Will the extension of unemployment benefits encourage people to remain unemployed?
Last week, Obama signed into law an extension of unemployment benefits to 99 weeks. Supporters of the extension argue that it is a sensible thing to do when the economy is in dire straits, and that the presently unemployed deserve a safety net to shelter them from circumstances not entirely of their doing. Opponents argue that the extension will delay economic recovery by discouraging people at the margins from working. Although economic in nature, these arguments speak to the basic assumptions that both sides have about human preferences.
The supporters’ argument implicitly assumes that the supply of labor is relatively inelastic; this corresponds to an argument that incentives will not strongly influence how much a person works. Work is something that most people prefer to have as a matter of self-respect or a desire to keep active. Since it is not for lack of desire to work that people are unemployed, they deserve assistance from the state.
The opponents’ argument posits that the supply of labor is relatively elastic, and that how much people work is very much influenced by incentives. In this thinking, leisure is a luxury that people want more of while labor is something grinding, burdensome and best forgotten. There is some empirical evidence pointing in this direction. The end of open-ended welfare under Clinton dramatically increased the employment rate of the urban poor.
There is surely a degree of truth to both arguments. Unfortunately, macroeconomics is still a young science and nobody has either perfect information or perfect theory.
-Charles
Photo by Flickr user John McNab used under a Creative Commons Attribution License
Money for nothing
A story over at Newsweek profiles three people who want to bring the estate tax back. The main arguments for this tax concerned the deficit:
To Julian Robertson, the founder of hedge fund giant Tiger Management and a major philanthropist, the economic and moral case for an estate tax increase was simple. “You get out of a credit crisis by getting your house in order, and in America’s case bringing your deficit down. This implies tax increases.” The fairest way to do it, he said, is to tax “the least deserving recipients of wealth, which are the inheritors.
I’ve written earlier this week about the concept of desert, but it is interesting to consider where the concept of fairness combines with desert in this and similar arguments.
-Han
Photo by Flickr user propertytaxonline used under a Creative Commons Attribution license.
Born with a plastic spoon in my mouth
Theories of desert and the distribution of wealth
An op-ed in The New York Times laments the existence of “dynasty trusts,” which allow rich Americans to provide generations of heirs with tax-free estates. The article argues that this will result in the rise of a new aristocracy, which is un-American.
Americans have always assumed that wealth comes and goes. A poor person can work hard, become rich and pass his money on to his children and grandchildren. But then, if those descendants do not manage it wisely, they may lose it. “Shirtsleeves to shirtsleeves in three generations,” the saying goes, and it conforms to our preference for meritocracy over aristocracy.
The assumption here seems to be that meritocracies are preferable because they only bestow wealth upon those who deserve it. What exactly does the concept of desert amount to? I will explore three possibilities. Read more
Morality, meet the financial crisis
Many things have been blamed for the economic crisis, including easy credit, consumer (and banker) irrationality, poor regulation, unmonitored derivatives trading, the inappropriate use of government-sponsored enterprises, and the underlying forces of the global real-estate bubble. In a Project Syndicate article, Raghuram Rajan, a finance professor at the University of Chicago and former chief economist of the IMF, has a particularly interesting and unique take on the root causes of the crisis. According to Rajan, the proximate cause of the financial crisis was easy credit, with inequality at its root. Inequality led policymakers to pursue policies that encouraged consumption rather than addressing the root problem of stagnant middle-and-lower class incomes in an increasingly skill-biased economy.
So it turns out that inequality –- an issue generally seen as normative — may play an explanatory role in the most consequential economic challenge of our time. Could this be true of other things generally thought of in moral terms, such as freedom, order, peace, or justice? Are these only moral goods in their own right, or do they also have real bearing on outcomes that we might consider desirable?
–Charles
Image used under a Creative Commons attribution license from Flickr user saxarocks
Whose idea is it anyway?
On Wednesday, the EU’s highest court ruled that Monsanto cannot prevent the importation of soy meal from Argentina, despite the fact that it is derived from a genetically modified soy bean patented by the company. In effect, the court decided that the offspring of patented seeds are not subject to the same legal constraints as the originals.
New knowledge can be costly to develop. Enticing private parties to innovate requires some mechanism by which initial costs stand a good chance of being recovered. Patents accomplish this by conferring a lawful (but temporary) monopoly on its holder.
But what is the proper scope of a patent? Should Monsanto be entitled to royalties from the offspring -pure or hybrid- of their proprietary seed design? Or does it unnecessarily stifle further innovation to give a patent holder unlimited control over their discovery and all derivatives of it?
-Charles
Image used under a Creative Commons attribution license from Flickr user skasuga
What is the purpose of unemployment?
Robert Reich published an otherwise straightforward op-ed in NYT discussing the rise in entrepreneurship in the wake of the recession.
For starters, they could use what might be called “earnings insurance” that would pay for up to two years part of the difference between what they earned on the old job and what they earn now on their own. Employed workers would contribute to the insurance fund through their payroll taxes, as they do with unemployment insurance, but the total bill for benefits would be unlikely to rise because earnings insurance would get them back to work quicker and thereby reduce the number of weeks they relied on unemployment benefits.
I assume that Reich intends earnings insurance to only be available for those who started businesses involuntarily (i.e. got laid off).
The central question here revolves around why we value welfare-like programs in the first place. If the purpose is to provide basic livelihood so people who lose their jobs don’t immediately become destitute, then earnings insurance would likely meet that goal. But Reich’s point is different in arguing that earnings insurance would help seed a new generation of small businesses — the benefit is designed to be economic, not humanitarian.
Welfare programs distort the labor market to at least some extent by decreasing the marginal value of work. I definitely know people who, due to their previous professional salaries, would make more on unemployment than working an hourly job. Reich’s program seems to risk distorting the market even more by creating thousands of small businesses that can only exist on the basis of two years of government subsidy.
If entrepreneurship is to be America’s strength, it seems like distorting market forces around start-ups would be the worst idea. (But, as Reich says earlier, it would be great to see increased access to start-up capital).
-John
Kristof on foreign aid
When do facts matter?
Kristof’s latest column reveals a dark side to poverty in the poorest countries: parents often spend significant parts of their income on purchasing alcohol and tobacco products, significantly more than they invest in their childrens’ education. Although he begins this discussion with a few anecdotes from his own travels, he relies on an MIT research project for serious data.
Jamelle Bouie, one of Yglesias’ substitute bloggers, writes:
Kristof comes dangerously close to sounding like the domestic commentators who blame the problems of inner-city African-Americans on a lack of personal responsibility and some kind of unique black “pathology.”…The truth is that there isn’t much evidence to suggest that the African poor — or the poor more generally — are any more short-sighted and foolish than their wealthier counterparts, domestically and abroad.
Bouie, notably, never contests Kristof’s data on this issue. His retort is a clear non-sequitur; whether the poor spend a higher percentage of luxuries than the wealthy isn’t the issue as much as it is the actual amount invested in education. A hedge fund manager that invested $40,000 in Harvard and $1.5 million in a yacht might be contemptible for a variety of reasons, but underfunding education would not be one of them.
Bouie concludes his piece by praising Kristof’s efforts to promote micro-saving, a curious move. If the world’s poor are really doing just fine, why would a Western-funded savings program be necessary or justified? The conclusion seems to be that over-spending is a major problem with some potential solutions, but that we can only discuss those solutions without voicing the underlying problem.
Bouie also argues that factors other than poor spending underlie African poverty. No one is contesting this fact. Kristof’s argument is that behavior is one of the factors that serves to perpetuate poverty, among possibly many others.
In considering whether Bouie’s argument has any relevant moral component it’s useful to ask if there’s anything to be gained by his proposed silent treatment, and I really couldn’t think of anything relevant. A clear diagnosis of the problem should underlie any kind of foreign aid; further, data like Kristof’s should be available to help the West decide whether and how much foreign aid is appropriate.
Ultimately Bouie’s argument is that Kristof’s piece reminds him of another thing which he’d rather you not talk about, so better to not talk about either one. Puzzling.
-John
On oil & the environment
Our ethical stance towards the natural world
In response to the recent oil spill Andrew Sullivan writes that it’s time to reconsider the “morality of oil” He argues that even if the “cost benefit analysis of offshore drilling make sense” there are deeper ethical concerns to consider: Read more
Greek to me
Greece is in trouble and Greeks are angry. What should they do?
A deal has finally been struck between Greece, the European Union, and the International Monetary Fund. To help combat the debt crisis engulfing the southern European nation, the EU and IMF will provide a combined $145 billion. In return, Greece will agree to a classic series of so-called “austerity measures” to address the profligate spending the helped fuel the crisis in the first place.
This kind of deal is old hat for the international economic community. The so-called “Washington Consensus,” dominant for much of the 1990s, provided debt relief to developing nations on many of the same conditions.
The more interesting question may be how we should expect Greek citizens to react. Read more
Tea Partyers for Medicare
Inconsistency or philosophical conservatism?
The New York Times had a fascinating look yesterday at the demographic and ideological makeup on the Tea Party movement. Long discussed, but little studied, The New York Times and CBS commissioned a poll this month to get a detailed look at the profile and attitudes of Tea Party supporters.
The poll found that the 18 percent of Americans who associate with the Tea Party movement tend to be white, male, married, over 45 and on the “very conservative” end of the ideological spectrum. Tea Partyers express “fierce animosity toward Washington, and the president in particular, [ ] rooted in deep pessimism about the direction of the country and the conviction that the policies of the Obama administration are disproportionately directed at helping the poor rather than the middle class or the rich.”
But here’s the surprising stuff. While Tea Party supporters believe the goal of their movement is reduce the size of government and favor doing so even if it means cutting domestic programs, most happily partake in the three most expensive domestic programs: public education, medicare and social security. And they assert that these programs are “worth the cost to taxpayers.”
So what gives? Read more
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