Paid Sick Leave and Schelling Focal Points

Paid sick leave is something I want more people to have. Of course it’s a good thing. Sick leave is valuable, but it’s not free so we have to ask it it’s worth it.

Right around the 11:30 mark is a tragic and hilarious line: “Dildos are not essential items. Books for kids, yes, but dildos? … No!” Good for John Oliver noting that deciding what is essential isn’t straight forward–apparently frivolous things might keep people inside and so serve the public health.

This is a classic Austrian point: prices (are supposed to) communicate information about how urgently people want a product. We run into trouble trying to prevent prices from reflecting the underlying economic crappiness of a crisis. Price gouging should be allowed for toilet paper and especially for grocery/Amazon workers. And the price of grocery workers should be passed on to consumers.

What we’ve got now requires each of us to not only ask “am I willing to pay this price?” but also engage in a moral calculus that is hard. I have to ask (as a person striving to be moral) if it’s really worth ordering X, Y, and Z from Amazon. But as a person who has to strive to be moral, it’s entirely too easy to fall for bad rationalizations.

So how do we help these essential-yet-replaceable* workers? Paid sick leave sure sounds good. And given the externalities involved in a pandemic, there’s a strong argument for mandating it.

But it’s worth remembering (particularly as a long run policy) that if we push on one part of a compensation bundle, something’s going to give. If we require employers to provide a company car (or simply encourage company cars through preferential tax laws), we shouldn’t be surprised to see monetary compensation fall. The same logic applies to paid sick leave.

But I’m my own devil’s advocate, so let me make a counter argument. I rarely use my sick days. I think I’ve taken 2 or 3 in the last 6 years. (I’m absolutely reevaluating that position now!) There’s this idea floating around in the back of my head that tells me to just tough it out and keep working. This isn’t because I carefully weighed pros and cons, it’s just received “wisdom” picked up by osmosis from the broader culture.

American culture values work over value. There’s no shortage of bullshit work because we’re in a work-too-hard equilibrium. This is not to say that hard work doesn’t have benefits. I’m happy when ambitious entrepreneurs work “too” hard to provide greater value. But there are a lot of cases where we create work for its own sake (especially in the higher ed racket, but apparently we’re not alone).

Essentially, we’re all playing a coordination game where we choose between “[appear to] work to make things better” and “stay home instead of passing your illness to other people.” Given American work culture, the Schelling focal point is <work, work>.

On the compensation end of things employers have to decide between offering more sick leave or some other compensation (like money). In this end, there is some benefit to zigging where other employers zag. If I’m running the only business to offer paid paternity leave, I get my pick of the best family-oriented workers while my competitors have to outbid each other to get the best of the other workers. But any mid-level HR manager is more likely to play the risk-averse strategy of following “best practices.”

So we’re in an equilibrium that underrates sick leave. We want to be in an equilibrium where it’s just good business sense to offer sick leave during a global pandemic. But coming from our current equilibrium, offering sick leave is a costly decision to privately provide a public good; it’s unlikely to happen unless the culture already promotes it.

I think we can get that equilibrium. I think we’re already moving towards it (ask yourself: would the board of the East India Company be more likely to offer sick leave than Amazon?). But we’re not there yet.

Paid sick leave should be good business sense right now**. But it depends on a culture where such behavior is widespread. I’m not convinced we could flip a switch and get that culture over night. Given that, I’m at least somewhat okay with contradicting my libertarian priors and calling for emergency mandates for paid sick leave. 2020 America isn’t likely to coordinate on the “right” short-term solution and coercion is probably the most efficient*** way to deal with this common pool problem. But outside of a public health emergency we shouldn’t allow top down mandates about the mix of compensation offered in markets (certainly not with the sort of people we elect to be on top).


(A couple rhetorical points: First, John Oliver isn’t speaking the language of those on the right. They won’t even be convinced that the issues he’s talking about are important. I think that’s a shame. Second, this is a tough time to try to argue against paid sick leave. In 2020 America, mandatory paid sick leave is probably required because we’re at the wrong Schelling point. Again, I don’t think conservatives or right-libertarians will find Oliver’s motivations convincing, but I believe that they could be persuaded. But that’s another blog post.)

(Two important counterpoints to the above: first, price increases hurt the poor. The way to solve that is to give charity money to the poor, not to try to make markets communicate information about relative scarcity and act as charity–that’s half-assing twice and it’s bound to be more inefficient than the charity would be costly. Second many people categorized as “essential” aren’t in a position to demand higher wages*. I don’t have an easy solution to this issue. Let’s talk about it in the comments.)

*Which is to say, workers who are in the same position as water in the diamond-water paradox.
**Not to say it would be cheap or easy.
***There you go. Now my friends on the left can accuse me of being a bloodless economist for opposing paid sick leave in general, and my friends on the right can accuse me of being a bloodless economist for supporting

A quick thought on justice

I thirst for justice. Sometimes it nearly gets me killed.

Driving in Long Island traffic gives me many opportunities to exercise my justice muscle which just reduces my life expectancy by that much more. This whole “turn the other cheek” thing is health advice, not an ethical rule. Don’t get me wrong, I wouldn’t want to live in a world without justice. But as an individual I need to work on tempering my own craving. I need to quiet that voice deep in head that shouts “THEY MUST PAY!”

This desire for justice seems to be part of human nature. I’d bet that it’s an essential part of hunter-gatherer society. But in the society where I can perceive all sorts of injustices, it can lead me astray. I’m glad I’m not allowed to be a vigilante because I’d almost certainly kill myself in the process.

David Friedman on Judging Outside Your Expertise

David Friedman writes:

Accepting the views of experts on a question you are not competent to answer for yourself, assuming that you can figure out who they are and what they believe, is often a sensible policy, but one can sometimes do better. Sometimes one can look at arguments and evaluate them not on the basis of the science but of internal evidence, what they themselves say.

He goes on to give examples of inconsistent claims made by global warming alarmists. His (short) post is worth the read. Here are my 2 cents:

First, (in response to the block quote) deferring to experts is sensible but requires a certain degree of expertise in picking out who they are which is a difficult task. We’re all human, and it’s hard to hold something in your head without thinking it’s true. That makes it hard to not be arrogant. We need to emphasize strongly that interpreting information is hard, and the outcomes are not at all obvious. Those concerned with anthropogenic climate change (myself included) are better served by stressing the uncertainty involved and making arguments centered on appropriate risk management.*

Second, The issue of climate change boils down to a series of sub-issues that need to be considered carefully:

We need to think about costs and benefits. A warmer world would be a boon for many people. If we could set the average world temperature, we would want it to be higher than 0 Kelvin. We might even want it to be warmer than it is today.

We need to think about the uncertainty surrounding what’s happening, as well as what we can do about it. We should be particularly skeptical about cost estimates for any effort to try to control the environment.

(This one’s a bit of a non sequitur.) We should use this as an excuse to do things that would help reduce the costs of climate change that we should be doing anyways. Specifically, we need to liberalize immigration policy in wealthy nations. Let’s say there’s a 0.00001% chance that climate change has a bad outcome, and that specifically that outcome is that the entire country of Bangladesh will catch fire and kill everyone. That’s a good excuse to let Bangladeshi’s come to America, but we should be doing that anyways. It’s a low cost (actually a negative net-cost) solution to a potential problem of climate change.

Here’s one that I think the smarter alarmists/deniers already recognize: this is a political discussion. Politics and the truth don’t mix. But recognizing this point and making it widely known may allow people to tone down and argue something closer to the truth.

skepticalscience
Global warming will lead to catastrophic… life?

Both sides like to think of themselves as skeptical (as demonstrated by that masthead which warns that we might have to suffer through the addition of a habitable continent (?)), and good for them. We should value skepticism in this. But that skepticism shouldn’t lead us to make bold claims on one side or the other. It should lead us to ask a lot of “what if?” questions. This is a risk management issue, not a social engineering one.

* I like Taleb but I’m not as worried by GMO’s as he apparently is, but I haven’t read that paper either.

Here’s why you should default on your student loans. And here’s why you shouldn’t.

This article popped up on my newsfeed the other day and I (as always) read the headline (“Why I defaulted on my student loans”), looked to see if it was posted by one of my sane or insane Facebook friends (no idea…), then promptly forgot about. Then I saw this response: “The New York Times Should Apologize for the Awful Op-Ed It Just Ran on Student Loans” (posted by a sane friend). Okay, let’s give this some thought.

Lee Siegel (of the first article) writes that he made some bad decisions and faced the prospect of either living a life he didn’t want, or defaulting on his obligation. The question then is “should more people follow his example?”

Choosing a major is essentially an entrepreneurial decision. You are investing in a set of human capital goods that you hope will provide a return in the future sufficient to justify the cost of the investment. One thing we know about entrepreneurship is that it usually fails. We also know that this failure is often not socially wasteful but simply a cost of experimentation. America was lucky to end up with a system of bankruptcy that is uniquely easy on defaulters… why lucky? Because it turns out that this system meant to merely shift resources towards farmers also allows entrepreneurs to quickly dust themselves off and get back to work on their next experiment. Some turn out to be brilliant and ultimately outweigh the costs of past failures.

But this wasn’t what Siegel was advocating. His decision was to not pay his debt but to stay in the line of work he trained for. His thinking was “sunk cost, and now it’s someone else’s problem.” Yes, the higher-ed industry is screwy on all sorts of margins, and yes, he probably didn’t have great information beforehand. But rather than learn from his mistake, he simply ignored it.

Using bankruptcy to subsidize risky experimentation turns out to make sense in some cases (it’s hard to believe, but there it is). And this might be justified in some cases in schooling… it might be worth it to subsidize 100 post-secondary schools that try all sorts of crazy methods on the chance that we learn something useful from the experience. And I think we can justify defaulting on student loans that were made in fraudulent circumstances (“Hey Buddy, wanna get a degree?”). It might be sensible to allow loan forgiveness for students who get a degree in a field that turns out to be obsolete by the time they graduate… as long as it’s paired with a policy requiring student loan applicants to watch a 12 hour long video course on employment projections and labor economics.

We might even justify subsidies by partial loan forgiveness for students studying art or some other field that might generate positive spill overs–but if we do, the decision shouldn’t be left to those who already owe a lot of money for attending an expensive school. It’s not up to Siegel to determine that he should get a subsidy. He wasn’t suggesting walking away from his mistake and starting fresh, he was suggesting letting someone else pay for the cost of his mistake while he reaped the rewards.

If there’s anything to learn from Siegel’s decision, it’s that understanding costs isn’t a requirement for writing in high profile news papers and so we should be leery of policy advice given by journalists. I think the second article I linked to makes a compelling case that Siegel is a bum.

From the Comments: Types of Federalisms, Good and Bad

Adrián‘s response to responses by me and Michelangelo on his initial response to a comment by Michelangelo that I highlighted in a post of mine (whew!) deserves a closer look:

Guys, thanks for your comments, and apologies for the delay in responding!

1. I share your love for idle speculation. I’d say my fundamental difference with you lies elsewhere: you grew up/are very familiar with a country where federalism has worked pretty well (with notable exceptions, such as slavery and the Jim Crow laws), while I came from another where federal institutions are full of perverse incentives. So, whenever somebody proposes a federal arrangement, I immediately perceive the costs, while you’re more open to the potential benefits.

2. That said, I think an useful way for thinking about federal structures is to analyze the incentives faced by subnational governments. (a) Some subnational governments are accountable to domestic audiences, and thus they seek a federal structure where subnational governments retain considerable autonomy, including autonomy over taxation. This is the kind of federation that fosters tax competition and experimentation, with the US and the EU as good examples. (b) In other contexts, subnational governments are not fully accountable to domestic audiences (even with elections) and thus they devise federal institutions as mechanisms for extracting and distributing rents among themselves, and they use these rents to perpetuate themselves in power. Rather than keeping authority over taxation, they purposefully delegate their tax authority in the federal government to collect taxes for themselves. In other words, the federal government acts as a enforcer of a cartel: it establishes the same tax rate everywhere, collects the money, and distributes it between the states according to some highly politicized formula. This is the kind of federalism that predominates in Latin America: Argentina, Mexico, and to a lesser extent Brazil.

In sum, my point is that creating a federation among governments that are not responsive to voters will lead to the second type of federation. I don’t see the Middle East creating a fully functional federal system unless governments in the region become fully responsive to voters, which will require much more than competitive elections.

3. Michelangelo: I agree with 95% of what you say about Turkey and Israel, especially the EU part, and I obviously believe that it is a good thing these countries trade more and develop better relationship with each other. That said, the main reason why I don’t see these countries forming a federation is a more fundamental one: (a) that neither Turkish nor Israeli politicians have anything to win by creating a federal arrangement, and (b) given Turkey’s enormous size with respect to Israel, this problem is especially important from the Israeli point of view.

There is more on federalism at NOL here. Check out Adrián’s posts here, and Michelangelo’s are here.