The Ridiculousness of Politics

David Frum points out that most seniors still net moochers:

Among today's elderly, the great majority will receive more in Medicare benefits than they ever paid in taxes - dependency again. You can do the math for yourself and your parents right here

Romney promises to free the makers from the moochers by reducing transfers to the poor. Unfortunately the actual spending problem is too many transfers to the middle class via Medicare and Social Security (oh and a giant military).

We have a serious entitlement problem. The most serious part is that those who receive the majority of the entitlements in dollar terms have no idea.

To The Apple Fanboys

I read a comment that got me seething  in response to Apple winning their suit against Samsung:

"if you like the way iPhone does things, why don't you just buy an iPhone"

In words even fanboys can understand, the answer to this is:

1. I like pinch to zoom, but I hate iTunes. I'd like an alternative that does that. Overly restrictive patent laws reduce consumer choice.

2. Only Apple wins with restrictive patent laws. EVERYONE else loses. Even Apple Fanboys. This is because Apple is allowed to rest on their laurels instead of coming up with better products to stay ahead of the competition.

*Update: removes non sequitur

And if it's all Structural?

QE3 has been announced. Inflation hawks will no doubt complain that either inflation is just around the corner, or it's already here and the government is cooking the books.

Here's an answer for the cooking the books crowd. If high inflation is here, then since nominal gdp has been growing sluggishly for years, then by definition the real economy has been shrinking. Should the Fed tighten money in a shrinking economy? Most would say no.

The fact remains, that even if inflation is 10%, if real growth is -8% due to structural factors, the Fed will pile on a cyclical component if it allows ngdp to fall. If NGDP is allowed to fall precipitously, then people cannot service existing debt and continue to buy things, resulting in a giant drop in demand on top of the supply limitations.This is on top of the massive unemployment sticky wage/price theories would predict.

In the end I think the Fed should focus on a slow steady growth in incomes: NGDP growth is a pretty good target.

Oh Dave

I just listened to Dave Ramsey's response to the health care ruling. It turned out to not be a response at all but rather a rail against the Employer Shared Responsibility portion. Let me first say I think that I think that employer based health insurance is a silly relic. I completely agree that the burden of providing healthcare should not be on employers. I just don't think that hyperbole is getting us anywhere useful.

Dave Ramsey gave the example of a struggling restaurant with 60 employees that will be out at least $50,000 extra because of PPACA or 1000 a month per employee if they decide to provide insurance. So let's read the law with my bolds.

Generally, a large employer will be subject to an assessable payment if any full-time employee is certified to receive a premium assistance tax credit and either the employer does not offer full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an employer plan (Code Sec. 4980H(a)) or the employer offers full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage that either is unaffordable or does not provide minimum value (Code Sec. 4980H(b)). The shared responsibility payment requirement is scheduled to be effective after 201

The PPACA describes how to calculate the shared responsibility payment. The annual assessable payment under Code Sec. 4980H(a) is based on all (excluding the first 30) full-time employees. The annual assessable payment under Code Sec. 4980H(b) is based on the number of full-time employees who are certified to receive an advance payment of an applicable premium tax credit.

The shared responsibility payment requirement applies to “large” employers. The PPACA describes a large employer as generally an employer that employed an average of at least 50 full-time employees on business days during the preceding calendar year. The PPACA includes special rules for employers that employ seasonal workers. The PPACA exempts small firms that have fewer than 50 full-time employees.

So first, the employees must be full time employees, this is less and less likely a restaurant, and honestly, less and less likely a place that doesn't already provide some kind of health insurance plan anyway. In fact a restaurant would likely be helped by the law because of the provision for 25 and under full time employees. Secondly, the employer would be cost sharing a new insurance plan with the employees, not providing the entire cost. They might even be able to charge the full cost to many of their employees (the problem being "affordable" is as yet undefined).

Thirdly, his penalty math is worse than double the worst case. I have a worst case of 750 * (60-30) per year, or  22500 for 60 full time employees that are "certified to receive a premium assistance tax credit" . It is also unlikely that a business, as Dave puts it, that is "hanging by a thread" would not be able to appeal the penalty or get a waiver. Indeed, a bigger issue here is that most of the regulations have yet to be written. One thing I'm quite sure of though is that businesses exposed to the worst case scenario (which Dave more than doubled) will be few and far between. As much as Dave wants to paint Democrats as happy job killers, most would see the logic and want to reduce the burden. These yet unwritten rules are there precisely because painting all employers with the same broad brush would be crazy.

Nevertheless it's still bad policy. Employer based healthcare is onerous and unnecessary, and this portion of the law introduces a lot of uncertainty to business owners. If only we had a party interested in fixing government instead of insisting it can't be fixed and putting their heads in the sand when it comes to society's problems.

The biggest problem I have is that Republicans like Dave had ample opportunity to see the inevitability of universal health care passing and didn't get rid of employer based health coverage in return for some votes. This kind of "scorched earth" governing is not helpful and neither is this rant.

Caplan's Experiment

Bryan Caplan gives us a thought experiment designed to make everyone re-think redistribution. Given just the four points, I think that most people would view anything that forced Able Abel to do anything as unfair. What if we looked at WHY Able Abel was able to produce more. If it is because the society granted Abel private property with which only he is able to create a surplus, then it changes everything.

Here is Greg Mankiw on why property rights justify higher taxation of the wealthy and redistribution:

Surely, those with higher income and greater property benefit more from a governmental system that protects property rights.

and:

What about transfer payments to the poor? These can be justified along similar lines. As long as people care about others to some degree, antipoverty programs are a type of public good. [Thurow 1971] That is, under this view, the government provides for the poor not simply because their marginal utility is high but because we have interdependent utility functions. Put differently, we would all like to alleviate poverty. But because we would prefer to have someone else pick up the tab, private charity can’t do the job. Government-run antipoverty programs solve the free-rider problem among the altruistic well-to-do. 

To be clear: Mankiw is not advocating progressive income taxes here which my out of context quotes might indicate.
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Mankiw's SOPA Metaphor is Wrong

One reason I'm O.K. with Romney is that he has Greg Mankiw as an economic advisor - and Mr. Mankiw is unlikely to want a Gold Standard or some other crazy thing that would throw the economy off a cliff. This is Greg Mankiw the Free Market economist.

Greg Mankiw the rent-seeker is way wrong on SOPA though.

He says:

it is as if organized crime were stealing merchandise from a manufacturing firm at the loading dock.

It's not like that at all actually. If I steal merchandise from a manufacturing firm, they lose something tangible. Let's assume this firm is producing something out of patent. Pink Flamingos. If I'm able to make an exact copy of the pink flamingo and produce and distribute it for free Greg Mankiw the free market guy would call this a productivity increase and praise it as the wonderful free market in action. He would never ever ever say that the government should step in and force everyone to buy pink flamingos from the more expensive company.

Now, Greg Mankiw the Copyright rent-seeker is really saying that HE loses money if someone makes a copy of his textbook. However, in much the same way he "loses" money if I buy a used textbook instead of a new one. He also "loses" money if I borrow the textbook. The only difference is that the government has defined that one is illegal and the other two as not illegal.

The reason the government has defined one as illegal is so that Greg Mankiw will be able to make a profit writing textbooks. It is in everyone's best interest if Greg Mankiw can make a profit writing a textbook. But there is a balance. Obviously most people think it would be ridiculous for the government to make borrowing textbooks and buying used textbooks illegal. Good for Greg Mankiw the rent-seeker, but bad for almost everyone else.

Don't Try to Make Income Inequality Irrelevent

At least not before you address the portion due to rent seeking. Income inequality is a problem if it is due to corporations or individuals using their government connections to secure more and strengthen current economic rents.

When income inequality is high, it's not a reflection of how it should be in a free market. Conservatives should be asking "Why is the market not evening out incomes more?". If one person can make 60 billion dollars on a product, why hasn't someone who is satisfied with making 50 billion tried to compete with them?