The Diplomat has a piece up with the following title: “Russia’s Sole Aircraft Carrier to Be Fitted With Advanced New Air Defense System.”
The author of the piece goes on to wax poetic about the advanced new air defense system, but that’s not the most important information being conveyed. It’s the fact that Russia – Russia – has a single aircraft carrier.
I’m still not sure where I land on the issue of Universal Basic Income (UBI), but I just thought of a bit of clarifying language that lead to a thought. I’m sure this thought isn’t original, but I’m also sure it doesn’t come up as often as it ought to.
A UBI system’s appeal stems from the fact that it’s a minimal welfare state (kinda sorta). We all know the old debate between proponents of a minimal state–and the debates about what exactly that constitutes–and those of a welfare state–and again, there’s plenty of disagreement on what that actually means.
On a 0-10 spectrum of “how important should the government be? / how important is the government currently” a UBI is a lateral move with obvious efficiency gains. It strips out all the bureaucracy in our current welfare state, provides a wide safety net, and allows the poor to exercise their own agency using their local knowledge about their particular circumstances and opportunities. No cookie cutter solutions, no lines, just a modest check in the mail and an entire population looking for good ways to use it.
On the other hand, it lays bare some of the worst case scenarios of a maximal welfare state. Subsidizing sloth and dependency, enormous costs, reduction in savings, net negative cultural effects, and who knows what else!
But still, perhaps UBI with some minimal modifications is an improvement over what we’ve got now?
2×2 matrix (robust vs thin welfare state and broad vs targeted welfare state).
The maximal welfare state is robust, and broad. There’s a housing bureau, a food bureau, a work bureau, and nearly everyone is waiting in line at one of them at some point each week.
The minimal state would have no welfare, but the minimal welfare state would have a thin and targeted system. No social workers, no bureaucrats, just a check. And unlike a UBI, this would only apply to the poor. Which might cost it political support.
A UBI is thin but broad. That might require it to be less generous, but could (literally) buy it some votes. On the other hand, what do I know about what makes people vote?
The thinness and breadth of a UBI makes it startling next to the old dichotomy. It simultaneously opens up whole new realms of possibilities–it dramatically increases the opportunity cost of drudgery and bureaucracy and provides an easy enough safety net to allow widespread entrepreneurial activity. If we had the right culture we could do anything! But (!) we don’t get to choose the culture.
That breadth is pretty scary when we consider some of the negative behaviors it will surely breed. The lunatic fringe will be funded by the rest of us. A cult is easy to finance when all your members sign over a government check to you every month.
Here’s a possibility: Imagine a vastly simpler tax code. “What’s your income? Scan your tax/employment card that isn’t as stupid as a Social Security Number.” $X “Thank you, give us f(X). Insert cash or card into the machine.” You could file taxes every month (or more or less frequently if you prefer). In that world, we could just give a refundable tax credit to anyone who had a low enough income.
Mind you, I’m assuming away the issue of designing the right marginal tax rates and setting the level of the tax credit. But such a system could be simultaneously broad (it kicks in for anyone as soon as you need it) and narrow (you only get it if you’re poor… and you end up paying it back if you get rich). I think a simpler tax system would be necessary to make a minimal UBI workable
The 2018 General Meeting of the Mont Pelerin Society will take place from September 30 – October 6, 2018 at ExpoMeloneras and Lopesan Hotels in Meloneras, Gran Canaria, Canary Islands. As with past general meetings, the Mont Pelerin Society is currently soliciting submissions for Friedrich A. Hayek Fellowships. The fellowships will be awarded through the Hayek Essay Contest.
The Hayek Essay Contest is open to all individuals 36 years old or younger. Entrants should write a 5,000 word (maximum) essay that addresses the quotation(s) and question(s) detailed on the contest announcement (available at the above link). The deadline for submissions is May 31, 2018. The winners will be announced on July 31, 2018. Essays must be submitted in English only. Electronic submissions should be sent in PDF format to this email address (firstname.lastname@example.org). Authors of winning essays must present their papers at the General Meeting to receive their award. The essays will be judged by an international panel of three members of the Society.
Please feel free to share this announcement with any individuals who may have an interest in submitting an essay for consideration of a fellowship award. All questions may be directed to the MPS Young Scholars Program Committee by email at email@example.com or phone at +1.806.742.7138.
MPS Young Scholars Program Committee
Recently President Trump enacted a series of executive orders with the aim of extending religious liberty. This has gotten me to think about churches and tax policy. Just to be clear, in this post I will not discuss the details of Trump’s orders. I care about the broad concept here.
Churches in the United States are exempt from certain taxes due to their classification as charities. I have often been in favor of this designation. Taxes can easily serve as a way for the state to discriminate against groups subtly. I could easily imagine a tax that targets churches with kneeling pews (e.g. Catholic churches) and therefore disadvantages them relative to denominations that have less kneeling involved. I could also imagine a system, similar to some European countries, where the state collects the tithe on behalf of the church. This arrangement would favor larger, state recognized, churches at the expense of smaller start up denominations. In both cases taxes can be used by the state to effectively discriminate between churches.
Some time ago though it was pointed out to me that NOT taxing churches could also lead to discrimination against them. Take the case of property taxes. When urban planners draw up zones (residential, commercial, mixed use etc.) they effectively have the power to exclude churches from certain neighbors. Even without official census data it is not difficult to notice where certain religions sort within the city, and so a zealous planner could easily discriminate by denomination. When church property IS taxed there is a strong disincentive against this type of discrimination because it reduces potential city revenues. Even if a given planner may be willing to discriminate nonetheless, he would find himself fired by his tax-obsessed superiors. When church property ISN’T taxed this incentive is reversed. Since church property can’t be taxed cities lose out on potential tax revenue when they zone an area for a church over taxable property. A devout religious urban planner may easily be pressured to minimize the number of churches to maximize tax revenues. I suspect a Catholic urban planner would prefer to reduce the number of Protestant churches, so this is a scenario where minority denominations could easily find themselves zoned out of existence.
The current concern about whether churches should be allowed to be engaged in politics would be moot if they were taxed. The legal reason churches are limited in their political speech is that they are classified as charities. Certain crowds would be angry about allowing churches being involved in politics* anyway, but I suspect many politicians would be fine to look the other way in exchange for the increased tax revenues.
How can we balance the pros of taxing churched (helping them avoid being discriminated by zoning and gaining political speech) versus the cons (discrimination by taxation)? I think the answer is a georgist tax on land. It achieves the goal of taxing churches without discriminating against any given denomination.
*For the record I personally oppose my church, the Catholic Church, from getting involved in politics. I am fine with the priest lecturing against the evils of abortion, but I don’t want to hear his thoughts on the optimal income tax rate.
Note: A version of this was initially posted on my old, now defunct blog. However, has become increasingly relevant in the age of Trump, and is worthy of reconsideration now.
It’s one of the most common arguments against looser immigration going back to Milton Friedman to Donald Trump. It is commonly claimed that even though loosening immigration restrictions may be economically beneficial and just, it should be opposed due to the existence of the welfare state. Proponents of this claim argue that immigrants can simply come to this country to obtain welfare benefits, doing no good for the economy and adding to budget deficits.
Though this claim is on its face plausible, welfare is not nearly as much of a compelling reason to oppose immigration as so many argue. It is ultimately an empirical question as to whether or not the fiscal costs of immigration significantly outweigh the fiscal benefits of having more immigrants pay taxes and more tax revenue economic growth caused by immigration.
Before delving into the empirical studies on the matter, there is one very important fact that is too often neglected in these discussions: there are already heavy laws restricting all illegal immigrants and even the vast majority of legal ones from receiving Welfare. As the federal government itself–specifically the HHS–notes:
With some exceptions, “Qualified Aliens” [ie., legal immigrants] entering the country after August 22, 1996, are denied “Federal means-tested public benefits” for their first five years in the U.S. as qualified aliens.
If we were to allow more immigrants, there are legal mechanisms stopping them from getting welfare. There are some exceptions and even unlawful immigrants occasionally slip through the cracks, but this is already a major hole in the case that welfare means we should hold off on immigration reform. The vast majority of immigrants cannot receive welfare until years after they are legalized.
However, for the sake of argument, let us ignore that initial hole in the case against increased immigration. Let’s generously assume the majority of immigrants–legal and illegal–can somehow get their hands on welfare. There is still little reason to expect that additional immigrants would be any more of a fiscal drag on welfare programs for the vast majority of our population simply because they are not the type of people who typically wind up on welfare. Our welfare programs are primarily designed to protect a select few types of people: the sick and elderly (Social Security and Medicare), and women and children (SCHIP, SNAP, TAMPF, etc.) If one looks at the demographics of immigrants coming into the country, however, one finds that they do not fit in the demographics of those who typically qualify for welfare programs. According to the Census Bureau, the vast majority (75.6%) of the total foreign-born population (both legal and illegal immigrants) are of working age (between 25 and 65). Most immigrants, even if they were legal citizens, would not qualify for most welfare programs to begin with.
On the other hand, poverty rates are higher among immigrants and that means more would qualify for poverty-based programs. However, most immigrants are simply not the type to stay in those programs. Contrary to common belief, immigrants are mostly hard-working innovators rather than loafing welfare queens. According to Pew Research, 91% of all unauthorized immigrants are involved in the US labor force. Legal immigrants also start businesses at a higher rate than natural born citizens and file patents at almost double the rate of natives. As a result, immigrants have fairly high social mobility, especially intergenerationally, and so will not stay poor and on welfare all that long.
Put it together, and you find that immigrants generally use many major welfare programs at a lower rate than natives. Immigrants are 25% less likely to be enrolled in Medicare, for example, than citizens and actually contribute more to Medicare than they receive while citizens make Medicare run at a deficit. From the New York Times:
[A] study, led by researchers at Harvard Medical School, measured immigrants’ contributions to the part of Medicare that pays for hospital care, a trust fund that accounts for nearly half of the federal program’s revenue. It found that immigrants generated surpluses totaling $115 billion from 2002 to 2009. In comparison, the American-born population incurred a deficit of $28 billion over the same period
Of course, nobody would advocate restrictions on how many children are allowed to be born based on fiscal considerations. However, for some reason the concern becomes a big factor for immigration skeptics.
If you are still not convinced, let us go over the empirical literature on how much immigrants cost fiscally. Some fairly partisan studies, such as this one from the Heritage Foundation (written by an analyst who was forced to resign due to fairly racist claims), conclude that fiscal costs are very negative. The problem, however, is that most of these studies fail to take into account the dynamic macroeconomic impact of immigration. Opponents of immigration, especially those at the Heritage Foundation, generally understand the importance of taking dynamic economic impacts of policy changes into account on other issues, e.g. taxation; however, for some (partisan) reason fail to apply that logic to immigration policies. Like taxes, immigration laws change people’s behavior in ways that can increase revenue. First of all, more immigrants entering the economy immediately means more revenue as there are more people to tax. Additionally, economic growth from further division of labor provided by immigration increases tax revenue. Any study that does not succeed in taking into account revenue gains from immigration is not worth taking seriously.
Among studies that are worth taking seriously, there is general consensus that immigrants are either a slight net gain fiscally speaking, a very slight net loss or have little to no impact. According to a study by the OECD of its 20 member countries, despite the fact that some of its countries have massive levels of immigration, the fiscal impact of immigration is “generally not exceeding 0.5 percent of G.D.P. in either positive or negative terms.” The study concluded, “The current impact of the cumulative waves of migration that arrived over the past 50 years is just not that large, whether on the positive or negative side.”
Specifically for the United States, another authoritative study in 1997 found the following as summarized by David Griswold of the Cato Institute:
The 1997 National Research Council study determined that the typical immigrant and descendants represent an $80,000 fiscal gain to the government in terms of net present value. But that gain divides into a positive $105,000 fiscal impact for the federal government and a negative $25,000 impact on the state and local level (NRC 1997: 337).
Despite the slight negative impact for states, as Griswold notes, there is no correlation between immigration and more welfare for immigrants:
Undocumented immigrants are even more likely to self-select states with below-average social spending. Between 2000 and 2009, the number of unauthorized immigrants in the low-spending states grew by a net 855,000, or 35 percent. In the high-spending states, the population grew by 385,000, or 11 percent (U.S. Census 2011; NASBO 2010: 33; Passel and Cohn 2011). One possible reason why unauthorized immigrants are even less drawn to high-welfare-spending states is that, unlike immigrants who have been naturalized, they are not eligible for any of the standard welfare programs.
The potential fiscal impact of immigration from the Welfare state is not a good reason to oppose it at all. There are major legal barriers to immigrants receiving welfare, immigrants are statistically less likely to receive welfare than natives for demographic reasons, and all the authoritative empirical evidence shows that immigrants are on net not a very significant fiscal drag and can, in fact, be a net fiscal gain.
There’s a simple alternative to regulation: liability. We don’t need to tell companies how to be safe if we make them legally responsible for negligence.
It’s as though Mass’s government decided that back-to-school season calls for creating real-life rent seeking examples for my class. They’re going to start taxing ride-sharing customers $0.20 per ride with five cents of that going to the taxi industry.
“The law says the money will help taxi businesses to adopt ‘new technologies and advanced service, safety and operational capabilities’ and to support workforce development.”
New technologies like an app that gets more use out of otherwise idle cars? Or an app that makes it easy to hail a ride with little wait? Or an app that brings supply into harmony with demand when demand surges? Oh wait! We’ve already got that and it’s the thing that’s being taxed!
There are a few important economic lessons that Massachusetts’ electorate is evidently in need of. Let’s start with taxes.
Taxes don’t stick
“Riders and drivers will not see the fee because the law bars companies from charging them.” They won’t see the fee, but that doesn’t mean they won’t pay it. A business only exists by collecting money from customers and paying some portion of that to suppliers. The government cannot tax a business without taxing that business’s customers and suppliers.
Granted, part of the cost will be reflected in lower profits (although profits aren’t as big as people think) which means Uber’s shareholders will face part of the tax. But what does that mean? It means 1) a little less money in pensions, and 2) potential investment capital is moved from the people who gave us the best version of taxi travel to the people who gave us the worst version of it.
Money is fungible and I don’t know how to run a cab company
Safety, new technology, and workforce development all sound good, but taxi companies (at least those that deserve to stay in business) will already be doing these things. Safety is important because accidents are costly (especially if your fleet size is limited by regulation). New technology is being adopted by every other (competitive) industry without government support. Other companies invest in their employees.*
Supporting workforce development is part of a larger trend of people supporting specific fringe benefits without appreciating the tradeoff between monetary and non-monetary compensation. And all these ideas reflect a faulty logic: just because something is good, doesn’t mean we need to force people to do it.
Voters simply aren’t in the right position to know if some good thing is good enough relative to other options. If you go into the backrooms of any industry you aren’t already familiar with you will surely learn about techniques and tools you had no idea existed before. So why should we expect that cab companies need regulators to tell them what to do? Let them learn from their trade magazines.
But there’s good news. If we mandated that cab companies use this new revenue stream to pay for new tires, they wouldn’t simply waste the money by buying superfluous tires. They’d stop buying tires out of their own revenues and start buying them from Uber’s. Telling someone to pay from their left pocket simply leaves more money in their right pocket for everything else.**
Extra money in cab company coffers could allow them to invest in better service, happier employees, “and help so taxi owners could buy ‘flagship’ vehicles like a 1940s Checker or a Porsche.” But cab companies are already free to reinvest their profits if they think doing so would create value (i.e. greater future profits). The more likely outcome is that they will simply have more money than before.
Competition is not the problem, it’s protectionism
When we see problems in the world we need to look for their root causes if we want to actually make things better. More often we act like a doctor diagnosing cancer is the cause of the cancer. Don’t want cancer? Outlaw doctors!
Cab companies aren’t as successful as they previously expected and the apparent culprit is Uber. But they only exist because an inefficiency in the market created a profit opportunity. Cab companies are doing poorly because they don’t provide as much value per dollar. And that’s largely because of regulation that prevents competition. Much of it was put in place specifically to protect incumbents from competition.
A lot of these regulations sound nice enough, but they still created the market niche that Lyft and Uber filled. And they protected cab companies from competition right up until ride-sharing became feasible.
Regulation is not the answer
Let’s give cabbies the benefit of the doubt for a minute. Let’s assume that they aren’t really in it for the cash-grab and that they just want to help people get around safely and conveniently. Let’s even assume that NYC’s medallion system is about congestion rather than competition.
If that’s the case, then there are better ways to address the root causes of the problems cabbies tell us to worry about. We don’t need to address each of these problems individually if we can find a few key causes at the root of each of them.
Cabs have medallions but civilians don’t, so congestion will still be a problem in cities until congestion fees are implemented that balance the demand for road access with its limited supply. Safety is important, but mandating extra inspections for only some types of cars is a half-assed way of dealing with it.
There’s a simple alternative to regulation: liability. We don’t need to tell companies how to be safe if we make them legally responsible for negligence. This is an important lesson for how we think about regulation in all industries. The basic logic is also why economists vastly prefer pollution taxes to specific regulations; it’s usually better to name the outcome we want and create a cost for failure to meet it rather than mandate specific behaviors.
Perhaps this means we should modify the laws that require all drivers to be insured so that some drivers have higher minimum liability coverage. That would be far less invasive and do far more to alleviate the concerns Uber’s critics raise than mandating specific behaviors.
Concentrated benefits dispersed costs
Okay, so maybe this is too small an issue to be concerned with. If that’s not by intentional design, then it at least reflects an evolutionary logic. This policy is likely to survive because the people it taxes will face a cost so small it isn’t worth doing anything about. Yes, Uber and Lyft have incentive to lobby against it, but it’s so close to invisible that they’ll probably be able to pass it almost entirely on to drivers and passengers.
This is going to cost millions… with a tiny little m. At first I read it as a 5% tax and quickly realized that Uber rides are so cheap that I won’t even notice it. And 20 cents a ride is even less than 5%.
So why worry? Precedent. The problem with death by a thousand cuts isn’t any one cut.
*Of course we can argue about whether they do enough of that. There may be a tragedy of the commons if there’s asymmetric information between people looking to make human capital investments and businesses looking to gain access to specific human capital. Such a situation might create an opportunity for government to do some good by investing in public goods or subsidizing on-the-job training. But if that’s the case, it calls for very different programs (education reform, etc.) than taxing successful companies to subsidize their competition.
**Why is this good news? Because if cab companies did change their behavior it would imply they’re doing something where cost exceeds benefit. It would destroy value. Remember those stories of WWII rationing? Imagine that situation but with cab companies buying twice as many tires and just storing extras in the garage. It would clearly be a bad thing. Scarcity isn’t so urgent nowadays, but the basic logic remains the same.