Good Entropy

Megan McArdle :: The Atlantic – Sage

Harold Meyerson makes an argument that will be familiar to readers of this blog: stimulus doesn’t work the way it used to. Workers have more skills, which makes it harder to create jobs to soak up an untapped labor pool–even if we did create large numbers of jobs swinging pickaxes, many unemployed Americans wouldn’t take them.

Meyerson identifies a lot of the procedural barriers that I frequently talk about–the bidding and environmental safeguards that make federal projects very slow to get off the ground. But perhaps unsurprisingly, he doesn’t really explore a huge barrier to a WPA-type jobs program: public sector unions. They are not going to let you hire a bunch of cheap workers and run crews without civil service protections.

There’s something ironic in the fact that the legacy of the New Deal is the inability to reproduce it. On the other hand, it’s not so necessary, either. People are richer now, and though it isn’t perfect, our financial regulation is better. We’re not at much risk of people starving to death. So there’s no urgent need to create low-skilled jobs for them to fill.

Matthew Yglesias » Political Conflict Isn’t About Free Markets

To borrow an idea from Robin Hanson, I think it’s useful to think about political conflict in terms of valorized figures. On the right, you see a lot of valorization of businessmen. On the left, you see a lot of valorization of pushy activists who want to do something businessmen don’t like. Formally, the right is committed to ideas about free markets and the left is committed to ideas about economic equality. But in practice, political conflict much more commonly breaks down around “some stuff some businessmen want to do” vs “some stuff businessmen hate” rather than anything about markets or property rights per se. Consequently, on the left people sometimes fall into the trap of being patsies for rent-seeking mom & pop operators when poor people would benefit more from competition from a corporate bohemoth.

Explaining Socialism’s Moral Decay, Bryan Caplan | EconLog | Library of Economics and Liberty

I’m now finishing up a new introduction for a reissue of Eugen Richter’s Pictures of the Socialistic Future. In writing it, I identified three distinct answers to the question: “How could a movement founded to liberate workers from capitalist oppression end up shooting them in the back when they tried to flee the Workers’ Paradise?”

1. The Actonian “power corrupts” story

2. The Hayekian “worst get on top” story

3. The Richterian “born bad” story

Here’s my summary:

Lord Acton and F.A. Hayek have inspired the two most popular explanations for the crimes of actually-existing socialism. While Acton never lived to see socialists gain power, their behavior seems to perfectly illustrate his aphorism that, “Power tends to corrupt, and absolute power corrupts absolutely.” For all their idealism, even socialists will do bad things if left unchecked. Hayek, with the benefit of hindsight, suggested a slightly different explanation: Under socialism, “the worst get on top.” On this theory, the idealistic founders of socialism were gradually pushed out by brutal cynics as their movement’s power increased.

Richter’s novel advances a very different explanation for socialism’s “moral decay”: The movement was born bad. While the early socialists were indeed “idealists,” their ideal was totalitarian. Their overriding goals were to engineer a new society and a New Socialist Man. If this meant treating workers like slaves – depriving them of the freedom to choose their occupation or location, forbidding them to quit, splitting up families without their consent, and imposing draconian punishments on dissenters – so be it.

Patrick’s Price Controls – WSJ.com

On Thursday, Democratic Governor Deval Patrick’s insurance regulators announced that they had rejected 235 of 274 insurer requests for premium increases for individuals and small businesses over the coming year. This power has been on the books since 1977 but never used, and Mr. Patrick announced in February that he was dusting it off as an opening bid for rate-setting for hospitals, doctors and all other providers as well. The state’s health costs have risen to the nation’s highest since Beacon Hill passed the ObamaCare prototype that was supposed to reduce health costs.

The premium increases were “excessive and unreasonable,” Mr. Patrick said in a statement, though his insurance division issued no actuarial analysis to justify its decision. “Now, the big insurance companies will criticize this action,” he said. “But the fact is that for three years now, both they and health-care providers have sat around the table talking the issue of excessive cost to death and coming up with no solutions.” In other words, price controls are supposedly the only option.

Yet campaigns against the insurance industry are always the first political resort, as Mr. Obama’s assault on Anthem Blue Cross of California showed. In Massachusetts, however, the major insurers—Blue Cross Blue Shield, Harvard Pilgrim, Tufts Health Plan—are all nonprofits. The state itself calculates that they spend at least 88 cents of every premium dollar on the underlying costs of medical care, often more.

Just-as-good Medicine » American Scientist

That decrementally cost-effective innovations are so rarely described in the health-care literature suggests that medicine is distinct from most other markets, in which cost-decreasing, quality-reducing products are continuously being introduced—think IKEA, Walmart and the Tata car. Several reasons may explain this “medical exceptionalism.” First, there is fundamentally a lack of incentives both for physicians to control costs, especially under a fee-for-service regime, and for patients to demand less expensive treatment when insurance shields them from the direct costs of care. Second, medical “bargains” frequently come with health risks, and trading health for money strikes some as vulgar, regardless of ratio. The inherent ethical unease that decrementally cost-effective innovations can elicit poses a serious public relations and marketing challenge.

Armed and Dangerous » Blog Archive » Marginal Devolution

Eric S. Raymond writes:

We’ve spent the last seventy years increasing the hidden overhead and
downside risks associated with hiring a worker — which meant the
minimum revenue-per-employee threshold below which hiring doesn’t make
sense has crept up and up and up, gradually. This effect was partly
masked by credit and asset bubbles, but those have now popped.
Increasingly it’s not just the classic hard-core unemployables
(alcoholics, criminal deviants, crazies) that can’t pull enough weight
to justify a paycheck; it’s the marginal ones, the mediocre, and the
mildly dysfunctional.

In the comment section:

Jessica Boxer Says:

I propose Boxer’s law of economics: “The economy interprets taxation and regulation as damage and routes around it.”

Marginal Revolution: Is there a case for a VAT?

from the comments:

It seems to me that the American political system is simply broken. Canada could reduce the size of government and keep health care spending in check because in a parliamentary system with strong party loyalty, individual politicans are given ‘cover’ by their parties and are not held personally responsible for the taxes and benefits of their constituents. If the party in power makes a decision to cut benefits which will harm an individual politician’s district, that politician isn’t necessarily on the hook for it. The voters know that he has to vote the party line even if he disagrees with the legislation. He gets re-elected so long as the public feels his party in general is better than the opposition.

In the U.S. system, where every vote is a free vote, each member of Congress has to answer for his/her votes, and this drives NIMBY-ism and ever-increasing benefits without the tax hikes to pay for them, and it also causes wheeling and dealing which ultimately makes large regulatory packages like health care reform incoherent and bloated with pork.

I think American government works well when it’s strictly limited. When Americans try to implement Euro-style social democracy, they fail due to the nature of American government. It is uniquely unsuited to centralized technocratic governance.

Posted by: Dan H. at Feb 17, 2010 12:27:10 PM

The Roman historian Livy famously described the terminal plight of the late Roman Republic: “Nec vitia nostra nec remedia pati possumus” (“We can bear neither our shortcomings nor the remedies for them”)

america rip: A Look at the Numbers — The Coming Collapse of America

Michael Lewis interviewing an Icelandic fisherman turned failed banker:

“You spent seven years learning every little nuance of the fishing trade before you were granted the gift of learning from this great captain?” I ask.

“Yes.”

“And even then you had to sit at the feet of this great master for many months before you felt as if you knew what you were doing?”

“Yes.”

“Then why did you think you could become a banker and speculate in financial markets, without a day of training?”

Frozen Assets

Also, consider common stocks. No rational regulator concerned with substantive transparency would approve of common stock, if it were a novel investment vehicle. It guarantees no cashflows whatever, its “control rights” are so weak for most purchasers that representations thereof should be viewed as fraudulent. Empirically common stock behavior is very weakly coupled to the performance and health of the firms that stocks fund. The only instrument in wide use more substantatively opaque than common stock is fiat money.

from Seeking Alpha