Matthew Yglesias

Happy New Year!

Well, 2004 certainly hasn't been my favorite year, but still, I've had a good time with everyone out there in blog land. So happy new year, and here's hoping 2005 looks a bit better.

Blaming The Brown People

The Washington Post has an interesting story out about shifts in the labor market. The highlight is that jobs are less secure than they once were, and that even when you have a job, you're likely to bear more risk in terms of needing to pay for your own health insurance and save for your own retirement, rather than having these things taken care for you by your employer. Strangely, though, the article seems to just assume that the only possible reason anything could be worse in any way is that "foreign competition" is to blame. The authors, in other words, take semi-seriously the claim that everything's fine, but they don't seem to even consider the possibility that things might be un-fine for reasons that have nothing to do with Chinese, Indians, or Mexicans competing us out of our less-risky former economic structure.

The main thing that seems to me to be happening is that we have higher rates of job turnover than we used to, for reasons that have more to do with technological change and policy shifts away from an economy dominated by regulated monopolies and oligopolies. These policy shifts have brought about a lot of benefits, but one of the costs of job churn is that it's made defined-benefit pensions and employer-based health care less viable. At the same time, industries without strong unions offer workers less bargaining power and therefore a worse deal. But the issue here isn't that service-sector jobs are "worse" in some metaphysical sense than are manufacturing jobs. Rather, the manufacturing sector is older, and largely became unionized at a time when labor law was friendly to organization. Sectors that have arisen during the prolonged period in which the legal environment has been hostile to unionization tend not to have unionized workforces and hence produce "worse" jos.

In both cases, though, the answer isn't to go pining away for the good old days. Among other things, those good old days barely existed. The 1970s were hardly the salad years of the US economy, and if you go much further back than that you're talking about an economic structure based on the systematic exclusion of women and African-Americans from broad swathes of social and economic life -- hardly a model we're going to return to. Instead, you need a public sector that responds to the realities of short-tenure employment. Offering health care as a universal guarantee rather than a contingent factor of employment. Boosting, (rather than, as the president proposes, reducing) the public sector's role in offering some measure of guaranteed retirement security. Legal changes that make it easier to unionize new workplaces, so that the jobs we will, in fact, have will be good jobs, rather than having the country fight a hopeless rear-guard action to save the good jobs of the past. Indeed, it seems to me that the Lou Dobbs theory of the economy -- blaming trade and immigration for dislikable elements of the contemporary scene -- is a very dangerous toxin that's extremely counterproductive to sound social democratic goals. By focusing the ire of suffering people on various brown-skinned types both at home and abroad, this brand of pseudo-populism distracts attention from the policy shifts that could actually help and the powerful actors that stand in the way of those shifts. Chinese peasants and India's aspiring professional class are not the bad guys here.

More Disasterblogging

Brad Plumer gives me something else to worry about:

Hidden deep beneath the Earth's surface lie one of the most destructive and yet least-understood natural phenomena in the world - supervolcanoes. . . . The last supervolcano to erupt was Toba 74,000 years ago in Sumatra. Ten thousand times bigger than Mt St Helens, it created a global catastrophe dramatically affecting life on Earth. . . . It is little known that lying underneath one of America's areas of outstanding natural beauty - Yellowstone Park - is one of the largest supervolcanoes in the world. Scientists have revealed that it has been on a regular eruption cycle of 600,000 years. The last eruption was 640,000 years ago... so the next is overdue. . . . Scientists . . . do know that the impact of a Yellowstone eruption is terrifying to comprehend. Huge areas of the USA would be destroyed, the US economy would probably collapse . . . it would devastate the planet. Climatologists now know that Toba blasted so much ash and sulphur dioxide into the stratosphere that it blocked out the sun, causing the Earth's temperature to plummet.

Oh boy.

Modeling Tax Reform

It appears that the Bush administration has abandonned the goal of comprehensive tax reform, which is too bad, since I had this post in the works featuring charts to illustrate a formal model. Anyways, I've stuck what I had below, since I think it's interesting.

Consider a naive theory of tax policy debate where the only variable is progressivity versus flatness. Assign an arbitrary scale such that the status quo has a value of 20 on the flatness scale where higher numbers indicate greater flatness. Let's say also that public opinion prefers a system with a flatness value of zero. This does not guarantee that the public will get what it wants, but it should constrain the current government's ability to change things. In particular, a government that proposes a change that makes things worse from the perspective of the electorate will suffer for its sins at the polls. Consider the following diagram:

The black line in the center of the image represents the public's preferred policy on the progressive-flat scale. The black line to the right of the center represents the status quo. The green-shaded area represents all the territory that is closer than the status quo to the public's preferred outcome. If a left-wing government is in power, it will be able to make the system more progressive. Indeed, it will be able to get away with making the system more progressive than the public wants, simply by leaving it flat enough that the deviation from the preferred position is smaller than is the current deviation. Somewhat counterintuitively, the flatter the status quo system is, the further a left-wing government will be able to push it in the direction of progressivity. A rightwing government, conversely, won't be able to change things at all because the status quo is already flatter than the public would like to see.

But this is a very simple unidimensional model of the policy space. Consider that in addition to flatness versus progressivity, the tax code also has other attributes. Notably, tax codes can be more-or-less complex, in the sense of possessing loopholes, deductions, credits, etc. Now consider the following two dimensional image:

On this diagram, as you move to the right the system gets flatter, and if you move toward the bottom, the system gets simpler. The origin in the middle represents the public's preferred policy, while the black dot in the upper-right quadrant represents the status quo -- somewhat flatter than the public prefers and far more complicated. The shaded green area once again represents the range of outcomes that the public would prefer to the status quo. This time, however, the move toward a two-dimensional model creates a big difference. The public's indifference curve is circular, and since the status quo is so far from the desired outcome along the complexity axis, the government has a very wide range of proposals it could put forward without angering the public.

A wide range, that is, provided that it's prepared to make the tax code simpler. Even if the government doesn't really care about the simplicity issue, it would still be a good idea to at least pretend to care. The two diagonal lines emanating from the status quo dot represent one-to-one tradeoffs of increased simplicity for changes along the progressivity axis. A leftwing government could choose any point northwest of the southwest pointing line and achieve more in terms of greater progressivity than in terms of simplification. Conversely, a rightwing government could pick a point northeast of the southeast pointing line and achieve more in terms of greater flatness than in terms of simplification. Thus, by demonstrating a willingness to address the public's concern with tax code complexity, a rightwing government can simultaneously make the code less progressive than it already is even if the public would prefer the code to become more progressive. And, of course, you could change the assumptions around and the same thing would work for a leftwing government.

One important thing to note here is the importance of controlling the agenda. If rightwingers propose a simplification-and-flattening of the code, liberals will seize upon the flattening aspect, note its unpopularity, and try to campaign against it. But since the debate will be centered around the rightwing proposal and people will prefer the rightwing proposal to the status quo, the liberals will get beaten. Conversely, if liberals had gotten ahead of the curve, made a simplification-and-progressivification of the tax code the center of the debate, they would have won.

Thus, even if you don't think simplication issues are important compared to distributive ones, you ought to pretend.

No Libertarians In a Tsunami

Josh Marshall mocks the Ayn Rand Institute's condemnation of US (and other government) aid to help the victims of the Indian Ocean Tsunami. In reality, though, the only thing that's odd about this is that the Randians have the balls to stick to their guns even in the face of this disaster. After all, writing with regard to tax cuts on December 26th, Will Wilkinson explained that "For many libertarians and conservatives . . . [e]very cent the government takes from us beyond what is strictly necessary to secure our basic rights is a token of injustice." Since tsunami relief is surely not necessary to secure the basic rights of Americans, Canadians, Western Europeans, Japanese, and others, every sent spent by these and other governments is a token of injustice. Yet, strangely, the Ayn Rand Institute aside, you don't see many libertarians and conservatives sticking up for this view, though as we all know, all it takes for evil to prosper is for good men to do nothing. So where are the libertarian bloggers on this massive injustice being perpetrated by first world governments?

Be Afraid

Here's a story from back in August that somehow seems timely:

If Cumbre Vieja volcano erupts, it may send a rock slab the size of a small island crashing into the sea, creating a huge tidal wave, or tsunami. . . . New York, Washington DC, Boston and Miami would be almost wiped out by the tsunami generated by the insecure rock falling into the Atlantic.

I'd really hate to have someone say of me some day that my death, along with that of millions of other eastcoasters, was made all the more tragic by the fact that it could have been avoided if only we'd built a warning system.

Off Topic

Me, I love my banana chips. Kriston, on the other hand, is allergic. So far, so good. But his dog absolutely loves 'em. It ain't right. The boy should be eating meat. Or, you know, dog food.

More On Social Insurance

Angry Bear has a good post up on the theme touched on at the end of the post below. Plus his coverage involves the phrase "the sum of 100 Bernoulli draws," so you know it's true. No Bernoulli draws here at MY.com where we remain in a state of mathematical semi-literacy.

AARP Steps Up

As has been widely rumored, the AARP is going to play for the good guys in the Social Security debate instead of reprising their Medicare performance from 2003. I caution the Democrats, however, against an overreliance on the AARP as the key strategy here. The AARP's expertise is in targeting seniors, which is important, but only part of the game. And the message described in The New York Times article -- roughly, "the stock market is risky" -- will only get you so far. As long as young voters are convinced that Social Security is going to vanish in a cloud of crisis-induced smoke some time before we retire, then private accounts can be as risky as you like and people will still support them. The case against the crisis mentality needs to be paid.

What I really don't know how you do in a sound-bite, but which is also important, is something that gets to the difference between social insurance and a retirement plan. Social Security is a social insurance plan that insures working people against disability, death of a breadwinner, or some combination of longetivity and low earnings that would make retirement with dignity impossible. Private account schemes simply don't do this. Most proposals would leave a disability insurance program in place, but completely eliminate the longetivity/low earnings insurance. People who earn little will have little in the way of an account balance, and people who live longer will simply have to stretch their money further. Talk of average returns and so forth obscures all this. The whole point of social insurance is to compress the range of outcomes, reducing downside risk through methods that limit upside gains. Moving the mean point around isn't the point. On average, fire insurance is a bad idea, since very few people's homes actually burn down. This is the only way for companies to make a profit selling the stuff. People don't buy fire insurance to maximize their expected financial outcome, they do it because avoiding the possibility of catastrophic loss is worth something to people. For fires, private insurance works well enough so we don't have social insurance. Hedging against longevity on the private market, however, will be extremely difficult thanks to adverse selection. Hence social insurance, which Bush wants to eliminate.

Varieties of Hard Power

Since foreign aid issues are in the air, I thought I would offer some remarks on the much-misunderstood "hard power, soft power" distinction. There's a tendency to equate hard power with military power, which is wrong. On one level, it's just semantics, and you can use the word to mean whatever you want, but if Joseph Nye had meant "military power" he would have just said "military power." Instead, hard power is supposed to refer to all means of making people do what you want. For example, the United States could say to Mali, "hey, we'll double your foreign aid if you promise to always vote our way at the UN." That would be hard power, just as much as if we threatened to bomb them if they didn't do something. Taiwan sometimes dangles aid as a carrot to get countries to recognize it as the One True Government of China. That's hard power. When we place economic sanctions on Iran to try and change Iranian policy, that's hard power. When the EU tells countries that in order to join up they need to change a whole bunch of their laws (as we've been seeing, most notably, with Turkey lately) that's hard power.

Soft power is just a kind of psychic capital. Lots of people are familiar with apects of American life through either study here or from our large-scale exports of cultural power. This, in principle at least, could lead people to admire America and genuinely want to become more like us. That's soft power. People care more about Chinese repression in Tibet than they do about Chinese repression in Sinkiang because the Dalai Lama and Tibetan Budhism are generally admired in the West in a way that Turkic-speaking culture and Islam isn't. That's soft power. The new democracies of Eastern Europe are regarded by many as having a certain special sort of credibility in light of being populated by people who made the transition from dictatorship to democracy very successfully and this gives them a kind of soft power. American Jews and many American Christians feel a kinship with Israelis and a special concern with their problems, which gives Israel a certain kind of soft power. At the same time, Arabs in particular and Muslims in general feel a kinship with Palestinians and a special concern with their problems which gives Israel a massive soft power deficit.

Giving aid to help desperate tsunami victims may build our soft power -- give us global brownie points for being nice people. Using aid as a carrot/stick like tool to pressure our allies in the Broader Middle East would be a form of hard power.