The One-Handed Economist

Via Megan McArdle’s shiny, new Atlantic blog, Brad DeLong has an absolutely brilliant post about early 20th century America. You really should read the whole thing, it’s pretty stunning. The thing that sticks out most is the absolute material poverty in which essentially everyone lived.

Few households in Homestead in 1900 had running water or a hot water heater. Water came in buckets from a faucet in the street into the house, and then heat it on the stove. In the–relatively prosperous for its time–factory steel town of Homestead, Pennsylvania at the start of the twentieth century, only one in six working class households had indoor bathrooms in 1910. Half of “Slav” and “Negro” families lived in one or two room houses. Most white families lived in four room houses. And most households in Homestead in their one or two or four-room houses had boarders: male, unrelated, single workers sleeping and eating in the house. The work of the housewife thus brought income directly into the household. Remember the three farmhands in the Wizard of Oz, set in 1890s Kansas? Odds are they slept in the house with Dorothy, her Uncle, and Auntie Em–or they slept in the barn.

A quarter of American households in 1900 had boarders or lodgers (compared to two percent today). Half of American households in 1900 had fewer rooms than persons (compared to five percent today). A quarter of American households in 1900 had running water (compared to ninety-nine percent today). An eighth of American households in 1900 had flush toilets (compared to ninety-eight percent today). Less than a fifth had refrigerators, less than one-twelfth had gas or electric lights, less than one-twentieth had telephones or washing machines, and of course there were no radios or televisions or vacuum cleaners or central heating, to list just those major appliances that have greater than ninety percent coverage today.

These paragraphs are in reference to mill workers in Homestead, PA. And remember, those jobs with US Steel: grueling 12-hour shifts, six days a week, with a large probability of injury or death were the sort of jobs people crossed oceans on cramped ships to get. Imagine sailing three weeks across the Atlantic, after an overland journey from the Ukraine or someplace, so that your family could have a shot at living in a two room house with some strangers while you worked 72 hours a week in a steel mill. Imagine you did this because that prospect was immeasurably better than the prospects you had in your native country, and because those mill jobs were some of the better ones you could get anywhere.

Compare that to any part of the Western, industrialized world today. In any major city in the US, I can easily find a job that will provide for my material needs, a home with running water and no boarders, I’ll work less than 40-50 hours a week, I’ll have virtually no chance of on-the-job injury, and I’ll even be able to maintain a balanced diet and do my own laundry without need for servants or for spending an entire day at it. In the past 100 years the absolute material well-being of pretty much everyone in the industrialized world has improved so greatly that the every day tribulations of persons working relatively good jobs for the time are completely unrecognizable to essentially anyone in the West today.

Unfortunately, those sorts of problems: high infant mortality, bad diet, long work hours in bad conditions, and crushing material poverty, are still a daily reality for much of the world’s population. And this ties directly into what I mentioned the other day about the moral case for trade.

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Having decided that Wikipedia is basically a joke, full stop, I deigned to attempt to vandalize the entry for Dada. Now, if you know anything about Dada and you have a sense of humor, replacing the entire entry with the phrase “Fipity Fap” repeated a few hundred times followed by a dozen or so renditions of “Twelve” is, in its own way, totally awesome. If you’re some humorless dork with the handle “Can’t sleep, clown will eat me.” you don’t find this so hilarious and you ban the poster.

I mean, come on, how much self-seriousness do you have to have not to appreciate total nonsense in the entry about DADA for cripe’s sake?

A recent email exchange with Thoreau at Unqualified Offerings got me thinking about the best, jargon-free way to explain one of the most counter-intuitive results of international trade theory. Thoreau is a really smart dude, what with being a physicist who’s starting a tenure-track position at a reasonably notable California university this fall, but in most of our exchanges about trade he hasn’t quite gotten one of the key points about why free trade won’t sustain itself in the long term. In this case, I’m going to go ahead and blame the communicator here because I have a noted tendency to write overlong sentences like this one and to write in a formal tone laden with technical jargon. That tendency is a failing, and I’ve been thinking about how to clearly explain what I’m talking about for the last couple of days. As such, onward!

The counter intuitive result I’m talking about is pretty simple: sometimes a country can make itself better off by imposing some kind of trade restriction. This can happen when a country makes enough widgets to affect the price of widgets on the global market, not just in their domestic market. This doesn’t seem to make a lot of sense, because the typical story goes something like this: We’re better at making widgets, you’re better at making whatsits and so we’ll trade and both be better off! In that kind of circumstance it seems pretty obvious that nobody can benefit from restricting the free flow of widgets and whatsits between the countries. Well, in truth the story is more complicated than that.

Let’s start by imagining that instead of countries we treated the whole globe like it was all one big country with a bunch of states. That means that restricting trade between the US and China would be a lot like restricting the trade between California and New York is now. So, then, obviously you’re not going to make Earth better off by restricting trade between the US and China. But what about the US or China? Well, that might be a little bit different.

If both countries have enough, for want of a better term, market share in widgets or whatsits that the price on Earth can be affected by the price in the US or the price in China, then things turn out a little differently. Let’s say, just for the sake of argument, that the US decides it doesn’t much like getting so many whatsits from China: maybe US producers of whatsists are complaining that they’re having a rough time of it, maybe China has become politically unpopular in the US, whatever. So the US decides to impose a quota on the importation of Chinese whatsists, which sets a cap on the number of whatsits from China that are allowed to come into the US. Further, because this makes the story simpler (but leaves the point the same), let’s suppose that the US and China are the only people on Earth who make whatsits.

So, the US imposes this quota, and the number of whatsits coming into the US from China falls. What happens next? Well, it’s safe to assume that US consumers still demand the same number of whatsits they wanted before, but now they can’t get enough to meet demand because they can’t import those that US makers of whatsits weren’t making…so the price of whatsits in the US goes up. Well, that means that US makers of whatsits will start making more to meet that demand. So, in the US the price goes up, but US producers make more whatsits and thus more money. So, US whatsit producers benefit from this quota and US consumers are hurt. Additionally, those Chinese producers who are still allowed to sell in the US may benefit: if the right to sell in the US is sold, then the US government benefits, if it is given away then the Chinese producers benefit.

What happens in China? Well, the price of whatsits will fall in China because there is now less demand for Chinese whatsits. That means that Chinese whatsit consumers benefit. But this lower price also harms Chinese producers of whatsits: lower demand means a lower price, less profit, and less production.

No matter what, this has reduced the welfare of Earth, because any time you interfere with a competitive market some of the welfare simply evaporates from the distortion. But, if the quota isn’t too big the US government forces a transfer from Chinese producers and US consumers to US producers, Chinese consumers, and either some foreigners or the US Government. If the quota isn’t too restrictive, this will actually raise the total welfare for the US while harming the welfare for China and Earth. In fact, there is some quota that will maximize US welfare, meaning that if the US is only thinking of its domestic welfare, it would certainly impose some quota on Chinese whatsits.

This isn’t to say that striving for free trade and attempting to make as many people as possible as well off as possible isn’t the morally correct thing to do, or to say that free trade isn’t a good goal, but to note that things can be a lot more complicated when you have to think about how nations will act toward each other, and that you have to tailor your arguments in those terms. In many cases it may be better to tout the moral benefit of helping people from other countries through mutually agreeable trade than to try to justify the dropping of all trade restrictions from shaky economic footing.

I hope that made a reasonable amount of sense. I didn’t even draw a graph or say “utility” or anything.

The title is shamelessly lifted from my friend Thoreau at Unqualified Offerings. Yesterday, the lot of cowardly bed-wetters we’ve elected to carry out the farcical puppet show we call governance decided to grant the unpopular Bush administration carte blanch to violate whatever natural and Constitutionally guaranteed rights they damn well please. From the Reason post linked above:

1) A redefinition of “electronic surveillance,” for which a warrant from the Foreign Intelligence Surveillance Court is required, to exclude communications involving at least one person who is outside the United States. That means the NSA not only does not need a warrant to eavesdrop on international communications that happen to be routed through a U.S. switch (which seems like a reasonable tweak to FISA); it also does not need a warrant to eavesdrop on communications between people in the U.S. (including legal residents and American citizens) and people in other countries, provided the party outside the country is suspected of involvement in terrorism. That suspicion need not be vetted (or even rubber-stamped) by anyone outside the executive branch; the attorney general and the director of national intelligence will have the unreviewable authority to approve surveillance.

2) Authorization of administrative subpoenas compelling telecommunications companies to divulge their records. Again, these orders won’t be subject to any kind of judicial review.

Here we are, in 2007, with less than 18 months of Bush’s extremely unpopular, lame-duck Presidency left, and the Democrats everyone elected in 2006 because they were fed up with Bush are tripping all over themselves to grant his administrations (and those to come) unsupervised power to spy on the American public.

So much for partisan politics saving us all.

The bill does sun-set after six months, but given the history of things like USA PATRIOT and the Spanish-American War phone tax, which was finally killed in 2006, I think it’s safe to speculate that such a temporary power is likely to become permanent. Government is unlikely to cede power once it is granted, and I think it’s a safe bet, as Son of a! at H&R points out, the “see the country didn’t collapse from the abuse of liberty, this is fine” argument will come up in six months when Bush is only a year from the end of his massively unpopular second term. Maybe then the bed-wetters in Congress will have the spine to kill this thing, more likely they’ll make it permanent because they want the power of the ring for themselves. And I, for one, highly doubt the Democrats will have a Boromir-like moment of moral clarity.

The Transportation Safety Administration (AKA the Full Employment For Illiterate Half-Wits Department) is now wetting its pants over possible “terrorist dry runs” at US airports. I suppose this is one of Chertoff’s “gut feelings” with little to no basis in reality.

I travel frequently, mostly around Texas for work, but to other parts of the country on occasion as well, and it’s plainly obvious that the TSA has done little, if anything, to make airports any safer than they were before 9/11 changed everything (while leaving a shocking amount just as it was). Most of that has to do with margins: US air travel was already among the safest forms of long-distance travel on the planet, so it’s not like there were major gains in safety to be had anyway. Furthermore, when you’re more likely to be killed crossing the street than in a terrorist attack, there’s honestly nothing to worry about.

We’ve moved away from logical, high return precautions – like screening bags for weapons before people get on a plane – to the ridiculously farcical puppet show of forcing passengers to take off their shoes and place all of their toiletries into a plastic bag. What’s worse, these measures have forced those of us who like to travel light to either check a bag and risk having it lost by whatever troglodytes work behind the scenes at airports, as happened on my last trip, or purchase unnecessary bathroom items upon arrival. And it’s not like the folks at the X-ray machine have any clue what they’re doing. It’s a low status job, and it doesn’t pay all that well, so people with valuable skills do something else. We have an airport security system run by glorified mall cops with guns, think about that for a second.

Mall Cops. With Guns. I feel safer already, now excuse me while I go wet myself.

Having read the full paper that I mentioned here, I think some of my initial reservations, which were based on a synopsis, were a little misplaced. Which, frankly, should come as a shock to no one. Maybe the reviewers at Science know more about good science than I do, whoda thunk it? In any case, Harbaugh and his co-authors were looking for the hedonic rewards granted by both voluntary giving and mandatory transfer. They were doing this in an isolated, controlled environment Essentially, by examining the activity in the parts of the brain known to be associated with feelings of satisfaction, they worked to understand the different neural effects of giving to a charity and being made to give to a charity.

By doing this, Harbaugh et al*. were able to look at whether a motive of pure altruism existed, or if the data were consistent with the “warm glow” theory of giving (a good feeling from the sense of agency associated with voluntary giving). Purely altruistic giving may be reduced by government spending, where warm glow giving wouldn’t be. Why people give to charity, therefore, is an important question when it comes to the provision of public goods. If we provide them through taxation, and people are purely altruistic, then you’d expect them to quit donating to private charities as a result. On the other hand, if they are motivated solely by the good feeling they get from the choice of giving, you wouldn’t expect charitable giving to be reduced by taxation.

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Shamelessly Cross-Posted From the OC.

Late to the party as always, I’d like to point out that University Economics Professor Bill Harbaugh has a new paper on paying taxes in Science a couple of weeks ago. First of all, congratulations to Professor Harbaugh on getting this interesting piece of research into a leading journal. Go Science! Secondly, I’d like to move on to my amateurish and maybe misplaced critique.

Unlike a lot of right-leaning folks, and especially unlike many libertarians, I’m open to the possibility that paying taxes does make people feel good in some way, some of the time. If you think of a nation-state as a really large tribe, and think a little about how important intra-tribal generosity can be in an evolutionary setting…well, maybe even compelled generosity can make people feel good. But, even if the conclusion is right, I don’t think it really has much implication for the proper relationship between man and the state: the proper role and function of government is unaffected by what makes people feel good. In fact, I would argue, that due to the extremely difficult problems we face when we try to aggregate preferences, and the strange behavior of voters, that we will never be able to achieve a satisfactory outcome for all or even most citizens in a given nation-state. Therefore, the philosophical position that a minimal state achieves the most freedom and allows individuals to pursue their own ends with minimal interference which allows the best outcomes given the constraints of the real-world, is still fairly compelling, I think. Furthermore, if voluntary giving and compelled giving stimulate the same area of the brain it seems that allowing people to keep their money and donate to charity as they see fit would achieve similar ends to forced giving through a state system. Additionally, perhaps paying taxes doesn’t offer the same kind of hedonistic reward as relevant alternatives, which would mean it isn’t the best choice in many instances. Science’s summary seems to say that much is true:

The sense of well-being in the voluntary giving condition surpassed that seen when subjects were taxed.

In any case, I have a few questions about the study in general:

1) As the ODE story points out, only 19 people were sampled for this study. That’s a pretty small sample to draw conclusions from, and it could be biased, so I wonder if this paper should really serve as a jumping-off point for larger sample studies in the future.

2) Is compelled donation to a local food bank really a good proxy for taxation? A local food bank is an easily identifiable good, and one that has fairly measurable effects that participants in the study can see or at least read about in the local paper. Taxation, on the other hand, helps and hinders a variety of activities by a variety of people at a fairly large remove from the taxpayer which could, I suppose, reduce the effect if people feel more tribe-like affinity for their city than they do for the country as a whole. So I’m not sure that a local food bank is exactly the right proxy for taxation as it is actually practiced. I wonder if a better proxy would be something like a rich compact of Hawaiians in Maui.

Maybe those two issues are addressed in the full paper, but I’m not made of money so I don’t have a subscription to Science and I can’t seem to find a working-paper version anyplace on Professor Harbaugh’s website. Anyway, it is a pretty interesting bit of research and I’d be interested to hear answers to the above.

I’ve been…absent for a bit, obviously, with the last update of this thing we could, loosely, term a blog sometime over a month ago. It’s not really a lack of time, but as I’m not anonymous work doesn’t offer much in the way of fodder. Furthermore, the only thing in the news recently is either the US Presidential race, which I don’t really care about, or something horribly upsetting from some place in the world. Frankly, it isn’t very inspiring. The rest, well, you could get as much enjoyment out of some emo kid’s livejournal as you will out of my thoughts on D&D and teaching myself various regression packages.

Rogier Von Bakel points out exactly why I won’t be voting for Guiliani should he get the GOP nomination:

“Freedom is about the willingness of every single human being to cede to lawful authority a great deal of discretion about what you do.”

Yes, that’s exactly what freedom is, you authoritarian jackass. Exactly. Read the whole, horrible thing.

Quick, somebody call Dan Riehl! It’s another sensationalized story about a missing white woman!