Author Archives: Tim Kane

The Good Country for Libertarians

Commentary magazine featured my essay on its December cover, The Good Country, which reports some astounding empirical correlations between U.S. troop deployments with economic and social development indicators in countries around the world. This finding is difficult from some to accept, particularly those who believe that the United States is too militaristic and meddlesome in the affairs of other countries. I’d like to challenge my Libertarian friends to think more carefully about what “The Good Country” means — because the simple interpretation is misleading.

Commentary_Cover_Dec2014

Three key sections from the article are copied here. The first is the core claim, cited on the cover, and with some additional supporting evidence:

In country after country, prosperity—in the form of economic growth and human development—has emerged where American boots have trod.

… Indeed, from 1950 to 2010, more than 30 million U.S. troops were deployed around the world, the vast majority to allied countries, stationed in permanent bases, and cooperating in peace. They were building, not destroying.

… [A]llied countries with a greater U.S. troop presence experienced better outcomes on measures of life expectancy and children’s mortality. This effect held even for countries growing at the same rate. Furthermore, it held during two distinct eras, pre- and post-1990. Life expectancy worldwide increased by 10 years between 1970 and the present. But it improved more quickly in countries that hosted American troops, and more slowly elsewhere. The worldwide mortality rate of children dropped from 132 to 55 per 1,000 live births during the same period, but again, the results were better among America’s allies.

Kane3j

At a minimum, the “troops effect” challenges our priors. Almost everything thinks that when the military is deployed, that means war.  In fact, since 1950, combat was the exception not the rule, even in Iraq and Afghanistan. Second key paragraph:

Contrary to conventional wisdom, most troop deployments were not to countries at war—the sole exception being the years from 1966 to 1970, the height of the war in Vietnam. In the 1980s, 300,000 American forces were stationed in European allied countries, 100,000 in Asian allied countries, 5,000 in Turkey (a NATO ally), and 9,000 in Panama.

And finally, the third key point is that these alliance relationships worked because of demand for U.S. troops, not just the supply.

It would be a mistake to read the evidence about the positive impact of troop deployments as a clarion call for, simply, more. … Let’s think about this from the economist’s perspective of supply and demand. A strategy of pushing troops to poor, unstable countries is not the way this policy works.

The lesson in all of this for libertarians, even pacifist libertarians, is that America’s foreign policy should emphasize alliances more than monster-hunting. This is an essay — indeed a worldview — that libertarians should embrace and extend. I would like to think it would drive a wedge between pacifists (who surely support a policy of preventing war) and isolationists (who are willing to let war ravage the rest of world so long as it does not touch our shores).

If you really think the presence of American forces throughout the Pacific from 1945-1990 did nothing to prevent a follow-up war between China, Korea, Japan, and the rest, I think you are beyond reason. Contrast that with the experience of Europeans post-WW1 and post-WW2.  A pacifist recognizes the failure of the post-WW1 disengagement and embraces the continued presence of US forces in Europe after WW2, including former foes Italy and Germany as well wartime allies France and Britain. It worked: No WW3.

Gruber and the Decline of Democracy

Jonathan Gruber is an MIT economist who helped designed the Affordable Care Act. During the years after its passage, he gave many public talks, often in academic settings in which he was recorded saying rather dreadful things about the “stupidity of the American voter.” Some of my fellow economists, notably those who think ACA is bad policy, have defended Gruber on various grounds, mostly emphasizing academic freedom/honesty and the effect that his public humiliation this week dissuades policy scholars from public service.

I think Grubergate has at least four important lessons, and none of them are favorable to Gruber.

1. Gruber’s straight talk is not equivalent to other controversial academic statements, such as the time when Larry Summers commented on differences of IQ distribution and gender. Gruber’s taped comments admit to an effort at deception. This is morally different, and deserves condemnation. Aristotle and Kant would condemn him, common sense condemns him, and we should as well. Indeed, the deception was multifaceted: first the byzantine design of the ACA was intentionally deceptive for CBO scoring, policymaker awareness, and public understanding, second the campaign to sell the legislation was deceptive. Arnold Kling gives Gruber way too much leeway by focusing on the PR campaign because that’s not why Gruber was paid the “big bucks” but that misses the point. To understand why this is such a big deal, pay attention to those who supported the ACA (unlike Arnold, Tyler Cowen, Bryan Caplan, and I), namely Ron Fournier who calls it a “foundation of lies.”

2. The shaming of Jonathan Gruber will not dissuade competent, intelligent scholars from policy work. It might dissuade antidemocratic snobs. Good riddance, I say. Maybe I am too moralistic, but Gruber offends me. He offends the idealism I shared with young men and women who serve in the U.S. military. His disdain for honest dealing literally breaks the honor code we live by in the armed forces, and one I suspect most Americans live by in their daily lives.

3. Gruber’s analysis is not technically “correct albeit overly cynical” as Tyler thinks.  It is an oxymoron to defend someone’s honesty when they are being honest about deception. What Gruber represents is a trend in legislative complexity, a trend that elites justify for getting their policies enacted but which strikes me as undemocratic in the most fundamental way possible. Citizens of a republic are rightly hostile to the bureaucratic state, and not because they are less intelligent than their representatives. It is because they have an innate sense of self-dealing, exactly the kind of dangerous legal corruption that Public Choice warns us about. We should see this as a case study in government failure. I’m thinking of Jonathan Rauch’s demosclerosis.

Glenn and I wrote BALANCE as a warning about how great power declines. We emphasize things like centralization and government failure. I doubt any ruler is fully aware of causing his country’s demise, nor do I suspect Gruber is aware that he is complicit in it here. But I think that is precisely what is at stake. Simple laws are better laws. And I have much more faith in democracy than any kind of elite rule. The corruption of democracy is what worries me.

4.  There is a case now before the Supreme Court about the design of the ACA’s subsidies. The law is clearly written that subsidies for buying insurance are available to consumers who utilize exchanges established by the states. A concern expressed by Gruber and other architects was that some states would be reluctant to establish exchanges, but the architects wanted the program to have a facade of federalism, so they engineered a huge incentive to make it happen – the states-only subsidies. What these wise fools did not expect was that the hyper-partisan ACA would be rejected by many Republican-leaning state legislatures. Consequently, the federal government faced a large demand for a centralized exchange set up as healthcare.gov. Its catastrophic failure was only fitting justice, a fitting return for hubris of elite complexity. Well, now Gruber says the subsidies were intended for the federal exchange as well. Do you believe him? He is lying, and that seems obvious if you study the case. I do not think the Supreme Court will reward this revisionist dishonesty.

It will be sweet justice and sweeter policy for the ACA to fail. It will nudge the Congress to free the health care market once and for all. If only all such elitist law met such a demise. Unfortunately, our generation has many more fights against dysfunctional complexity ahead, and few will be this easy.

 

Highlights on Inequality

Highlights of my summer reading on the hot topic of income and wealth inequality:

Tyler Cowen’s July 19, 2014 essay in the NYT

Policies on immigration and free trade, for example, sometimes increase inequality within a nation, yet can make the world a better place and often decrease inequality on the planet as a whole.

 

…We have evolved a political debate where essentially nationalistic concerns have been hiding behind the gentler cloak of egalitarianism. To clear up this confusion, one recommendation would be to preface all discussions of inequality with a reminder that global inequality has been falling and that, in this regard, the world is headed in a fundamentally better direction.

Income Inequality and Local Government in the United States, 1970-2000.  Boustan, Ferreira, Winkler, and Zolt (NBER 16299, Aug 2010):

“[R]ising income inequality is associated with larger increases in tax revenues and faster growth in public expenditures at municipal, school district and state levels.” 

Income Inequality and Poverty is a classic NBER piece from Martin Feldstein (w6770, Oct 1998): 

The first part of this paper argues that income inequality is not a problem in need of remedy. The common practice of interpreting a rise in the gini coefficient measure of inequality as a bad thing violates the Pareto principle and is equivalent to using a social welfare function that puts negative weight on increases in the income of high income individuals. The real distributional problem is not inequality but poverty.

Gordon’s Misperceptions paper (NBER 15351, Sep 2009):

The rise in American inequality has been exaggerated both in magnitude and timing. Commentators lament the large gap between the growth rates of real median household income and of private sector productivity. This paper shows that a conceptually consistent measure of this growth gap over 1979 to 2007 is only one-tenth of the conventional measure.

Gordon usefully accounts for the misperception, a large portion being the flawed use of “households” as a unit of comparison during a time of major social transformation of household composition. The proportion of grandparents living alongside their progeny and even fathers living with mothers is dramatically different in 2014 than it was as recently as 1984, let alone 1954. 

One puzzle for me is that Gordon claims “there was no increase in inequality after 1993 in the bottom 99 percent of the population” which is at odds with the observation made by Kevin Murphy and, separately and more recently, Peter Lindert (more below). My instinct, which might be wrong for many reasons, is that wage inequality spans the wage spectrum rather than being top-driven. Further, I suspect a big explanation is the regulatory suppression of labor demand. Put it this way: would you support drying up the demand for low-skill labor?  You may think “never” but if you agree with minimum wage laws, then you don’t just want to suppress such demand which drives down equilibrium wages, you want to outlaw such demand. Secondly, every dollar of extra regulatory cost per worker is a much bigger wedge on low-paying employment than on high-paying employment. But by all means, layer on the paperwork with the best of intentions.

Making The Most of Capital in The 21st century, Peter Lindert (NBER 20232, June 2014)

On the cause of Great Leveling of inequality (1913-1973), Lindert suggest three superior theories to the one considered by Piketty, as the war/chaos/pessimism does not logically square with the universal leveling among defeated, victorious, and non-participating nations in WW1, WW2, and the Cold War. Lindert suggests (1) decline of the rate of labor force growth globally, (2) an acceleration of labor force productivity / public education, and (3) a shift away from labor-saving bias in technological change.

Lindert notes that many advanced economies did not experience a rising income gap after 1973, notably Germany, Switzerland, France, and Japan. That tells you something important. If you recognize that the top 1% are innovators and supermanagers – not inheritors of great wealth (a fact Piketty himself acknowledges) – then you must also realize this sliver of earners operate globally but realize income in a few countries. The founders and stock option holders of Google, Apple, MSFT are primarily American. The near-frontier economies with per capita incomes at 80% of the United States such as Japan, France, and Switzerland enjoy the consumption of the computer revolution, but they have in a sense exported the inequality that is a byproduct of its development. In other words, income inequality in the modern era is inescapably global.  I think this reinforces Tyler’s message.

Lastly, don’t miss this short review of Piketty’s CAPITAL by Chris DeMuth. It is pithy, light-hearted and insightful.

Yet Mr. Piketty has no interest in expanding capital ownership: It doesn’t even make his list of inferior alternatives, and he dismisses capitalized pensions with a few uncharacteristic rhetorical slights. Like others on the left, he seems to have concluded that the only way to promote economic equality is confiscatory taxation—redistribution of capital returns rather than wider distribution of capital ownership. After Marx’s idea of comprehensive state ownership of the means of production proved to be hellacious and tyrannical, progressive attentions turned in a different direction. They would leave ownership—with all of its risks and tribulations—alone, and control its rewards through taxation and regulation.

 

 

What I’m Reading

HUMANE Act proposed by a GOP Senator and DEM Congressman should give us hope that immigration reform is possible in an incremental, bipartisan fashion.

Does Inequality Matter?  I keep thinking about a village of nine people, incomes equal (Gini coefficient = 0) when a poor migrant arrives with no income. He joins the village and is treated charitably.  But suddenly there is inequality. The Gini coefficient rises by ten percent. Which begs the question: is the measure of inequality a useful way to think about poverty, or economics of a society generally?

Ideas for Renewing American Prosperity. This is a reprint of articles from the WSJ’s anniversary issue (125 years), which included essay by many colleagues  at Hoover.

Exit Strategy note … the man who invented the term “Exit Strategy” was Clinton Sec. of State, Warren Christopher.  His papers are now part of the Hoover Institution Archives.

What is the right number of new Americans?

America welcomes over one million legal immigrants every year, thanks to the most open & generous policy in the world. That’s a good thing. But is 1.1 million in 2013 the right number?  Is there too much of a good thing?

Keep in mind: we are talking about legal immigration. These are the people playing by the rules, waiting in line, getting their green cards, and doing what it takes to qualify for U.S. citizenship. But if 1.1 million is helping to boost our economy and enrich our culture — America is a nation of immigrants, after all — why not 1.3 million?  Seriously, why not add 200,000 green cards just for foreign scientists, engineers, and entrepreneurs?

I asked these questions to a panel of nearly 40 top scholars, conservative, liberal, centrist, and nonpartisan. The answers appear in this new publication from the Hoover Institution that our team put together over the past few months. It’s called Peregrine and I could not be more proud of the result.  Please take a look.

Three Failures on Immigration Reform

Watching President Obama stand outside the White House under this afternoon’s mid-summer sunshine and express frustration with the failure of his 5-year strategy on immigration reform, one could sense his emotions. But on a moment’s reflection, the failure of immigration reform rests entirely on the President’s shoulders.

Obama claimed that he would be taking executive action in the coming weeks. Although I am a proponent of greater immigration, his speech struck me as a huge mistake. What today’s White House narrative reveals, in fact, is insincerity. True, a bipartisan bill did receive 68 of 100 votes in the Senate one year ago (on June 27, 2013), and that legislation has indeed languished because the House of Representatives won’t consider it, not even in committee.

The real story is that Republicans in the House were never willing to pass a comprehensive bill, certainly not one with a hint of amnesty, and the administration knows it. Indeed, one has to wonder if the goal of pushing the all-or-nothing big bill was ever anything more than a media tactic.  Either the President is shedding crocodile tears or he really believes that Republicans in the House – not the Senate, he reminds us – don’t like foreigners.

In his remarks, Obama called out Speaker of the House John Boehner (R-OH) for inaction.  That’s off target. The blame belongs on the Democrats and their failed tactics. Three failures stand out.

First, the evidence is pretty strong that leading Democratic politicians prefer that reform festers unresolved. If Barack Obama really wanted to change immigration law, he would have supported comprehensive reform as a Senator back in 2007 when it was championed by President Bush (Republican) and Senator Kennedy (Democrat).  The even more damning fact is that the Democratic Party had majority control of the Senate and House for two full years in 2009 and 2010 after Obama became President. Nancy Pelosi, not John Bohener, was Speaker. Why wasn’t comprehensive legislation passed then?

Some say that the White House was too busy in the first two years of the Obama Presidency, a ridiculous defense. Candidate Obama had promised action – “I can guarantee that we will have, in the first year, an immigration bill that I strongly support.” – and he turned his back on it when in office. Despite the weak economy, the White House had time to push for and enacted the hugely expensive, controversial Affordable Care Act. The White House had time for lots of other legislation, even time to enact “Cash for Clunkers.” But no time for immigration reform legislation.

Second, the President has constantly taken executive action in favor of policies he likes and disregarded parts of laws he dislikes or that are inconvenient. The White House refuses to enforce major provisions in its own signature legislation on health care, and it has overstepped its authority on immigration law as well. Left unsaid in today’s remarks is the fact that two years ago this month, (June 15, 2012) President Obama took executive action on immigration by changing the law through the DACA memorandum. The memo granted what critics call amnesty for undocumented children. It’s more complicated than that, sure, but nobody can deny the action sowed uncertainty, confusion, and the sense this White House could do whatever it wanted. If Americans aren’t clear about the implications of the memo, do you really think the impoverished people of Central America are? And yet we are to believe the surge of children arriving at the southern border are unrelated? Rubbish.

Why would any legislator trust this administration to be an honest broker now? Talking to staffers around Washington, one discovers that the President’s constant threat of more executive fiat is an ever-present destabilizer. Even the President’s Democratic allies admit off the record to the media that this White House is absolutely terrible at fostering trust and good will, even among Democratic legislators.

Third, Democrats have failed to offer incremental reforms, even though it has been clear that nothing comprehensive is viable. If the White House was sincere about wanting to work together, indeed to lead, then it should describe a handful of smaller policies that would work as legislation. Where are the private meetings on incremental legislation? Where is the outreach to top staffers in the House and Senate to craft a small, consensus bill that has 90% support (say on STEM graduates). Where is the effort to re-establish a functioning legislative process?  Nowhere.

To recap: President Obama was elected in 2008 and sworn into office in January 2009. For the next two years, Democrats controlled the Senate and House of Representatives. No bill on immigration reform appears to have been considered by Nancy Pelosi’s House of Representative or the Senate during that time. Eighteen months after the 2010 elections, in mid-2012, President Obama took executive action via the DACA memorandum, an action that could be seen as fomenting an influx of undocumented children. In mid-2013, the Senate passed a comprehensive immigration reform bill despite widely acknowledged resistance among House Republicans. Senator Harry Reid (D-NV) ruled out anything less than the whole comprehensive bill, a position never rebuked by the White House. The White House today says that the lack of a vote in Boehner’s House, unlike the lack of a vote in Pelosi’s House, has forced his hand.

What one sees is a White House taking executive action on immigration five months before an election. It happened in 2012. It is happening in 2014. Coincidence?

When the President neglected to offer any vision of compromise today, one suspects that he has none.

 

Smiles (not standards) to VOX

I haven’t been overly impressed by VOX until I saw this great piece on occupational licensing.

Licensing raises costs and reduces consumer choice, and research has found that these costs are economically significant. For example, economists Morris Kleiner and Alan Krueger have found that licensing is associated with about 18% higher wages on average, and those higher costs are often passed on to consumers. Economists have estimated that entry restrictions on non-physician health care workers cost consumers over $100 billion per year.

The clash of interests – consumers versus workers – leaves the poorest consumers with less money and, sadly, worse care.  One of the surprising graphs at VOX shows how people in states with more dental licensing end up with fewer teeth.

Frustration with occupational licensing is a source of bipartisan agreement. Economist left and right are against it; politicians left and right are for it.  However, it’s also an issue where you don’t hear much meaningful discussion of alternatives, and I think that’s because the only real alternative is libertarian.

There’s a larger parallel to education and health policy. The tendency is for governments to “solve” problems by centralizing authority and then setting standards which the public must then obey. Is this effective? Common Core is the latest effort to set standards, Meanwhile, parents are given fewer choices over which school or teachers they have to accept. I suspect that the market is much better at setting informal standards on teacher quality than the school district is at setting formal standards — if a true teacher choice market existed (imagine parents having complete control over which public classroom their children were assigned).

Do you think education consumers would prefer formal standards or choices?  Would you prefer choosing your college and major or an alternative world where the US Dept of Education established and enforced college-level education standards for all courses?

I’m smiling.