What if the charitable deduction were larger?

Nov 3 JDN 2458791

Right now, the charitable tax deduction is really not all that significant. It makes donating to charity cheaper, but you still always end up with less money after donating than you had before. It might cause you to donate more than you otherwise would have, but you’ll still only give to a charity you already care about.

This is because the tax deduction applies to your income, rather than your taxes directly. So if you make $100,000 and donate $10,000, you pay taxes as if your income were $90,000. Say your tax rate is 25%; then you go from paying $25,000 and keeping $75,000 to paying $22,500 and keeping $67,500. The more you donate, the less money you will have to keep.

Many people don’t seem to understand this; they seem to think that rich people can actually get richer by donating to charity. That can’t be done in our current tax system, or at least not legally. (There are fraudulent ways to do so; but there are fraudulent ways to do lots of things.) Part of the confusion may be related to the fact that people don’t seem to understand how tax brackets work; they worry about being “pushed into a higher tax bracket” as though this could somehow reduce their after-tax income, but that doesn’t happen. That isn’t how tax brackets work.

Some welfare programs work that way—for instance, seeing your income rise high enough to lose Medicaid eligibility can be bad enough that you would prefer to have less income—but taxes themselves do not.

The graph below shows the actual average tax rate (red) and marginal tax rate (purple) of the current US federal income tax:

Average_tax_rate
From that graph alone, you might think that going to a higher tax bracket could result in lower after-tax income. But the next graph, of before-tax (blue) and after-tax (green) income shows otherwise:

After_tax_income

All that tax deductions can do is shift you left on the green line. Without the tax deduction, you would instead shift left on the blue line, and then read off your position on the green line. Thus the tax deduction benefits you if you were already donating, but never leaves you richer than you would have been without donating at all.

For example, if you have an income of $700,000, you would pay $223,000 in taxes and keep $477,000 in after-tax income. If you instead donate $100,000, your adjusted gross income will be reduced to $600,000, you will only pay $186,000 in taxes, and you will keep $414,000 in after-tax income. If there were no tax deduction, you would still have to pay $223,000 in taxes, and your after-tax income would be only $377,000. So you do benefit from the tax deduction; but there is no amount of donation which will actually increase your after-tax income to above $477,000.

But we wouldn’t have to do it this way. We could instead apply the deduction as a tax credit, which would make the effect of the deduction far larger.

Several years back, Miles Kimball (an economist who formerly worked at Michigan, now at UC Boulder) proposed a quite clever change to the tax system:

My proposal is to raise marginal tax rates above about $75,000 per person–or $150,000 per couple–by 10% (a dime on every extra dollar), but offer a 100% tax credit for public contributions up to the entire amount of the tax surcharge.

Kimball’s argument for the policy is mainly that this would make a tax increase more palatable, by giving people more control over where their money goes. This is surely true, and a worthwhile endeavor.

But the even larger benefit might come from the increased charitable donations. If we limited the tax credit to particularly high-impact charities, we would increase the donations to those charities. Whereas in the current system you get the same deduction regardless of where you give your money, even though we know that some charities are literally hundreds of times as cost-effective as others.

In fact, we might not even want to limit the tax credit to that 10% surcharge. If people want to donate more than 10% of their income to high-impact charities, perhaps we should let them. This would mean that the federal deficit could actually increase under this policy, but if so, there would have to be so much money donated that we’d most likely end world hunger. That’s a tradeoff I’m quite willing to make.

In principle, we could even introduce a tax credit that is greater than 100%—say for instance you get a 120% donation for the top-rated charities. This is not mathematically inconsistent, though it is surely a very bad idea. In that case, it absolutely would be possible to end up with more money than you started with, and the richer you are, the more you could get. There would effectively be a positive return on charitable donations, with the money paid for from the government budget. Bill Gates for instance could pay $10 billion a year to charity and the government would not only pay for it, but also have to give him an extra $2 billion. So even for the best charities—which probably are actually a good deal more cost-effective than the US government—we should cap the tax credit at 100%.

Obvious choices for high-impact charities include UNICEF, the Red Cross, GiveDirectly, and the Malaria Consortium. We would need some sort of criteria to decide which charities should get the benefits; I’m thinking we could have some sort of panel of experts who rate charities based on their cost-effectiveness.

It wouldn’t have to be all-or-nothing, either; charities with good but not top ratings could get an increased deduction but not a 100% deduction. The expert panel could rate charities on a scale from 0 to 10, and then anything above 5 gets an (X-5)*10% tax credit.

In effect, the current policy says, “If you give to charity, you don’t have to pay taxes on the money you gave; but all of your other taxes still apply.” The new policy would say, “You can give to a top-impact charity instead of paying taxes.”

Americans hate taxes and already give a lot to charity, but most of those donations are to relatively ineffective charities. This policy could incentivize people to give more or at least give to better places, probably without hurting the government budget—and if it does hurt the government budget, the benefits will be well worth the cost.

Migration holds together the American Dream

Sep 29 JDN 2458757

The United States is an exceptional country in many ways, some good (highest income), some bad (highest incarceration rate), and some mixed (largest military). But as you compare the US to other countries, one thing that will immediately strike you is how we are a nation of migrants.

I don’t just mean immigrants, people who moved to the country after being born here—though we certainly are also a country of immigrants. About 99% of the US population descends from immigrants, mostly European—there aren’t a lot of countries that can even say the majority of their population migrated from another continent. Over 45 million Americans are foreign-born, which is not only the highest in the world; it is almost one-fifth of all the immigrants in the world. We experience a net inflow of immigrants averaging over 1 million people per year, by far the highest in the world. Almost half of the increase in our workforce over the last decade was due to immigrants.

But the US is full of migration in another way, which may in fact be even more important: Internal migration, from country to city, from one city to another, or from one state to another. Every year, about 12.5% of Americans move somewhere; about 10% move to a different state. No other country even comes close to this level of internal migration. According to the US census, about two-thirds of moves are within the same county, and yet each year there are ten times as many Americans who moved to a different county as there are immigrants to the United States. There are more cross-state migrants to California and Texas alone than there are immigrants to the entire country. There are about as many people who move each year within the United States as there are foreign-born individuals total.

This internal migration is central to the high productivity of the American economy. Internal migration is central to the process of urbanization, which drives a great deal of economic development. It is not a coincidence that the United States is one of the world’s most urbanized countries as well as one of the richest, nor that the ranking of US states by urbanization and the ranking of US states by per-capita income look very much alike.

Income_Urbanization

On average, increasing a state’s urbanization by 1 percentage point increases its average per-capita income by $270 per year (in chained 2009 dollars); since most of that increase is going to the people who actually moved, this means that the average income increase as a result of moving from the country to the city is likely over $20,000 per year. To put it another way, if Maine could become as urbanized as California, we would expect its per-capita income to increase from about $39,000 per year to about $54,000 per year—which is just about California’s per-capita income.

Indeed, migration is probably the one thing holding up our otherwise dismal level of income mobility, which still trails behind most other First World countries (and far behind Denmark and Norway, because #ScandinaviaIsBetter). Canada also does extremely well in terms of income mobility, and Canada also has a high rate of internal migration, with almost 1% of Canadians moving to a new province in any given year. Canada is probably what the US would look like with a European-style social safety net; our high internal migration rate might actually get us better income mobility than is currently achieved by say France or Germany.

Indeed, migration may be the main reason there is still some vestige of an American Dream. It’s not what it used to be, but it isn’t yet dead either. Two-thirds of American adults have more real (inflation-adjusted) income than their parents. Intergenerational income mobility in the US grew quickly in the 1940s and 1950s, grew more slowly in the 1960s and 1970s, and has been stagnant ever since. While the odds of moving to a different income bracket have remained stable, income inequality has increased over the last 40 years, which means that the differences between those brackets have become larger.

How much should we value statistical lives?

June 9 JDN 2458644

The very concept of putting a dollar value on a human life offends most people. I understand why: It suggests that human lives are fungible, and also seems to imply that killing people is just fine as long as it produces sufficient profit.

In next week’s post I’ll try to assuage some of those fears: Saying that a life is worth say $5 million doesn’t actually mean that it’s justifiable to kill someone as long as it pays you $5 million.

But for now let me say that we really have no choice but to do this. There are a huge number of interventions we could make in the world that all have the same basic form: They could save lives, but they cost money. We need to be able to say when we are justified in spending more money to save more lives, and when we are not.

No, it simply won’t do to say that “money is no object”. Because money isn’t just money—money is human happiness. A willingness to spend unlimited amounts to save even a single life, if it could be coherently implemented at all, would result in, if not complete chaos or deadlock, a joyless, empty world where we all live to be 100 by being contained in protective foam and fed by machines. It may be uncomfortable to ask a question like “How many people should we be willing to let die to let ourselves have Disneyland?”; but if that answer were zero, we should not have Disneyland. The same is true for almost everything in our lives: From automobiles to chocolate, almost any product you buy, any service you consume, has resulted in some person’s death at some point.

And there is an even more urgent reason, in fact: There are many things we are currently not doing that could save many lives for very little money. Targeted foreign aid or donations to top charities could save lives for as little as $1000 each. Foreign aid is so cost-effective that even if the only thing foreign aid had ever accomplished was curing smallpox, it would be twice as cost-effective as the UK National Health Service (which is one of the best healthcare systems in the world). Tighter environmental regulations save an additional life for about $200,000 in compliance cost, which is less than we would have spent in health care costs; the Clean Air Act added about $12 trillion to the US economy over the last 30 years.

Reduced military spending could literally pay us money to save people’s lives—based on the cost of the Afghanistan War, we are currently paying as much as $1 million per person to kill people that we really have very little reason to kill.

Most of the lives we could save are statistical lives: We can’t point to a particular individual who will or will not die because of the decision, but we can do the math and say approximately how many people will or will not die. We know that approximately 11,000 people will die each year if we loosen regulations on mercury pollution; we can’t say who they are, but they’re out there. Human beings have a lot of trouble thinking this way; it’s just not how our brains evolved to work. But when we’re talking about policy on a national or global scale, it’s quite simply the only way to do things. Anything else is talking nonsense.

Standard estimates of the value of a statistical life range from about $4 million to $9 million. These estimates are based on how much people are willing to pay for reductions in risk. So for instance if people would pay $100 to reduce their chances of dying by 0.01%, we divide the former by the latter to say that a life is worth about $1 million.

It’s a weird question: You clearly can’t just multiply like that. How much would you be willing to accept for a 100% chance of death? Presumably there isn’t really such an amount, because you would be dead. So your willingness-to-accept is undefined. And there’s no particular reason for it to be linear below that: Since marginal utility of wealth is decreasing, the amount you would demand for a 50% chance of death is a lot more than 50 times as much as what you would demand for a 1% chance of death.
Say for instance that utility of wealth is logarithmic. Say your currently lifetime wealth is $1 million, and your current utility is about 70 QALY. Then if we measure wealth in thousands of dollars, we have W = 1000 and U = 10 ln W.

How much would you be willing to accept for a 1% chance of death? Your utility when dead is presumably zero, so we are asking for an amount m such that 0.99 U(W+m) = U(W). 0.99 (10 ln (W+m)) = 10 ln (W) means (W+m)^0.99 = W, so m = W^(1/0.99) – W. We started with W = 1000, so m = 72. You would be willing to accept $72,000 for a 1% chance of death. So we would estimate the value of a statistical life at $7.2 million.

How much for a 0.0001% chance of death? W^(1/0.999999)-W = 0.0069. So you would demand $6.90 for such a risk, and we’d estimate your value of a statistical life at $6.9 million. Pretty close, though not the same.

But how much would you be willing to accept for a 50% chance of death? W^(1/0.5) – W = 999,000. That is, $999 million. So if we multiplied that out, we’d say that your value of a statistical life has now risen to a staggering (and ridiculous) $2 billion.

Mathematically, the estimates are more consistent if we use small probabilities—but all this assumes that people actually know their own utility of wealth and calculate it correctly, which is a very unreasonable assumption.

The much bigger problem with this method is that human beings are terrible at dealing with small probabilities. When asked how much they’d be willing to pay to reduce their chances of dying by 0.01%, most people probably have absolutely no idea and may literally just say a random number.

We need to rethink our entire approach for judging such numbers. Honestly we shouldn’t be trying to put a dollar value on a human life; we should be asking about the dollar cost of saving a human life. We should be asking what else we could do with that money. Indeed, for the time being, I think the best thing to do is actually to compare lives to lives: How many lives could we save for this amount of money?

Thus, if we’re considering starting a war that will cost $1 trillion, we need to ask ourselves: How many innocent people would die if we don’t do that? How many will die if we do? And what else could we do with a trillion dollars? If the war is against Nazi Germany, okay, sure; we’re talking about killing millions to save tens of millions. But if it’s against ISIS, or Iran, those numbers don’t come out so great.

If we have a choice between two policies, each of which will cost $10 billion, and one of them will save 1,000 lives while the other will save 100,000, the obvious answer is to pick the second one. Yet this is exactly the world we live in, and we’re not doing that. We are throwing money at military spending and tax cuts (things that many not save any lives at all) and denying it from climate change adaptation, foreign aid, and poverty relief.

Instead of asking whether a given intervention is cost-effective based upon some notion of a dollar value of a human life, we should be asking what the current cost of saving a human life is, and we should devote all available resources into whatever means saves the most lives for the least money. Most likely that means some sort of foreign aid, public health intervention, or poverty relief in Third World countries. It clearly does not mean cutting taxes on billionaires or starting another war in the Middle East.

Just how poor is poor?

June 2 JDN 2458637

In last week’s post I told you about the richest of the rich, the billionaires with ten, eleven, or even twelve-figure net wealth. My concern about them is only indirect: I care that we have concentrated so many of the resources of our society into this handful of people instead of spreading it around where it would do more good. But it is not inherently bad for billionaires to exist; all other things equal, people having more wealth is good.

Today my topic is the poorest of the poor. Their status is inherently bad. No one deserves it, and while for much of history we may have been powerless to prevent it, we are no longer. We could help these people—quite substantially quite cheaply, as you’ll see—and we are simply choosing not to. Perhaps you as an individual are not making this choice; perhaps, like me, you vote for candidates who support international aid and donate to top-rated international charities. But as a society, we are making this choice. Voters in the First World could all agree—or even 51% agree—that this problem really should be fixed, and we could fix it.

If asked, most people would say they care about world hunger, but either they are deeply ignorant about the solutions we now have availble to us, or they can’t really care about world hunger, or they would have voted for politicians who were committed to actually implementing the spending necessary to fix it. Maybe people would prefer to fix world hunger as long as it didn’t cost them a cent; but ask them to pay even a little bit, and suddenly they’re not so sure.

At current prices, the official UN threshold for “extreme poverty” is $1.90 in real consumption per person per day. I want to be absolutely clear about this: This is adjusted for inflation and local purchasing power. They account for all consumption, including hunting, fishing, gathering, and goods made at home or obtained through bartering. This is not an artifact of failing to adjust for prices or not including goods that aren’t bought with money. These people really do live on less than $700 per year.

Shockingly, they are not all in Third World countries. While the majority of what we call “poverty” in the United States is well above the standard of living of UN “extreme poverty”, there are exceptions to this; there are about 5 million people in the US who are genuinely so poor that they are accurately categorized as at or near that $1.90 per day threshold.

This is such a shocking and horrifying truth that many people will try to deny it, as at least one libertarian think-tank did in a propagandistic screed. No, the UN isn’t lying; it’s really that bad. Extreme poverty in the US could be fixed so quickly, so easily that the fact that it remains in place can only be called an atrocity. Change a few numbers in the IRS code, work out a payment distribution system to reach people without bank accounts using cash or mobile payments, and by the end of the year you would have ended extreme poverty in the United States with no more than a few billion dollars diverted—which is to say, an amount that Jeff Bezos himself could afford to pay, or an amount that could be raised by a single percentage point of capital gains tax applied to billionaires only.
Even so, life is probably better for a homeless person on the street in New York City than it is for a child with malaria whose parents died in civil war in Congo. The New Yorker has access to clean water via drinking fountains, basic sanitation via public toilets (particularly in government buildings, since private businesses often specifically try to exclude the homeless), and basic nutrition via food banks and soup kitchens. The Congolese child has none of these things.

Life for the very poorest is a constant struggle for survival, against disease, malnutrition, dehydration, and parasites. Forget having a refrigerator or a microwave (as most of the poor in the US do, and rightly so—these things are really cheap here); they often have little clothing and no reliable shelter. The idea of going to a school or seeing a doctor sounds like a pipe dream. Surprisingly, there is a good chance that they or someone they know has a smartphone; if so it is likely their most prized possession. Though in Congo in particular, smartphones are relatively rare, which is ironic because the most critical raw material for smartphones—tantalum—is quite prevalent in Congo and a major source of conflict there.

Such a hard life is also typically a short one. The average life expectancy in Congo is less than 65 years. This is mainly due to the fact that almost 15% of children will die before the age of five, though fortunately infant and child mortality in Congo is rapidly declining (though that means it used to be worse than this!).

A disease that is merely inconvenient in a rich country is often fatal in a poor one; malaria is the classic example of this. Malaria remains the cause of over one million deaths per year, but essentially no one dies of malaria in First World countries. It can be treated with quinine, which costs no more than $3 per pill. But when your total consumption is $1.50 per day, a $3 pill is still prohibitively expensive. While in rich countries antibiotic-resistant tuberculosis is a real danger, for the world’s poorest people it doesn’t much matter if the bacteria are resistant to antibiotics, because nobody can afford antibiotics.

What could we do to save these people? A great deal, as it turns out.

Ending extreme poverty worldwide wouldn’t be as easy as ending it in the United States; there’s no central taxation authority that would let us simply change a few numbers and then start writing checks.
We could implement changes through either official development aid or by supporting specific vetted non-governmental organizations, but each of these options carries drawbacks. Development aid can be embezzled by corrupt governments. NGOs can go bankrupt or have their assets expropriated.

Yet even with such challenges in mind, the total cost to end extreme poverty—not all poverty, but extreme poverty—worldwide is probably less than $200 billion per year. This is not a small sum, but it is well within our means. This is less than a third of the US military budget (not counting non-DoD military spending!), or about half what the US spends on gasoline.

Frankly I think we could safely divert that $200 billion directly from military spending without losing any national security. 21st century warfare is much less about blowing up targets and much more about winning hearts and minds. Ending world hunger would win an awful lot of hearts and minds, methinks. Obviously we can’t eliminate all military spending; those first two or three aircraft carrier battle groups really are keeping us and our allies safer. Did we really need eleven?

But all right, suppose we did need to raise additional tax revenue to fund this program. How much would taxes have to go up? Let’s say that only First World countries pay, which we can approximate using the GDP of the US and the EU (obviously we could also include Canada and Australia, but we might not want to include some of Eastern Europe, so that roughly balances out). Add up the $19 trillion of European Union GDP and $21 trillion of US GDP together and you get $40 trillion per year; $200 billion is only 0.5% of that. We would only need to raise taxes by half a percentage point to fund this program. Even if we didn’t make the tax progressive (and why wouldn’t we?), a typical family making $60,000 per year would only need to pay an extra $300 per year.

Why aren’t we doing this?

This is a completely serious question. Feel free to read it in an exasperated voice. I honestly would like to know why the world is willing to leave so many people in so much suffering when we could save them for such little cost.

What’s going on in Venezuela?

Feb 3 JDN 2458518

As you may know, Venezuela is currently in a state of political crisis. Juan Guaido has declared himself President and been recognized by the United States as such, while Nicolas Maduro claims that he remains President as he has been for the last six years—during most of which time has has “ruled by decree”, which is to say that he has been effectively a dictator.

Maduro claims that this is a US-backed coup. I’ve seen a lot of people on the left buy into this claim.

I’m not saying this is impossible: The US has backed coups several times before, and has a particular track record of doing so against socialist regimes in Latin America.

But there are some reasons to be skeptical of it.

Unrest in Venezuela is nothing new, and looks to be quite grassroots. There have been widespread protests against Maduro—and severe crackdowns against those protests—for several years now. Guaido himself got his start in politics by organizing protests against Chavez and then Maduro, starting when he was a college student.

While Chavez, Maduro’s predecessor, remains extremely popular, most of the support for Maduro in Venezuela seems to come from the military and other elites. This is looking a lot like the Lenin/Stalin pattern: A charismatic and popular authoritarian socialist revolutionary opens the door for a murderous psychopathic authoritarian socialist who rules with an iron fist and causes millions of deaths. (In China, Mao managed to play both roles by himself.)

Guaido himself rejects all claims that he’s working for the US (but I suppose he would in either case).

And so far, no US troops have been deployed to Venezuela, and at the moment, Trump is currently only threatening for more sanctions or an embargo, not a military intervention. (He’s Trump, so who knows? And he did talk about invading them a year or two ago.)

The best evidence I’ve seen that it could be a US-orchestrated coup is a leaked report about a meeting discussing the possibility of such a coup a few months ago. But at least by the most reliable accounts we have, the US decided not to support that coup. I guess that could be part of the cover-up? (It feels weird when the crazy-sounding conspiracy theorists actually have a point. There totally have been US coups against Latin American governments that were covered up for decades.)

Even if it is actually a coup, I’m not entirely convinced that’s a bad thing.

The American and French Revolutions were coups, after all. When you are faced with a strong authoritarian government, a coup may be your only option for achieving freedom.
Here’s a bit of evidence that this is indeed what’s happening: the countries that support Guaido are a lot more democratic than the countries that support Maduro.

Guaido has already been recognized by most of Europe and Latin America, including Argentina, Brazil, Chile, Colombia, Costa Rica, Guatemala, Honduras, Panama, Paraguay, and Peru. Among those supporting Maduro are China, Russia, Iran, and Turkey—not exactly bastions of liberal democracy. Within Latin America, only Bolivia, Cuba, Mexico, and Uruguay support Maduro. Of those, only Mexico and Uruguay are recognizably democratic.

The average Democracy Index of countries that support Guaido is 7.5, which would be a “flawed democracy”. The average Democracy Index of countries that support Maduro is only 4.4, a “hybrid regime”.

Here is a plot of the Democracy Index by country supporting Guaido:democracy_index_guaido

Here is a plot of the Democracy Index by country supporting Maduro:

democracy_index_maduro

Since the entire EU recognizes Guaido, I could have shown each European country separately and biased the numbers even further, but I decided to specifically stick to major European powers with explicitly stated positions on Venezuela.

And we know that Maduro was a ruthless and autocratic dictator. So this is looking an awful lot like a democratic uprising against authoritarianism. It’s hard for me to be upset about that.

Second, Venezuela was in terrible shape, and largely due to Maduro’s administration.

After Maduro was elected (we’re still not sure how legitimate that election really was), Maduro underwent a total economic meltdown. Depression, hyperinflation, famine, a resurgence of malaria, and a huge exodus of refugees all followed. Millions of people are now starving in a country that was once quite rich. Nearly 90% of the population now lives in poverty. The story of Venezuela’s economy is one of total self-destruction.

Due to the bizarre system of subsidies and price controls in place, oil is now 100 times cheaper in Venezuela than water. Venezuela’s oil production has plummeted under Maduroto its lowest levels in decades, which might be good for climate change but is very bad for a country so dependent upon oil export revenue. It’s pretty much a classic cautionary tale for the Resource Curse.

Maduro, like any good socialist dictator, has blamed US sanctions for all his country’s economic failings. But there have not been strict US sanctions against Venezuela, and we remain their chief purchaser of oil by a wide margin. If you’ve ever bought gasoline at a Citgo station, you have paid for Venezuelan oil. Moreover, if your socialist country is that heavily dependent on exporting to capitalist countries… that really doesn’t say much in favor of socialism as an economic system, does it?

I don’t know what will happen. Maybe Maduro will successfully regain power. Maybe Guaido will retain control but turn out to be just as bad (there’s a long track record of coups against awful dictators resulting in equally awful dictators—Idi Amin is a classic example). Maybe Trump will do something stupid or crazy and we’ll end up in yet another decades-long military quagmire.

But there’s also a chance of something much better: Maybe Guaido can actually maintain power and build a genuinely democratic regime in Venezuela, and turn their economy back from the brink of devastation toward more sustainable growth. When the devil you know is this bad, sometimes you really do want to bet on the devil you don’t.

I don’t care what happened in that video

Jan 27 JDN 2458511

Right now there is an ongoing controversy over a viral video of a confrontation between young protesters wearing MAGA hats and an elderly Native American man. Various sources are purporting to show “a fuller picture” and “casting new light” and showing “a different side”. Others are saying it’s exactly as bad as it looks.

I think it probably is as bad as it looks, but the truth is: I don’t care. This is a distraction.

If you think litigating the precise events of this video is important, you are suffering from a severe case of scope neglect. You are looking at a single event between a handful of people when you should be looking at the overall trends of a country of over 300 million people.

First of all: The government shutdown only just ended. There are still going to be a lot of pieces to pick up. That’s what we should be talking about. That’s what we should be posting about. That’s what we should be calling Senators about. This is a national emergency. The longer this lasts, the worse it is going to get. People will die because of this shutdown—from tainted food and polluted water and denied food stamps. Our national security is being jeopardized—particularly with regard to cybersecurity.

The shutdown was also a completely unforced error. Government shutdowns shouldn’t even exist, and now that this one is over, we need to change the budget process so that this can never happen again.

And if you want to talk about the racist, sexist, and authoritarian leanings of Trump supporters, that’s quite important too. But it doesn’t hinge upon one person or one confrontation. I’m sure there are Trump supporters who aren’t racist; and I’m sure there are Obama supporters who are. But the overall statistical trend there is extremely strong.

I understand that most people suffer from severe scope neglect, and we have to live in a world filled with such people; so maybe there’s some symbolic value in finding one particularly egregious case that you can put a face on and share with the world. But if you’re going to do that, there’s two things I’d ask of you:

1. Make absolutely sure that this case is genuine. Nothing will destroy your persuasiveness faster than holding up an ambiguous case as if it were definitive.
2. After you’ve gotten their attention with the single example, show the statistics. There are truths, whole truths, and statistics. If you really want to know something, you use statistics.

The statistics are what this is really about. One person, even a hundred people—that really doesn’t matter. We need to keep our eyes on the millions of people, the directions of entire nations. For a lot of people, looking at numbers is boring; but there are people behind those numbers, and numbers are what tell us what’s really going on in the world.

For example: Trump really does seem to have brought bigotry out in the open. Hate crimes in the US increased for the third year in a row last year.

Then there are his direct policy actions which are human rights violations: The number of children detained at the border has skyrocketed to almost 13,000.

On the other hand, the economy is doing quite well: Unemployment stands at about 4%, and median income is increasing and poverty is decreasing.
Global extreme poverty continues its preciptious decline, but global climate change is getting worse, and already past the point where some serious consequences are going to be unavoidable.

Some indicators are more ambiguous: Corporate profits are near their all-time high, even in inflation-adjusted terms. That could be a sign of an overall good economy—but it also clearly has something to do with redistribution of income toward the wealthy.

Of course, all of those things were true yesterday, and will be true tomorrow. They were true last week, and will be true next week. They don’t lend themselves to a rapid-fire news cycle.

But maybe that means we don’t need a rapid-fire news cycle? Maybe that’s not the best way to understand what’s going on in the world?

If you stop destroying jobs, you will stop economic growth

Dec 30 JDN 2458483

One thing that endlessly frustrates me (and probably most economists) about the public conversation on economics is the fact that people seem to think “destroying jobs” is bad. Indeed, not simply a downside to be weighed, but a knock-down argument: If something “destroys jobs”, that’s a sufficient reason to opposite it, whether it be a new technology, an environmental regulation, or a trade agreement. So then we tie ourselves up in knots trying to argue that the policy won’t really destroy jobs, or it will create more than it destroys—but it will destroy jobs, and we don’t actually know how many it will create.

Destroying jobs is good. Destroying jobs is the only way that economic growth ever happens.

I realize I’m probably fighting an uphill battle here, so let me start at the beginning: What do I mean when I say “destroying jobs”? What exactly is a “job”, anyway?
At its most basic level, a job is something that needs done. It’s a task that someone wants to perform, but is unwilling or unable to perform on their own, and is therefore willing to give up some of what they have in order to get someone else to do it for them.

Capitalism has blinded us to this basic reality. We have become so accustomed to getting the vast majority of our goods via jobs that we come to think of having a job as something intrinsically valuable. It is not. Working at a job is a downside. It is something to be minimized.

There is a kind of work that is valuable: Creative, fulfilling work that you do for the joy of it. This is what we are talking about when we refer to something as a “vocation” or even a “hobby”. Whether it’s building ships in bottles, molding things from polymer clay, or coding video games for your friends, there is a lot of work in the world that has intrinsic value. But these things aren’t jobs. No one will pay them to do these things—or need to; you’ll do them anyway.

The value we get from jobs is actually obtained from goods: Everything from houses to underwear to televisions to antibiotics. The reason you want to have a job is that you want the money from that job to give you access to markets for all the goods that are actually valuable to you.

Jobs are the input—the cost—of producing all of those goods. The more jobs it takes to make a good, the more expensive that good is. This is not a rule-of-thumb statement of what usually or typically occurs. This is the most fundamental definition of cost. The more people you have to pay to do something, the harder it was to do that thing. If you can do it with fewer people (or the same people working with less effort), you should. Money is the approximation; money is the rule-of-thumb. We use money as an accounting mechanism to keep track of how much effort was put into accomplishing something. But what really matters is the “sweat of our laborers, the genius of our scientists, the hopes of our children”.

Economic growth means that we produce more goods at less cost.

That is, we produce more goods with fewer jobs.

All new technologies destroy jobs—if they are worth anything at all. The entire purpose of a new technology is to let us do things faster, better, easier—to let us have more things with less work.

This has been true since at least the dawn of the Industrial Revolution.

The Luddites weren’t wrong that automated looms would destroy weaver jobs. They were wrong to think that this was a bad thing. Of course, they weren’t crazy. Their livelihoods were genuinely in jeopardy. And this brings me to what the conversation should be about when we instead waste time talking about “destroying jobs”.

Here’s a slogan for you: Kill the jobs. Save the workers.

We shouldn’t be disappointed to lose a job; we should think of that as an opportunity to give a worker a better life. For however many years, you’ve been toiling to do this thing; well, now it’s done. As a civilization, we have finally accomplished the task that you and so many others set out to do. We have not “replaced you with a machine”; we have built a machine that now frees you from your toil and allows you to do something better with your life. Your purpose in life wasn’t to be a weaver or a coal miner or a steelworker; it was to be a friend and a lover and a parent. You can now get more chance to do the things that really matter because you won’t have to spend all your time working some job.

When we replaced weavers with looms, plows with combine harvesters, computers-the-people with computers-the-machines (a transformation now so complete most people don’t even seem to know that the word used to refer to a person—the award-winning film Hidden Figures is about computers-the-people), tollbooth operators with automated transponders—all these things meant that the job was now done. For the first time in the history of human civilization, nobody had to do that job anymore. Think of how miserable life is for someone pushing a plow or sitting in a tollbooth for 10 hours a day; aren’t you glad we don’t have to do that anymore (in this country, anyway)?

And the same will be true if we replace radiologists with AI diagnostic algorithms (we will; it’s probably not even 10 years away), or truckers with automated trucks (we will; I give it 20 years), or cognitive therapists with conversational AI (we might, but I’m more skeptical), or construction workers with building-printers (we probably won’t anytime soon, but it would be nice), the same principle applies: This is something we’ve finally accomplished as a civilization. We can check off the box on our to-do list and move on to the next thing.

But we shouldn’t simply throw away the people who were working on that noble task as if they were garbage. Their job is done—they did it well, and they should be rewarded. Yes, of course, the people responsible for performing the automation should be rewarded: The engineers, programmers, technicians. But also the people who were doing the task in the meantime, making sure that the work got done while those other people were spending all that time getting the machine to work: They should be rewarded too.

Losing your job to a machine should be the best thing that ever happened to you. You should still get to receive most of your income, and also get the chance to find a new job or retire.

How can such a thing be economically feasible? That’s the whole point: The machines are more efficient. We have more stuff now. That’s what economic growth is. So there’s literally no reason we can’t give every single person in the world at least as much wealth as we did before—there is now more wealth.

There’s a subtler argument against this, which is that diverting some of the surplus of automation to the workers who get displaced would reduce the incentives to create automation. This is true, so far as it goes. But you know what else reduces the incentives to create automation? Political opposition. Luddism. Naive populism. Trade protectionism.

Moreover, these forces are clearly more powerful, because they attack the opportunity to innovate: Trade protection can make it illegal to share knowledge with other countries. Luddist policies can make it impossible to automate a factory.

Whereas, sharing the wealth would only reduce the incentive to create automation; it would still be possible, simply less lucrative. Instead of making $40 billion, you’d only make $10 billion—you poor thing. I sincerely doubt there is a single human being on Earth with a meaningful contribution to make to humanity who would make that contribution if they were paid $40 billion but not if they were only paid $10 billion.

This is something that could be required by regulation, or negotiated into labor contracts. If your job is eliminated by automation, for the next year you get laid off but still paid your full salary. Then, your salary is converted into shares in the company that are projected to provide at least 50% of your previous salary in dividends—forever. By that time, you should be able to find another job, and as long as it pays at least half of what your old job did, you will be better off. Or, you can retire, and live off that 50% plus whatever else you were getting as a pension.

From the perspective of the employer, this does make automation a bit less attractive: The up-front cost in the first year has been increased by everyone’s salary, and the long-term cost has been increased by all those dividends. Would this reduce the number of jobs that get automated, relative to some imaginary ideal? Sure. But we don’t live in that ideal world anyway; plenty of other obstacles to innovation were in the way, and by solving the political conflict, this will remove as many as it adds. We might actually end up with more automation this way; and even if we don’t, we will certainly end up with less political conflict as well as less wealth and income inequality.