Obama

How about we listen to the Nobel Laureate when we set our taxes?

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JDN 2457321 EDT 11:20

I know I’m going out on a limb here, but I think it would generally be a good thing if we based our tax system on the advice of Nobel Laureate economists. Joseph Stiglitz wrote a tax policy paper for the Roosevelt Institution last year that describes in detail how our tax system could be reformed to simultaneously restore economic growth, reduce income inequality, promote environmental sustainability, and in the long run even balance the budget. What’s more, he did the math (I suppose Nobel Laureate economists are known for that), and it looks like his plan would actually work.

The plan is good enough that I think it’s worth going through in some detail.

He opens by reminding us that our “debt crisis” is of our own making, the result of politicians (and voters) who don’t understand economics:

“But we should be clear that these crises – which have resulted in a government shutdown and a near default on the national debt – are not economic but political. The U.S. is not like Greece, unable to borrow to fund its debt and deficit. Indeed, the U.S. has been borrowing at negative real interest rates.”

Stiglitz pulls no punches against bad policies, and isn’t afraid to single out conservatives:

“We also show that some of the so-called reforms that conservatives propose would be counterproductive – they could simultaneously reduce growth and economic welfare and increase unemployment and inequality. It would be better to have no reform than these reforms.”

A lot of the news media keep trying to paint Bernie Sanders as a far-left radical candidate (like this article in Politico calling his hometown the “People’s Republic of Burlington”), because he says things like this: “in recent years, over 99 percent of all new income generated in the economy has gone to the top 1 percent.”

But the following statement was not said by Bernie Sanders, it was said by Joseph Stiglitz, who I will remind you one last time is a world-renowned Nobel Laureate economist:

“The weaknesses in the labor market are reflected in low wages and stagnating incomes. That helps explain why 95 percent of the increase in incomes in the three years after the recovery officially began went to the upper 1 percent. For most Americans, there has been no recovery.”

It was also Stiglitz who said this:

“The American Dream is, in reality, a myth. The U.S. has some of the worst inequality across generations (social mobility) among wealthy nations. The life prospects of a young American are more dependent on the income and education of his parents than in other advanced countries.”

In this country, we have reached the point where policies supported by the analysis of world-renowned economists is considered far-left radicalism, while the “mainstream conservative” view is a system of tax policy that is based on pure fantasy, which has been called “puppies and rainbows” by serious policy analysts and “voodoo economics” by yet another Nobel Laureate economist. A lot of very smart people don’t understand what’s happening in our political system, and want “both sides” to be “equally wrong”, but that is simply not the case: Basic facts of not just social science (e.g. Keynesian monetary policy), but indeed natural science (evolutionary biology, anthropogenic climate change) are now considered “political controversies” because the right wing doesn’t want to believe them.

But let’s get back to the actual tax plan Stiglitz is proposing. He is in favor of raising some taxes and lowering others, spending more on some things and less on other things. His basic strategy is actually quite simple: Raise taxes with low multipliers and cut taxes with high multipliers. Raise spending with high multipliers and cut spending with low multipliers.

“While in general taxes take money out of the system, and therefore have a deflationary bias, some taxes have a larger multiplier than others, i.e. lead to a greater reduction in aggregate demand per dollar of revenue raised. Taxes on the rich and superrich, who save a large fraction of their income, have the least adverse effect on aggregate demand. Taxes on lower income individuals have the most adverse effect on aggregate demand.”

In other words, by making the tax system more progressive, we can directly stimulate economic growth while still increasing the amount of tax revenue we raise. And of course we have plenty of other moral and economic reasons to prefer progressive taxation.

Stiglitz tears apart the “job creator” myth:

“It is important to dispel a misunderstanding that one often hears from advocates of lower taxes for the rich and corporations, which contends that the rich are the job producers, and anything that reduces their income will reduce their ability and incentive to create jobs. First, at the current time, it is not lack of funds that is holding back investment. It is not even a weak and dysfunctional financial sector. America’s large corporations are sitting on more than $2 trillion in cash. What is holding back investment, especially by large corporations, is the lack of demand for their products.”

Stiglitz talks about two principles of taxation to follow:

First is the Generalized Henry George Principle, that we should focus taxes on things that are inelastic, meaning their supply isn’t likely to change much with the introduction of a tax. Henry George favored taxing land, which is quite inelastic indeed. The reason we do this is to reduce the economic distortions created by a tax; the goal is to collect revenue without changing the number of real products that are bought and sold. We need to raise revenue and we want to redistribute income, but we want to do it without creating unnecessary inefficiencies in the rest of the economy.

Second is the Generalized Polluter Pays Principle, that we should tax things that have negative externalities—effects on other people that are harmful. When a transaction causes harm to others who were not party to the transaction, we should tax that transaction in an amount equal to the harm that it would cause, and then use that revenue to offset the damage. In effect, if you hurt someone else, you should have to pay to clean up your own mess. This makes obvious moral sense, but it also makes good economic sense; taxing externalities can improve economic efficiency and actually make everyone better off. The obvious example is again pollution (the original Polluter Pays Principle), but there are plenty of other examples as well.

Stiglitz of course supports taxes on pollution and carbon emissions, which really should be a no-brainer. They aren’t just good for the environment, they would directly increase economic efficiency. The only reason we don’t have comprehensive pollution taxes (or something similar like cap-and-trade) is again the political pressure of right-wing interests.

Stiglitz focuses in particular on the externalities of the financial system, the boom-and-bust cycle of bubble, crisis, crash that has characterized so much of our banking system for generations. With a few exceptions, almost every major economic crisis has been preceded by some sort of breakdown of the financial system (and typically widespread fraud by the way). It is not much exaggeration to say that without Wall Street there would be no depressions. Externalities don’t get a whole lot bigger than that.

Stiglitz proposes a system of financial transaction taxes that are designed to create incentives against the most predatory practices in finance, especially the high-frequency trading in which computer algorithms steal money from the rest of the economy thousands of times per second. Even a 0.01% tax on each financial transaction would probably be enough to eliminate this particular activity.

He also suggests the implementation of “bonus taxes” which disincentivize paying bonuses, which could basically be as simple as removing the deductions placed during the Clinton administration (in a few years are we going to have to say “the first Clinton administration”?) that exempt “performance-based pay” from most forms of income tax. All pay is performance-based, or supposed to be. There should be no special exemption for bonuses and stock options.

Stiglitz also proposes a “bank rescue fund” which would be something like an expansion of the FDIC insurance that banks are already required to have, but designed as catastrophe insurance for the whole macroeconomy. Instead of needing bailed out from general government funds, banks would only be bailed out from a pool of insurance funds they paid in themselves. This could work, but honestly I think I’d rather reduce the moral hazard even more by saying that we will never again bail out banks directly, but instead bail out consumers and real businesses. This would probably save banks anyway (most people don’t default on debts if they can afford to pay them), and if it doesn’t, I don’t see why we should care. The only reason banks exist is to support the real economy; if we can support the real economy without them, they deserve to die. That basic fact seems to have been lost somewhere along the way, and we keep talking about how to save or stabilize the financial system as if it were valuable unto itself.

Stiglitz also proposes much stricter regulations on credit cards, which would require them to charge much lower transaction fees and also pay a portion of their transaction revenue in taxes. I think it’s fair to ask whether we need credit cards at all, or if there’s some alternative banking system that would allow people to make consumer purchases without paying 20% annual interest. (It seems like there ought to be, doesn’t it?)

Next Stiglitz gets to his proposal to reform the corporate income tax. Like many of us, he is sick of corporations like Apple and GE with ten and eleven-figure profits paying little or no taxes by exploiting a variety of loopholes. He points out some of the more egregious ones, like the “step up of basis at death” which allows inherited capital to avoid taxation (personally, I think both morally and economically the optimal inheritance tax rate is 100%!), as well as the various loopholes on offshore accounting which allow corporations to design and sell their products in the US, even manufacture them here, and pay taxes as if all their work were done in the Cayman Islands. He also points out that the argument that corporate taxes disincentivize investment is ridiculous, because most investment is financed by corporate bonds which are tax-deductible.

Stiglitz departs from most other economists in that he actually proposes raising the corporate tax rate itself. Most economists favor cutting the rate on paper, then closing the loopholes to ensure that the new rate is actually paid. Stiglitz says this is not enough, and we must both close the loopholes and increase the rate.

I’m actually not sure I agree with him on this; the incidence of corporate taxes is not very well-understood, and I think there’s a legitimate worry that taxing Apple will make iPhones more expensive without actually taking any money from Tim Cook. I think it would be better to get rid of the corporate tax entirely and then dramatically raise the marginal rates on personal income, including not only labor income but also all forms of capital income. Instead of taxing Apple hoping it will pass through to Tim Cook, I say we just tax Tim Cook. Directly tax his $4 million salary and $70 million in stock options.

Stiglitz does have an interesting proposal to introduce “rent-seeking” taxes that specifically apply to corporations which exercise monopoly or oligopoly power. If you can actually get this to work, it’s very clever; you could actually create a market incentive for corporations to support their own competition—and not in the sense of collusion but in the sense of actually trying to seek out more competitive markets in order to avoid the monopoly tax. Unfortunately, Stiglitz is a little vague on how we’d actually pull that off.

One thing I do agree with Stiglitz on is the use of refundable tax credits to support real investment. Instead of this weird business about not taxing dividends and capital gains in the hope that maybe somehow this will support real investment, we actually give tax credits specifically to companies that build factories or hire more workers.

Stiglitz also does a good job of elucidating the concept of “corporate welfare”, officially called “tax expenditures”, in which subsidies for corporations are basically hidden in the tax code as rebates or deductions. This is actually what Obama was talking about when he said “spending in the tax code”, (he did not invent the concept of tax expenditures), but since he didn’t explain himself well even Jon Stewart accused him of Orwellian Newspeak. Economically a refundable tax rebate of $10,000 is exactly the same thing as a subsidy of $10,000. There are some practical and psychological differences, but there are no real economic differences. If you’re still confused about tax expenditures, the Center for American Progress has a good policy memo on the subject.

Stiglitz also has some changes to make to the personal income tax, all of which I think are spot-on. First we increase the marginal rates, particularly at the very top. Next we equalize rates on all forms of income, including capital income. Next, we remove most, if not all, of the deductions that allow people to avoid paying the rate it says on paper. Finally, we dramatically simplify the tax code so that the majority of people can file a simplified return which basically just says, “This is my income. This is the tax rate for that income. This is what I owe.” You wouldn’t have to worry about itemizing your student loans or mortgage payments or whatever else; just tally up your income and look up your rate. As he points out, this would save a lot of people a lot of stress and also remove a lot of economic distortions.

He talks about how we can phase out the mortgage-interest deduction in particular, because it’s clearly inefficient and regressive but it’s politically popular and dropping it suddenly could lead to another crisis in housing prices.

Stiglitz has a deorbit for anyone who thinks capital income should not be taxed:

“There is, moreover, no justification for taxing those who work hard to earn a living at a higher rate than those who derive their income from speculation.”

By equalizing rates on labor and capital income, he estimates we could raise an additional $130 billion per year—just shy of what it would take to end world hunger. (Actually some estimates say it would be more than enough, others that it would be about half what we need. It’s definitely in the ballpark, however.)

Stiglitz actually proposes making a full deduction of gross household income at $100,000, meaning that the vast majority of Americans would pay no income tax at all. This is where he begins to lose me, because it necessarily means we aren’t going to raise enough revenue by income taxes alone.

He proposes to make up the shortfall by introducing a value-added tax, a VAT. I have to admit a lot of countries have these (including most of Europe) and seem to do all right with them; but I never understood why they are so popular among economists. They are basically sales taxes, and it’s very hard to make any kind of sales tax meaningfully progressive. In fact, they are typically regressive, because rich people spend a smaller proportion of their income than poor people do. Unless we specifically want to disincentivize buying things (and a depression is not the time to do that!), I don’t see why we would want to switch to a sales tax.

At the end of the paper Stiglitz talks about the vital difference between short-term spending cuts and long-term fiscal sustainability:

“Thus, policies that promote output and employment today also contribute to future growth – particularly if they lead to more investment. Thus, austerity measures that take the form of cutbacks in spending on infrastructure, technology, or education not only weaken the economy today, but weaken it in the future, both directly (through the obvious impacts, for example, on the capital stock) but also indirectly, through the diminution in human capital that arises out of employment or educational experience. […] Mindless “deficit fetishism” is likely to be counterproductive. It will weaken the economy and prove counterproductive to raising revenues because the main reason that we are in our current fiscal position is the weak economy.”

It amazes me how many people fail to grasp this. No one would say that paying for college is fiscally irresponsible, because we know that all that student debt will be repaid by your increased productivity and income later on; yet somehow people still think that government subsidies for education are fiscally irresponsible. No one would say that it is a waste of money for a research lab to buy new equipment in order to have a better chance at making new discoveries, yet somehow people still think it is a waste of money for the government to fund research. The most legitimate form of this argument is “crowding-out”, the notion that the increased government spending will be matched by an equal or greater decrease in private spending; but the evidence shows that many public goods—like education, research, and infrastructure—are currently underfunded, and if there is any crowding-out, it is much smaller than the gain produced by the government investment. Crowding-out is theoretically possible but empirically rare.

Above all, now is not the time to fret about deficits. Now is the time to fret about unemployment. We need to get more people working; we need to create jobs for those who are already seeking them, better jobs for those who have them but want more, and opportunities for people who have given up searching for work to keep trying. To do that, we need spending, and we will probably need deficits. That’s all right; once the economy is restored to full capacity then we can adjust our spending to balance the budget (or we may not even need to, if we devise taxes correctly).

Of course, I fear that most of these policies will fall upon deaf ears; but Stiglitz calls us to action:

“We can reform our tax system in ways that will strengthen the economy today, address current economic and social problems, and strengthen our economy for the future. The economic agenda is clear. The question is, will the vested interests which have played such a large role in creating the current distorted system continue to prevail? Do we have the political will to create a tax system that is fair and serves the interests of all Americans?”

The TPP sounds… okay, I guess?

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JDN 2457308 EDT 12:56

So, the Trans-Pacific Partnership (TPP) agreement has been signed. This upsets a lot of people, from the far-left who say it gives corporations power over democracy to the far-right who say it makes Obama into a dictator. But more mainstream organizations have also come out against it, particularly from the center-left or “radical center”, such as the Electronic Frontier Foundation and Medecins Sans Frontieres.

Bernie Sanders was opposed to it from the beginning, and now Hillary Clinton is opposed as well—though given her long track record of support for trade agreements it’s unclear whether this opposition is sincere, or simply reflects the way that Sanders has shifted our Overton Window to the left. Many Republicans also opposed the deal, and they’re already calling it “Obamatrade”. (Apparently they didn’t learn their lesson from Obamacare, because it’s been wildly successful, and in about a generation people are going to say “Obamacare” in the same breath as “Medicare” and “the New Deal”, and sticking Obama’s name onto it is going to lionize him.)

In my previous post I explained why I am, like the vast majority of economists, strongly in favor of free trade. So you might think that I would support the TPP, and would want to criticize all these people who are coming out against it as naive protectionists.

But in fact, I feel deeply ambivalent about the TPP, and I’m not alone in that among economists. Indeed I feel a bit proud to say that my view on the agreement is almost exactly aligned with that of Nobel Laureate Paul Krugman. (Krugman is always one of the world’s best economists, but I’d say he should be especially trusted on issues of international trade—because that was the subject of his Nobel-winning research.) The original leaked version looked pretty awful, and not knowing exactly what’s in it worried me, but the more I hear tobacco and pharmaceutical companies complain about it, the more I like the sound of it.

First of all, let me say that I’m still very angry they haven’t released the full text. We have a right to know what our laws are, as a basic principle of democracy. If we are going to be bound by this agreement, we have a right to know what it says. This is non-negotiable. To be bound by laws you haven’t been told about is literally—and let me be clear on the full force I intend by that word, literally—Kafkaesque. Kafka’s The Trial is all about what happens when the government can punish you for disobeying a law they never told you exists.

In the leaked draft version, the TPP would have been the largest handout of corporate welfare in world history. By placing the so-called “intellectual property” of corporations above basic human rights, it amounted to throwing several entire Third World countries under the bus in order to increase the profits of a handful of megacorporations. It would have expanded “investor-state dispute resolution authority” into an unprecedented level of power for multinational corporations to influence the decisions of national governments—what the President of the Capital Institute called “trading away our sovereignty”.

My fear was that the TPP would just be a redone and expanded version of the TRIPS accord, the “Agreement on Trade-Related Aspects of Intellectual Property Rights” (somehow that’s “TRIPS”), which expanded the monopoly power of “intellectual property” corporations, including the music industry, the film industry, and worst of all the pharmaceutical industry. The expansion of patent powers reduced the availability of drugs, including life-saving drugs, to some of the world’s poorest and most vulnerable people. There is supposed to be a system of flexibility provisions that allow exceptions to intellectual property laws in the service of public health, but in practice these are difficult to implement and many Third World governments don’t know how to use them. Based on UNCTAD estimates, Thomas Pogge found that TRIPS and related trade agreements amount to a transfer of wealth from the Third World to the First World on the order of $700 billion per year. (I’m also a bit confused by the WTO’s assertion that “For patents, [TRIPS] allows governments to make exceptions to patent holders’ rights such as in national emergencies, anti-competitive practices, […]”; aren’t patents by definition anti-competitive practices? We’ll protect your monopoly, as long as you don’t try to have a monopoly?) If TPP makes these already too-strong provisions stronger, millions of people could be denied medicines they need—which is why Medecins San Frontieres is among the organizations opposing the agreement.

Yet, in principle free trade is a good idea, and it’s definitely a good thing to remove the ridiculous tariffs we still have on Japanese cars. Of course, Ford Motor Company is complaining about the additional competition, but that’s a good sign—corporations complaining about extra competition is exactly the sort of response a good trade agreement would provoke. (Also, “razor-thin profit margins”? I think not; car manufacturing is near the very top of capital-intensive industries with high barriers to entry, and Ford Motor Company has a gross profit margin of 16% and net income margin of 5%. So, that 2.5% you might have to cut prices because you no longer get the tariff support… well, you could just take it out of your profits, and I don’t see why we should feel bad if you have to do that.)

It still angers me that they won’t tell us exactly what’s in the deal, but some of the things they have told us are actually quite encouraging. The New York Times has a summary that suggests lukewarm approval on their part.

The TPP opens up Internet traffic, creating international regulations that prohibit the censorship of cross-border data. (With that in mind, I’m a bit baffled that the EFF is so strongly opposed; isn’t free data exchange your raison d’etre?) China hasn’t signed on, and this might well be why—they’d love to sell us products without tariffs, but they aren’t prepared to stop censoring the Internet in order to do that.

It lowers barriers on the cross-border exchange of services (as opposed to only goods). Many services really can’t be traded much across borders (think restaurant meals and haircuts), and in practice this mostly means finance, which is a mixed bag to be sure; but in general I think allowing services to compete across borders is a good ideas.

The TPP also places limitations on government-owned enterprises, though not very strict ones (probably because we in the US aren’t likely to give up the US Postal Service or the Federal Reserve anytime soon). Basically this is designed to prevent the sort of mass state expropriation that has destroyed the economies of several authoritarian socialist countries, like Cuba and Venezuela. It’s unlikely they would be strong enough to stop more legitimate nationalizations of industry or applications of eminent domain, since Japan, Canada, and probably even the US would have been unwilling to sign onto such an agreement.

The leaked draft of the TPP would have given extremely strong protections to drug patents, but the fact that pharmaceutical companies are angry about it says to me that the strongest of these provisions must not have made it in. It sounds like patents are being made stronger but shorter, which like most compromises makes both sides mad.

Best of all, it includes some regulations on human rights, labor standards, and environmental policies, which is something that has been sorely lacking in previous trade agreements. While the details are still sketchy (Have I mentioned how angry I am that they won’t release the full text?) it is claimed that the agreement includes a system of tariff penalties that can be implemented against countries that oppress LGBT people and other marginalized groups. Because Brunei, Malaysia, and Singapore currently criminalize homosexuality, they would already be in noncompliance from the moment they sign the treaty, and would be subject to these penalties until they change their laws. If this is true, it actually sounds like a step toward the “human rights tariff” that I would like to see implemented worldwide.

In general, the TPP sounds like a mess, a jumble of awkward compromises that does some good things and some bad things, and doesn’t really satisfy anyone. In other words, it sounds like policy.

What are we celebrating today?

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JDN 2457208 EDT 13:35 (July 4, 2015)

As all my American readers will know (and unsurprisingly 79% of my reader trackbacks come from the United States), today is Independence Day. I’m curious how my British readers feel about this day (and the United Kingdom is my second-largest source of reader trackbacks); we are in a sense celebrating the fact that we’re no longer ruled by you.

Every nation has some notion of patriotism; in the simplest sense we could say that patriotism is simply nationalism, yet another reflection of our innate tribal nature. As Obama said when asked about American exceptionalism, the British also believe in British exceptionalism. If that is all we are dealing with, then there is no particular reason to celebrate; Saudi Arabia or China could celebrate just as well (and very likely does). Independence Day then becomes something parochial, something that is at best a reflection of local community and culture, and at worst a reaffirmation of nationalistic divisiveness.

But in fact I think we are celebrating something more than that. The United States of America is not just any country. It is not just a richer Brazil or a more militaristic United Kingdom. There really is something exceptional about the United States, and it really did begin on July 4, 1776.

In fact we should probably celebrate June 21, 1789 and December 15, 1791, the ratification of the Constitution and the Bill of Rights respectively. But neither of these would have been possible without that Declaration of Independence on July 4, 1776. (In fact, even that date isn’t as clear-cut as commonly imagined.)

What makes the United States unique?

From the dawn of civilization around 5000 BC up to the mid-18th century AD, there were basically two ways to found a nation. The most common was to grow the nation organically, formulate an ethnic identity over untold generations and then make up an appealing backstory later. The second way, and not entirely mutually exclusive, was for a particular leader, usually a psychopathic king, to gather a superior army, conquer territory, and annex the people there, making them part of his nation whether they wanted it or not. Variations on these two themes were what happened in Rome, in Greece, in India, in China; they were done by the Sumerians, by the Egyptians, by the Aztecs, by the Maya. All the ancient civilizations have founding myths that are distorted so far from the real history that the real history has become basically unknowable. All the more recent powers were formed by warlords and usually ruled with iron fists.

The United States of America started with a war, make no mistake; and George Washington really was more a charismatic warlord than he ever was a competent statesman. But Washington was not a psychopath, and refused to rule with an iron fist. Instead he was instrumental in establishing a fundamentally new approach to the building of nations.
This is literally what happened—myths have grown around it, but it itself documented history. Washington and his compatriots gathered a group of some of the most intelligent and wise individuals they could find, sat them down in a room, and tasked them with answering the basic question: “What is the best possible country?” They argued and debated, considering absolutely the most cutting-edge economics (The Wealth of Nations was released in 1776) and political philosophy (Thomas Paine’s Common Sense also came out in 1776). And then, when they had reached some kind of consensus on what the best sort of country would be—they created that country. They were conscious of building a new tradition, of being the founders of the first nation built as part of the Enlightenment. Previously nations were built from immemorial tradition or the whims of warlords—the United States of America was the first nation in the world that was built on principle.

It would not be the last; in fact, with a terrible interlude that we call Napoleon, France would soon become the second nation of the Enlightenment. A slower process of reform would eventually bring the United Kingdom itself to a similar state (though the UK is still a monarchy and has no formal constitution, only an ever-growing mountain of common law). As the centuries passed and the United States became more and more powerful, its system of government attained global influence, with now almost every nation in the world nominally a “democracy” and about half actually recognizable as such. We now see it as unexceptional to have a democratically-elected government bound by a constitution, and even think of the United States as a relatively poor example compared to, say, Sweden or Norway (because #Scandinaviaisbetter), and this assessment is not entirely wrong; but it’s important to keep in mind that this was not always the case, and on July 4, 1776 the Founding Fathers truly were building something fundamentally new.

Of course, the Founding Fathers were not the demigods they are often imagined to be; Washington himself was a slaveholder, and not just any slaveholder, but in fact almost a billionaire in today’s terms—the wealthiest man in America by far and actually a rival to the King of England. Thomas Jefferson somehow managed to read Thomas Paine and write “all men are created equal” without thinking that this obligated him to release his own slaves. Benjamin Franklin was a misogynist and womanizer. James Madison’s concept of formalizing armed rebellion bordered on insanity (and ultimately resulted in our worst amendment, the Second). The system that they built disenfranchised women, enshrined the slavery of Black people into law, and consisted of dozens of awkward compromises (like the Senate) that would prove disastrous in the future. The Founding Fathers were human beings with human flaws and human hypocrisy, and they did many things wrong.

But they also did one thing very, very right: They created a new model for how nations should be built. In a very real sense they redefined what it means to be a nation. That is what we celebrate on Independence Day.

1200px-Flag_of_the_United_States.svg

Why did we ever privatize prisons?

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JDN 2457103 EDT 10:24.

Since the Reagan administration (it’s always Reagan), the United States has undergone a spree of privatization of public services, in which services that are ordinarily performed by government agencies are instead contracted out to private companies. Enormous damage to our society has been done by this sort of privatization, from healthcare to parking meters.

This process can vary in magnitude.

The weakest form, which is relatively benign, is for the government to buy specific services like food service or equipment manufacturing from companies that already provide them to consumers. There’s no particular reason for the government to make their own toothpaste or wrenches rather than buy them from corporations like Proctor & Gamble and Sears. Toothpaste is toothpaste and wrenches are wrenches.

The moderate form is for the government to contract services to specific companies that may involve government-specific features like security clearances or powerful military weapons. This is already raising a lot of problems: When Northrop-Grumman makes our stealth bombers, and Boeing builds our nuclear ICBMs, these are publicly-traded, for-profit corporations manufacturing some of the deadliest weapons ever created—weapons that could literally destroy human civilization in a matter of minutes. Markets don’t work well in the presence of externalities, and weapons by definition are almost nothing but externalities; their entire function is to cause harm—typically, death—to people without their consent. While this violence may sometimes be justified, it must never be taken lightly; and we are right to be uncomfortable with the military-industrial complex whose shareholders profit from death and destruction. (Eisenhower tried to warn us!) Still, there are some good arguments to be made for this sort of privatization, since many of these corporations already have high-tech factories and skilled engineers that they can easily repurpose, and competitive bids between different corporations can keep the price down. (Of course, with no-bid contracts that no longer applies; and it certainly hasn’t stopped us from spending nearly as much on the military as the rest of the world combined.)

What I’d really like to focus on today is the strongest form of privatization, in which basic government services are contracted out to private companies. This is what happens when you attempt to privatize soldiers, SWAT teams, and prisons—all of which the United States has done since Reagan.

I say “attempt” to privatize because in a very real sense the privatization of these services is incoherent—they are functions so basic to government that simply to do them makes you, de facto, part of the government. (Or, if done without government orders, it would be organized crime.) All you’ve really done by “privatizing” these services is reduced their transparency and accountability, as well as siphoning off a portion of the taxpayer money in the form of profits for shareholders.

The benefits of privatization, when they exist, are due to competition and consumer freedom. The foundation of a capitalist economy is the ability to say “I’ll take my business elsewhere.” (This is why the notion that a bank can sell your loan to someone else is the opposite of a free market; forcing you to write a check to someone you never made a contract with is antithetical to everything the free market stands for.) Actually the closest thing to a successful example of privatized government services is the United States Postal Service, which collects absolutely no tax income. They do borrow from the government and receive subsidies for some of their services—but so does General Motors. Frankly I think the Postal Service has a better claim to privatization than GM, which you may recall only exists today because of a massive government bailout with a net cost to the US government of $11 billion. All the Postal Service does differently is act as a tightly-regulated monopoly that provides high-quality service to everyone at low prices and pays good wages and pensions, all without siphoning profits to shareholders. (They really screwed up my mail forwarding lately, but they are still one of the best postal systems in the world.) It is in many ways the best of both worlds, the efficiency of capitalism with the humanity of socialism.

The Corrections Corporation of America, on the other hand, is the exact opposite, the worst of both worlds, the inefficiency of socialism with the inhumanity of capitalism. It is not simply corrupt but frankly inherently corrupt—there is simply no way you can have a for-profit prison system that isn’t corrupt. Maybe it can be made less corrupt or more corrupt, but the mere fact that shareholders are earning profits from incarcerating prisoners is fundamentally antithetical to a free and just society.

I really can’t stress this enough: Privatizing soldiers and prisons makes no sense at all. It doesn’t even make sense in a world of infinite identical psychopaths; nothing in neoclassical economic theory in any way supports these privatizations. Neoclassical theory is based upon the presumption of a stable government that enforces property rights, a government that provides as much service as necessary exactly at cost and is not attempting to maximize any notion of its own “profit”.

That’s ridiculous, of course—much like the neoclassical rational agent—and more recent work has been done in public choice theory about the various interest groups that act against each other in government, including lobbyists for private corporations—but public choice theory is above all a theory of government failure. It is a theory of why governments don’t work as well as we would like them to—the main question is how we can suppress the influence of special interest groups to advance the public good. Privatization of prisons means creating special interest groups where none existed, making the government less directed at the public good.

Privatizing government services is often described as “reducing the size of government”, usually interpreted in the most narrow sense to mean the tax burden. But Big Government doesn’t mean you pay 22% of GDP instead of 18% of GDP; Big Government means you can be arrested and imprisoned without trial. Even using the Heritage Foundation’s metrics, the correlation between tax burden and overall freedom is positive. Tyrannical societies don’t bother with taxes; they own the oil refineries directly (Venezuela), or print money whenever they want (Zimbabwe), or build the whole society around doing what they want (North Korea).

The incarceration rate is a much better measure of a society’s freedom than the tax rate will ever be—and the US isn’t doing so well in that regard; indeed we have by some measures the highest incarceration rate in the world. Fortunately we do considerably better when it comes to things like free speech and freedom of religion—indeed we are still above average in overall freedom. Though we do imprison more of our people than China, I’m not suggesting that China has a freer society. But why do we imprison so many people?

Well, it seems to have something to do with privatization of prisons. Indeed, there is a strong correlation between the privatization of US prisons and the enormous explosion of incarceration in the United States. In fact privatized prisons don’t even reduce the tax burden, because privatization does not decrease demand and “privatized” prisons must still be funded by taxes. Prisons do not have customers who choose between different competing companies and shop for the highest quality and lowest price—prisoners go to the prison they are assigned to and they can’t leave (which is really the whole point). Even competition at the purchase end doesn’t make much sense, since the government can’t easily transfer all the prisoners to a new company. Maybe they could transfer ownership of the prison to a different company, but even then the transition costs would be substantial, and besides, there are only a handful of prison corporations that corner most of the (so-called) market.

There is simply no economic basis for privatization of prisons. Nothing in either neoclassical theory or more modern cognitive science in any way supports the idea. So the real question is: Why did we ever privatize prisons?

Basically there is only one reason: Ideology. The post-Reagan privatization spree was not actually based on economics—it was based on economic ideology. Either because they actually believed it, or by the Upton Sinclair Principle, a large number of economists adopted a radical far-right ideology that government basically should not exist—that the more we give more power to corporations and less power to elected officials the better off we will be.

They defended this ideology on vaguely neoclassical grounds, mumbling something about markets being more efficient; but this isn’t even like cutting off the wings of the airplane because we’re assuming frictionless vacuum—it’s like cutting off the engines of the airplane because we simply hate engines and are looking for any excuse to get rid of them. There is absolutely nothing in neoclassical economic theory that says it would be efficient or really beneficial in any way to privatize prisons. It was all about taking power away from the elected government and handing it over to for-profit corporations.

This is a bit of consciousness-raising I’m trying to do: Any time you hear someone say that something should be apolitical, I want you to substitute the word undemocratic. When they say that judges shouldn’t be elected so that they can be apolitical—they mean undemocratic. When they say that the Federal Reserve should be independent of politics—they mean independent of voting. They want to take decision power away from the public at large and concentrate it more in the hands of an elite. People who say this sort of thing literally do not believe in democracy.

To be fair, there may actually be good reasons to not believe in democracy, or at least to believe that democracy should be constrained by a constitution and a system of representation. Certain rights are inalienable, regardless of what the voting public may say, which is why we need a constitution that protects those rights above all else. (In theory… there’s always the PATRIOT ACT, speaking of imprisoning people without trial.) Moreover, most people are simply not interested enough—or informed enough—to vote on every single important decision the government makes. It makes sense for us to place this daily decision-making power in the hands of an elite—but it must be an elite we choose.

And yes, people often vote irrationally. One of the central problems in the United States today is that almost half the population consistently votes against rational government and their own self-interest on the basis of a misguided obsession with banning abortion, combined with a totally nonsensical folk theory of economics in which poor people are poor because they are lazy, the government inherently destroys whatever wealth it touches, and private-sector “job creators” simply hand out jobs to other people because they have extra money lying around. Then of course there’s—let’s face it—deep-seated bigotry toward women, racial minorities, and LGBT people. (The extreme hatred toward Obama and suspicion that he isn’t really born in the US really can’t be explained any other way.) In such circumstances it may be tempting to say that we should give up on democracy and let expert technocrats take charge; but in the absence of democratic safeguards, technocracy is little more than another name for oligarchy. Maybe it’s enough that the President appoints the Federal Reserve chair and the Supreme Court? I’m not so sure. Ben Bernanke definitely handled the Second Depression better than Congress did, I’ll admit; but I’m not sure Alan Greenspan would have in his place, and given his babbling lately about returning to Bretton Woods I’m pretty sure Paul Volcker wouldn’t have. (If you don’t see what’s wrong with going back to Bretton Woods, which was basically a variant of the gold standard, you should read what Krugman has to say about the gold standard.) So basically we got lucky and our monetary quasi-tyrant was relatively benevolent and wise. (Or maybe Bernanke was better because Obama appointed him, while Reagan appointed Greenspan. Carter appointed Volcker, oddly enough; but Reagan reappointed him. It’s always Reagan.) And if you could indeed ensure that tyrants would always be benevolent and wise, tyranny would be a great system—but you can’t.

Democracy doesn’t always lead to the best outcomes, but that’s really not what it’s for. Rather, democracy is for preventing the worst outcomes—no large-scale famine has ever occurred under a mature democracy, nor has any full-scale genocide. Democracies do sometimes forcibly “relocate” populations (particularly indigenous populations, as the US did under Andrew Jackson), and we should not sugar-coat that; people are forced out of their homes and many die. It could even be considered something close to genocide. But no direct and explicit mass murder of millions has ever occurred under a democratic government—no, the Nazis were not democratically elected—and that by itself is a fully sufficient argument for democracy. It could be true that democracies are economically inefficient (they are economically efficient), unbearably corrupt (they are less corrupt), and full of ignorant idiotic hicks (they have higher average educational attainment), and democracy would still be better simply because it prevents famine and genocide. As Churchill said, “Democracy is the worst system, except for all the others.”

Indeed, I think the central reason why American democracy isn’t working well right now is that it’s not very democratic; a two-party system with a plurality “first-past-the-post” vote is literally the worst possible voting system that can still technically be considered democracy. Any worse than that and you only have one party. If we had a range voting system (which is mathematically optimal) and say a dozen parties (they have about a dozen parties in France), people would be able to express their opinions more clearly and in more detail, with less incentive for strategic voting. We probably wouldn’t have such awful turnout at that point, and after realizing that they actually had such a strong voice, maybe people would even start educating themselves about politics in order to make better decisions.

Privatizing prisons and soldiers takes us in exactly the opposite direction: It makes our government deeply less democratic, fundamentally less accountable to voters. It hands off the power of life and death to institutions whose sole purpose for existence is their own monetary gain. We should never have done it—and we must undo it as soon as we possibly can.

Why immigration is good

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JDN 2456977 PST 12:31.

The big topic in policy news today is immigration. After years of getting nothing done on the issue, Obama has finally decided to bypass Congress and reform our immigration system by executive order. Republicans are threatening to impeach him if he does. His decision to go forward without Congressional approval may have something to do with the fact that Republicans just took control of both houses of Congress. Naturally, Fox News is predicting economic disaster due to the expansion of the welfare state. (When is that not true?) A more legitimate critique comes from the New York Times, who point out how this sudden shift demonstrates a number of serious problems in our political system and how it is financed.

So let’s talk about immigration, and why it is almost always a good thing for a society and its economy. There are a couple of downsides, but they are far outweighed by the upsides.

I’ll start with the obvious: Immigration is good for the immigrants. That’s why they’re doing it. Uprooting yourself from your home and moving thousands of miles isn’t easy under the best circumstances (like I when I moved from Michigan to California for grad school); now imagine doing it when you are in crushing poverty and you have to learn a whole new language and culture once you arrive. People are only willing to do this when the stakes are high. The most extreme example is of course the children refugees from Latin America, who are finally getting some of the asylum they so greatly deserve, but even the “ordinary” immigrants coming from Mexico are leaving a society racked with poverty, endemic with corruption, and bathed in violence—most recently erupting in riots that have set fire to government buildings. These people are desperate; they are crossing our border despite the fences and guns because they feel they have no other choice. As a fundamental question of human rights, it is not clear to me that we even have the right to turn these people away. Forget the effect on our economy; forget the rate of assimilation; what right do we have to say to these people that their suffering should go on because they were born on the wrong side of an arbitrary line?

There are wealthier immigrants—many of them here, in fact, for grad school—whose circumstances are not so desperate; but hardly anyone even considers turning them away, because we want their money and their skills in our society. Americans who fear brain drain have it all backwards; the United States is where the brains drain to. This trend may be reversing more recently as our right-wing economic policy pulls funding away from education and science, but it would likely only reach the point where we export as many intelligent people as we import; we’re not talking about creating a deficit here, only reducing our world-dominating surplus. And anyway I’m not so concerned about those people; yes, the world needs them, but they don’t need much help from the world.

My concern is for our tired, our poor, our huddled masses yearning to breathe free. These are the people we are thinking about turning away—and these are the people who most desperately need us to take them in. That alone should be enough reason to open our borders, but apparently it isn’t for most people, so let’s talk about some of the ways that America stands to gain from such a decision.

First of all, immigration increases economic growth. Immigrants don’t just take in money; they also spend it back out, which further increases output and creates jobs. Immigrants are more likely than native citizens to be entrepreneurs, perhaps because taking the chance to start a business isn’t so scary after you’ve already taken the chance to travel thousands of miles to a new country. Our farming system is highly dependent upon cheap immigrant labor (that’s a little disturbing, but if as far as the US economy, we get cheap food by hiring immigrants on farms). On average, immigrants are younger than our current population, so they are more likely to work and less likely to retire, which has helped save the US from the economic malaise that afflicts nations like Japan where the aging population is straining the retirement system. More open immigration wouldn’t just increase the number of immigrants coming here to do these things; it would also make the immigrants who are already here more productive by opening up opportunities for education and entrepreneurship. Immigration could speed the recovery from the Second Depression and maybe even revitalize our dying Rust Belt cities.

Now, what about the downsides? By increasing the supply of labor faster than they increase the demand for labor, immigrants could reduce wages. There is some evidence that immigrants reduce wages, particularly for low-skill workers. This effect is rather small, however; in many studies it’s not even statistically significant (PDF link). A 10% increase in low-skill immigrants leads to about a 3% decrease in low-skill wages (PDF link). The total economy grows, but wages decrease at the bottom, so there is a net redistribution of wealth upward.

Immigration is one of the ways that globalization increases within-nation inequality even as it decreases between-nation inequality; you move the poor people to rich countries, and they become less poor than they were, but still poorer than most of the people in those rich countries, which increases the inequality there. On average the world becomes better off, but it can seem bad for the rich countries, especially the people in rich countries who were already relatively poor. Because they distribute wealth by birthright, national borders actually create something analogous to the privilege of feudal lords, albeit to a much larger segment of the population. (Much larger: Here’s a right-wing site trying to argue that the median American is in the top 1% of income by world standards; neat trick, because Americans comprise 4% of the world population—so our top half makes up 2% of the world’s population by themselves. Yet somehow apparently that 2% of the population is the top 1%? Also, the US isn’t the only rich country; have you heard of, say, Europe?)

There’s also a lot of variation in the literature as to the size—or even direction—of the effect of immigration on low-skill wages. But since the theory makes sense and the preponderance of the evidence is toward a moderate reduction in wages for low-skill native workers, let’s assume that this is indeed the case.

First of all I have to go back to my original point: These immigrants are getting higher wages than they would have in the countries they left. (That part is usually even true of the high-skill immigrants.) So if you’re worried about low wages for low-skill workers, why are you only worried about that for workers who were born on this side of the fence? There’s something deeply nationalistic—if not outright racist—inherent in the complaint that Americans will have lower pay or lose their jobs when Mexicans come here. Don’t Mexicans also deserve jobs and higher pay?

Aside from that, do we really want to preserve higher wages at the cost of economic efficiency? Are high wages an end in themselves? It seems to me that what we’re really concerned about is welfare—we want the people of our society to live better lives. High wages are one way to do that, but not the only way; a basic income could reverse that upward redistribution of wealth, taking the economic benefits of the immigration that normally accrue toward the top and giving them to the bottom. As I already talked about in an earlier post, a basic income is a lot more efficient than trying to mess around with wages. Markets are very powerful; we shouldn’t always accept what they do, but we should also be careful when we interfere with them. If the market is trying to drive certain wages down, that means that there is more desire to do that kind of work then there is work of that kind that needs done. The wage change creates a market incentive for people to switch to more productive kinds of work. We should also be working to create opportunities to make that switch—funding free education, for instance—because an incentive without an opportunity is a bit like pointing a gun at someone’s head and ordering them to give birth to a unicorn.

So on the one hand we have the increase in local inequality and the potential reduction in low-skill wages; those are basically the only downsides. On the other hand, we have increases in short-term and long-term economic growth, lower global inequality, more spending, more jobs, a younger population with less strain on the retirement system, more entrepreneurship, and above all, the enormous lifelong benefits to the immigrants themselves that motivated them to move in the first place. It seems pretty obvious to me: we can enact policies to reduce the downsides, but above all we must open our borders.

What just happened in that election?

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JDN 2456970 PST 11:12.

My head is still spinning from the election results on Tuesday. Republicans gained a net of 12 seats to secure their majority in the House. Even worse, Republicans gained at least 7 seats in the Senate (note that each Senate seat should count for 4.35 House seats because there are 100 Senators and 435 Representatives) and may gain two more depending on how runoffs go. This gives them a majority in both houses of Congress. So people like Republicans then? Maybe they’re fed up with Obama and dissatisfied with his handling of the economy (even though it has actually been spectacular given what he had to work with).
But then when we look at actual ballot proposals, the ones that passed were mostly liberal issues. California passed proposition 47, which will reduce sentences for minor drug and theft crimes and substantially reduce our incidence of incarceration. (There’s no sign of releasing current prisoners, unfortunately; but at least we won’t be adding as many new ones.) Marijuana was legalized—fully legalized, for all purposes—in Alaska, Oregon, and DC, further reducing incarceration. At last, the US may finally stop being the incarceration capitol of the world! We currently hold the title in both per-capita and total incarceration, so there can be no dispute. (Technically the Seychelles has a higher per-capita rate, but come on, they don’t count as a real country; they have a population smaller than Ann Arbor—or for that matter the annual throughput of Riker’s Island.)

The proposals to allow wolf hunting in Michigan failed, for which many wolves would thank you if they could. Minimum wages were raised in five states, four of which are Republican-leaning states. The most extreme minimum wage hike was in San Francisco, where the minimum wage is going to be raised as high as $18 over the next four years. So people basically agree with Democrats on policy, but decided to hand the Senate over to Republicans.

I think the best explanation for what happened is the voting demographics. When we have a Senate election, we aren’t sampling randomly from the American population; we’re pulling from specific states, and specific populations within those states. Geography played a huge role in these election results. So did age; the voting population was much older on average than the general population, because most young people simply didn’t vote. I know some of these young people, who tell me things like “I’m not voting because I won’t be part of that system!” Apparently their level of understanding of social change approaches that of the Lonely Island song “I Threw it on the Ground”. Not voting isn’t rebellion, it’s surrender. (I’m not sure who said that first, but it’s clearly right.) Rebellion would be voting for a radical third-party candidate, or running as one yourself. Rebellion would be leading rallies to gather support—that is, votes—for that candidate. Alternatively, you could say that rebellion is too risky and simply aim for reform, in which case you’d vote for Democrats as I did.

Your failure to vote did not help change that system. On the contrary, it was because of your surrender that we got two houses of Congress controlled by Republicans who have veered so far to the right they are bordering on fascism and feudalism. It is strange living in a society where the “mainstream” has become so extremist. You end up feeling like a radical far-left Marxist when in fact you agree—as I do—with the core policies of FDR or even Eisenhower. You have been told that the right is capitalism and the left is socialism; this is wrong. The left is capitalism; the right is feudalism. When I tell you I want a basic income funded by a progressive income tax, I am agreeing with Milton Friedman.

This must be how it feels to be a secularist in an Islamist theocracy like Iran. Now that Colorado has elected a state legislator who is so extreme that he literally has performed exorcisms to make people not gay or transgender (his name is apparently Gordon Klingenschmitt), I fear we’re dangerously on the verge of a theocracy of our own.

Of course, I shouldn’t just blame the people who didn’t vote; I should also blame the people who did vote, and voted for candidates who are completely insane. Even though it’s just a state legislature, tens of thousands of people voted for that guy in Colorado; tens of thousands of Americans were okay with the fact that he thinks gay and transgender people have demons inside us that need to be removed by exorcism. Even in Iran theocracy is astonishingly popular. People are voting for these candidates, and we must find out why and change their minds. We must show them that the people they are voting for are not going to make good decisions that benefit America, they are going to make selfish decisions that benefit themselves or their corporate cronies, or even just outright bad decisions that hurt everyone. As an example of the latter (which is arguably worse), there is literally no benefit to discrimination against women or racial minorities or LGBT people. It’s just absolute pure deadweight loss that causes massive harm without any benefit at all. It’s deeply, deeply irrational, and one of the central projects of cognitive economics must be figuring out what makes people discriminate and figuring out how to make them stop.

To be fair, some of the candidates that were elected are not so extreme. Tom Cotton of Arkansas (whose name is almost offensively down-homey rural American; I don’t think I could name a character that in a novel without people thinking it was satire) supported the state minimum wage increase and is sponsoring a bill that would ban abortions after 20 weeks, which is actually pretty reasonable, rather than at conception, which is absurd.

Thom Tillis of North Carolina is your standard old rich White male corporate stooge, but I don’t see anything in his platform that is particularly terrifying. David Perdue of Georgia is the same; he’s one of those business owners who thinks he knows how to run the economy because he can own a business while it makes money. (Even if he did have something to do with the profitability of the business—which is not entirely clear—that’s still like a fighter pilot saying he’s a great aerospace engineer.) Cory Gardner is similar (not old, but rich White male corporate stooge), but he’s scary simply because he came from the Colorado state legislature, where they just installed that exorcist guy.

Thad Cochran of Mississippi was re-elected, so he was already there; he generally votes along whatever lines the Republican leadership asks him to, so he is not so much a villain as a henchman. Shelley Moore Capito of West Virginia also seems to basically vote whatever the party says.

Joni Ernst of Iowa is an interesting character; despite being a woman, she basically agrees with all the standard Republican positions, including those that are obviously oppressive of women. She voted for an abortion ban at conception, which is totally different from what Cotton wants. She even takes the bizarre confederalist view of Paul Ryan that a federal minimum wage is “big government” but a state minimum wage is just fine. The one exception is that she supports reform of sexual harassment policy in the military, probably because she experienced it herself.

But I’m supposed to be an economist, so what do I think is going to happen to the economy? (Of course, don’t forget, the economy is made of people. One of the best things that can ever happen to an economy is the empowerment of women, racial minorities, and LGBT people, all of which are now in jeopardy under a Republican Congress.)

The best-case scenario is “not much”; the obstructionism continues, and despite an utterly useless government the market repairs itself as it will always do eventually. Job growth will continue at its slow but steady pace, GDP will get back to potential trend. Inequality will continue to increase as it has been doing for about 30 years now. In a couple years there will be another election and hopefully Republicans will lose their majority.

The worst-case scenario is “Republicans get what they want”. The budget will finally be balanced—by cutting education, infrastructure, and social services. Then they’ll unbalance it again by cutting taxes on the rich and starting a couple more wars, because that kind of government spending doesn’t count. (They are weaponized Keynesians all.) They’ll restrict immigration even though immigration is what the First World needs right now (not to mention the fact that the people coming here need it even more). They’ll impose draconian regulations on abortion, they’ll stop or reverse the legalization of marijuana and same-sex marriage.

Democrats must not cave in to demands for “compromise” and “bipartisanship”. If the Republicans truly believed in those things, they wouldn’t have cost the economy $24 billion and downgraded the credit rating of the US government by their ridiculous ploy to shut down the government. They wouldn’t have refused to deal until the sequester forced nonsensical budget cuts. They wouldn’t make it a central part of their platform to undermine or repeal the universal healthcare system that they invented just so that Democrats can’t take credit for it. They have become so committed to winning political arguments at any cost that they are willing to do real harm to America and its people in order to do it. They are overcome by the tribal paradigm, and we all suffer for it.

No, the Republicans in Congress today are like 3-year-olds who throw a tantrum when they don’t get everything exactly their way. You can’t negotiate with these people, you can’t compromise with them. I wish you could, I really do. I’ve heard of days long gone when Congress actually accomplished things, but I have only vague recollections, for I was young in the Clinton era. (I do remember times under Bush II when Congress did things, but they were mostly bad things.) Maybe if we’re firm enough or persuasive enough some of them will even come around. But the worst thing Democrats could do right now is start caving to Republican demands thinking that it will restore unity to our government—because that unity would come only at the price of destroying people’s lives.

Unfortunately I fear that Democrats will appease Republicans in this way, because they’ve been doing that so far. In the campaign, hardly any of the Democrats mentioned Obama’s astonishing economic record or the numerous benefits of Obamacare—which by the way is quite popular among its users, at least more so than getting rid of it entirely (most people want to fix it, not eliminate it). Most of the Democratic candidates barely ran a campaign deserving of the name.

To be clear: Do not succumb to the tribal paradigm yourself. Do not think that everyone who votes Republican is a bad person—the vast majority are good people who were misled. Do not even assume that every Republican politician is evil; a few obviously are (see also Dick Cheney), but most are actually not so much evil as blinded by the ideology of their tribe. I believe that Paul Ryan and Rand Paul think that what they do is in the best interests of America; the problem is not their intentions but their results and their unwillingness to learn from those results. We do need to find ways to overcome partisanship and restore unity and compromise—but we must not simply bow to their demands in order to do that.

Democrats: Do not give in. Stand up for your principles. Every time you give in to their obstructionism, you are incentivizing that obstructionism. And maybe next election you could actually talk about the good things your party does for people—or the bad things their party does—instead of running away from your own party and apologizing for everything?