Is a job guarantee better than a basic income?

Aug 5 JDN 2458336

In previous posts I’ve written about both the possibilities and challenges involved in creating a universal basic income. Today I’d like to address what I consider the most serious counter-argument against a basic income, an alternative proposal known as a job guarantee.

Whereas a basic income is literally just giving everyone free money, a job guarantee entails offering everyone who wants to work a job paid by the government. They’re not necessarily contradictory, but I’ve noticed a clear pattern: While basic income proponents are generally open to the idea of a job guarantee on the side, job guarantee proponents are often vociferously opposed to a basic income—even calling it “sinister”. I think the reason for this is that we see jobs as irrelevant, so we’re okay with throwing them in if you feel you must, while they see jobs as essential, so they meet any attempt to remove them with overwhelming resistance.

Where a basic income is extremely simple and could be implemented by a single act of the legislature, a job guarantee is considerably more complicated. The usual proposal for a job guarantee involves federal funding but local implementation, which is how most of our social welfare system is implemented—and why social welfare programs are so much better in liberal states like California than in conservative states like Mississippi, because California actually believes in what it’s implementing and Mississippi doesn’t. Anyone who wants a job guarantee needs to take that aspect seriously: In the places where poverty is worst, you’re offering control over the policy to the very governments that made poverty worst—and whether it is by malice or incompetence, what makes you think that won’t continue?

Another argument that I think job guarantee proponents don’t take seriously enough is the concern about “make-work”. They insist that a job guarantee is not “make-work”, but real work that’s just somehow not being done. They seem to think that there are a huge number of jobs that we could just create at the snap of a finger, which would be both necessary and useful on the one hand, and a perfect match for the existing skills of the unemployed population on the other hand. If that were the case, we would already be creating those jobs. It doesn’t even require a particularly strong faith in capitalism to understand this: If there is a profit to be made at hiring people to do something, there is probably already a business hiring people to do that. I don’t think of myself as someone with an overriding faith in capitalism, but a lot of the socialist arguments for job guarantees make me feel that way by comparison: They seem to think that there’s this huge untapped reserve of necessary work that the market is somehow failing to provide, and I’m just not seeing it.

There are public goods projects which aren’t profitable but would still be socially beneficial, like building rail lines and cleaning up rivers. But proponents of a job guarantee don’t seem to understand that these are almost all highly specialized jobs at our level of technology. We don’t need a bunch of people with shovels. We need engineers and welders and ecologists.

If you propose using people with shovels where engineers would be more efficient, that is make-work, whether you admit it or not. If you’re making people work in a less-efficient way in order to create jobs, then the jobs you are creating are fake jobs that aren’t worth creating. The line is often credited to Milton Friedman, but actually said first by William Aberhart in 1935:

Taking up the policy of a public works program as a solution for unemployment, it was criticized as a plan that took no account of the part that machinery played in modern construction, with a road-making machine instanced as an example. He saw, said Mr. Aberhart, work in progress at an airport and was told that the men were given picks and shovels in order to lengthen the work, to which he replied why not give them spoons and forks instead of picks and shovels if the object was to lengthen out the task.

I’m all for spending more on building rail lines and cleaning up rivers, but that’s not an anti-poverty program. The people who need the most help are precisely the ones who are least qualified to work on these projects: Children, old people, people with severe disabilities. Job guarantee proponents either don’t understand this fact or intentionally ignore it. If you aren’t finding jobs for 7-year-olds with autism and 70-year-olds with Parkinson’s disease, this program will not end poverty. And if you are, I find it really hard to believe that these are real, productive jobs and not useless “make-work”. A basic income would let the 7-year-olds stay in school and the 70-year-olds live in retirement homes—and keep them both out of poverty.

Another really baffling argument for a job guarantee over basic income is that a basic income would act as a wage subsidy, encouraging employers to reduce wages. That’s not how a basic income works. Not at all. A basic income would provide a pure income effect, necessarily increasing wage demands. People would not be as desperate for work, so they’d be more comfortable turning down unreasonable wage offers. A basic income would also incentivize some people to leave the labor force by retiring or going back to school; the reduction in labor supply would further increase wages. The Earned Income Tax Credit is in many respects similar to a wage subsidy. While superficially it might seem similar, a basic income would have the exact opposite effect.

One reasonable argument against a basic income is the possibility that it could cause inflation. This is something that can’t really be tested with small-scale experiments, so we really won’t know for sure until we try it. But there is reason to think that the inflation would be small, as the people removed from the labor force will largely be the ones who are least-productive to begin with. There is a growing body of empirical evidence suggesting that inflationary effects of a basic income would be small. For example, data on cash transfer programs in Mexico show only a small inflationary effect despite large reductions in poverty. The whole reason a basic income looks attractive is that automation technology is now so advanced is that we really don’t need everyone to be working anymore. Productivity is so high now that a policy of universal 40-hour work weeks just doesn’t make sense in the 21st century.

Probably the best argument for a job guarantee over a basic income concerns cost. A basic income is very expensive, there’s no doubt about that; and a job guarantee could be much cheaper. That is something I take very seriously: Saving $1.5 trillion a year is absolutely a good reason. Indeed, I don’t really object to this argument; the calculations are correct. I merely think that a basic income is enough better that its higher cost is justifiable. A job guarantee can eliminate unemployment, but not poverty.

But the argument for a job guarantee that most people seem to be find most compelling concerns meaning. The philosopher John Danaher expressed this one most cogently. Unemployment is an extremely painful experience for most people, far beyond what could be explained simply by their financial circumstances. Most people who win large sums of money in the lottery cut back their hours, but continue working—so work itself seems to have some value. What seems to happen is that when people lose the chance to work, they feel that they have lost a vital source of meaning in their lives.

Yet this raises two more questions:

First, would a job guarantee actually solve that problem?
Second, are there ways we could solve it under a basic income?

With regard to the first question, I want to re-emphasize the fact that a large proportion of these guaranteed jobs necessarily cannot be genuinely efficient production. If efficient production would have created these jobs, we would most likely already have created them. Our society does not suffer from an enormous quantity of necessary work that could be done with the skills already possessed by the unemployed population, which is somehow not getting done—indeed, it is essentially impossible for a capitalist economy with a highly-liquid financial system to suffer such a malady. If the work is so valuable, someone will probably take out a loan to hire someone to do it. If that’s not happening, either the unemployed people don’t have the necessary skills, or the work really can’t be all that productive. There are some public goods projects that would be beneficial but aren’t being done, but that’s a different problem, and the match between the public goods projects that need done and the skills of the unemployed population is extremely poor. Displaced coal miners aren’t useful for maintaining automated photovoltaic factories. Truckers who get replaced by robot trucks won’t be much good for building maglev rails.

With this in mind, it’s not clear to me that people would really be able to find much meaning in a guaranteed job. You can’t be fired, so the fact that you have the job doesn’t mean anyone is impressed by the quality of your work. Your work wasn’t actually necessary, or the private sector would already have hired someone to do it. The government went out of its way to find a job that precisely matched what you happen to be good at, regardless of whether that job was actually accomplishing anything to benefit society. How is that any better than not working at all? You are spending hours of drudgery to accomplish… what, exactly? If our goal was simply to occupy people’s time, we could do that with Netflix or video games.

With regard to the second question, note that a basic income is quite different from other social welfare programs in that everyone gets it. So it’s very difficult to attach a social stigma to receiving basic income payments—it would require attaching the stigma to literally everyone. Much of the lost meaning, I suspect, from being unemployed comes from the social stigma attached.

Now, it’s still possible to attach social stigma to people who only get the basic income—there isn’t much we can do to prevent that. But in the worst-case scenario, this means unemployed people get the same stigma as before but more money. Moreover, it’s much harder to detect a basic income recipient than, say, someone who eats at a soup kitchen or buys food using EBT; since it goes in your checking account, all everyone else sees is you spending money from your debit card, just like everyone else. People who know you personally would probably know; but people who know you personally are also less likely to destroy your well-being by imposing a high stigma. Maybe they’ll pressure you to get off the couch and get a job, but they’ll do so because they genuinely want to help you, not because they think you are “one of those lazy freeloaders”.

And, as BIEN points out, think about retired people: They don’t seem to be so unhappy. Being on basic income is more like being retired than like being unemployed. It’s something everyone gets, not some special handout for “those people”. It’s permanent, so it’s not like you need to scramble to get a job before it goes away. You just get money automatically, so you don’t have to navigate a complex bureaucracy to get it. Controlling for income, retired people don’t seem to be any less happy than working people—so maybe work doesn’t actually provide all that much meaning after all.

I guess I can’t rule out the possibility that people need jobs to find meaning in their lives, but I both hope and believe that this is not generally the case. You can find meaning in your family, your friends, your community, your hobbies. You can still work even if you don’t need to work for a living: Build a shed, mow your lawn, tune up your car, upgrade your computer, write a story, learn a musical instrument, or try your hand at painting.

If you need to be taking orders from a corporation five days a week in order to have meaning in your life, you have bigger problems. I think what has happened to many people is that employment has so drained their lives of the real sources of meaning that they cling to it as the only thing they have left. But in fact work is not the cure to your ennui—it is the cause of it. Finally being free of the endless toil that has plagued humanity since the dawn of our species will give you the chance to reconnect with what really matters in life. Show your children that you love them in person, to their faces, instead of in this painfully indirect way of “providing for” them by going to work every day. Find ways to apply your skills in volunteering or creating works of art, instead of in endless drudgery for the profit of some faceless corporation.

How (not) to destroy an immoral market

Jul 29 JDN 2458329

In this world there are people of primitive cultures, with a population that is slowly declining, trying to survive a constant threat of violence in the aftermath of colonialism. But you already knew that, of course.

What you may not have realized is that some of these people are actively hunted by other people, slaughtered so that their remains can be sold on the black market.

I am referring of course to elephants. Maybe those weren’t the people you first had in mind?

Elephants are not human in the sense of being Homo sapiens; but as far as I am concerned, they are people in a moral sense.

Elephants take as long to mature as humans, and spend most of their childhood learning. They are born with brains only 35% of the size of their adult brains, much as we are born with brains 28% the size of our adult brains. Their encephalization quotients range from about 1.5 to 2.4, comparable to chimpanzees.

Elephants have problem-solving intelligence comparable to chimpanzees, cetaceans, and corvids. Elephants can pass the “mirror test” of self-identification and self-awareness. Individual elephants exhibit clearly distinguishable personalities. They exhibit empathy toward humans and other elephants. They can think creatively and develop new tools.

Elephants distinguish individual humans or elephants by sight or by voice, comfort each other when distressed, and above all mourn their dead. The kind of mourning behaviors elephants exhibit toward the remains of their dead family members have only been observed in humans and chimpanzees.

On a darker note, elephants also seek revenge. In response to losing loved ones to poaching or collisions with trains, elephants have orchestrated organized counter-attacks against human towns. This is not a single animal defending itself, as almost any will do; this is a coordinated act of vengeance after the fact. Once again, we have only observed similar behaviors in humans, great apes, and cetaceans.

Huffington Post backed off and said “just kidding” after asserting that elephants are people—but I won’t. Elephants are people. They do not have an advanced civilization, to be sure. But as far as I am concerned they display all the necessary minimal conditions to be granted the fundamental rights of personhood. Killing an elephant is murder.

And yet, the ivory trade continues to be profitable. Most of this is black-market activity, though it was legal in some places until very recently; China only restored their ivory trade ban this year, and Hong Kong’s ban will not take full effect until 2021. Some places are backsliding: A proposal (currently on hold) by the US Fish and Wildlife Service under the Trump administration would also legalize some limited forms of ivory trade.
With this in mind, I can understand why people would support the practice of ivory-burning, symbolically and publicly destroying ivory by fire so that no one can buy it. Two years ago, Kenya organized a particularly large ivory-burning that set ablaze 105 tons of elephant tusk and 1.35 tons of rhino horn.

But as economist, when I first learned about ivory-burning, it seemed like a really, really bad idea.

Why? Supply and demand. By destroying supply, you have just raised the market price of ivory. You have therefore increased the market incentives for poaching elephants and rhinos.

Yet it turns out I was wrong about this, as were many other economists. I looked at the empirical research, and changed my mind substantially. Ivory-burning is not such a bad idea after all.

Here was my reasoning before: If I want to reduce the incentives to produce something, what do I need to do? Lower the price. How do I do that? I need to increase the supply. Economists have made several proposals for how to do that, and until I looked at the data I would have expected them to work; but they haven’t.

The best way to increase supply is to create synthetic ivory that is cheap and very difficult to tell apart from the real thing. This has been done, but it didn’t work. For some reason, sellers try to hide the expensive real ivory in with the cheap synthetic ivory. I admit I actually have trouble understanding this; if you can’t sell it at full price, why even bother with the illegal real ivory? Maybe their customers have methods of distinguishing the two that the regulators don’t? If so, why aren’t the regulators using those methods? Another concern with increasing the supply of ivory is that it might reduce the stigma of consuming ivory, thereby also increasing the demand.

A similar problem has arisen with so-called “ghost ivory”; for obvious reasons, existing ivory products were excluded from the ban imposed in 1947, lest the government be forced to confiscate millions of billiard balls and thousands of pianos. Yet poachers have learned ways to hide new, illegal ivory and sell it as old, legal ivory.

Another proposal was to organize “sustainable ivory harvesting”, which based on past experience with similar regulations is unlikely to be enforceable. Moreover, this is not like sustainable wood harvesting, where our only concern is environmental. I for one care about the welfare of individual elephants, and I don’t think they would want to be “harvested”, sustainably or otherwise.
There is one way of doing “sustainable harvesting” that might not be so bad for the elephants, which would be to set up a protected colony of elephants, help them to increase their population, and then when elephants die of natural causes, take only the tusks and sell those as ivory, stamped with an official seal as “humanely and sustainably produced”. Even then, elephants are among a handful of species that would be offended by us taking their ancestors’ remains. But if it worked, it could save many elephant lives. The bigger problem is how expensive such a project would be, and how long it would take to show any benefit; elephant lifespans are about half as long as ours, (except in zoos, where their mortality rate is much higher!) so a policy that might conceivably solve a problem in 30 to 40 years doesn’t really sound so great. More detailed theoretical and empirical analysis has made this clear: you just can’t get ivory fast enough to meet existing demand this way.

In any case, China’s ban on all ivory trade had an immediate effect at dropping the price of ivory, which synthetic ivory did not. Before that, strengthened regulations in the US (particularly in New York and California) had been effective at reducing ivory sales. The CITES treaty in 1989 that banned most international ivory trade was followed by an immediate increase in elephant populations.

The most effective response to ivory trade is an absolutely categorical ban with no loopholes. To fight “ghost ivory”, we should remove exceptions for old ivory, offering buybacks for any antiques with a verifiable pedigree and a brief period of no-penalty surrender for anything with no such records. The only legal ivory must be for medical and scientific purposes, and its sourcing records must be absolutely impeccable—just as we do with human remains.

Even synthetic ivory must also be banned, at least if it’s convincing enough that real ivory could be hidden in it. You can make something you call “synthetic ivory” that serves a similar consumer function, but it must be different enough that it can be easily verified at customs inspections.

We must give no quarter to poachers; Kenya was right to impose a life sentence for aggravated poaching. The Tanzanian proposal to “shoot to kill” was too extreme; summary execution is never acceptable. But if indeed someone currently has a weapons pointed at an elephant and refuses to drop it, I consider it justifiable to shoot them, just as I would if that weapon were aimed at a human.

The need for a categorical ban is what makes the current US proposal dangerous. The particular exceptions it carves out are not all that large, but the fact that it carves out exceptions at all makes enforcement much more difficult. To his credit, Trump himself doesn’t seem very keen on the proposal, which may mean that it is dead in the water. I don’t get to say this often, but so far Trump seems to be making the right choice on this one.

Though the economic theory predicted otherwise, the empirical data is actually quite clear: The most effective way to save elephants from poaching is an absolutely categorical ban on ivory.

Ivory-burning is a signal of commitment to such a ban. Any ivory we find being sold, we will burn. Whoever was trying to sell it will lose their entire investment. Find more, and we will burn that too.

The asymmetric impact of housing prices

Jul 22 JDN 2458323

In several previous posts I’ve talked about the international crisis of high housing prices. Today, I want to talk about some features of housing that make high housing prices particularly terrible, in a way that other high prices would not be.

First, there is the fact that some amount of housing is a basic necessity, and houses are not easily divisible. So even if the houses being built are bigger than you need, you still need some kind of house, and you can’t buy half a house; the best you could really do would be to share it with someone else, and that introduces all sorts of other complications.

Second, t here is a deep asymmetry here. While rising housing prices definitely hurt people who want to buy houses, they benefit hardly anyone.


If you bought a house for $200,000 and then all housing prices doubled so it would now sell for $400,000, are you richer? You might feel richer. You might even have access to home equity loans that would give you more real liquidity. But are you actually richer?

I contend you are not, because the only way for you to access that wealth would be to sell your home, and then you’d need to buy another home, and that other home would also be twice as expensive. The amount of money you can get for your house may have increased, but the amount of house you can get for your house is exactly the same.

Conversely, suppose that housing prices fell by half, and now that house only sells for $100,000. Are you poorer? You still have your house. Even if your mortgage isn’t paid off, it’s still the same mortgage. Your payments haven’t changed. And once again, the amount of house you can get for your house will remain the same. In fact, if you are willing to accept a deed in lieu of foreclosure (it’s bad for your credit, of course), you can walk away from that underwater house and buy a new one that’s just as good with lower payments than what you are currently making. You may actually be richer because the price of your house fell.

Relative housing prices matter, certainly. If you own a $400,000 house and move to a city where housing prices have fallen to $100,000, you are definitely richer. And if you own a $100,000 house and move to a city where housing prices have risen to $400,000, you are definitely poorer. These two effects necessarily cancel out in the aggregate.

But do absolute housing prices matter for homeowners? It really seems to me that they don’t. The people who care about absolute housing prices are not homeowners; they are people trying to enter the market for the first time.
And this means that lower housing prices are almost always better. If you could buy a house for $1,000, we would live in a paradise where it was basically impossible to be homeless. (When social workers encountered someone who was genuinely homeless, they could just buy them a house then and there.) If every home cost $10 million, those who bought homes before the price surge would be little better off than they are, but the rest of us would live on the streets.

Psychologically, people very strongly resist falling housing prices. Even in very weak housing markets, most people will flatly refuse to sell their house for less than they paid for it. As a result, housing prices usually rise with inflation, but don’t usually fall in response to deflation. Rents also display similar rigidity over time. But in reality, lower prices are almost always better for almost everyone.

There is a group of people who are harmed by low housing prices, but it is a very small group of people, most of whom are already disgustingly rich: The real estate industry. Yes, if you build new housing, or flip houses, or buy and sell houses on speculation, you will be harmed by lower housing prices. Of these, literally the only one I care about even slightly is developers; and I only care about developers insofar as they are actually doing their job building housing that people need. If falling prices hurt developers, it would be because the supply of housing was so great that everyone who needs a house could have one.

There is a subtler nuance here, which is that some people may be buying more expensive housing as a speculative saving vehicle, hoping that they can cash out on their house when they retire. To that, I really only have one word of advice: Don’t. Don’t contribute to another speculative housing bubble that could cause another Great Recession. A house is not even a particularly safe investment, because it’s completely undiversified. Buy stocks. Buy all the stocks. Buy a house because you want that house, not because you hope to make money off of it.

And if the price of your house does fall someday? Don’t panic. You may be no worse off, and other people are probably much better off.

The injustice of positional goods

July 15 JDN 2458315

At Disneyland, you can now buy a special pass that will let you skip ahead in line. On several airlines including American, Delta, Spirit, and Southwest, you can pay extra to be allowed to board before other passengers (which has been particularly salient for me on the many flights I’ve been taking this summer). This is only an extreme form of a long-standing phenomenon: Since the beginning of commercial ship and train travel, there have been first-class and second-class tickets.

I don’t have any formal survey data on the matter, but just about everyone I have spoken to about such policies is at least vaguely uncomfortable with them, if not totally outraged. The exception is other economists, who typically don’t express any concern whatsoever. “People are willing to pay for this service because they value it,” they say; “so what’s the problem?”

On this one, I think the economists are wrong and everyone else is right. There is something different about this sort of service.

Part of the difference between first-class and second-class is in actual quality of services that actually incur additional costs (I hate to break it to you, but legroom on an aircraft is just such an example; every inch of legroom on each seat is another row of seats they can’t have, which is another $2000 or so they don’t get in revenue on each and every flight). But part of it is something else, something that costs the company literally nothing.

This makes early boarding a clearer example. What are you buying when you pay for early boarding? On most airlines, it’s not even a better seat; your seat is pre-assigned (Southwest is an exception). We could say you are paying for extra time, but that’s not really even true; the plane leaves at the same time for everyone. From your perspective, you are paying for convenience; you get to settle in on the plane, maybe get started working or whatever, before everyone else. Maybe you’d rather wait on the plane than wait in the airport (though frankly I’m not sure why; the airport has restaurants and comfortable restrooms).

What you are really buying is position. Early boarding is a positional good. Every person who gets bumped forward in the queue is someone else who is bumped backward. The net benefit for all customers as a whole is precisely zero, as is the cost for the company to provide it—and yet, it still has a positive price! This is impressive economic alchemy: The airline has managed to take something with zero marginal cost and zero marginal benefit, and still make money off of it. They have transmuted the lead of something costless and worthless into the gold of profit.

They achieve this by pitting customers against one another. In a post awhile back I talked about rent-seeking, such as lobbying and advertising. Usually it’s the corporations doing the rent-seeking, but early boarding and queue-jumping are examples of corporations intentionally generating a circumstances where they can obtain revenue from the rent-seeking of others.

To be fair, there might be some welfare gains to be had from auctioning off order in a queue. Some people have genuinely higher costs of time than others (a cardiac surgeon’s time is particularly important, for example), and an auction could potentially order people who have very high cost of time first.

But this argument is much weaker than it may at first appear, because people also have very different marginal utility of wealth, and indeed I think the correlation between your willingness to pay for time and your total wealth is considerably higher than the correlation between your willingness-to-pay for time and your actual real cost in terms of pain and suffering.

This is a more general problem, as I’ve discussed in previous posts; but I think it’s especially acute in the case of time, because real cost of time doesn’t actually vary all that much between most people. The reason poor people take buses and rich people take limousines isn’t because poor people don’t care about their time; it’s because they can’t afford limousines. A cardiac surgeon and an economist could very well have the same salary and the same willingness-to-pay for time, but people rarely die when an economist turns up an hour late. (It’s not that our work isn’t important—actually a good development economist can save far more lives than any cardiac surgeon—but it’s not nearly so urgent.) Also, consider the fact that teachers and social workers generally contribute a good deal more to society than derivatives traders (and thus, from a social welfare perspective, their time should be considered more valuable), but they are far less likely to pay for first-class seats. In fact, a first-come, first-served method actually seems better than an auction from a social welfare perspective: If your time is really important to you, you’re more likely to go out of your way to check in as soon as you can. That costly signal provides a sorting mechanism which relies directly upon real costs of time, rather than indirectly via monetary willingness-to-pay.

And of course when it comes to Disneyland, this argument utterly fails; I see little reason to think that a cardiac surgeon’s vacation time is substantially more valuable to society. (Don’t get me wrong; surgeons need and deserve vacation time—but if they get too much, their performance actually suffers!) So maybe paying for a place in queue isn’t completely rent-seeking, but it’s pretty close.

That is why paying for positional goods feels unjust to most people: Because it is. Charging a price for positional goods is a means of extracting profit from customers without providing any (net) real service. It’s a way of applying price discrimination without even having much monopoly power. If another airline doesn’t let you pay to skip ahead in the queue, you have a slightly lower expected wait time on that other airline, but any revenue they lose from charging a bit less for economy tickets can be easily made up by charging more for the front of the line.

For example, if the first 10% of the line on airline A is decided by selling spots, while airline B chooses at random, and the average time waiting in line to board is 30 minutes, the expected wait times are as follows. Fly airline A and don’t buy a spot: 16.5 minutes. Fly airline A and buy a spot: 1.5 minutes. Fly airline B: 15 minutes. Those 10% are paying for, on average, 13.5 minutes; but you’re only gaining 1.5 minutes. Of course, there are more people waiting that extra 1.5 minutes than saving those 13.5 minutes (9 times as many, in fact). If the per-minute willingness-to-pay were exactly the same, the airline would break even; but they know of course that the willingness-to-pay of that top 10% is considerably higher than that of most of the bottom 90%. If they have any market power at all (which they generally do, by being the only airline serving certain routes, offering loyalty benefits, etc.), they can squeeze out even more profit.

They may even sometimes go out of their way to make life miserable for those who don’t pay extra, increasing the incentive to pay extra. This requires some market power to pull off, but as I said, they often have that. Most airlines don’t offer power outlets at every seat, for example. This is not a serious question of installation cost or even power consumption. We’re talking about a few hundred dollars on an aircraft that costs hundreds of millions of dollars, or a few kilowatts from a system that can generate over one hundred megawatts (of course most of it is used for propulsion, but adding an alternator that would generate an extra few kilowatts of electrical power would still not be difficult or expensive). This is a way of making life worse for the economy-class passengers so they have a stronger incentive to pay for upgraded tickets.

It’s not always easy to tell what is a positional good: First-class seats are ambiguous, for example. But I think a good heuristic is to ask, “Could everyone benefit from this?” If the answer is “No, even in principle”, then you are definitely dealing with a positional good. Not everyone can be first in line at Disneyland. Not everyone can board the plane first. In theory at least, everyone could be provided the same legroom and meal service as a first-class ticket (it would be expensive, but not impossible), so that is at least in part not a positional good.

The “pay-to-win” effect of some video game downloadable content (DLC) is also a positional good, which we can see by the above heuristic: If everyone pays to have the best gun in the game, there’s no point in having the best gun in the game. This is why gamers are rightfully outraged by “pay-to-win” effects, but typically have no objection to paying for DLC that provides them with extra game content (such as new characters, locations, or missions) or cosmetic upgrades (hats, decorations, and “skins”). Personally I tend to think that most DLC is overpriced, and succeeds at being so due to a kind of monopoly power (Mass Effect DLC doesn’t work on Skyrim or vice-versa) but I certainly don’t object to the basic idea of charging additional money for additional content. The reason we object to “pay-to-win” is not that winning the game is so important; it’s that this business model is so obviously a form of rent extraction. (It’s interesting that gamers in China don’t seem to be as bothered by “pay-to-win” as gamers in the US; this runs counter to the standard narrative that American people are competitive capitalists and Chinese people are collectivist socialists, don’t you think?)

There may be some circumstances in which we have no choice but to allow corporations to charge prices for positional goods—especially if we can’t tell whether we are dealing with a positional good or not. But it would not be very difficult to draft legislation that would at least reduce such business practices: We could simply use my “Could everyone benefit?” heuristic. If a business charges money for something that even in principle they could not possibly provide all of their customers, they are charging a price for a positional good, and should be penalized. The benefits of such a policy would be relatively small, but the costs would be even smaller. If we are really concerned about letting cardiac surgeons board aircraft faster (we should really be concerned about deboarding faster—and especially faster security screening!), we could make such a rule that applies to particular classes of high-urgency professions; we don’t need to allow airlines to extract millions of dollars in rent by pitting their customers against each other.

Most trade barriers are not tariffs

Jul 8 JDN 2458309

When we talk about “protectionism” or “trade barriers”, what usually comes to mind is tariffs: taxes imposed on imports or exports. But especially now that international trade organizations have successfully reduced tariffs around the world, most trade barriers are not of this form at all.

Especially in highly-developed countries, but really almost everywhere, the most common trade barriers are what is simply but inelegantly called non-tariff barriers to trade: this includes licenses, quotas, subsidies, bailout guarantees, labeling requirements, and even some environmental regulations.

Non-tariff barriers are much more complicated to deal with, for at least three reasons.

First, with the exception of quotas and subsidies, non-tariff barriers are not easily quantifiable. We can easily put a number on the value of a tariff (though its impact is somewhat subtler than that), but this is not so easy for the effect of a bailout guarantee or a labeling requirement.

Second, non-tariff barriers are often much harder to detect. It’s obvious enough that imposing a tax on imported steel will reduce our imports of steel; but it requires a deeper understanding of the trade system to understand why bailing out domestic banks would distort financial flows, interest rates and exchange rates (even though the impact of this may actually be larger—the effect on global trade of US bank bailouts was between $35 billion and $110 billion).

Third, some trade barriers are either justifiable or simply inevitable. Simply having customs screening at the border is a non-tariff barrier, but it is widely regarded as a justifiable security measure (and I agree, by the way, even though I am generally in favor of much more open borders). Requiring strict labor and environmental standards on the production of products both domestic and imported is highly beneficial, but also imposes a trade barrier. In a broader sense, differences in language and culture could even be regarded as trade barriers (they certainly increase the real cost of trade), but it’s not clear that we could eliminate such things even if we wanted to.

This requires us to look very closely at almost every major government policy, to see how it might be distorting world trade. Some policies won’t meaningfully distort trade at all; these are not trade barriers. Others will distort trade, but are beneficial enough in other ways that they are still worth it; these are justifiable trade barriers. Still others will distort trade so much that they cannot be justified despite their other benefits. Finally, some policies will be put in place more or less explicitly to distort trade, usually in the form of protectionism to prop up domestic industries.

Protectionist policies are of course the first things to get rid of. Honestly, it baffles me that people even want to impose them in the first place. For some reason they think of exports as the benefit and imports as the cost, when it’s really the other way around; when we impose protectionism, we go out of our way to make it harder to get cars and iPhones so that we can stop other countries from taking our green paper. This seems to be tied to the fact that people think of jobs as something desirable, when really it’s wealth that’s desirable, and jobs are just one way of getting wealth—in some sense the most expensive way. Our macroeconomic policy obsesses over inflation, which is almost literally meaningless (as long as it is not too unpredictable, really nothing would change if inflation were raised from 2% to 4% or even 10%) and unemployment, which is at best an imperfect indicator of what we really should care about, namely the welfare of our people. A world of full employment with poverty wages is much worse than a world of high unemployment where a basic income provides for everyone’s needs. It is true that in our current system, unemployment is closely tied to a lot of very bad outcomes—but I maintain that this is largely because unemployment entails losing your income and your healthcare.

Some regulations that appear benign may actually be harmful because of their effects on trade. Yet I should also point out that it’s possible to go too far the other direction, and start tearing down all regulations in the name of reducing trade barriers. We particularly seem to do this in the financial industry, where “deregulation” seems to be on everyone’s lips until it causes a crisis, then we impose some regulations that fix the worst problems, things look good for awhile—and then we go back around and everyone starts talking about “deregulation” again. Meanwhile, the same people who talk about “freedom” as an excuse for removing financial safeguards are the ones who lock up children at the border. I think this is something that needs to be reframed: Which regulations are you removing? Just what, exactly, are you making legal that wasn’t before? Legalizing murder would be “deregulation”.

Trade policy, therefore, is a very delicate balance, between removing distortions and protecting legitimate public interests, between the needs of your own country and the world as a whole. This is why we need this whole apparatus of international trade institutions; it’s not a simple matter.

But I will say this: It would probably help if people educated themselves a bit more about how trade actually works before voting in politicians who promise to “save their jobs” from foreign competition.

The housing shortage is an international phenomenon

Jul 1 JDN 2458301

My posts for the next couple of weeks are going to be shorter, since I am in Europe and will be either on vacation (at the time I write this) or busy with a conference and a workshop (by the time this post goes live).

For today, I’d just like to point out that the crisis of extremely high housing prices is not unique to California or even the United States. In some respects it may even be worse elsewhere.

San Francisco remains especially bad; the median price for a home in San Francisco is a horrifying $1.6 million.

But London (where I am at the time of writing) is also terrible; the median price for a home in London recently fell to 430,000 pounds (about $600,000 at current exchange rates). The most expensive flat—not house, flat—sold a couple years ago for the mind-boggling sum of 150 million pounds (about $200 million). If I had $200 million, I would definitely not use it to buy a flat. At that point it would literally be cheaper to buy a yacht with a helipad, park it in the harbor, and commute by helicopter. Here’s a yacht with a helipad for only $20 million, and a helicopter to go with it for $6 million. That leaves $174 million; keep $20 million in stocks to be independently wealthy for the rest of your life, and then donate the remaining $154 million to charity.

The median price of a house in Vancouver stands at 1.1 million Canadian dollars, about $830,000 US.

A global comparison finds that on a per-square-meter basis, the most expensive real estate in the world is in Monaco, where $1 million US will only buy you 15 square meters. The remaining cities in the top 10 are Hong Kong, London, Singapore, Geneva, New York, Sydney, Paris, Moscow, and Shanghai.

There is astonishing variation in the level of housing prices, even within countries. Some of the most affordable markets in the US (like San Antonio and Oklahoma City) cost as little as $80 per square foot; that means that $1 million would buy you 1,160 square meters. That’s not an error; real estate in Monaco is literally 77 times more expensive than real estate in Oklahoma City. 15 square meters is a studio apartment; 1,160 square meters is a small mansion. Just comparing within the US, the price per square foot in San Francisco is over $1,120, 14 times as high as Oklahoma City. $1 million in San Francisco will buy you about 80 square meters, which is at least a two or three-bedroom house.

This says to me that policy choices matter. It may not be possible to make San Francisco as cheap as Oklahoma City—most people would definitely rather live in San Francisco, so demand is always going to be higher there. But I don’t think it’s very plausible to say that housing is just inherently 14 times as expensive to construct as housing in Oklahoma City. If it’s really that much more expensive to construct (and that may not even be the issue—this could be more a matter of oligopoly than high costs), it must be at least in part because of something the local and state governments are doing differently. Cross-national comparisons underscore that point even further: The geography of Hong Kong and Taiwan is not that different, but housing prices in Taiwan are not nearly as high.

What exactly are different cities (and countries) doing differently that has such large effects on housing prices? That’s something I’ll try to figure out in future posts.

The inherent atrocity of “border security”

Jun 24 JDN 2458294

By now you are probably aware of the fact that a new “zero tolerance” border security policy under the Trump administration has resulted in 2,000 children being forcibly separated from their parents by US government agents. If you weren’t, here are a variety of different sources all telling the same basic story of large-scale state violence and terror.

Make no mistake: This is an atrocity. The United Nations has explicitly condemned this human rights violation—to which Trump responded by making an unprecedented threat of withdrawing unilaterally from the UN Human Rights Council.

#ThisIsNotNormal, and Trump was everything we feared—everything we warned—he would be: Corrupt, incompetent, cruel, and authoritarian.

Yet Trump’s border policy differs mainly in degree, not kind, from existing US border policy. There is much more continuity here than most of us would like to admit.

The Trump administration has dramatically increased “interior removals”, the most obviously cruel acts, where ICE agents break into the houses of people living in the US and take them away. Don’t let the cold language fool you; this is literally people with guns breaking into your home and kidnapping members of your family. This is characteristic of totalitarian governments, not liberal democracies.

And yet, the Obama administration actually holds the record for most deportations (though only because they included “at-border deportations” which other administrations did not). A major policy change by George W. Bush started this whole process of detaining people at the border instead of releasing them and requiring them to return for later court dates.

I could keep going back; US border enforcement has gotten more and more aggressive as time goes on. US border security staffing has quintupled since just 1990. There was a time when the United States was a land of opportunity that welcomed “your tired, your poor, your huddled masses”; but that time is long past.

And this, in itself, is a human rights violation. Indeed, I am convinced that border security itself is inherently a human rights violation, always and everywhere; future generations will not praise us for being more restrained than Trump’s abject and intentional cruelty, but condemn us for acting under the same basic moral framework that justified it.

There is an imaginary line in the sand just a hundred miles south of where I sit now. On one side of the line, a typical family makes $66,000 per year. On the other side, a typical family makes only $20,000. On one side of the line, life expectancy is 81 years; on the other, 77. This means that over their lifetime, someone on this side of the line can expect to make over one million dollars more than they would if they had lived on the other side. Step across this line, get a million dollars; it sounds ridiculous, but it’s an empirical fact.

This would be bizarre enough by itself; but now consider that on that line there are fences, guard towers, and soldiers who will keep you from crossing it. If you have appropriate papers, you can cross; but if you don’t, they will arrest and detain you, potentially for months. This is not how we treat you if you are carrying contraband or have a criminal record. This is how we treat you if you don’t have a passport.

How can we possibly reconcile this with the principles of liberal democracy? Philosophers have tried, to be sure. Yet they invariably rely upon some notion that the people who want to cross our border are coming from another country where they were already granted basic human rights and democratic representation—which is almost never the case. People who come here from the UK or the Netherlands or generally have the proper visas. Even people who come here from China usually have visas—though China is by no means a liberal democracy. It’s people who come here from Haiti and Nicaragua who don’t—and these are some of the most corrupt and impoverished nations in the world.

As I said in an earlier post, I was not offended that Trump characterized countries like Haiti and Syria as “shitholes”. By any objective standard, that is accurate; these countries are terrible, terrible places to live. No, what offends me is that he thinks this gives us a right to turn these people away, as though the horrible conditions of their country somehow “rub off” on them and make them less worthy as human beings. On the contrary, we have a word for people who come from “shithole” countries seeking help, and that word is “refugee”.

Under international law, “refugee” has a very specific legal meaning, under which most immigrants do not qualify. But in a broader moral sense, almost every immigrant is a refugee. People don’t uproot themselves and travel thousands of miles on a whim. They are coming here because conditions in their home country are so bad that they simply cannot tolerate them anymore, and they come to us desperately seeking our help. They aren’t asking for handouts of free money—illegal immigrants are a net gain for our fiscal system, paying more in taxes than they receive in benefits. They are looking for jobs, and willing to accept much lower wages than the workers already here—because those wages are still dramatically higher than what they had where they came from.

Of course, that does potentially mean they are competing with local low-wage workers, doesn’t it? Yes—but not as much as you might think. There is only a very weak relationship between higher immigration and lower wages (some studies find none at all!), even at the largest plausible estimates, the gain in welfare for the immigrants is dramatically higher than the loss in welfare for the low-wage workers who are already here. It’s not even a question of valuing them equally; as long as you value an immigrant at least one tenth as much as a native-born citizen, the equation comes out favoring more immigration.

This is for two reasons: One, most native-born workers already are unwilling to do the jobs that most immigrants do, such as picking fruit and laying masonry; and two, increased spending by immigrants boosts the local economy enough to compensate for any job losses.

 

But even aside from the economic impacts, what is the moral case for border security?

I have heard many people argue that “It’s our home, we should be able to decide who lives here.” First of all, there are some major differences between letting someone live in your home and letting someone come into your country. I’m not saying we should allow immigrants to force themselves into people’s homes, only that we shouldn’t arrest them when they try cross the border.

But even if I were to accept the analogy, if someone were fleeing oppression by an authoritarian government and asked to live in my home, I would let them. I would help hide them from the government if they were trying to escape persecution. I would even be willing to house people simply trying to escape poverty, as long as it were part of a well-organized program designed to ensure that everyone actually gets helped and the burden on homeowners and renters was not too great. I wouldn’t simply let homeless people come live here, because that creates all sorts of coordination problems (I can only fit so many, and how do I prioritize which ones?); but I’d absolutely participate in a program that coordinates placement of homeless families in apartments provided by volunteers. (In fact, maybe I should try to petition for such a program, as Southern California has a huge homelessness rate due to our ridiculous housing prices.)

Many people seem to fear that immigrants will bring crime, but actually they reduce crime rates. It’s really kind of astonishing how much less crime immigrants commit than locals. My hypothesis is that immigrants are a self-selected sample; the kind of person willing to move thousands of miles isn’t the kind of person who commits a lot of crimes.
I understand wanting to keep out terrorists and drug smugglers, but there are already plenty of terrorists and drug smugglers here in the US; if we are unwilling to set up border security between California and Nevada, I don’t see why we should be setting it up between California and Baja California. But okay, fine, we can keep the customs agents who inspect your belongings when you cross the border. If someone doesn’t have proper documentation, we can even detain and interrogate them—for a few hours, not a few months. The goal should be to detect dangerous criminals and nothing else. Once we are confident that you have not committed any felonies, we should let you through—frankly, we should give you a green card. We should only be willing to detain someone at the border for the same reasons we would be willing to detain a citizen who already lives here—that is, probable cause for an actual crime. (And no, you don’t get to count “illegal border crossing” as a crime, because that’s begging the question. By the same logic I could justify detaining people for jaywalking.)

A lot of people argue that restricting immigration is necessary to “preserve local culture”; but I’m not even sure that this is a goal sufficiently important to justify arresting and detaining people, and in any case, that’s really not how culture works. Culture is not advanced by purism and stagnation, but by openness and cross-pollination. From anime to pizza, many of our most valued cultural traditions would not exist without interaction across cultural boundaries. Introducing more Spanish speakers into the US may make us start saying no problemo and vamonos, but it’s not going to destroy liberal democracy. If you value culture, you should value interactions across different societies.

Most importantly, think about what you are trying to justify. Even if we stop doing Trump’s most extreme acts of cruelty, we are still talking about using military force to stop people from crossing an imaginary line. ICE basically treats people the same way the SS did. “Papers, please” isn’t something we associate with free societies—it’s characteristic of totalitarianism. We are so accustomed to border security (or so ignorant of its details) that we don’t see it for the atrocity it so obviously is.

National borders function something very much like feudal privilege. We have our “birthright”, which grants us all sorts of benefits and special privileges—literally tripling our incomes and extending our lives. We did nothing to earn this privilege. If anything, we show ourselves to be less deserving (e.g. by committing more crimes). And we use the government to defend our privilege by force.

Are people born on the other side of the line less human? Are they less morally worthy? On what grounds do we point guns at them and lock them away for the “crime” of wanting to live here?

What Trump is doing right now is horrific. But it is not that much more horrific than what we were already doing. My hope is that this will finally open our eyes to the horrors that we had been participating in all along.