Jumping To Conclusions

Tip for politicians: when you consult your political advisers on a policy matter, you might want to also consult your economic advisers, to make sure that their ideas will actually work. Because when they don't, you're in trouble. Last year, the Bush Administration imposed tariffs on steel imports in advance of the midterm Congressional elections; now it turns out that the tariffs are backfiring.

Eighteen months later, key administration officials have concluded that Bush's order has turned into a debacle. Some economists say the tariffs may have cost more jobs than they saved, by driving up costs for automakers and other steel users. Politically, the strategy failed to produce union endorsements and appears to have hurt Bush with workers in Michigan and Tennessee -- also states at the heart of his 2004 strategy.

Sometimes bad economics can make good politics, but only in the short run.

Poor people are stupid. That is, ultimately, the thesis behind this Economic Scene column in the New York Times by Alan Krueger. Krueger reports on a study by political scientist Larry Bartels which suggests that most Americans don't vote intelligently. Poor and middle class people support tax cuts which won't benefit them, and the explanation proffered is "unenlightened self-interest." That is, they stupidly think that they're going to benefit from these cuts when they really aren't; if they knew better, they'd support higher taxes.

A few problems with this. First, it ignores economic mobility, and hence fails to consider that people may support tax cuts on the rich because they hope to benefit from these cuts someday, even if they won't do so now.

Second, it considers only short-term, first-order benefits. That is, "If this tax cut passes, will my take-home pay be bigger tomorrow?" It ignores the possibility that people believe in the essence of Bush's ideas: that tax cuts stimulate the economy, create jobs, and benefit everyone, even those who don't receive the tax cuts.

Third, and perhaps most important, it proposes a model of voter behavior which would not be particularly desirable if people generally adhered to it. Do we want voters to vote based solely on "self-interest"? Do we want the poor to vote for tax hikes on the rich, the rich to favor the elimination of welfare, whites to support racial profiling, blacks to endorse slavery reparations, etc., based solely on their membership in these groups? I don't think Krueger or Bartels really want that. (As I've mentioned before, I wouldn't mind the All-Nieporents-Get-Millions-of-Dollars Government Grants -- but somehow, I don't think it would be good for the country.) So why single out the poor as the unenlightened ones for not voting the way Bartels/Krueger want them to?

UPDATE: Over at Marginal Revolution, Alex Tabarrok had a similar take on this column, and added this observation:

Moreover, isn't it interesting that when the poor vote against their "self-interest" they are labeled "uninformed" - Bartels compares them to Homer Simpson. But when Hollywood liberals like Barbara Streisand or rich philanthropists like Bill Gates Sr. vote against their "self-interest" they are called enlightened. What Krueger and Bartels refer to as self-interest is actually masking an ideology.

Leslie Kaufman of the New York Times reports:

A report released in August by the left-leaning Urban Institute in Washington said that more than 85 percent of those who left welfare from 2000 through 2002 now have a job, spousal support, and/or other government benefits. However, that is down from about 90 percent in a 1999 study.

Wade F. Horn, assistant secretary for families and children in the federal Department of Health and Human Services, said he agreed with numerous estimates that 85 to 95 percent of all those who have left welfare since the overhaul legislation passed in 1996 had become better off, or at least not significantly worse off, financially. There are 2.4 million fewer American families on the federal welfare rolls than in 1996, when there were 4.4 million.

Well, that's what she *reported*. But this is what she actually *wrote*:

However, a report released in August by the left-leaning Urban Institute in Washington said that as many as one in seven families who left welfare from 2000 through 2002 had no work, no spousal support and no other government benefits. That is up from one in 10 in a 1999 study.

Wade F. Horn, assistant secretary for families and children in the federal Department of Health and Human Services, said he agreed with numerous estimates that 10 percent to 15 percent of all those who have left welfare since the overhaul legislation passed in 1996 had become significantly worse off financially. There are 2.4 million fewer American families on the federal welfare rolls than in 1996, when there were 4.4 million.

And thus she attempts to turn the success of welfare reform into a failure. Same facts, different spin. (Of course, it *is* a failure for those approximately 300,000 families who are worse off. But remember that we've been in what some Democratic presidential candidates call the "worst economy since Hoover". Who's to say they wouldn't have been worse off without welfare reform? Heck, if *only* 10 to 15 percent of the poorest among us are doing worse than they were back in 1996 or 2000, then perhaps the economy isn't as bad as some would like us to believe...)

I had the same reaction to that New York Times story on welfare as Peter did, but he beat me to it.

But one other thing struck me:

However, a report released in August by the left-leaning Urban Institute in Washington said that as many as one in seven families who left welfare from 2000 through 2002 had no work, no spousal support and no other government benefits.

What the study actually said was this:

About one in seven adults who left welfare recently is disconnected from both the labor market and the welfare system—that is, not working, without a working spouse, and not receiving welfare or disability benefits.

But that certainly isn't the same thing as "government benefits," as the Times article implicitly admits deeply buried in paragraph eighteen. These families are still eligible for and receiving benefits such as food stamps and subsidized housing, not to mention Medicaid, LIHEAP (Low Income Home Energy Assistance Program), the FCC's Universal Service Program, free school breakfasts and lunches, and scores of other government welfare programs.

Moreover, there's another smaller bit of misleading language in the article; when it says these families receive "no spousal support," we're led to think that these people are all poor unwed mothers with no assistance in raising their kids. In fact, though, as the Urban Institute report says, "Some families do receive child support." (The trick is the word "spouse." Unmarried parents who contribute to household income aren't included.)

I don't know that Kaufman was being deliberately dishonest, but if not, that's a pretty poorly written article. Clearly, the beginning of the article speaks in generalities while the end provides details -- as reporters are trained to do. But in this case, the details don't merely provide more specific information; they actually contradict the generalities. It's important to understand, in a public policy discussion, that TANF is only one portion of government welfare benefits, and that families who don't receive the former may still receive significant amounts of the latter. If Kaufman did understand that, then she was dishonest; if she didn't, then she's not qualified to be writing about the subject.

(On the other hand, credit where credit is due. Kaufman did describe the organization as the "left-leaning Urban Institute," rather than pretending, as Paul Krugman so often does, that "nonpartisan" and "unbiased" mean the same thing.)

Robert Musil scoffs at this article from the New York Times about middle class people losing their health insurance.

These people are not poor, and they are not unaware of the costs and risks connected with the decision of whether to purchase or not purchase health insurance. They are making consumption choices - and they quite clearly view health insurance as of a type with other ordinary goods. Indeed, in the case of Ms. Pardo, health insurance seems to be an ordinary good that is of less signifiance than economizing on rent, car payments and insurance, day care and utilities.

Lorenda Stevenson said her choice was between buying medicine to treat patches of peeling, flaking skin on her hands, arms and face and making sure her son could continue his after-school tennis program. "There's no way I will cut that out unless we don't have money for food," she said.

Mrs. Stevenson's husband, Bill, lost his management job at WorldCom two years ago, when an accounting scandal forced the company into bankruptcy. They managed to pay $900 a month for Cobra, the government policy that allows workers to continue their coverage after they lose their jobs, but when the cost rose to $1,200, they could no longer afford it.

When their son, a ninth grader, needed a physical and shot to take tennis, Mrs. Stevenson turned to the Rockwall Area Health Clinic, a nonprofit clinic in Rockwall, a city of 13,000 northeast of Dallas. The clinic charged her $20 instead of the $400 she estimated she would have paid at the doctor's office.

"I sat filling out the paperwork and crying," she said, tears streaming down her face. "I was so embarrassed to bring him here."

A salve to treat her skin condition costs $27, and she pays roughly $50 a month for medications for high blood pressure and hormones. She does without medication she needs for acid reflux, treating the conditions sporadically with samples from the clinic.

In discussing the recent book Moneyball, in which author Michael Lewis profiles Oakland As General Manager Billy Beane, Tyler Cowen of Marginal Revolution observed:

An obvious question: if it is so hard to measure the performance of first basemen, when there is a slew of publicly available statistics, how about the rest of the economy?

In fact, it isn't that hard to measure the performance of first basemen. Oh, I don't mean to imply that sabermetrics (the study of baseball) is as well understood as physics or as well documented as chemistry, but the field is no longer in its primitive stages, either, and there are well-established theories and methods. The real problem with baseball isn't the difficulty of measurement, but the difficulty of overcoming entrenched interests who are threatened by new ideas.

It's the equivalent of the difference between understanding the benefits of free trade and convincing politicians that they should support free trade. You're not going to find many mainstream economists who thought that George Bush's steel tariffs were a good idea, but that didn't seem to have much of an impact on the people imposing them -- perhaps because they had an interest in doing so. Similarly with baseball: it's not that you can't measure a first baseman's performance with all the statistics that are collected, but that if you can, people currently in positions of power within the industry, who are comfortable with existing techniques but not the new ones, will face losing their jobs to those who are skilled with both. So they have an incentive to denigrate the idea that these new methods work. (Perhaps a better analogy than steel tariffs is school vouchers. Certainly there are unresolved issues about measuring how well they work, but the real problem is that the people who would be directly affected -- the school bureaucrats and teachers -- have no interest in even trying.)

The primary question one has after reading this book is not "How can we possibly hope to measure the economy, given the statistics we have?" but "How can we possibly hope to get people to try new ideas when they got where they were using old ideas?"

By the way, Moneyball is wonderful; and I recommend it to anybody who has even a tiny bit of interest in baseball. Lewis is an excellent writer (I also recommend his fascinating, though somewhat dated, Liar's Poker), and he makes a topic which could be dry into a page-turner. Those with a more intimate knowledge of the subject matter will see that Lewis's understanding of the topic is somewhat superficial, but the book is still a great read, and it provides a window into the behind-the-scenes operations of a baseball team that you can't get from the sports pages.

How do you write a 40 paragraph, 2500 word article about changes to taxicab licensing in New York City entitled Finding the Intersection of Supply and Demand, and never once mention the possibility of actually letting supply and demand dictate the number of taxicabs in New York City, and the fares they charge?

In an era where even rent control is beginning to disappear, how can New York City still have such a command-and-control program as the Taxi and Limousine Commission, deciding how many sellers there should be to service customers, and how much they must charge?

In the book The Burden of Bad Ideas, Heather McDonald spends some time on the topic of the New York Times Neediest Cases charity appeal. As a part the appeal, the newspaper highlights a different charity case each day in order to tug at our heartstrings. Her thesis is that the evolution in the types of cases reported by the Times illustrates something important about changes in society. Whereas at the turn of the last century the Times would single out those who were the victims of circumstance -- orphans, those who lost their home in a fire, etc. -- in more recent decades these cases began to be replaced by those who were the "victims" of bad personal choices -- drug abusers, pregnant teenagers, and the like.

But then there's the other sort of case: those who are the victims of government:

She Survived the Khmer Rouge. Now the Language Barrier

So what's the problem? It's not the economy; she is employed in a salon now. It's not that her skills are poor; in fact, they seem to be fine:

Ms. Kiet proudly shows off her diplomas from USA Beauty School in Chinatown, where she graduated in 2002. She passed her practical exams qualifying her to work on hair, skin and nails.

She was granted a six-month temporary license — which she is allowed to renew twice — but she still needs to pass the written New York State Board of Cosmetology exam, which she has failed three times.

Ms. Kiet explained her difficulty: "Like the root of the hair, the cuticle, everyone understands that: `cuticle.' But they have another name for it. And pediculosis. Lice on your head, it's called pediculosis. I thought, `what?' I couldn't understand that name."

Those are rhetorical questions; I know the answers. These sorts of rules may keep Ms. Kiet unemployed, but they provide jobs for many other people: bureaucrats who administer the rules, schools which train people for the exams, companies that develop the exams -- and let's not forget those already in the industry, who face reduced competition thanks to these sorts of barriers to entry. And did I mention bureaucrats?

My point here is not to criticize Ms. Kiet, or the Times' choice in highlighting her situation; she seems like a reasonably worthy cause. Rather, I'm trying to point out how, once again, big government and high taxes work against the public, rather than for us. We have an ambitious immigrant who wants to better herself, who wants to work hard, and the government is interfering. And then the Paul Krugmans of the world rant about the need for even more taxes to fund government to reduce the gap between the rich and poor. As if that's what they're doing with the money.

I hate to use a cliche like this, but Paul Krugman has now officially jumped the shark. He started out arguing that Bush's campaign proposals didn't add up. Krugman was a little one-sided, but was basically correct. (Gee, a politician who promises more than he can deliver? Whoda thunk it?) Unfortunately, when Bush got elected anyway, this pushed Krugman over the edge. After all, Paul Krugman, supergenius, had made his pronouncement from the mountaintop. How could people dare ignore him? So he began selectively quoting partisan sources, pretending those sources were unbiased, in an attempt to prove his points.

But now? Now he's just at the point of making things up. Wouldn't you think the starting point for figuring out whether spending is going up would be to look at spending? Not Krugman, though. He claims that domestic spending hasn't gone up, and his entire evidence is this:

Is domestic spending really exploding? Think about it: farm subsidies aside, which domestic programs have received lavish budget increases over the last three years? Education? Don't be silly: No Child Left Behind is rapidly turning into a sick joke.

In fact, many government agencies are severely underfinanced. For example, last month the head of the National Park Service's police admitted to reporters that her force faced serious budget and staff shortages, and was promptly suspended.

(Krugman, incidentally, seems to love using the "Bush must be lying about his policy about X because government agency Y or advocacy group Z says that they want more money to deal with X. Is Krugman dishonest, or is he actually so stupid that he doesn't realize that every group always says that they want more money to deal with a given problem? Have you ever heard any government agency say, "No thanks; our budget's big enough"? )

To be fair, Krugman does make a specific argument:

According to cleverly misleading reports from the Heritage Foundation and other like-minded sources, the deficit is growing because Mr. Bush isn't sufficiently conservative: he's allowing runaway growth in domestic spending.

He then goes off on a rant about tax evasion, which is rather ironic given his later accusation that "the right" is guilty of "bait-and-switch." Regardless of whether taxes are too low or the rich are guilty of tax evasion, what on earth does that have to do with his claim that spending hasn't increased? Nothing. He couldn't prove the latter, so he quickly changed topics to the former, hoping we wouldn't notice. It's, dare I say, a bait-and-switch.

And while I'm ranting about Krugman, what the heck kind of claim is this?

But [the decline in tax collections] also probably reflects an epidemic of tax avoidance and evasion.

(And incidentally, as long as I'm complaining, the phrase "tax avoidance and evasion" is dishonest. Tax evasion is a crime -- people not paying the taxes they're legally required to pay. Tax avoidance, on the other hand, is the perfectly legal approach of structuring one's business/assets to pay the fewest taxes one is legally required to pay. It's like lumping together "outrunning the police" and "driving just under the speed limit" as ways to avoid speeding tickets.)

It's common to hear people complain about George Bush that he owes everything he has achieved in his life to his family. So this study reported in the New York Times was interesting:

His astonishing assertion: differences between families explain only 25 percent of the nation's income inequality; the remaining 75 percent is explained by differences between siblings.

Some of his more provocative findings concern middle-borns. In families with three or more children, Mr. Conley says, middle offspring are less likely to receive financial support for their education and may do less well in school than their older and younger siblings. The chances that a second child will attend private school drop by 25 percent with the birth of a third, Mr. Conley found, and the likelihood that he or she will be held back a year increased severalfold. Unlike typical first- and last-borns, he reasons, middle children never experience family life as an only child; instead, they are forced to compete with their siblings for money and attention. (In this sense, he concedes, birth order does matter: not as a psychological variable but as a constraint on family resources.)

Here are two short and somewhat related blog posts I like: First, Gawker has a refreshing message for folks who complain when neighborhoods get cleaner and safer:

The whole Williamsburg/hipster-takeover/affordable housing thing is blowing out of control between the newspapers and the bloggers today. Listen people: we don't WANT all of you to have affordable housing. If you can't afford to live here, good. It's called natural selection by finance. It wouldn't kill you to live in some nice square state somewhere else, with other people like you. Walmart needs employees.

And Jane Galt answers the age-old question:

Why is it so hard for young single people to find one bedroom apartments in New York?

Because married people with children are still living in the $700 rent-stabilised one bedroom they [cough] inherited [/cough] rather than move.

And paying hundreds of dollars less for almost twice the square footage, than your humble (and humbly compensated) correspondant.

Rent control is but one of many answers. One can also blame:

• "Affordable housing" laws that discourage development and redevelopment

• Anti-development and anti-gentrification activists who fight every last building project in the city

• The peculiar local custom that has tenants, not landlords, paying the cost of a realtor (thus further reducing the incentive to move)

• The lack of a multiple listing service (which reduces the supply of apartments available to each realtor).

• And snobby young single people who wouldn't dream of moving to an outer borough.

As wrongheaded as rent control is, that last group is key. These young single people *can* find relatively affordable one bedroom apartments in the city - if they're willing to move to good, safe, convenient, but uncool neighborhoods such as Sunnyside or Greenpoint. (And then endure the complaints of those who say they're bad people for helping to "gentrify" said neighborhoods.)

China has amended its constitution, officially protecting private property for the first time:

Five decades after sweeping to power, a period during which private property has been nationalized and bloody campaigns have been waged against landlords, China's parliament amended the constitution to add the clause: "Private property obtained legally is inviolable."

(Or at least that our Supreme Court justices would stop pretending that it didn't say that?)

One of the longstanding liberal/conservative debates in the United States is in regard to the phenomenon of poverty. Liberals believe that the problems of the poor are primarily a result of circumstance, while conservatives believe that they're the result of poor choices. An article in the New York Times on Saturday, while intended (I think) to be a sob story about the harsh world actually illustrates the latter. They presented stories of two veterans; the first was Pat Tillman, killed in combat in Afghanistan, and the second is a woman who returned from Iraq and who is now homeless, with a child, in New York. I'm not sure why the Times decided to put these two stories together, but put that question aside and focus on the second story. It is a sad story when anybody is homeless, and even sadder when a veteran is. But once you get past that natural sympathetic reaction, the story becomes slightly less heart-rending.

Why homeless with a child? Well, she's unemployed (having left the military), and when she originally entered the military, she was stationed in Germany, where something happened:

A relationship with another soldier ended after she became pregnant, and in early 2003 she flew to the California home of some friends from the military - the Bronx was not an option, she says - to give birth in March of that year. A few weeks later, she did the hardest thing she has ever had to do: she left Shylah with her California friends and returned to Germany to complete her service.

And why homeless? Well, when she got home from the military, she stayed with her mother. Briefly:

Her Army career now over, Ms. Goodwin returned to California to pick up Shylah, who looked "amazingly different," and headed to the Bronx, where her mother, two sisters and a 4-year-old nephew were now living in the two-bedroom apartment in the Patterson housing project. "We were good for a week," she said of her relationship with her mother. "But after that. . . ."

Ms. Goodwin and her daughter moved in with a good friend's mother, and she began planning her next step in life, one that would provide more than the $250 a week she was receiving in unemployment benefits. But a heated argument abruptly ended the living arrangement, and late on April 6 - a little more than two months after being honorably discharged as a private, second class - a war veteran and her small child hit the darkened streets.

And now she's not doing well? Gee, what a shock. Like I said, a sad story. But more of a lesson about how not to live your life than a tale of society letting someone down.

Suppose you owned a convenience store. Suppose you didn't change sticker prices, but you instituted a new policy of "keeping the change," so that when customers paid for $15 items with a $20 bill, you retained the extra $5. Would customers consider this to be (a) a reduction in company expenses, or (b) a price increase? Let me phrase the question a different way: suppose the government put out its annual budget proposal. Suppose that programs weren't eliminated ; suppose further that under this proposal, taxpayers had to give more money to the government at the end of the day. How would you describe this situation?

Well, that depends. If you're a taxpayer, you'd of course call this a tax increase. On the other hand, if you're the New York Times, you might describe it as a "spending reduction." In fact, I can almost certainly guarantee that you'd describe it that way.

New Jersey is facing a large budget deficit for next year. As usual. And to mitigate this problem, our unelected Acting Governor, Dick Codey, has proposed a budget for next year which cancels a property tax rebate program. In other words, they keep more of our money. Astonishingly -- or perhaps not so, knowing the political leanings of the Times -- the paper doesn't seem to realize that this represents a tax increase. Under the proposal, the government will keep about $1.5 billion extra of our money. And yet the Times claims:

The proposed budget for the fiscal year starting July 1 does not raise any of the three major taxes: sales, income or corporate business. And Mr. Codey scrapped a proposal to tax 401(k) retirement accounts.

Rather, the biggest source of new revenue would be $500 million from the sale of state assets.

The minor fiction here is that the property tax goes to the municipality, while the rebate comes from the state – so the rebate is a "spending program" because it involves a transfer from one government pocket – the state's – to another – the town's. This is a dual fiction – first, because the towns are just creatures of the state anyway and their budgets are intertwined, and second, because from the point of view of the taxpayer, what on earth difference does it make? The fact is that at the end of the day, we're paying $800 extra per year in taxes.

The major fiction, of course, is the oft-repeated liberal idea that tax cuts "cost" money. The Times -- and keep in mind that this was a news story, not an editorial -- wants to convince us that the money belongs to the government, and hence that it is "giving" it to people -- "spending" it -- when it doesn't take as much as it usually does. Of course, from a pure bookkeeping standpoint, a tax cut has the same effect on the deficit as a spending increase does. But no rational person would confuse the two -- just as no rational person would think that a store returning change to a customer is the same thing as a store spending more money (even though, from a pure bookkeeping standpoint, it has the same effect on the bottom line.)

In a little-noticed surprise, it turns out that George Bush is in favor of abortion. Okay, maybe he isn't in favor of abortion, but he's pro-choice, anyway. At least according to Paul Krugman's logic, he is.

In his neverending quest to bash the Bush administration, Krugman tries to explain that the French aren't really faring worse than Americans, economically. His argument? That even though French workers work many fewer hours than Americans, and even though many more French workers are unemployed, this isn't a problem because they're just substituting leisure for work/income.

The point is that to the extent that the French have less income than we do, it's mainly a matter of choice.

When Krugman uses the word "choice" here, he doesn't mean that French workers are taking lower-pay, lower-stress jobs in return for more free time. He means that the French government has chosen tax and regulatory policies which make it impossible, sometimes illegal, for French workers to do otherwise. By that same "logic," if Congress outlaws abortion, then "to the extent that Americans don't have abortions, it's mainly a matter of choice." Isn't rhetorical sleight of hand great? A complete lack of choice is reframed as "choice." It would be comical if it weren't ludicrous.

That's not even touching upon the fact that Krugman regularly goes through contortion after contortion to try to explain why America's currently-low unemployment rate is really much higher than it appears, but he handwaves away the French unemployment rate with a mere:

There are several reasons why the French put in fewer hours of work per capita than we do. One is that some of the French would like to work, but can't: France's unemployment rate, which tends to run about four percentage points higher than the U.S. rate, is a real problem.

To recap: the French can't generate many jobs, and the ones they generate aren't very good. And French workers' "compensation" (*) for this is that they get to be unemployed. But because George Bush isn't president of France, this isn't a reason to criticize France.

(*) Krugman also describes other forms of "compensation":

But there are compensations for this lower level of consumption. Because French schools are good across the country, the French family doesn't have to worry as much about getting its children into a good school district.