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July 17, 2012

Economic Tipping Points and Top Down Solutions

On both sides of the political aisle, election rhetoric has been dominated by a Big Idea: that we should place our faith in top down rather than bottom up solutions. The big idea is articulated differently, depending on the audience. On the Left, we have the President arguing that capitalism is the problem and big government is the solution. In an inherently unfair world, individuals can't succeed without outside help:

... look, if you've been successful, you didn't get there on your own. You didn't get there on your own. I'm always struck by people who think, well, it must be because I was just so smart. There are a lot of smart people out there. It must be because I worked harder than everybody else. Let me tell you something—there are a whole bunch of hardworking people out there.

"If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you've got a business—you didn't build that. Somebody else made that happen. The Internet didn't get invented on its own. Government research created the Internet so that all the companies could make money off the Internet." . . .

To a nation bombarded by daily reminders of income inequality, a stagnant job market and an out of control federal budget, it's an emotionally seductive argument. Those horrid rich people didn't really earn what they have - they just figured out a way to freeload on the hard work of others. And if they didn't really earn what they have, then there is no real moral argument against the public confiscating those ill gotten gains ... for the public good, of course.

But there's an even more seductive corrollary to this argument: if the well to do don't deserve the credit for their success, then it would seem to follow that the less well off aren't to blame for not being able to realize the American dream. Someone moved cheese that rightfully belongs to them.

The argument on the right amounts to the same message - individual helplessness against larger forces - couched in different language:

I've been trying to figure out what bothers me so much about Newt Gingrich's impressive ability to talk out of both sides of his mouth. I've finally decided that my disgust has less to do with Gingrich himself than with our, and by "our" I mean Republican-leaning voters, odd belief that if we can just get the right person in the Oval Office, he will magically reverse over 75 years of steady growth in the federal government.

I have some doubts on that score, and so should you.

We seem to be taking that old chestnut about conservatives standing athwart history and yelling, "Stop" literally. Faced with runaway government spending and runaway government debt, it's a seductive fantasy. If only we could shout, "Enough!" - no need to discuss anything, no need for debate or compromise, the law be damned. I have a problem with this: I don't want a single person in either party to have that much power. And in point of fact the President of the United States doesn't have that much power under the Constitution. Our system of government was designed to ensure than no one branch and no one person would be able to bring about sweeping changes in the law without first building support for those changes.

We're still looking for a hero to save us from ourselves, but there's a problem: our elites aren't like the elites of yesteryear. We just can't manage to get excited about a pivotal election in a time of crisis because none of the candidates has a snowball's chance in hell of living up to our inflated expectations:

... people know that what America needs right now is the leadership of a kind of political genius. Second, they know neither of the candidates is a political genius.

That's why it seems so flat when you talk to voters or political professionals.

It's as if the key job opened up just when the company might go under. A new CEO would make all the difference. But none of the applicants leaves the members of the board saying, "This guy is the answer to our prayers." In the end, they'll make a decision, and it will be a prudent, tentative one: "This one seems a bit better than that one."

Why do people think we need a kind of political genius? Because they know exactly how deep our problems are and exactly how divided our nation is. We need a president who knows and understands politics because he knows and understands people and can galvanize them. When he speaks, you listen, in part because you believe he'll give it to you straight, in part because his views seem commonsensical, in part because something in his optimism pings right into your latent hopefulness, and in part because he's direct and doesn't hide his meaning in obfuscation, abstraction, clichés and dead words.

I think maybe we're selling ourselves a bit short. What if the solution to our current economic difficulties turns out not to be a top down, but a bottom up solution? Stories like this suggest that a sea change in the way Americans think of government is more likely to flow organically from current events than from political rhetoric, no matter how inspired:

North Las Vegas city leaders, prohibited from declaring bankruptcy, unanimously decided last month to declare their own state of fiscal emergency. The unprecedented move has drawn mixed reviews from town residents and a lawsuit from police brass who claim the novel twist on what makes for an emergency is nothing more than an attempt by conservative activists to bust their union.

"We've balanced our budget, we've paid all of our bills [and] all of our bonds are paid," Mayor Sharon Buck recently explained before addressing a community meeting to go over North Las Vegas' finances. "Our biggest issue is salaries and compensation and benefits. And they're very unsustainable. We can't continue to do what we've done in the past."

What if the current trickle of cities signaling impending bankruptcy becomes a torrent? Reality has a funny way of cutting through abstract political arguments. It gets to the heart of things: to our growing sense that trends that can't continue indefinitely, won't:

Because transfer payments are, in effect, the opposite of taxes, it makes sense to look not just at taxes paid, but at taxes paid minus transfers received. For 2009, the most recent year available, here are taxes less transfers as a percentage of market income (income that households earned from their work and savings):

Bottom quintile: -301 percent
Second quintile: -42 percent
Middle quintile: -5 percent
Fourth quintile: 10 percent
Highest quintile: 22 percent

Top one percent: 28 percent

The negative 301 percent means that a typical family in the bottom quintile receives about $3 in transfer payments for every dollar earned.

The most surprising fact to me was that the effective tax rate is negative for the middle quintile. According to the CBO data, this number was +14 percent in 1979 (when the data begin) and remained positive through 2007. It was negative 0.5 percent in 2008, and negative 5 percent in 2009. That is, the middle class, having long been a net contributor to the funding of government, is now a net recipient of government largess.

I took the liberty of creating Yet Another Scary Chart from Mankiw's calculations:

net_incometaxes.png

What if there's an alternative to the nightmare scenarios posed by both sides? (Grandma will have to go back to eating dog food!!!11! Communists will take over and steal our cornflakes!) Such a middle way is hinted at in an article written to convince us that socialism is the key to prosperity:

Martin also slashed funding to social programs. He foresaw that crippling deficits imperiled Canada’s education and health- care systems, which even his Conservative predecessor, Brian Mulroney, described as a “sacred trust.” He cut corporate taxes, too. Growth is required to pay for social programs, and social programs that increase opportunity and social integration are the best way to ensure growth over the long term. Social programs and robust capitalism are not, as so many would have you believe, inherently opposed propositions. Both are required for meaningful national prosperity.

I'm not convinced of the superiority of the Canadian system. What interests me here is the suggestion that even the most ardent supporters of big government can be persuaded to support cuts in entitlement spending, once it becomes apparent that such cuts are necessary to ensure the survival of the social safety net. What if all We the People need to unite behind sensible budgetary reform is a powerful object lesson?

Discuss amongst your ownselves, knuckle dragging fascists :)

Posted by Cassandra at July 17, 2012 08:24 AM

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Comments

I want to agree with you here, but I'm having trouble understanding a bottom-up solution that doesn't require a lot of top-down reform.

Say, for example, that I want to improve my economic conditions. I can't get a job -- nobody in the private sector is hiring because of the uncertainty created by Obamacare and other similar concerns, and the public sector isn't hiring because Congress can't pass a budget that will allow them to avoid the mandatory across-the-board cuts from sequestration.

Well, no problem, I think... I'll start a business of my own! It's very hard to do that in a recession, but if I have a good enough idea and work hard enough, maybe it can work out. So I go to start learning what I need to do to start a business, and I encounter thousands and thousands of densely-worded pages of regulations. It'll take months to understand what I need to know, but I need to be in compliance from the start of my business' existence to avoid fines and possibly prison time(!), so I have to hire some experts to help me comply with the regulatory burden.

That's going to raise the cost of my business substantially, though. Instead of me and a couple of teenagers I hire for minimum wage, now I need an accountant and a lawyer at least. I don't need them full time, but it's two additional pricey experts that thirty years ago I wouldn't have needed to hire. If I can't swing the cash for that, I can't really afford to go into business. It's too great a risk -- having your small business go bankrupt because of the recession is one thing, but prison time is something else.

Part of the reason we're thinking so much about the "top-down" issue is that the top has gotten very heavy.

Posted by: Grim at July 17, 2012 03:34 PM

Well, I'm not talking about bottom up solutions to the problem of individual unemployment so much as bottom up solutions to the problem of two parties with vastly different ideas about the proper role of government, Grim.

The idea being that if some critical mass of voters on both sides are persuaded that we need to rein (as opposed to "reign") in spending because all around them, cities are declaring bankruptcy and they don't want the federal government to succumb to the same forces, we'll have the consensus required for some reform even without resolving the schism in our values.

The article about Canada is an example of how this might happen:

He foresaw that crippling deficits imperiled Canada’s education and health- care systems, which even his Conservative predecessor, Brian Mulroney, described as a “sacred trust.” He cut corporate taxes, too. Growth is required to pay for social programs, and social programs that increase opportunity and social integration are the best way to ensure growth over the long term. Social programs and robust capitalism are not, as so many would have you believe, inherently opposed propositions. Both are required for meaningful national prosperity.

This gets back to an idea I've brought up several times: a very big part of our political disagreements revolve around different assessments of what will happen if we don't cut spending. If you honestly believe we can keep this up forever, you have no incentive to compromise.

But if, one by one, you see cities being bankrupted by social welfare spending, that can change your assessment of whether big government is sustainable.


Posted by: Cass at July 17, 2012 04:13 PM

Yeah, I agree with that -- it's why I said (four years ago) that Obama's election didn't really worry me, because he'd just bring the inevitable crisis all that much faster. I don't see how we get to the political will to change things before we get to the crisis point.

Now, your point is that people might learn from the collapse of the model at the local/state level that we can't make it work at the Federal level. And maybe that will work.

On the other hand, maybe what they'll learn is that they want the Federal government to bail out the states. Take from rich states like Texas, where the economy is booming, and pass it around to poor states like California, which are in so much financial trouble.

Will they understand that California used to be the richest state of all, until these policies broke it? Will they understand that Texas is booming only because of its business-friendly climate?

Well, I don't know. At the level of individuals, they don't make that distinction. If one mother has gotten and stayed married, and achieved relative wealth and stability, they don't reason that this proves that single-motherhood is a less good model. They just reason that the married mother needs to pay more taxes so they can raise the standard of living for the single mother.

Posted by: Grim at July 17, 2012 07:50 PM

The problem is that the Left already has an explanation of why big government is going bankrupt: they say it's because the Evil Rich aren't shouldering a high enough tax burden. (Never mind that the top 10% of incomes provide around 70% or more of the federal tax revenue, and the bottom 50% provide basically none...) The article on North Las Vegas declaring a fiscal emergency reflects this; the article mentions that the police union is claiming the "crisis" is a stunt meant to allow the city to shaft the public service unions, and the real problem is that the city lowered their tax rates (presumably at the behest of the "greedy rich").

You're right that there needs to be a bottom-up realization that the welfare state promises are unsustainable, but I fear there are many who will continue claiming the real problem is rich people reaping all the rewards of society without paying their due, and they'll keep flogging this excuse right up until (and during) an outright collapse.

Posted by: Matt at July 17, 2012 07:59 PM

I have to agree with Grim's & Matt's comments. Those on the Left who are in power are (for the most part, as far as I can tell) the zealots who are hard-core believers that *they* will get socialism right, even though it has always failed. They won't believe they were wrong, until (or even when) it all comes crashing down, if we don't get a handle on this before it's too late.

Posted by: Miss Ladybug at July 17, 2012 09:43 PM

Those on the Left who are in power are (for the most part, as far as I can tell) the zealots who are hard-core believers that *they* will get socialism right, even though it has always failed. They won't believe they were wrong, until (or even when) it all comes crashing down, if we don't get a handle on this before it's too late.

I think you're missing the point, here MLB.

I don't actually believe that most Lefty politicians are hard core ideologues. In the end they want to be elected, and they won't be elected if they get too far out in front of voters.

My point was that if the electorate gradually become convinced (through a daily barrage of stories that reinforce the idea that government is writing checks it can't cash) that things have gone too far, politicians will have to adjust to what the public wants or they won't be re-elected.

Of course politicians will (as Matt points out) try to claim that the real problem is that taxes are too low. So let's say we just raise taxes on the rich.

As numerous articles have already pointed out, raising taxes on the rich won't raise enough money to keep these programs alive. So the next step is inevitably going to HAVE to be raising taxes on the middle class.

This is math: plain and simple. It's inescapable.

What do you think will happen then? People are all in favor of free benefits, or benefits someone else has to pay for.

What do you think will happen when the bill lands in their mailbox?

Posted by: Cass at July 18, 2012 08:18 AM

...your point is that people might learn from the collapse of the model at the local/state level that we can't make it work at the Federal level. And maybe that will work.

On the other hand, maybe what they'll learn is that they want the Federal government to bail out the states. Take from rich states like Texas, where the economy is booming, and pass it around to poor states like California, which are in so much financial trouble.

But you're not carrying your own argument through to the logical conclusion, Grim.

The problem voters have with bailouts is that once you bail one state or company out, all the others ask, "What about ME? Where's MY bailout"?

This is another example of a trend that can't continue indefinitely. There are 50 states. The federal government can't bail them all out, and there will be natural disasters and other problems in the meantime. When there's a spectacular natural disaster and the feds have to say, "Gosh - we don't have the money to help those poor people. We spent it bailing out California", how will the public react?

Will they understand that California used to be the richest state of all, until these policies broke it? Will they understand that Texas is booming only because of its business-friendly climate?

Does this matter, really? What people will see is that State A got a handout while State B didn't. The voters in all those State Bs are NOT going to be happy about this, especially if unemployment remains high and the economy remains stagnant.

The silver lining in the dire predictions Republicans have been making (and voters have mostly ignored up until now) is that if the Rethugs are right, things are going to get a whole lot worse.

The question is: what will happen then?

I agree with Grim that it's always possible that the Lefties will manage to bamboozle the public. But it's also quite possible that the public aren't as stupid or gullible as everyone seems to assume they are. And it's distinctly possible that once the pain starts to hit home, they will say, "No mas".

Posted by: Cass at July 18, 2012 08:27 AM

But it's also quite possible that the public aren't as stupid or gullible as everyone seems to assume they are.

You've more faith in our fellow man than I do.

Posted by: MikeD at July 18, 2012 08:31 AM

I get what you are saying, Cass. It's just that with those in power (like the ones who shoved ObamaCare down our throats when it *WASN'T* what the people wanted and a bunch of Dems lost their seats over it, the Dems are still pushing for it to not be repealed since it was upheld by the Supreme Court. My fear is that it will take longer to turn the ship of state will hit disaster before enough of the (voting) public wakes up and votes these yahoos out of office.

I worry about the future. My parents are both retired now (for the time being, at least). Money is very tight with them (and I learned they were forced to sign up for Medicare, whether they wanted it or not, just because they hit the "magic age"). My fiance is underemployed and wonders each month how he's going to pay his bills. What happens to my family (and so many others) if we do hit an economic collapse before we get the right people into office to avoid it?

Posted by: Miss Ladybug at July 18, 2012 09:40 AM

Interesting thought.

Not sure I buy it. It looks a lot like the Cloward-Piven Underpants Gnome Strategy:

1) Bankrupt the gov't
2) ???
3) Socialism!

Only now it's

1) Bankrupt the gov't
2) ???
3) Capitalism!

That step 2 is a doozy.

Posted by: Yu-Ain Gonnan at July 18, 2012 09:59 AM

"My fiance..."

Wait....WHAT!?? When?
Whoo hoooo, Ms LB! Congrats to you both!!
0>;~}

Posted by: DL Sly at July 18, 2012 11:01 AM

Ditto what Sly said, Miss Ladybug.
When you get married, are you going to keep you own name? Or are you going to start going by "Mrs. Spider?"

Posted by: spd rdr at July 18, 2012 11:41 AM

When there's a spectacular natural disaster and the feds have to say, "Gosh - we don't have the money to help those poor people. We spent it bailing out California", how will the public react?

By cutting veteran benefits and pensions. 'If those military vets are really as patriotic as we all give them credit for being, they'll step up to the plate and make one more sacrifice for the country.'

Also by raising taxes to confiscate wealth where it exists -- states like Texas will find themselves under the gun.

Also by borrowing however much more money they think they need, assuming anyone will still loan us money.

At some point, we get to the real crisis point. Then solutions become possible, although the solution is as likely to be the disintegration of the United States of America as it is to be abandonment of the liberal project by its advocates.

The problem, as I think you've pointed out yourself from time to time, isn't just that we have a political class made up of thieves; it isn't, in other words, that the Left is 'bamboozling' the public. It's that a large part of the public really believes in this approach to government. These include:

1) Government unionized employees, especially, because it supports their lifestyle and long-term benefits;

2) Single mothers, who depend on this mode of government for survival;

3) Large sections of the minority communities who, even if they do not themselves require any welfare benefits, look at the existence of such benefits as necessary to the community with which they identify;

4) Many major corporations, for whom the activist government is a real boon because it (a) enforces massive regulations that drive small-businesses out of the market, limiting their competition, and (b) cuts them sweetheart deals in major legislation, like the deals made in Obamacare.

5) A class of leadership -- not the top politicians, but the educated bureaucracy -- that is employed by the system, and that has been brought up to believe in it all the way to their bones.

That's a big chunk of vested interest. It's hard to see how they become reasonable about giving up things they depend upon, or stop believing in the things that butter their bread.

A more likely hope is that the coalition fragments, and they start feeding on each other. The corporations won't lose out because they own the legislatures, but you could easily see a feud develop over whether we cut WIC funds or Urban Development funds. That could break the coalition, maybe, but if the alternative is voting in Republicans who promise to cut both sets of funds... well, that seems like it holds the coalition together a little longer after all.

I think more and more that the final resolution to this crisis will be when states like Texas refuse to play any more. What form that refusal takes will determine whether we get out of the crisis with a United States of America that looks much like the one we grew up in.

Posted by: Grim at July 18, 2012 11:43 AM

I also wish to congratulate your fiance, Ms. Ladybug, on his good fortune and the excellence of his judgment.

Posted by: Grim at July 18, 2012 11:44 AM

:-P

I met The Fiance last fall. He proposed the Sunday after Valentine's Day. The Big Day isn't until July 27, 2013 :-)

And, thanks, everyone, for the well-wishes. He makes me very happy!

I'll probably keep my name :-P He read some of Cassandra's recent posts. Maybe he'll start commenting? The question might be asked what *he* would go by, here...

Posted by: Miss Ladybug at July 18, 2012 12:16 PM

Woo hoo!!!! MLB! I am so happy for you!

See? I told you not to give up :)

The problem, as I think you've pointed out yourself from time to time, isn't just that we have a political class made up of thieves; it isn't, in other words, that the Left is 'bamboozling' the public. It's that a large part of the public really believes in this approach to government.

Grim, what is informing a lot of my thinking here is conversations with old friends who have voted Dem all their lives and who DO believe in a social safety net. But they are VERY unhappy with the way things are going, and they are VERY worried about how we're going to pay for all of this.

I really do think we may be nearing a tipping point where it becomes obvious to even folks who like big government that we are killing the goose that laid the golden eggs.

At that point, what happened in Canada starts to look like a real possibility. I'm not saying I know it will happen - only that it's a possibility I don't see a lot of people considering.

Maybe we should, though.

Posted by: Cass at July 18, 2012 12:35 PM

Yu-Ain:

I think what I'm envisioning is not so much:

1) Bankrupt the gov't
2) ???
3) Capitalism!

...as:

1) Realize that Bankrupting the gov't isn't the remote event you thought it was (as evidenced by cities and states going t*ts up all around you)
2) ???
3) Some scaling back of entitlement programs and some scaling back of government across the board.

IOW, not what we all want, and not what they want either. But perhaps a more sustainable system?

During the Bush years, I remember reading all the polls about how everyone didn't support the WOT. And conservatives were weeping, wailing, and gnashing their teeth about the 2004 election. The night before they were all but slitting their wrists on national TV.

And yet, the public surprised them. I don't have huge amounts of faith in the intelligence of the electorate, but I do think their sense of self preservation is pretty well developed. That's what I am talking about here: not that they wake up and realize that big government isn't the answer to their prayers, but that they realize that a government that gets too big will default on all those lovely promises. So they'll support some cutbacks if that means they can count on half a loaf.

Posted by: Cass at July 18, 2012 12:41 PM

I'm not saying that wouldn't be nice. It's just that the same argument about overburdening the welfare system to the point of collapse was also declared by others to lead not to a scaling back of social programs but to the expansion of them.

So I've got one group that tells me that "A" leads to more "B", another that tells me that "A" leads to less "B".

I'm thinking that we really don't know where the helk "A" leads to because it all hinges on that unknown Step 2.

Posted by: Yu-Ain Gonnan at July 18, 2012 12:56 PM

I don't disagree with you there, Yu-Ain. I'm not arguing that this is what *will* happen. Only that the two sides seem to be arguing about extreme scenarios at the opposite ends of the possibilities spectrum:

DEMS: The govt. will never go broke - we'll just tax the rich! And that will have no effect on the economy!!!

Oh, and if you cut benefits, people won't adjust like they did in the 90s after welfare reform. No, Granny will starve and poor black kids will be sliced and served to Wall Street bankers on melba toast!

REPS: The govt. is going to go broke and we can't even raise marginal tax rates to previous levels because if we do, bad things will happen.

Even the tiniest increases in marginal tax rates will cause the entire nation to move to France and crash the economy.

Oh, and cuts to entitlement programs won't have any negative effects. You're just being silly.

I strongly suspect the truth lies somewhere between those two extremes.

Posted by: Cass at July 18, 2012 01:30 PM

I'm with YAG in doubting what happens after the collapse. Is Greece waking up? Is Spain? Will they ever stop imagining that everything going wrong is the fault of the rich, so we should just redouble our efforts to pillage them? My answer would be: not if they haven't seen working examples of free markets creating prosperity.

I think there may be ways to persuade people that it is free markets, not benefits checks, that make us all prosperous, but I don't think the persuasion can take the form of letting society collapse as an object lesson. In real life that seems to lead more often to Pol Pot than to Thomas Jefferson.

Posted by: Texan99 at July 18, 2012 01:58 PM

Coolio, Miss Ladybug. [g]

But, we haven't vetted him, yet. How do we know he's good enough for you?

Oh, wait. He's not marrying us....

Eric Hines

Posted by: E Hines at July 18, 2012 02:06 PM

I think there may be ways to persuade people that it is free markets, not benefits checks, that make us all prosperous, but I don't think the persuasion can take the form of letting society collapse as an object lesson. In real life that seems to lead more often to Pol Pot than to Thomas Jefferson.

Two things:

1. I don't think we need to let society collapse. That's really not my point, but it would be a foolish and destructive thing to do even if I were arguing that it was a good idea (which I'm not).

My point was that long before we get to the point of societal collapse, the precursors (cities filing for bankruptcy, for instance) may shift public opinion enough to unite a critical mass of voters behind sensible cutbacks.

2. None of my liberal friends - NOT ONE - believes that benefit checks make society prosperous. That's not the argument they make. Obama may make that argument, but frankly my Dem friends don't believe him.

The argument they make (and it's one that conservatives often elide right past) is that when people fall on hard times, and that absolutely does happen under a free market system, a wealthy society shouldn't look the other way.

There are still what I'd call "classic Democrats" who believe in free markets and hard work. It's just that they are more sensitive to the hardship that occurs under even the best free market system, and feel more urgency about addressing those cases than conservatives do.

The discussion we had about mortgages a few weeks ago illustrates this quite nicely.

Grim isn't a big government type, but he was VERY angry about the suffering some people have experienced as a result of the financial crisis. He doesn't need to be a big govt. disciple to wish there were a way to help those people.

I don't think most liberals doubt that in the aggregate, free markets create prosperity. Their beef is that they don't create prosperity for everyone, and they don't want to see those people suffer. Where I differ from them is in the proper response.

Posted by: Cass at July 18, 2012 03:05 PM

It's just that they are more sensitive to the hardship that occurs under even the best free market system, and feel more urgency about addressing those cases than conservatives do.

I'm not sure what conservatives you're talking about, and we may be simply differing on definitions. The conservatives I know also are very sensitive to the plight of those hammered by the general hard times. They--and I--just believe that government, while it has an important role in this arena, should be the last resort, not the routine first resort it seems to be today.

Their beef is that they don't create prosperity for everyone....

This is where I--and the conservatives I know--think they're flat wrong. A free market, capitalist economy doesn't create equal prosperity for everyone, and no one I know has said otherwise. But it does make everyone better off than they were, and over the long run, it's a ratchet effect--when the economy is left to recover on its own, the period after the dislocation is generally wealthier than the period prior. This includes the weakest also being, generally, better off than they were.

One has only to compare the depression of 1920-21, with the Harding administration's response and the economy's subsequent response with the depression of 1930-1941, with the Roosevelt administration's response and the economy's subsequent response to see an example of this.

Eric Hines

Posted by: E Hines at July 18, 2012 03:43 PM

Hello all! This is Miss Ladybug's fiance Kevin! Thanks to all for the well wishes! I am indeed fortunate and smart in my choice of intended souse. Oh, and by the way Mr President, I did it all by myself!

I wanted to share something I experience last night that I think clearly displays the root of the problem in this country. I'm kind of hesitant because I think some of my observations could be interpreted in the wrong way, but I feel like, to paraphrase the great Craig Ferguson (who by the way is a sterling example of how immigration is SUPPOSED to work in this country!)) it needs to be said, right now, by me.

I was invited to participate in a marketing focus group on health care specifically focused on my last hospital stay. They never tell you who the client is on these things (I've run one or two small scale ones and you can't or it invalidates the study) but I'm pretty sure it was St David's Health System as we had all been treated at their hospitals. There were ten of us broken out into what I assume was a scientifically selected sample by ethnicity, gender, age and income levels (just my observations). The only two factors in common appeared to be that we all received treatment in St David's hospitals and that we were all covered by some form of health insurance., be it private, Medicare or Medicaid or in my own case, the VA. I'm going to omit that breakdown from this post so that my intent is clear and in no way can be interpreted as any sort of prejudice or commentary on race or gender. The study didn't really appear to be looking at opinions on health care policy in general but rather focused on perceived levels of customer service. I could go there, but that's another post for a future date I think.

Oh, and in the interest of full disclosure, I was paid $100.00 just for showing up. I went for the money. Period.

To lead the group into the right frame of mind for the real questions, the moderator first asked about the perception of good service in restaurants. The question was first asked to us as a group and various responses were shouted out. Among them were things like food quality, atmosphere, wait staff courtesy, but one response really struck me and upon later reflection, really rattled me.

Five out of ten at the table shouted out "Is it free?"

"IS IT FREE?"

IF YOU'RE NOT SAYING "WTF?" RIGHT NOW THERE'S SOMETHING WRONG WITH YOU!

Let me say that again in a different way.

Five out of ten..FIFTY PERCENT..of a representative sample of consumers said that one of their top concerns when receiving a product or service (specifically in this case restaurant service, but given the context it could be extrapolated out to health care services) is whether or not it IS GIVEN TO THEM FREE OF CHARGE!

Just to be clear here, the responses were not "cost" or "prices" or "is there a coupon?". No, the immediate, loud, clear and top of mind response (which anyone who does polling for a living will tell you is a really good indication of how a person really feels about a subject) was "IS IT FREE?"

Three of the five were on Medicaid. One had mentioned that they used food stamps in pre-meeting conversation. I find it interesting that of that fifty percent of our group whose overriding customer service criterion was "Is it free?", SIXTY PERCENT were already receiving government handouts.

Now in fairness, the lives of the ten of us intersected for just under two hours and we will likely never interact again, so I don't know the details of their circumstances. For all I know there was legitimate need for assistance in their lives. I have ABSOLUTELY no problem with helping the helpless. But, well...again I want to avoid any perception of bias here...but there was no denying two observations. One, everyone arrived in their own, late model, personal vehicle, so I don't think any of us were too impoverished. Two, of the five, 4 of them were obviously VERY, VERY WELL FED!

The other thing that unsettled me about the five was that when it came down to questions about specific portions of the hospital experience, three of them loudly monopolized great portions of the group's time bitching about minutia. I mean really, really petty things. I don't mean to be too harsh here. I will testify; when you're in pain and your life is possibly in the balance, even the best of us turns into Mommy's little crybaby again. You whine over minor things and get frustrated when they move the tray too far away from the bed and you can't get to your smartphone or the batteries die on the TV remote and it takes 10 minutes to get a new set or you wanted chocolate ice cream but they keep bringing you vanilla...etc... When the big things are in doubt, every LITTLE thing matters that much more. You don't really want to contemplate the big picture so you harp on the details.

BUT...if six months later you're still bitching about that ice cream and using it as the basis of your opinion on the whole experience..THERE IS SOMETHING MENTALLY WRONG WITH YOU you ungrateful little S**T!

Ok, now THAT's harsh, but here's where I'm coming from with it..

The time eventually came for comments on the OVERALL hospital experience. I think the objective of the study was to try and solve a disconnect. That is, people who rate each portion of the experience as positive but then say the overall experience was negative.

When asked my turn I gave my honest answer. I don't get that, because when it comes to my hospital stays I have only one criterion to rate the overall experience.

I DIDN'T DIE! I walked in alive. I walked out alive. Simple as that. End of story. Nothing else matters. Period. Praise Jesus in the name of the Father, Son and Holy Spirit AMEN!

So why do the five scare the rotary oscillator impacting fecal matter out of me?

Because in a circumstance where the only thing which truly matters is a 100% positive outcome, all they care about is "IS IT FREE?". And free or not, were their butts smooched enough?

The five are the biggest problem in our country, because they are already accustomed to getting what they want for free, the Obama Administration has told them that they can vote themselves whatever free services they wish and the Supreme Court has told them that they can make the rest of us pay for it.

Are the the electoral majority? No. but if only two of the OTHER five of us vote, they win. Game over.


Posted by: Master Dork at July 18, 2012 03:51 PM

I don't understand the argument that, yes, sure, free markets create prosperity, but not for everyone, so . . . what? The very measures that would guarantee equality are the ones that will ensure that the markets stop creating prosperity at all. The sort of liberals who claim to support the free market but feel they must hamstring it in favor of equality (more common than you believe, if voting patterns are any guide) are in fact not in support of the free market. They merely wish there were some way to get the benefit of the prosperity of a free market without the drawback of its inequality. They can't do that, and curing the inequality is more important to them, so tough luck for the free market. Get ready for longer and more intractable recessions and unemployment -- but they meant well.

Conservatives, by the way, do not necessarily feel "less urgency" about ameliorating the misery of those who fall on truly hard times. They disagree sharply about how that can be done without doing more harm than good, either for the recipients of the intervention for for society at large. They also believe that each of us should be willing to help with his own resources rather than shifting the charitable burden to his (wealthier) neighbor. The casual assumption that liberals care more cannot easily be squared with charitable giving patterns, if caring is to be judged by effective action rather than by subjective attitude.

Hundreds of millions of people did not get lifted out of shocking squalor over the last 100 years because of liberal generosity. It was an unprecedented achievement in human history, but the new factor was not a 3,000-year-old tradition of charity, it was the brand-new system of free markets, spread by globalization.

As a society, we're going to have to figure out a way to compromise on what a safety net should look like, and whose responsibility it should be to fund it. It won't work if each voter is on a ceaseless quest to fund it strictly out of the resources of everyone who's wealthier than himself. It also won't work if our idea of "hard times" swells to include the circumstances of half the country -- and yet we've already reached the point where more than half the electorate is on the receiving end, to judge from the Mankiw statistics you quoted. In fact, I don't understand how any safety net can be expected to work if a majority of voters find themselves either in the net themselves, or congratulating themselves on the existence of the net while relying on others to fund it. Where's the feedback mechanism that keeps that from spinning out of control?

Posted by: Texan99 at July 18, 2012 04:19 PM

OK, let me address a few of your points. Eric's first:

1. ERIC: wrt to "sensitivity", we're mired in definitions. I didn't mean conservatives don't care as much as liberals, but I think it's fair to say that most conservatives can live with the often depressing fact that you just can't help some people. Many of us believe that pain is a wonderful motivator. If you doubt that, just look at how many folks on unemployment stop looking for work?

2. ERIC: This is where I--and the conservatives I know--think they're flat wrong. A free market, capitalist economy doesn't create equal prosperity for everyone, and no one I know has said otherwise. But it does make everyone better off than they were, and over the long run, it's a ratchet effect--when the economy is left to recover on its own, the period after the dislocation is generally wealthier than the period prior. This includes the weakest also being, generally, better off than they were.

Eric, it depends on which "weakest" we're discussing. The so-called "working poor" or "near poor" are one thing - there I totally agree with you. Goods and services cost less in free markets, and that usually means a higher standard of living at the same income. And jobs will be more plentiful where markets are free (except during reverses in the business cycle, which is something we tend to forget).

But if you don't work, you don't have income. There are people (drug addicts are a good example) who can't hold a job no matter whether they live in a free market economy or a socialist one. And sadly, a lot of these folks proceed to have kids they can't afford who suffer as a result of their parents' issues. You can't tell me their income will be lower under a welfare state that in a free market.

I don't necessarily have a problem with that because as we all know, conservatives are all heartless bastiges. But it's not true that everyone will be better off in a free market system. Some people won't.


Posted by: Cass at July 18, 2012 05:12 PM

Herr Dork:

First of all, welcome!

The five are the biggest problem in our country, because they are already accustomed to getting what they want for free, the Obama Administration has told them that they can vote themselves whatever free services they wish and the Supreme Court has told them that they can make the rest of us pay for it. Are the the electoral majority? No. but if only two of the OTHER five of us vote, they win. Game over.

I could not agree with you more.

I don't claim that everyone can be persuaded. Dirtbags will always be dirtbags. In a free market system, dirtbags are usually not rewarded for their jackwaggonry.

In a socialist system, they get plenty of rewards for being irresponsible. And yes, this is a HUGE problem.

The good news is that most of those folks *don't* vote. Voter participation is highest among what I'd call responsible types. Another piece of good news is that folks who are too lazy/irresponsible to pay their own way in life are usually too lazy to perform their civic duty and vote. And by all accounts, Obama supporters are nowhere as enthusiastic this time as they were in 2008. So we have inertia and innate jackwaggonry working for us.

The bad news is that the Obama campaign pulled out all the stops to get people who never voted before to the polls.

Posted by: Cass at July 18, 2012 05:17 PM

You can't tell me their income will be lower under a welfare state that in a free market.

Actually some (but admittedly not all) of them would. Because if being a drug addict is sufficiently painful (wonderful motivator that it is), there would be fewer of them.

Like the example of extending welfare to single mothers improved the living situation of that particular single mother, it ended up creating *more* single mothers whose living situations even after welfare were often worse than they would have been had they not had children until after marriage.

Posted by: Yu-Ain Gonnan at July 18, 2012 05:26 PM

Welcome Mr. Dork!

You will never find a more wretched hub of geek and nerdery than the assorted company that hangs out around here.

Posted by: Yu-Ain Gonnano at July 18, 2012 05:31 PM

Texan99:

I don't understand the argument that, yes, sure, free markets create prosperity, but not for everyone, so . . . what? The very measures that would guarantee equality are the ones that will ensure that the markets stop creating prosperity at all.

First of all, no government can guarantee equality, so let's confine the discussion to what can happen in the real world. The best governments can hope to do is reduce inequality. Even in Soviet Russia, party leaders got perks no one else did. A system designed to level the playing field ended up resulting in crony communism, courtesy of human nature (which is no respecter of ideology).

So talking about *ensuring* equality is beside the point Let's talk about reducing inequality.

Most of Western Europe is quite prosperous. So is Canada. Their systems are more socialist than ours, and from what I read they have less income inequality. And yet.... commerce still occurs. Businesses still are created.. Granted, they pay a price: higher consumer prices (VAT, anyone? 4$ cans of soda?) and higher unemployment. But the unemployed then fall under the social safety net.

We like to carry progressive ideas to the illogical extreme, just as they carry conservative ideas to the illogical extreme. So progressives describe a world in which Granny is reduced to eating Alpo outside a 4 star restaurant, and people of cholor are kicked to the curb and no one cares.

And conservatives describe a world where every last business owner will pull an Atlas Shrugged if the marginal tax rate rises to levels FAR lower than what they were under Ronald Reagan.

Conservatives, by the way, do not necessarily feel "less urgency" about ameliorating the misery of those who fall on truly hard times. They disagree sharply about how that can be done without doing more harm than good, either for the recipients of the intervention for for society at large.

You're preaching to the choir here. I have made all of these points myself and do not need to be convinced of what I already believe. Remember - we're not talking about what *I* believe, but what some of the Dems I know believe. The reason there's any argument at ALL about what constitutes "doing more harm than good" is that when they look around, they haven't yet seen the harm in progressive policies.

Now if they see a tsunami of cities and states declaring bankruptcy because they can't fulfill all those big government promises.... By the way, this isn't me guessing. I've actually had these conversations with some Dem friends. They are beginning to see the "harm".

Hundreds of millions of people did not get lifted out of shocking squalor over the last 100 years because of liberal generosity. It was an unprecedented achievement in human history, but the new factor was not a 3,000-year-old tradition of charity, it was the brand-new system of free markets, spread by globalization.

Again, you're preaching to the choir.

As a society, we're going to have to figure out a way to compromise on what a safety net should look like, and whose responsibility it should be to fund it. It won't work if each voter is on a ceaseless quest to fund it strictly out of the resources of everyone who's wealthier than himself. It also won't work if our idea of "hard times" swells to include the circumstances of half the country -- and yet we've already reached the point where more than half the electorate is on the receiving end, to judge from the Mankiw statistics you quoted. In fact, I don't understand how any safety net can be expected to work if a majority of voters find themselves either in the net themselves, or congratulating themselves on the existence of the net while relying on others to fund it. Where's the feedback mechanism that keeps that from spinning out of control?

Here's one: cities and states declaring bankruptcy and defaulting on their promises. That's about as good a "feedback mechanism" as I can imagine :p

Or finding out that even if you tax the rich 100% of their income, they don't have enough money to pay for these programs.

Reality is a great feedback mechanism. The only real question is how much reality it will take to open these folks' eyes. To judge from my Dem friends, their eyes have already been opened somewhat.

The open question is: how many and how long will it take?

Posted by: Cass at July 18, 2012 05:45 PM

Actually some (but admittedly not all) of them would. Because if being a drug addict is sufficiently painful (wonderful motivator that it is), there would be fewer of them.

In principle, I agree Yu-Ain. But in practice, I have come to believe that people are far less "rational actors" than they are assumed to be in economic textbooks.

There are monetary incentives and non-monetary ones, and they often work at cross purposes. And self destructive people are usually the least rational of actors. I can't imagine living like that, but then I can't imagine seriously expecting other people to pay my bills for me or guarantee my income.

I can't imagine being like Kevin's (Mister Dork) fellow survey takers, either, but people like that do exist and I'm pretty sure they're not motivated by the same things that motivate me :p

Posted by: Cass at July 18, 2012 05:51 PM

But if you don't work, you don't have income. There are people (drug addicts are a good example) who can't hold a job no matter whether they live in a free market economy or a socialist one. And sadly, a lot of these folks proceed to have kids they can't afford who suffer as a result of their parents' issues. You can't tell me their income will be lower under a welfare state that in a free market.

Retired, also, except for the kids part. I never claimed that the helpless (as I'll overreachingly call the addicts and the retired) would have lower incomes under welfare than in a free market. But they will be better off in a free market: that market makes everyone else (taking the simplistic dichotomy of the helpless and the working/near poor and wealthier as exhaustive categories of the general population) better off--which makes everyone else better able to help the helpless, which makes it easier for government to satisfy its last resort role, and both of which conspire to ease the burden of the helpless.

Thus, the helpless, with non-existent income unchanged between the two systems will have their standard of living improved under a free market system.

Eric Hines

Posted by: E Hines at July 18, 2012 06:12 PM

Eric:

I suspect we're getting wrapped up in definitions again.

Posted by: Cass at July 18, 2012 06:26 PM

Capitalism is destructive as well as creative. In fact, that's what makes it so productive: it's even called "creative destruction."

So we can say, yeah, it works out in the long run; maybe there are some people we have to help in the short run. But...

But if you don't work, you don't have income. There are people (drug addicts are a good example) who can't hold a job no matter whether they live in a free market economy or a socialist one.

Let's not go as far as drug addicts. We all get older. If you're 67 years old and you lost your job in the recession, you may well never get another job -- not a real job that you can live on.

Social Security and Medicare may not be enough, and if you lost your job because your company folded, the pension you were promised may not be there either.

And yeah, it's good that there are companies like Bain Capital buying up your dying company and helping digest it so that the capital embedded in a nonproductive model is freed up for funding new and more productive techniques. That's why America rebounded after the 1970s, but Japan couldn't do the same thing. (It's also why it was such a huge mistake to bail out General Motors, which is exactly the kind of instinct -- protect the zaibatsu -- that hurt Japan so badly.)

But for all that "common good" that's going on, the 67 year old forced out of the labor market, with his pension lost between stock-market crashes and the failure of his company.... that guy is in trouble. It's not his fault, he's worked hard for a lifetime, but there we are. The creative destruction is never going to make him whole, even though it will be of broad benefit to all of us in many ways.

That's the kind of problem that bothers me. If we're talking about a drug addict, we can say, "Well, that's his fault." But there are plenty of cases where good and honest people get chewed up by the workings of "creative destruction."

I'm right there with you in believing that creative destruction is a good thing that is broadly beneficial. I just want to work on the meat grinder aspect of it, and I think we all ought to want to work on figuring out how to deal with that aspect. None of us wants to be meat, after all, and we're all at risk from it. No matter how safe your profession or industry looks today, the changing nature of technology means that it's just a gamble whether it will last long enough to support you through life and to death.

We need a system -- and we really don't have one -- that helps people out in these cases. And we need to find a way to make sure that the poor guy forced into retirement doesn't starve.

But we also have to be able to pay for it. That's why I think means testing to real poverty is the answer, more than eliminating Social Security. We could even do more for the people who really need it, if we weren't trying to provide a check for everyone past a certain age.

Posted by: Grim at July 18, 2012 06:27 PM

Yes, most true-believing liberals don't admit to a willingness to push their policy as far as it will go, so they're more interested in reducing inequality than in enforcing an unattainable pure equality. They're still willing to undermine the benefits of the free market in service of their greater interest in equality, which was my point. One or the other will be more important to any particular individual, and in the case of liberals, when something's got to give, it's the free market. A conservative, in contrast, would leave the free market alone and rely on private institutions to ameliorate desperate want, or at most implement a very minimal and basic public safety net that would not flinch at the notion that it left things very, very unequal.

I was responding to this statement:

"There are still what I'd call "classic Democrats" who believe in free markets and hard work. It's just that they are more sensitive to the hardship that occurs under even the best free market system, and feel more urgency about addressing those cases than conservatives do." I'm still not buying it. If they felt any real urgency, they'd address it with their own resources rather than vote to use the resources of others, while preening about how they "care" and how they're "more sensitive." Talking about one's delicate sensibilities is cheap. And if someone cares simultaneously about two diametrically opposed principles, but reliably sacrifices one when the other is threatened, he doesn't much care, to be truthful, about the one he always is willing to ditch. That's how seriously I take a "classic Democrat" who "cares" about free markets and hard work.

Posted by: Texan99 at July 18, 2012 08:37 PM

There's an old fashioned Democratic counterargument, though, which is this: if you're talking about programs to help the jobless find another job, and manage transitions, or unexpected accidents that are an ordinary risk of employment, or the kinds of cases I was talking about a minute ago... it's not really charity you're talking about.

If we agree that we all draw benefits from more-or-less unfettered capitalism; and that creative destruction lifts all boats, but in the process wrecks a few on the shoals (to extend the metaphor); if we agree to these things, then we might well want both unfettered capitalism, and insurance for ourselves against these dangers.

Some kinds of insurance it is profitable to offer privately -- accidental death and dismemberment insurance, for example, is quite affordable. Other kinds may not be affordable privately, but are nevertheless highly desirable for anyone exposed to the risks of a capitalist economy.

So maybe there are some kinds of insurance we provide publicly, to everyone, so that we can enjoy the benefits of a capitalist society without the worst (at least) of the damages. Someone who happens to need such assistance isn't a charity case, then; no more than the guy who gets into a car accident, and needs his vehicle and his broken arm repaired.

Posted by: Grim at July 18, 2012 09:33 PM

How is it not charity to replace private savings with public funds? Every human being on the planet is subject to the risk that from time to time there will be emergencies that interfere with the steady paycheck, whether it's illness or economic downturns. Charity is exactly the right response to someone who's facing an emergency like this without having saved up any kind of a cushion. Why not call it what it is?

Posted by: Texan99 at July 18, 2012 09:54 PM

Because that's not what it is. This kind of insurance is paid for in advance.

If we have a program of insurance like this, you pay into it before hand -- just like with regular insurance. This is how unemployment insurance works, right? In lieu of part of the salary they could be paying you, your company pays a certain amount of money into the insurance pot. If you are involuntarily laid off, you are then insured.

It's not charity because you bought the insurance. It's paid for up front, just like accidental death and dismemberment insurance. The only difference is that your company is buying this insurance from the government.

Posted by: Grim at July 18, 2012 10:12 PM

Well, there's another difference, attendant on the first: because it's bought from the government, you may not be able to opt out of buying it.

That's potentially a problem, especially for highly confident Alpha types who are sure they'll never be the one laid off. "I want that extra money," they're thinking. Meanwhile, the Democrat is thinking, "Everyone needs this insurance so it will be affordable for the poorer worker. Anyway, you're the first guy I'd cut, jackass."

This is ultimately the individual mandate issue again, isn't it? But this is why they didn't question whether it was constitutional; we've been doing exactly the same thing for decades with unemployment insurance. The question of why you couldn't mandate a citizen when you could mandate a corporation is one they didn't take seriously -- even though, usually, it's the Left who is biggest on the difference between the two categories.

Posted by: Grim at July 18, 2012 10:32 PM

Everyone needs this insurance so it will be affordable for the poorer worker.

But at this point it's no longer insurance; it's forced welfare. There's no longer an agreed transfer of risk for an agreed premium commensurate with the risk transferred. Instead, everyone is Dragooned into participating, regardless of risk, with the ones actually at low risk paying too high a transfer premium, and the ones at high risk paying too low--because they're being subsidized by the forced labor of the low risk participants.

Now, we can argue that the welfare is necessary, but if the cost isn't commensurate with the risk pool, we get the Individual Mandate, Social Security, and Medicare--all government-run expensive failures.

Government does have a role--as the last resort. Even FDR's social security was designed as a supplemental income system, with the retirees expected to subsist first on their savings and their families. Later Progressives morphed it into a complete income system, complete with annual cost of living increases. And the one paying the payroll taxes for this isn't the one who gets the "benefit"--he's stuck hoping that there still will be enough national income, from the takings from others, to pay his "benefit" in the distant future when he retires.

Eric Hines

Posted by: E Hines at July 18, 2012 11:50 PM

Some kinds of insurance it is profitable to offer privately....

It's all profitable to offer privately--if it's allowed to be done in a free market, without government mandates on coverages and premiums and costs allowed to be recouped.

Eric Hines

Posted by: E Hines at July 18, 2012 11:55 PM

That's not so. It's not profitable to offer insurance for cancer, to patients who already have cancer. The cost of such a policy has to be whatever the treatment costs; but since that isn't certain, you can't make it profitable at a level that a human being could generally pay. Thus, you can't have private insurance in such a market: even if you could extract every dime of wealth your clients were worth, you could end up going broke.

So in terms of unemployment via creative destruction, we're in a market where 100% of people are at risk of having their jobs go away, and finding themselves rendered unemployable. I'm not sure it's even potentially profitable to offer insurance here.

We could therefore choose to live without insurance; and if people take a hit, hey, that's like being the slow caribou on the tundra! Or maybe we can find a way to self-insure via the government, so that everybody survives, and there's no shame attached to being the one who gets paid out -- after all, we were all at risk, and (like a car wreck) the risk isn't dishonorable. We're just in the business of putting ourselves at risk for the greater good that comes out of creative destruction (or commuting to work).

Posted by: Grim at July 19, 2012 12:04 AM

It's not profitable to offer insurance for cancer, to patients who already have cancer.

It isn't possible to offer insurance at all in your instance: there is no risk to transfer: the "risk" of getting cancer now is certain. Paying the costs of the realization now is a fee for treatment--which may need to come from welfare, or from charity, or from private savings, as with my wife's cancer. But there is no insurance question here; there's nothing to insure against.

On the matter of unemployment, even in creative destruction, or simply the destruction of the Great Depression or of the Panic of 2008, the risk of unemployment was far from 100%; it approached 25% in the Depression and 11% in the Panic--which is the risk to be transferred for a fee, not the risk that we all have a likelihood of finding ourselves unemployed sometime in our lives.

Moreover, the risk of unemployment is not the same for all workers; for insurance to work, the risks must be parsed into homogeneous pools, with the premiums charged each pool commensurate with that pool's risk.

And some may well prefer--and succeed--to grunt through a period of unemployment on their own resources, without buying insurance. But even here, the insurance is more of a welfare program, government-mandated, and employer-funded, with the "insurance" beneficiary not having any dog in that hunt.

And when my wife and I were two years out of work, living on our own resources, us two slow caribou managed to defeat the wolves.

Eric Hines

Posted by: E Hines at July 19, 2012 12:34 AM

The argument is that it isn't possible to offer insurance, as such, privately; any private insurer would be risking destruction for the reasons you cite. But it ought to be possible to do it with universal participation: the exposure to the risk is 100%, but the risk itself might be closer (as you estimate) to 25%.

If you and your wife managed two whole years without any income at all, my hat's off to you. You weren't the slow caribou! God knows how anyone could sort that out, even with savings and credit and extraordinary self-discipline, if they didn't go on welfare or other government benefits. I never have, but at times it's required some hard discussions about why values were more important than food.

(An aside: oddly, we don't allow welfare benefits to pay for drink -- wine and beer, I mean to say. But this kind of poverty is the one case in which the Bible clearly endorses drinking.)

Posted by: Grim at July 19, 2012 12:46 AM

The Bible also demonstrates the acceptability of abject subsistence support as the requirement for charity; see the verses concerning Ruth and Boaz.

We can, and do, do better today, but we have no need of government to do so, except as a last resort (to beat the horse).

...any private insurer would be risking destruction for the reasons you cite....

Because it wouldn't be insurance in the realized cancer case; it would be payment for treatment with the fees collected not covering the costs. I keep harping on this because one of the problems with the Obamacare debate, and with debating who should provide what insurance and for how much, so thoroughly confuses insurance with welfare and then conflates that confused amalgam with health care delivery.

For the same reasons I discussed above, universal participation isn't insurance; it's welfare. The low risk are paying higher than risk-justified premiums explicitly to subsidize the high risk, who are paying below-risk premiums.

If we want to talk about a welfare-centered safety net, that would be a valid discussion (though I'll stump for a minimal government role).

As to what my wife and I did, it really wasn't that hard. It's what money management and savings and fiscal discipline are all about. We didn't succeed in reaction mode, we succeeded because we'd already accumulated the assets, as a matter of course, through our lives until then. And we had family to help out (recall I've always said family have a role ahead of government, ahead of the local community): we were not alone, we just were without government "help."

It's also true that we had more resources with which to accumulate; others with the same prior effort would have been able to go longer or shorter without income. It's the least among us that are legitimate targets of outside help--welfare--but even for them, government should be the last resort.

Eric Hines

Posted by: E Hines at July 19, 2012 01:11 AM

It would still be insurance in the case of Obamacare +20 years, because the cancer case would have been paying premiums all along -- since long before she came down with cancer. Those premiums would have been set by actuaries at regular rates, which ensure profit because they take into account the rate of cancer in society.

I get the insurance/health-care distinction. All I'm saying is that the Left has an argument here -- a better one than we often grant. I'm not even sure it's wrong, except on 10th Amendment grounds. That's a serious complaint, but it merely means locating the authority at state rather than at the Federal level.

Posted by: Grim at July 19, 2012 01:20 AM

Master Dork is underemployed due to that "creative destruction". He'd been working in radio for about the last 2 decades (pretty much since he was medically discharged from the Army). Most recently, he was a traffic reporter for the local Clear Channel group. Clear Channel made the business decision to consolidate all the traffic reporting out of their Dallas office. So, he was laid off.

He's also been an entrepreneur. However, his business partner was expanding the business too quickly. He wasn't making enough with the business to pay the bills. He's agreed to a buy-out, but the partner has to secure the funding for that first... Thankfully, he's found at least some employment, but it's been a rocky road since December when he had heart bypass surgery and a handful to nerve-racking returns to the ER with chest pain (and part of that is likely due to the blood thinner he was no not working for him; it wasn't the one the cardiologist prescribed, but the VA wouldn't pay for that one [instead, they had to pay for a third cardiac cath and 2 more stents as well as a relatively new therapy to deal with the chest pain resulting from the one {new} blockage they couldn't fix this last time...], but government managed health care is another discussion altogether... I just thank God that he didn't have to go to a VA hospital for his quintuple bypass [no VA hospital in the immediate area] and instead was sent to a local heart hospital that happens to be the best heart hospital in the state). His heart issues seem to have stablized and he's been able to work and he's going back to school to both make himself more attractive to employers and to make himself better prepared for the next time he has a business idea he wants to pursue.

So, yes, honest, hard-working people can find themselves in tough financial straits unexpectedly and they aren't lazy or freeloaders. But, because of the larger economic crisis, finding a full-time job in the current climate can be hard. Master Dork (not sure why he picked that particular moniker...) hasn't yet found a job that matches his talents, interests and work experience and he knows the likelihood of working in broadcast radio are slim to none. The job he has now he enjoys well enough, but he doesn't want to make a career of his current position. It will take time for him to complete the degree he's chosen to pursue. In the meantime, he is able to rely on his family (my family...he is now family, whether or not we're actually married yet) to help him through this rough patch. He doesn't want a government handout. He just wants the government to quit doing things (like ObamaCare) that make it more difficult to for him to take care of all his needs himself...

Posted by: Miss Ladybug at July 19, 2012 01:45 AM

Re: there being a market (in the free market) for any kind of insurance... I'm not sure that is the case. Today, you can no longer purchase private flood insurance for your property. You could, in the past. But, (and I'm doing this from things I've learned in the past, so I might be a little fuzzy on the details) after particularly heavy losses resulting from flood insurance payouts, they quit doing it. The free market decided it wasn't profitable (in order to cover the actual risk, those who would need it couldn't afford it...). So, in steps the government to provide flood insurance. As a result, those people who live in flood-prone areas can buy it, but only because it is subsidized by the government. I think maybe if you live somewhere it is likely to flood, the American people shouldn't have to subsidize your choice to do so in the form of what is essentially a government bailout when someone's property inevitably floods...

Posted by: Miss Ladybug at July 19, 2012 01:55 AM

Grim, while I get your point about everyone being subject to perfectly honorable risks, the problem with government providing insurance for those risks is that it seems to be awful at distinguishing between the ordinary, honorable risks of life versus the unnecessary risks of deliberate foolishness. And this is before you get politicians all but offering to subsidize dishonorable risks in exchange for campaign contributions or votes. This may be a case where government partnership with local charities (who presumably have more discretion and a closer view of individual cases) could work, assuming the politicians and bureaucrats could be kept from meddling too much. The other problem is that many such local charities are faith-based, and from what I've seen online, much of the young left seems to equate religion (or at least Christianity taken at all seriously) with bigotry.

Posted by: Matt at July 19, 2012 03:43 AM

Yeah, I know, Matt.

Though there's as big a problem with the old as with the young. When I ran through the vested interests, above, I left out the retiring. Right now, they are the most conservative voting bloc.

But they're also the most committed to the programs most responsible for bankrupting the country: Medicare, Medicaid, and pensions/health care for retired government workers. That's exactly where we will have to cut most deeply, and the most reliable conservative bloc will be united in opposition to such cuts.

So where do you find the will to make the cuts? Not on the Left; and not on the Right either, not if it cuts them off from their most reliable voting bloc.

Posted by: Grim at July 19, 2012 08:34 AM

...because the cancer case would have been paying premiums all along....

In this case, the person would either be long dead from the cancer, or been cured of it (as is the case with my wife; following post-op inspections over the next few months, he signed the relevant forms saying she was cured of the cancer--it would be no "pre-existing condition" in future efforts to get health insurance) and so buying insurance against a wholly different risk of cancer, or only just realizing the risk insured against.

And under Obamacare, we're all paying the same premiums (actually, in the same premium band) regardless of risk--that's the point of the IM--to have the low risk healthy paying above-risk premiums to subsidize the high risk not so healthy, who are paying below risk premiums--or to subsidize those who cannot "afford" to pay the price-band-fixed premiums. That's welfare, not insurance, and we're paying a welfare tax--conceptually, not just because the Supremes said so--not an insurance premium.

Folks like Mr Dork, or my wife and me with poorer luck, would be legitimate targets of welfare from the government after we'd exhausted private and local resources, but only then.

Back to the free market-centrally managed economy bit: Mr Dork's task of finding fuller employment is made the harder, as MLB notes, by the failures of our present economic policies, which are attempts to manage the economy from the center.

Finally, we need, also, the insurance/welfare distinction.

Eric Hines

Posted by: E Hines at July 19, 2012 08:36 AM

What bothers me about Obama's message of not being successful on your own is 'government involvement.' The idea that we need government, not a lack of it, to be successful.

Just a Thought off the top of my head; back to reading and digesting the rest of your excellent post. Which I am sure you did do on your own; as the itinerant Eskimo typists are prolly on vacation.

Posted by: Carolyn at July 19, 2012 08:47 AM

But they're also the most committed to the programs most responsible for bankrupting the country: Medicare, Medicaid, and pensions/health care for retired government workers. That's exactly where we will have to cut most deeply, and the most reliable conservative bloc will be united in opposition to such cuts.

So where do you find the will to make the cuts?

Cuts will necessarily have to be phased in. The 62 year old today who has been planning in good-faith on SS remaining as it has been promised for 30 years should not be abandoned as 3 years is hardly enough time to plan and prepare.

The 52 year old, however, by dint of having more time can prepare somewhat. The 42 year old, can prepare fairly well, the 32 year old can darn near prepare completely, the 22 year old has no excuse but stupidity and laziness.

And I'm not just talking about benefits either, but the retirement age when SS was first instituted was 5+ years after the average life expectancy, not ~15 years before it. Today's 22 year old can expect to live much longer and be in better health in their 60s-70s-80s than those cohorts do today (just as todays 60-80 year olds live in better health than those cohorts did in the 1950s).

And while I would prefer it to be phased out completely, I know that isn't politically possible. However, I would like to see it returned to the defined contribution plan it was originally constructed as. Preferably structured similar to today's 401k programs. Each person get's the own account with it's own account number and no more of this "money comes in, money goes out, only the names are changed to protect the politicians" crap. I'll even compromise and let the .gov manage it and default the contributions into the SS benefit calculation. Those who are "too stupid" to manage their own retirement accounts will be no worse off than they would otherwise, while others can take as much or as little risk as they are comfortable with and live with the consequences. They had the option of safety and chose not to use it.

Posted by: Yu-Ain Gonnano at July 19, 2012 09:26 AM

...would be legitimate targets of welfare from the government after we'd exhausted private and local resources, but only then.

Right, that's just the problem. If you happen to be one of those who has bad luck, you lose everything. You can try to start over, in middle age or later, weakened by cancer or by years of unemployment; or you can remain on welfare forever.

Even single payer is better than that (except for the problem of how do we pay for it?). At least then you don't lose everything; you still have to deal with the cancer, but not with the rest of it.

It's not a bad concept; it's just that I don't see how you can make it work financially. Certainly I'm sure we can't when the nation is already facing massively escalating costs in all these other untouchable entitlements.

Posted by: Grim at July 19, 2012 09:26 AM

Grim, I believe you are confusing insurance with rescue. It would be possible to offer an insurance product to workers that paid off if they lost their jobs, and was priced to reflect the cost of that risk. That's not what we do, and the fact that the insurance has to be imposed on people, subject to government-mandated price controls, gives the game away. The difference between what you're describing and true insurance is precisely the charitable element, which for some reason we're embarrassed about and try to hide. So what we have is government-meddled flood insurance, worker's comp, Medicare, Medicaid, and Social Security. They're not insurance, they're income redistribution, which is charity.

And if it weren't for the government mandate, I'd say that's appropriate. Someone in desperate straits (e.g., already dangerously and expensively ill but broke) doesn't need "insurance," he needs charity. Insurance is a voluntary hedging contract against risks that are unknowable for an individual but reasonably predictable for an actuarial group. When it morphs into a fund to bail out unlucky people who didn't manage either to save up a lot of money or to buy enough insurance on the open market before it was too late, it stops being insurance and becomes charity.

And why is charity such a dirty word anyway? Would it be so awful for people to admit that's what they're accepting? Because if they don't want to accept it, I'm not sure I appreciate being dragooned into funding it. I'd rather stick to offering charity to people who want it and who will be willing to offer the same to someone else later, if they get back on their feet.

Posted by: Texan99 at July 19, 2012 09:32 AM

If you put me in charge of it, YAG, we would make cuts to SS by means-testing it, not tied to income but to weath. If you weren't poor, you wouldn't get it. We could allow for a grandfathering in of those right about to retire, as you say, but it should be transitioned into a poverty-relief program. That would cut its costs by at least four-fifths.

SS isn't the real problem, although it also needs to be cut to limit cuts in other areas. Medicare and Medicaid are the real problems, and Medicaid is already a poverty-relief program. That means the bulk of the cuts need to come out of Medicare.

Even then, I don't see how we meet our pension and health-care obligations to Federal retirees. All told, our obligations come to $561,254 per household.

Posted by: Grim at July 19, 2012 09:32 AM

...[Social Security] should be transitioned into a poverty-relief program.

==> [Social Security] should be transitioned back into a poverty-relief program.

SS itself, and Medicare--and Medicaid, too--should be privatized. Again, government relief should be a last resort, not a first. While it's true that the least among us will reach that last resort stage pretty quickly, a truly free market economy also makes us all--including them--better off, so that the rest of us are better situated to offer private relief, lessening the tap on the taxpayer's dime.

Self-IDed conservatives tend to donate around 4% of their assets to charitable enterprises, with some notable exceptions. This also tends to be pretty constant across income levels. Self-IDed liberals tend to donate around 1.4% of their assets, again with some notable exceptions (including President Obama), again with income level constancy.

It's primarily liberals (again with exceptions) that keep wanting government money--individual taxpayer money--to be the first resort. The cynic in me sees a correlation. Perhaps without justification.

Eric Hines

Posted by: E Hines at July 19, 2012 09:47 AM

Oh, and comparing the individual mandate to unemployment insurance isn't accurate. Unemployment insurance is a tax on a positive activity. You pay a tax for working, the same way you pay a tax for buying. In that sense, unemployment insurance is analogous to sales tax. It is a tax you pay because you engage in an economic transaction.

You don't pay the unemployment insurance tax for simply breathing.

Posted by: Yu-Ain Gonnano at July 19, 2012 09:58 AM

I think the analogy is right on that point, at least: you don't pay for the insurance, your company does. It's imposed as a cost of existence for the company, in the same way that the individual mandate is imposed as a the cost of existence for the individual.

I can see Tex's point that nothing the government does can be properly classified as "insurance," because the government's capacity for force means you're not engaged in a genuine market. I'm not sure that's a reason to disallow things like unemployment insurance, but I can see the conceptual distinction.

Posted by: Grim at July 19, 2012 10:08 AM

It's imposed as a cost of existence for the company,

Only it's not. It's imposed on the activity of that company. A corporation that has no employees (a holding company, for example) would not pay the tax at all.

Posted by: Yu-Ain Gonnano at July 19, 2012 10:34 AM

It is also imposed on the number of the employees, i.e. the scale of the activity. Those who employ more pay more.

The IM is not imposed on the scale of the person's healthcare activites. Those who use healthcare little and those who use healthcare a lot would pay the same tax.

Sorry, Unemployment Insurance taxes is not a tax on existance the way the IM is.

Posted by: Yu-Ain Gonnano at July 19, 2012 10:44 AM

It seems to me that it is, even if you want to say that it's a tax imposed for existing as a business of a particular type (i.e., a business with X employees). But this distinction is an incredibly rarefied point; I'm not sure why we're arguing over it.

Posted by: Grim at July 19, 2012 10:54 AM

That's like saying sales taxes are a tax on a person's existence (i.e. a person with purchases) and yet no one speaks in those terms.

And while it may be a rarefied point, when constructing arguments about validity of actions, sometimes those rarefied points matter.

Interestingly enough, a tax on a person's existance is actually constitutional. A Direct poll tax is perfectly fine, so long as the revenue is apportioned by the state's population (i.e. it's the same for every person, at least in the state aggregate).

Robert's taxation argument seemed to boil down to "Apportioning the tax to the state's population is just too difficult in practice, so we'll just ignore that provision."

Posted by: Yu-Ain Gonnano at July 19, 2012 11:09 AM

"I can see Tex's point that nothing the government does can be properly classified as "insurance," because the government's capacity for force means you're not engaged in a genuine market. I'm not sure that's a reason to disallow things like unemployment insurance, but I can see the conceptual distinction."

The fact that it's not insurance is not a reason to disallow it, I agree. It's merely a reason to quit calling it insurance, and especially to quit justifying it by the arguments that justify insurance. I'm not fond of government-mandated charity, but if you get over that hurdle, at least if we call it charity we can get on with the task of justifying it for what it is: charity.

The government could conceivably be in the honest insurance business. It doesn't work out in practice, though, because the government can't be trusted to abide by market rules. It will start cheating and lying the first time it gets into rhetorical difficulty, and because of its special powers it doesn't endure the kind of market discipline that restrains ordinary cheaters and liars. In this it will be aided by a public that has lost sight of the difference between insurance and subsidies.

I harp on the value of a free market, not because it is unregulated, but because it works on the principle of requiring people to deal with each other voluntarily. When they have to do that, there are natural limits on how much they can cheat and lie. As soon as force enters into the equation, that protection disappears. I wish we could say that voters are a natural curb on cheating and lying in government, but experience shows us that they're nowhere near as effective as a free market, especially when a majority of voters are on the receiving end of the goodies.

Posted by: Texan99 at July 19, 2012 03:48 PM

The concept of means testing puts Social Security into some hot water, however. As currently justified, it's a form of savings plan. You put money in, you get money back out. But if you means test, that means you have people paying in who will never get that money back. Now we all may recognize that it's currently nothing more than income redistribution, but I believe the justification used to get it past the SCOTUS was that it was no such thing, and that everyone who paid in would get money back out. Taking that fact away may cause it to run into Constitutional problems.

Posted by: MikeD at July 19, 2012 04:41 PM

"Taking that fact away may cause it to run into Constitutional problems." -- I doubt it (yes, I'm in a foul mood about the S. Ct.), but I suspect it would severely undercut the public's willingness to continue funding it. Which is why efforts to reform Social Security always crash and burn: politically, the SS system can't survive honesty. But then financially, it can't survive the pretense. It seems clear that it's got to collapse one way or another, but I can't figure out whether it will go broke first or get dismantled.

Posted by: Texan99 at July 19, 2012 05:20 PM

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