price, they inefficiently compete on everything else.  Taxes change behavior, too, but only by changing prices - leaving firms and consumers free to flexibly and creatively adapt.  And instead of burning up resources on inconvenience and overly fancy bags, taxes change behavior and raise government revenue at the same time.

Strangely, then, the only people with a halfway-decent reason to prefer California's policy to a simple bag tax are libertarians who take the Starve the Beast strategy to its radical conclusion.  Everyone else in California desperately needs to read an econ textbook before he votes again.

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My End-of-the-World Bet with Eliezer Yudkowsky, by Bryan Caplan

Famed futurist Eliezer Yudkowsky fears the imminent end of the world at the hands of Unfriendly Artificial Intelligence.  I find this worry fanciful.  Many people in Eliezer's position would just dismiss my head-in-the-sandedness, but he's also genuinely impressed with my perfect public betting record.  To bridge the gap and advance our knowledge, we've agreed to the following bet, written in the first person by Eliezier.  Since I've just Paypaled him the money, the bet is now officially on.

Short bet:

- Bryan Caplan pays Eliezer $100 now, in exchange for $200
CPI-adjusted from Eliezer if the world has not been ended by nonaligned AI
before 12:00am GMT on January 1st, 2030.

Details:

- $100 USD is due to Eliezer Yudkowsky before February 1st, 2017 for the bet to
become effective.

- In the event the CPI is retired or modified or it's gone
totally bogus under the Trump administration, we'll use a mutually agreeable
inflation index or toss it to a mutually agreeable third party; the general
notion is that you should be paid back twice what you bet now without anything
making that amount ludicrously small or large.

- If there are still biological humans running around on the
surface of the Earth, it will not have been said to be ended.

- Any circumstance under which the vast bulk of humanity's
cosmic resource endowment is being diverted to events of little humane value
due to AGI not under human control, and in which there are no longer biological
humans running around on the surface of the Earth, shall be considered to count
as the world being ended by nonaligned AGI.

- If there is any ambiguity over whether the world has been
ended by nonaligned AGI, considerations relating to the disposition of the bulk
of humanity's potential astronomical resource endowment shall dominate a
mutually agreeable third-party judgment, since the cosmic endowment is what I
actually care about and its diversion is what I am attempting to avert using your
bet-winning skills.  Regardless, if there are still non-uploaded humans
running around the Earth's surface, you shall be said to have unambiguously won
the bet (I think this is what you predict and care about).

- You win the bet if the world has been ended under AGI under
specific human control by some human who specifically wanted to end it in a
specific way and successfully did so.  You do not win if somebody who
thought it was a great idea just built an AGI and turned it loose (this will
not be deemed 'aligned', and would not surprise me).

- If it sure looks like we're all still running around on
the surface of the Earth and nothing AGI-ish is definitely known to have
happened, the world shall be deemed non-ended for bet settlement purposes,
irrespective of simulation arguments or the possibility of an AGI deceiving us
in this regard.

- The bet is payable to whomsoever has the most credible
claim to being your heirs and assigns in the event that anything unfortunate
should happen to you.  Whomsoever has primary claim to being my own heir
shall inherit this responsibility from me if they have inherited more than $200
of value from me.

- Your announcement of the bet shall mention that Eliezer
strongly prefers that the world not be destroyed and is trying to exploit
Bryan's amazing bet-winning abilities to this end.  Aside from that, these
details do not need to be publicly recounted in any particular regard, and just
form part of the semiformal understanding between us (they may of course be recounted
any time either of us wishes).

Notice: The bet is structured so that Eliezer still gets a marginal benefit ($100 now) even if he's right about the end of the world.  I, similarly, get a somewhat larger marginal benefit ($200 inflation-adjusted in 2030) if he's wrong.  In my mind, this is primarily a bet that annualized real interest rates stay below 5.5%.  After all, at 5.5%, I could turn $100 today in $200 inflation-adjusted without betting.  I think it's highly unlikely real rates will get that high, though I still think that's vastly more likely than Eliezer's doomsday scenario.

I would have been happy to bet Eliezer at the same odds for all-cause end-of-the-world.  After all, if the world ends, I won't be able to collect my winnings no matter what caused it.  But a bet's a bet!

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The Priority Resolution, by Bryan Caplan

News distorts policy priorities.  The primary mechanism: News showcases exciting stories with colorful characters, while ignoring boring stories with big numbers.  One story about Trump's relationship with Ivanka gets more coverage than most trillion-dollar pots of money.  A major secondary mechanism, though, is that stories that dramatically unfold get a lot more coverage than big static facts.  An Elephant in the Room may warrant some coverage, but if he just sits in the corner, media interest soon peters out.  It would be amazing if these disparities in coverage failed to shape the problems the public worries about - and, in turn, the problems attention-seeking politicians vow to solve. 

What can be done to mitigate the media's policy misdirection?  I suggest we start the New Year with what I call the Priority Resolution.  Are you a serious thinker?  Then step back from the media cycle and name the world's Three Biggest Problems.  Instead of trying to score points over the latest exciting story with colorful characters, let us self-consciously change the subject to the Big Picture. 

While this obviously won't lead to consensus anytime soon, the Priority Resolution makes us argue about which issues really matter.  Think your issue is more important than my issue?  Then convince me.  The Copenhagen Consensus is the best such effort I know of, but why shouldn't a thousand Big Pictures compete?

Since I try to be the change I wish to see in the world, I'll start.  What are the Three Biggest Problems? 

At the top of the list, by a wide margin, is Death itself.  Almost every child is horrified to discover that man is mortal.  But most adults not only accept the inevitability of death, but even bizarrely rationalize death as a blessing in disguise.  Why bizarre?  Imagine humans were already immortal.  If an inventor figured out how to make us mortal, who would see this "innovation" as anything other than a catastrophe?

After Death itself, the next most serious problem probably remains Absolute Poverty.  While human happiness depends less on material well-being that you'd think, hunger, homelessness, and short lifespans are awful.  Furthermore, if you buy my long-run Pacifist Syllogism, ending Absolute Poverty is a twofer: Since rich countries fear war, making the whole world rich greatly reduces the risk of any version of World War III. 

What's third?  Here, I'll be a doctrinaire libertarian and decry the Problem of Political Authority.  Governments should leave people alone unless the social benefits of doing otherwise clearly heavily outweigh the costs.  Since no government on Earth comes close to observing this moral truism, grave injustice is common-place - even in the morally self-satisfied First World democracies.

Needless to say, people who agree on priorities can easily disagree about the best way to achieve them.  My prescription for swiftly ending Absolute Poverty, for example, is open borders, globalization, and economic freedom.  Most people who share this priority probably disagree, but that's okay.  Debating the best way to solve the world's second-biggest problem has a huge potential upside.  Debating the headlines does not.

I expect few readers to agree with my top three priorities.  But I hope we can all agree that we spend far too little time discussing that most important issues on Earth.  Fortunately, we can improve - and New Year's Day is a focal time to start.  Who else wants to adopt the Priority Resolution?

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