Tag Archives: Politics

On End Of Period Spending

Last week US federal agencies were in a hurry to spend the last of their annual budget. Agencies that don’t spend all of their budget not only don’t get to save it for next year, next year’s budget will likely be reduced by the unspent amount. And the manager sacked. This last minute burst of spending is usually less carefully considered, and less useful, than other spending. (More about it all here.)

This situation is mildly puzzling. Why is not spending all of a budget such a bad sign? If needs and opportunities vary in time, spending that varies in time seems appropriate. Perhaps incompetent managers who just can’t plan induce more spending fluctuations. But is that really so much more likely than varying needs and opportunities? Some say that spending less than budgeted shows an agency “needs” less overall. But any tendency for agencies that sometimes spend less than budget to be less valuable seems to me much weaker than the tendency of last minute spending to be less valuable. So why aren’t bursts of last minute spending seen as just as bad or worse?

One explanation is that we developed habits of judging organizations and managers based on their budget habits in contexts where it was much harder to observe the time pattern of spending than the total amount spent. We developed the social norm of disapproving of unspent budgets in that context, and have been slow to adapt to a world where the time pattern of spending is visible.

A related explanation is while spending more near period end looks bad, there is a less clear bright line to coordinate on to say which time patterns of spending look bad. So while we each privately know last minute spending bursts look bad, we don’t coordinate to say it together.

Perhaps there are other plausible explanations. But one relatively robust conclusion here I think is that the political process can be pretty terrible at coordinating to react to simple easily visible info. It isn’t enough that we can all know something. We have to all know that we can know and then coordinate to switch new social norms, so that we all know that we all expect us all to actually look at this visible info sometimes, and to react in a certain easily verified way to that info.

Not very encouraging for folks who hope that government will finally sit up and notice other kinds of relevant policy info that it has long neglected.

Added 11Oct:

Spending in the last week of the year is 4.9 times higher than the rest-of-the-year weekly average. … Quality scores for year-end projects are 2.2 to 5.6 times more likely to be below the central value. Allowing agencies to roll over unused funding into the subsequent year can improve efficiency. We calibrate a dynamic model of spending and show that allowing rollover leads to welfare gains of up to 13 percent. … The one federal agency that has the ability to roll over unused funding for I.T. projects does not exhibit a year-end spike in spending or drop-off in quality in this category of spending. (more)

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The ‘What If Failure?’ Taboo

Last night I heard a  group of smart pundits and wonks discuss Tyler Cowen’s new book Average Is Over. This book is a sequel to his last, The Great Stagnation, where he argued that wage inequality has greatly increased in rich nations over the last forty years, and especially in the last fifteen years. In this new book, Tyler says this trend will continue for the next twenty years, and offers practical advice on how to personally navigate this new world.

Now while I’ve criticized Tyler for overemphasizing automation as a cause of this increased wage inequality, I agree that most of the trends he discusses are real, and most of his practical advice is sound. But I can also see reasonable grounds to dispute this, and I expected the pundits/wonks to join me in debating that. So I was surprised to see the discussion focus overwhelmingly on if this increased inequality was acceptable. Didn’t Tyler understand that losers might be unhappy, and push the political system toward redistribution and instability?

Tyler quite reasonably said yes this change might not be good overall, and yes there might well be more redistribution, but it wouldn’t change the overall inequality much. He pointed out that most losers might be pretty happy with new ways to enjoy more free time, that our last peak of instability was in the 60′s when inequality was at a minimum, that since we have mostly accepted increased inequality for forty years it is reasonable to expect that to continue for another twenty, and that over history inequality has had only a weak correlation with redistribution and instability.

None of which seemed to dent the pundit/wonk mood. They seemed to hold fast to a simple moral principle: when a future change is framed as a problem which we might hope our political system to solve, then the only acceptable reason to talk about the consequences of failing to solve that problem is to scare folks into trying harder to solve it. If you instead assume that politics will fail to solve the problem, and analyze the consequences of that in more detail, not to scare people but to work out how to live in that scenario, you are seen as expressing disloyalty to the system and hostility toward those who will suffer from that failure.

I think we see something similar with other trends framed as negatives, like global warming, bigger orgs, or increased regulation. Once such a trend is framed as an official bad thing which public policy might conceivably reduce, it becomes (mildly) taboo to seem to just accept the change and analyze how to deal with its consequences.

All of which seems bad news for my book, which mostly just accepts the “robots take over, humans lose wages and get sidelined” scenario and analyzes its consequences. No matter how good my reasons for thinking politics will fail to prevent this, many will react as did Nikola Danaylov, with outrage at my hostility toward the poor suffering losers.

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The Why-Policy-Wiki

“Normative as positive” (NAP) — explaining that the [education] policies actually chosen were chosen because they maximize an individualized social welfare function — fails as a useful general positive model of schooling. While NAP can perhaps accommodate the fact of some direct production of schooling by some governments, the reality is that (nearly) all governments produce education and that, by and large, this is their only support to education. Moreover, NAP fails not just in the large but also the small: there are six additional common facts about educational policies inconsistent with NAP. (more; HT Bryan Caplan)

That is Lant Pritchett, and I share his frustration. People usually explain their government’s policies via scenarios wherein such policies would help the world, or at least their local region. But when you point out details at odds with such simple stories, such people are usually uninterested in the subject. They switch to suggesting other scenarios or problems where policy might help, also with little interest in the details.

This evasive style, i.e., the habit of pointing to a diffuse space of possible scenarios and problems instead of particular ones, is a huge obstacle to critics. If you put a lot of time in critiquing one story, people just note that there are lots of other possible stories you didn’t critique.

This style helps people maintain idealist attitudes toward institutions they like. In contrast, people do the opposite for institutions they dislike, such as rival foreign governments or profit-making firms. In those cases, people prefer cynical explanations. For example, people say that firms advertise mainly to fool folks into buying products they don’t need. But the evasion remains; if you critique one cynical explanation they switch to others, avoiding discussing details about any one.

To solve this evasion problem, I propose we create a new kind of wiki that surveys opinions on policy explanations. In this new wiki readers could find items like “ 68% (162/238) of college graduates say the best explanation of government running schools, instead of subsidizing them, is because educated citizens can pay more taxes to benefit other citizens. 54% (7/13) of economics PhDs surveyed say it is to push propaganda.”

Here is how it would work. There would be three category hierarchies: of policies, of policy explanations, and of people with opinions on policy explanations. Each hierarchy would include a few very general categories near the top, and lots of much more specific categories toward the bottom.

Anyone could come to the wiki to contribute opinions on policy explanations. They would first give some demographic info on themselves, and that info would put them somewhere in the category hierarchy of people. They could then browse the category hierarchy of policies, picking a policy to explain. Finally, they could browse the category hierarchy of explanations, picking their favored explanation of that policy.

Users could start by being shown the most common explanation offered so far for similar policies by similar people, and then browsing away from that. Users could also expand the category hierarchies, to add more specific policies and explanations. For particular policy explanation pairs, users might add links to relevant theory, evidence, and arguments. Users might also upvote links added by others. This would help later readers search for well-voted evidence and theory close in the hierarchies to any given policy explanation.

By using category hierarchies, a wide range of people could express a wide range of opinions. Experts could dive into details while those who can barely understand the most basic categories could gesture crudely in their favored directions. Given such a wiki, a critic could focus their efforts on the most popular explanations for a policy by their target audience, and avoid the usual quick evasion to other explanations. Prediction markets tied to this wiki could let people bet that particular explanations won’t hold up well to criticism, or that popular opinion on a topic will drift toward a certain sort of expert opinion.

Of course this wiki could and should also be used to explain common policies of firms, clubs, families, and even individuals. I expect some editorial work to be needed, to organize sensible category hierarchies. But if good editors start the system with good starting hierarchies, the continuing editorial work probably wouldn’t be prohibitive.

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Political System Change Is Weird

Why do we have the political systems that we do? Back in the farming era, regimes competed militarily. Winners had more militarily effective total systems on average, and part their total system was their political system, which was therefore plausibly militarily effective.

Over the last seventy years, however, the selection power of military competition has been very weak. And it was somewhat weak for a while before then. If we ignore external conquest, political systems might be explained as the conscious choice of rulers: the systems are those that rulers (including voters) choose. But political systems have changed only modestly, even when there has been a lot of change in who runs them or what policies they implement, and lots of change in the rest of society.

You might say that our political systems are so stable because they are near perfect – rulers can’t imagine any better systems. But then why do systems vary so much around the world. And given the vast space of possible political systems, it isn’t plausible that we’ve explored more than a tiny corner of that space.

You might say that each local system is perfectly adapted to its local circumstances. But situations don’t seem that different. You might say that change in political systems is very expensive, so expensive that change is almost never worth the cost. But then why did systems ever change in the past? It is hard to see change being less expensive then.

It seems to me that the main reason political systems change so little these days is that it just seems weird to seriously suggest such changes. And not a good kind of weird. You can’t plausibly pose yoursel as a revolutionary martyr; people won’t actively stop you; they’ll just yawn and think you boring. And proposing to change the system isn’t a good way to show loyalty to existing political teams; even if your change clearly favors a team, it still seems needlessly round-about, relative to winning the usual way.

It isn’t clear to me exactly what processes make proposing changes to the political system seems so weird and boring to most folks today. But what does seem clearer to me is that variations in such processes are probably the main cause of variations today in political system change.

That is, while political systems vary in the outcomes they produce for people, and people vary in their opinions about such outcomes, such variations usually seem a pretty weak force today. A much stronger force seems to be whatever makes people look bad by even discussing the topic. It seems that political systems are stable more because they push folks to avoid discussing change than because they make people like the outcomes that such systems produce.

Until we return to an era when there is strong military competition, or until some big cultural change somehow makes discussing political system change cool, the political systems that we will have will mostly be the ones that somehow make folks look or feel bad to discuss changes, instead of the systems that most make people happy via their outcomes. Today, we are mostly selecting for political systems that tend to make discussing them seem weird.

Added 9p: What changes we have seen in political systems in the last seventy years have mainly been convergent – one place switching to the system of another place. There has been almost no exploring of the large space of possibilities.

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Is Govt Over-Regulated?

I heard a talk recently by Jal Mehta on his new book Allure of Order, where he says how he’d reform US (pre-college) schools. He wants the US to do like Finland where schools are great: select smarter folks as teachers, train them more, and give them more respect, time to prepare, and freedom to structure classes. When I asked him directly how he would pay for all this, he said to cut administration.

It seemed to me that Mehtra’s main complaint is that US teachers are over-regulated. And it occurs to me that this is a common complaint about US government. For example, we hear that US police are over-constrained by rules. And a similar problem would befall US single player health plans — while the UK National Health Service has lots of discretion that is mostly accepted by the UK public, US versions would instead be regulated in great detail.

If you think that private actors in the US tend to be over-regulated, you should wonder why. Perhaps it is because government regulators just act spitefully toward non-government actors, but more plausible are over-confidence and do-something biases. When problems occur, people want something done, and more regulations are something to do. Voters and regulators both overestimate their ability to anticipate future problems and what would help them.

But if this is why US private actors are over-regulated, then US government actors should be over-regulated too. For example, people should see things go wrong in schools, and so add more rules to “do something,” rules that assume too much about what rules can do, and that require too many administrators to implement.

This view suggests that being pro- or anti-regulation isn’t the same as being pro- or anti-government, and it suggests a possible left-right deal: reduce regulation in both private and public sectors. Have more trust in private competition to deal with the problems we leave to the private sphere, and in smart well-trained civil servants to deal with the problems we leave to the public sphere. And have less trust in lawyers, judges and rule-specialists of all sorts to fix our problems with more rules.

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Thought Crime Hypocrisy

Philip Tetlock’s new paper on political hypocrisy re thought crimes:

The ability to read minds raises the specter of punishment of thought crimes and preventive incarceration of those who harbor dangerous thoughts. … Our participants were highly educated managers participating in an executive education program who had extensive experience inside large business organizations and held diverse political views. … We asked participants to suppose that scientists had created technologies that can reveal attitudes that people are not aware of possessing but that may influence their actions nonetheless.

In the control condition, the core applications of these technologies (described as a mix of brain-scan technology and the IAT’s reaction-time technology) were left unspecified. In the two treatment conditions, these technologies were to be used … to screen employees for evidence of either unconscious racism (UR) against African Americans or unconscious anti-Americanism (UAA). … Liberals were consistently more open to the technology, and to punishing organizations that rejected its use, when the technology was aimed at detecting UR among company managers; conservatives were consistently more open to the technology, and to punishing organizations that rejected its use, when the technology was aimed at detecting UAA among American Muslims.

Virtually no one was ready to abandon that [harm] principle and endorse punishing individuals for unconscious attitudes per se. … When directly asked, few respondents saw it as defensible to endorse the technology for one type of application but not for the other—even though there were strong signs from our experiment that differential ideological groups would do just that when not directly confronted with this potential hypocrisy. …

Liberal participants were [more] reluctant to raise concerns about researcher bias as a basis for opposition, a reluctance consistent [the] finding that citizens tend to believe that scientists hold liberal rather than conservative political views. …

This experiment confronted the more extreme participants with a choice between defending a double standard (explaining why one application is more acceptable) and acknowledging that they may have erred initially (reconsidering their support for the ideologically agreeable technology). … Those with more extreme views were more disposed to … backtrack from their initial position. (more; ungated)

So if we oppose thought crime in general, but support it when it serves our partisan purposes, that probably means that we will have it in the long run. There will be thought crime.

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R&D Is Local, Global, But Not National

A recent Post article by Brad Plumer illustrates what is wrong with the usual research funding arguments:

One of the few things Republicans and Democrats have been able to agree on in recent years is that the government should be spending more on basic scientific research … Thanks to budget pressures and the looming sequester cuts, federal R&D spending is set to stagnate in the coming decade. …

As a result, scientists and other technology analysts are warning that the United States could soon lose its edge in scientific research — and that the private sector won’t necessarily be able to pick up the slack. “If you look at total R&D growth, including the corporate and government side, the U.S. is now at the low end … We’re seeing other countries, from Germany to Korea to China, make much bigger bets.” …

There’s a long, long list of world-changing innovations that can be traced back to federally funded R&D over the years. .. The key question here is how much of this innovation might have happened without government involvement. … Many economists agree that private companies tend to under-invest in very basic scientific research, since it’s hard for one firm to reap the full benefits from those discoveries. …

When the Congressional Budget Office reviewed the evidence in 2007, it concluded that government-funded basic research generated “substantially positive returns.” And it found that, on the whole, government R&D helped spur additional private-sector R&D rather than displace it. … The United States will soon spend less on all types of R&D as a percentage of its economy in the coming decade than countries like Australia and South Korea …

The sanguine view is that other countries are tossing more money at scientific research that will have positive spillover benefits for the entire world — including us. If China invents a cure for cancer, we all benefit. Others worry, however, that the U.S. economy could suffer from the fact that a greater share of research is happening elsewhere. (more)

Note the conflicting arguments: each small part of the world invests too little in R&D, because other parts gain without paying, but the US should fear falling behind nations that invest more. These two only makes sense together if the nation is the natural scale for innovation – innovations mostly leak away from their source within a nation, but mostly stay within each nation. The academic literature, however, suggests the natural scales are global and local – while there are gains to the world as a whole, gains are focused on related industries in the local area:

A recent body of empirical evidence clearly suggests that R&D and other sources of knowledge not only generate externalities, but such knowledge spillovers tend to be geographically bounded within the region where the new economic knowledge was created (Griliches 1992). That is, new economic knowledge may spill over, but the geographic extent of such knowledge spillovers is limited. … greater geographic concentration of production actually leads to more, and not less, dispersion of innovative activity. (more; see also and also)

While it would be great if the world could coordinate to promote R&D spending worldwide, there is little economic justification for forcing Wyoming and Louisiana, who spend 0.4% and 0.56% of GDP respectively on R&D, to pay for R&D spending in Massachusetts and New Mexico, where those figures are 5.49% and 7.65% (source), any more than the rest of the world pays for such spending. If the US government funds less R&D, it will be mainly states like Massachusetts and New Mexico that suffer, not states like Wyoming and Louisiana, relative to the rest of the world.

If R&D spending mostly helps the particular regions in which it happens, why do we pay for it at the national level? Probably because many see it as a national prestige good – people in Wyoming look good to foreigners by being in a nation where lots of impressive research happens in Massachusetts. Are they right, or is Massachusetts just getting a nice juicy transfer?

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Beware Far Values

In the last four years I’ve posted often on construal level theory. First discovered in the context of how differently people think about the distant future, construal level theory says that people think either using a near (concrete) mode, or a far (abstract) mode, or some intermediate mix. In far mode we tend to assume things are further away in time, space, social distance, with fewer relevant categories that are each more uniform internally. In near mode we do the opposite. There are lots more correlates.

I’ve talked before a bit about how this biases our thoughts about the future, and on politics. Today I want to focus on a particularly important element: in far mode we emphasize basic values a lot more, relative to practical constraints; in near mode we do the opposite.

Consider some very near choices: if to scratch your nose, how soon to browse Facebook yet again, what to eat for lunch, or if to hit that snooze alarm again. Near mode could bias us toward paying too much attention to practical constraints in such choices, relative to basic values. But it is hard for me to see that we actually neglect basic values that much in such choices.

But if we basically get the practicality vs. values tradeoff right for near choices, and if we pay a lot more attention to basic values for far choices, then either basic values are in fact a lot more important for far choices, or we vastly over-emphasize basic values for far choices. And since I can’t see good reasons why basic values should in fact matter a lot more for far choices, I conclude that in far mode we are greatly biased to attend too much to basic values, and too little to practical constraints.

This certainly fits my more detailed opinions on large scale policy and the future. You have to pay attention to an awful lot of detail in order to figure out which policies are best, or what is likely to actually happen in the distant future. But most people seem to quickly form opinions on such topics using simple value associations. When they can identify a clear value association, people seem pretty willing to form opinions, which seems to me a vastly overconfident attitude.

Now when different people have opposing values on some topic, the average of their opinions isn’t necessarily too far in any one value direction. If some folks focus on the value of citizen freedom, while others focus on the value of reducing crime, we don’t necessarily get too much freedom or crime. It is when people largely share the same values that things seem to go the most wrong.

For example, when everyone agrees on the importance of medicine or education, or military defense, we get way too much of each of them. When futurists generally agree the democracy is good, we get too much confidence that nice futures will be democratic, or that non-democratic futures will be hells.

Really folks, think about all the details that are relevant for your ordinary near choices of when to knock off of work for the day, whether to plant a garden this year, or who to invite to a party. All those far choices of national policy have just as many if not more relevant details. And if you think about all the details relevant for guessing if you will like taking on a new task at work, realize that there are far more details relevant to deciding if you would like any particular distant future scenario. The world is complicated!

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Is US gun control an important issue?

After the shocking massacre in Connecticut it looks like gun control is going to draw a lot of attention from Obama and Congress this year. This got me thinking about how important gun control might be as a political cause. The potential good achieved by focussing on this policy is in large part determined by the damage done by guns in the first place. In that light, does it deserve it?

A natural measure of the importance of the problem is the number of years of healthy life lost due to gun violence. At  the moment there are a bit over 8,000 murders with firearms each year in the US, some two thirds of the total. If we guess that the typical age of death from gun violence is 30, then the average survivor would have enjoyed another 50 years or so of healthy life. Firearm homicides would than lead to the loss of 400,000 years of healthy life each year. We would then have to add health problems among survivors of gun violence. To confirm that these figures are sensible I looked up the World Health Organisation’s Global Burden of Disease, which suggest ‘intentional violence’ as a whole cost the US and Canada about 1,100,000 years of healthy life each year. Two thirds of this would be 650,000 years, a figure which amounts to about 0.8% of the total burden of disease and injury in the US.

Another even larger problem than murder – at least as far as years of healthy life lost - is suicide. Easy access to guns makes suicide attempts more likely to succeed. The US suicide rate is 12 per 100,000; tragically high, though sadly unexceptional by international standards. If the typical suicide victim would have lived another 45 healthy years, this amounts to an annual burden of 1,600,000 each year, roughly the WHO’s figure. [1]  Firearms are used for about half of these suicides, so we’ll say they have a burden of 800,000 years of healthy life, or about 1% of the total burden of disease and injury.

How much could the US hope to reduce these figures? Of course the relationship between the number of guns and violence is contested, and I don’t really want to get drawn into that debate. I will just assume, for the sake of argument, that gun control policies could indeed help reduce violence. For that purpose, let’s imagine it could get firearm violence and suicide down to the average of other OECD countries. [1] Doing so would reduce the gun death rate (and I will assume injuries too) by 80% from ~10 to ~2 per 100,000. This is wildly optimistic given the other drivers of violence and suicide in the US, and the timidity of any likely gun control laws under the Second Amendment. Even if guns did become hard to access, we would expect to see substitution to other weapons. Nonetheless, it offers a useful upper bound.

An 80% drop in firearm deaths and injuries would prevent the loss of 1.15 million years of healthy life each year, or around 1.4 per cent of all the damage done by disease and injury in the US. This falls inconveniently between ‘very little’ and ‘quite a bit’. How can we put this figure in perspective? One option would be to consider how much people claim to value their lives, while another would be to compare it to other available options for saving lives. Here I will use the latter to give some idea of how focussing on gun control compares to other policies or causes that might improve the health of Americans.

How much does it cost to save a life in the US?  The NHS in Britain conveniently uses £30,000 (around $US50,000) for each year of healthy life as the highest price at which a treatment is worth funding. The US has no central body for making these decisions, so no generic ‘marginal cost’ exists. A conclusion of the classic paper, Five-hundred life-saving interventions and their cost-effectiveness, is that the cost of extending lives varies across several orders of magnitude depending on the approach you take. Nonetheless, many interventions in medicine and general safety fell between $5-50,000 for a year of life, at least in the mid-90s. A quick search turns up vaccination of US girls against HPV, which buys a year of healthy life for about $44,000, total knee arthroplasty for $18,300, HIV screening for under $25,000 and flu vaccination at $8,000-52,000. The availability of all of these could be expanded. At a rounded $50,000 figure, the equivalent of 1.15 million years of healthy life could be saved for $57 billion, or 0.38% of US GDP – a significant sum, though under a fifth of long run annual growth. By comparison, the US Federal Government already spends about 24% of US GDP, and all healthcare spending accounts for some 15%. Based on Robin’s work on the inefficacy of much US healthcare spending, redirecting some of that enormous budget to truly life-saving activities would go a long way.

If American activists or voters currently preoccupied with gun control were willing to look farther afield in their desire to prevent unnecessary death, directing government spending to provide bed nets to protect children in developing countries against malaria could save 30,000 kids for a meagre $70 million, or 0.00000046% of GDP. Sadly, the effectiveness and size of US foreign aid is barely discussed.

Of course this health story is not the full picture of the damage done by gun violence. We ought also consider the:

  • Costs incurred in trying to stay safe
  • Costs of caring for the injured
  • Loss of human capital from adults dying
  • Resulting distress and fear
  • Reduced urbanisation as a result of crime (which lowers productivity, among other things).

I would appreciate attempts to quantify these costs but don’t have time to pursue them myself right now. I would note in passing that many other interventions that improve health and safety would also reduce these harms to some extent.

My interpretation of the above is that gun violence is a serious issue in the US. It is not being blown out of proportion like shark attacks or terrorism. At the same time, the impact of guns on US health-span is modest, and lower than many common and avoidable diseases or accidents which fail to inspire a national conversation. Guns have become a hot issue because of their grisly and visible results, as well as fierce identity politics, rather than the absolute scale of the damage they do. If the main goal of gun control advocates were to save lives, their cause would not stand out as low-hanging fruit, especially if they cared about foreigners as well as Americans. Given the host of major problems facing the US, the limited attention of Congress and the White House, and the improbability of achieving a significant reduction in the number of dangerous weapons available, it is not a cause I would jump on.

[1] Some would say that a death by suicide isn’t as bad as a murder, because someone who is preventing from committing suicide probably has a low quality of life. There is some truth to this but I will ignore it, consistent with my desire to define an upper bound.

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US laissez-faire serves a greater global good

Liberals across the developed world are very concerned by inequality within the United States, as demonstrated by global interest in the Occupy Wall Street movement. This is peculiar because poverty within the United States is less common, and less severe, than it is in most countries around the world. The US does have a high level of inequality for a developed country, but it is not extreme by global standards Unfortunately, this disproportionate concern for Americans leads to attempts to narrow income inequality that may increase poverty and inequality worldwide. [1] I’ll explain how.

The US has long been one of the most innovative countries in the world, and exports the technologies it develops everywhere it can. This is, at least in part, due to its relatively cut-throat culture and laissez-faire economic system. Low taxes and ungenerous welfare mean the benefits of working hard, taking risks and making it big, are higher in the US than most other developed countries. More importantly, weaker regulation in the US means incumbents are less protected from competition, and talented people can more easily start new firms and overturn the status quo. Conversely, daring entrepreneurs are less rewarded in countries which redistribute a great deal of wealth to the poor, or build thickets of regulation that unintentionally (or intentionally) slow down disruptive businesses and technologies. While tempering the ravages of the market may on balance improve the welfare of current Americans, doing so is likely to lead to less experimentation in science, equipment, software, art, business models and so on.

Such innovation generates enormous and enduring positive externalities because the successes are copied at low cost across the world and enrich everyone’s lives. Economic theory would predict that coordinating to stimulate more of these costly but invaluable innovations would be a major concern in international diplomacy. But for some reason it is not, and so it is up to individual countries and the people within them to take these risks on behalf of us all.

Miserly social security and weak regulation in America at most harm 0.3 billion people as long as such policies persist; any resulting innovation spillovers help the remaining, poorer 6.7 billion for centuries to come because improvements in technology persist and compound over time. We all continue to benefit from the hard work of those who developed the telephone and prompted the development of an ever-growing number of related products.

This is not to say that the Occupy movement does not have some important points; it is crucial to oppose the US’s many ‘crony capitalist’ policies which enrich the wealthy while also stifling competition and creative destruction. [2] Nor would the ideal necessarily be a minimal government; there is a prima facie case that government investment in education, R&D, natural-monopoly infrastructure, and so on, can spur technological change. Unfortunately, a higher and higher share of US government spending is going to the opposite: the military, Medicare, Medicaid, unemployment benefits and pensions. These programs are not investments in the future, and generate few if any positive spillovers for future Americans and the rest of the world. And because these programs are funded by taxes on the hard-working and successful, they blunt the incentives to invent things that help the whole of humanity.

Anyone who cares about lowering poverty and inequality, and doesn’t believe that American citizens are dramatically more important than everyone else, should think carefully before encouraging the US to follow the European economic model. If the US were go even further and slip into the sclerotic ‘extractive‘ economic model found in most of the developing world and some of southern Europe, it would be a global catastrophe. Resisting any movement in this direction is one way that heartless US conservatives are inadvertently more compassionate than they look.

Update: Turn out I’m I’m not the first person to notice this problem!

Update 2: Many people below doubt whether the US is more laissez-faire, and whether a laissez-faire model does as a general rule foster innovation. If you doubt these things, at least take away the point that whichever policies you think do stifle innovation, whichever countries they are found in, are much more harmful than they first seem. I will research and write up more on the topic of which broad economic settings lead to the most innovation in the future.

[1] The effect on wealth inequality is unclear, but the effect on ‘welfare inequality’ is likely to be negative.

[2] Though perversely, lousy healthcare policies have led to very high prices for medicine in the US, which has driven investments in new procedures and drugs, which have been borrowed by other countries. My guess is that effort probably would have been better directed at other industries.

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