This morning’s jobs report shows that the economy’s subsidized private sector (industries like health care services that receive big government subsidies) is back as a major source of new hiring.

If a stronger but sustainable U.S. recovery depends on reinvigorating industries not heavily dependent on government largesse, then this hiring out-performance . . . → Read More: That Which Is Unseen]]> Some economic news:

This morning’s jobs report shows that the economy’s subsidized private sector (industries like health care services that receive big government subsidies) is back as a major source of new hiring.

If a stronger but sustainable U.S. recovery depends on reinvigorating industries not heavily dependent on government largesse, then this hiring out-performance by the subsidized private sector is a bearish indicator.

As Tonelson figures it, the subsidized private sector created 65,000 net new jobs in December, nearly 40% of total private-sector job growth, about the same as throughout the recovery. But is that a lot or a little?

One easy way to tell if an economist is shallow is to see how they analyze the role of government in the economy.  In this case, the assertion is that the government was responsible for about 40% of new net job creation.  But, I wonder, how much net job destruction the government was responsible for.

Alas for liberals, the tax debate isn’t that simple, because it’s taking place in the context of immense projected future deficits and a welfare state that seems unsustainable without substantial increases in revenue. Given these realities, fairness and progressivity are necessarily less important to liberalism over the long run than . . . → Read More: The Truth About Taxes]]> Ross Douthat speaks it:

Alas for liberals, the tax debate isn’t that simple, because it’s taking place in the context of immense projected future deficits and a welfare state that seems unsustainable without substantial increases in revenue. Given these realities, fairness and progressivity are necessarily less important to liberalism over the long run than simple dollar figures, and the American left actually has a long-run incentive to make the federal tax code less progressive, because only a broader base can keep the liberal edifice solvent in the long run. [Emphasis added.]

While it may be quite pleasant to imagine that the tax code can be used to arbitrate fairness across social classes (a bullshit concept if there ever was one), the simple reality is that taxes have only one fundamental purpose:  revenue.  That’s it.
Taxes exist to generate revenue to the government.  Thus, while it may be pleasant to imagine soaking the rich with a 90% income tax rate—in the name of fairness, of course—the reality is that this attempt at soaking the rich will inevitably lead to a decrease in tax revenues for the very simple reason that people simply do not like having large portions of their income taken away from them by jack-booted parasites.  Thus, in the long run, the tax code must conform to fiscal reality instead of nebulous concepts of social fairness.  The liberal vision of social fairness is literally unaffordable, and this must inevitably be reflected in the tax code.
The more rational approach to taxation is exactly what Douthat recommends:  increase the tax base and keep rates lower.  This would effectively mean lowering marginal tax rates on the wealthy and actually imposing real income taxes on the bottom two brackets.  This won’t be fair, per the liberal definition, but it will ensure that the government remains funded.  Of course, once poor moochers have teeth in the game, they may decide that they don’t want to pay the government for overpriced, substandard services.  But then, those who are poor often tend to be short-sighted and foolish, and so it is also conceivable that they will learn nothing from history, and thus condemn themselves to a life of dependency.  But at least they’ll have skin in the game.

Here’s some nonsense on stilts:

Richard Feynman was once asked what he would pass on if the whole edifice of modern scientific knowledge had been lost, and all he . . . → Read More: A Lack of Prudence]]>

What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.—Adam Smith, The Wealth of Nations

Here’s some nonsense on stilts:

Richard Feynman was once asked what he would pass on if the whole edifice of modern scientific knowledge had been lost, and all he could give to posterity was a single sentence. What axiom would convey the maximum amount of scientific information in the fewest possible words? His candidate was ‘all things are made of atoms.’ In a similar spirit, if the whole ramshackle structure of contemporary macroeconomics vanished into thin air and the field had to be reconstructed from scratch, the sentence which packs as much of the discipline into the fewest possible words might be ‘governments are not households.’ The principles of running an economy are in many crucial respects different from those of keeping your own finances in order. The example of the hypothetical tenner is part of the reason why: governments need to keep money moving around. For a household, to deposit the money in a savings account might well be the most sensible course. Governments, on the other hand, need that velocity – they need GDP. In order to get it, they sometimes have to borrow that first tenner, which they can do in a range of ways not available to ordinary citizens (who can’t, for example, just print the money). Once that first tenner is spent, the government’s hope is that it will continue to be spent many more times. [Emphasis added.]

The fundamental fallacy of Keynesian economic analysis is that it is predicated on the notion that the rules of fiscal common sense do not apply to the government.  Contra Smith, the Keynesians assume that the government need not live within its means, and that it focus on attaining certain target numbers for highly abstract, generally unrealistic abstract notions of economic productivity.
The shallowness of the Keynesian worldview is apparent in many ways:

First, the Keynesian emphasis on monetary velocity is extraordinarily shallow.  It is assumed that government spending increases monetary velocity by spreading money throughout the economy.  Even if this assertion is true, what is often neglected is how, at least in regards to taxation and borrowing, the only way the government spreads money throughout the economy is by first taking money from the economy (of course, this is not technically the case with inflation, but since governments do not fund their budgetary expenditures solely by inflation, one must necessarily conclude that governments at least partially fund their expenses by either debt, taxes, or some combination of the two, which requires the further conclusion that, at some point, money must first be taken from the economy to later be put in to the economy).  Another observation that is often neglected is that money that is not spent by the government (i.e. privately-spent money) also has some degree of velocity as well.  Money does not generally sit stagnant, except among those who wish to store currency under their mattress or such-like, and so money that is spent my non-government market actors has the same velocity as money spent by government market actors, assuming that in both cases, no currency is ever removed from circulation.  Thus, the assertion that government policy must needs be different from household economic policy is fallacious because the justification for the assertion that government policy is special is itself specious.

Second, Keynesians neglect to understand that money is not itself production.  As was noted in the excerpted piece, households cannot print money whereas the government can.  Unfortunately, the mere printing of money does not itself magically cause more products to appear in the economy.  Now, inflation can draw demand forward, but only to a limited extent, because ultimately shifting production forward runs into the very serious problem of running out of demand, production materials, or both.  One of the reasons why the housing market collapsed in 2008 was due in part to demand exhausting itself.  To put it simply, people stopped wanting houses at the prices provided.  Sure, the housing supply is at its highest, but now the demand for houses has declined, which is why housing prices remain relatively depressed.  Quite simply, demand is not infinite—neither is production—which is why inflation will always fail to permanently increase production.  There are limits to everything, and inflating the currency does not change that very simple fact.

Third, Keynesians fail to realize the scalability of hierarchy.  The reason why the government is often compared to a household is because the household is a useful metaphor for understanding hierarchy.  Every household has a head, every household has expenses, every household has members, and so on.  A functioning household is one where everyone contributes to its upkeep, and one that lives within its means, and so on.  Of course, the metaphor is not exactly perfect, but it is generally useful, and so it serves as a useful point of comparison, and provides people with simple heuristics for evaluating, say, the long-term reliability and stability of any hierarchical organization, such as a business, charity, church, or government.  If a functioning family is one that minimizes deadweight and free riders through the proper division of labor, and manages to avoid fiscal problems by living within its means, then it is generally reasonable to expect that a state or business that minimizes deadweight and free riders, and also lives within its means, well do reasonably well and be expected to have a lot of stability.
And so, while governments are not households, the difference is more along the lines of scale than quality.  Governments are similar enough in form to households that the microeconomic analysis used to evaluate the fiscal health and stability of a household should be a useful heuristic for evaluating the fiscal health and stability of a government. Furthermore, the form of government is not so radically different from the form of households that it justifies a radically different set of analysis and evaluation.

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American consumers have shown about as much appetite for the $1 coin as kids do their spinach. They may not know what’s best for them either. Congressional auditors say doing away with dollar bills entirely and replacing them with dollar coins could save taxpayers some $4.4 billion over the next . . . → Read More: A Federal Budget Cut We Need]]> Congress has an idea:

American consumers have shown about as much appetite for the $1 coin as kids do their spinach. They may not know what’s best for them either. Congressional auditors say doing away with dollar bills entirely and replacing them with dollar coins could save taxpayers some $4.4 billion over the next 30 years. The federal deficit for this year is over a trillion dollars.

America is fighting several unconstitutional wars, has a plethora of unconstitutional government spending programs, and a large number of unconstitutional agencies. Yet, somehow, Congressional auditors are recommending a policy that is considerably more inconvenient to citizens in order to save $4.4 billion. That’s not even half a percent of the budget. Are they serious? Or is this just a ploy to look serious about budget cuts?

What’s sad is how they apparently are not able to see a really obvious metric for determining spending cuts: the constitution.

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In order . . . → Read More: Blindly sending money down leaky pipes]]> Proposals to spend more on government programs in India are generally criticised on the grounds that this is sending more money down a leaky pipe. In addition to the problem that the pipes leak, there is an equally big problem that we have no idea about what happens at the other end.

In order to build and refine a system, the first foundation that has to be laid is that of measurement. What you measure is what you can manage. In India, all too often, government agencies and programs start out with lofty ambitions, and embark on spending money to get there. But there is little measurement about the extent to which those objectives have been achieved. Under these conditions, there is little chance of programs being designed properly, and of wastage and theft being checked.

I was reminded of this as I read As Dengue fever sweeps India, a slow response stirs experts’ fears by Gardiner Harris in the New York Times. There may be an epidemic of Dengue out there. Or there might not be one. The point is, we just don’t know. The statistical system simply does not measure this.

A public goods perspective

What should government do, and what should government not do? The government should work on the provision of public goods and stay out of private goods. In the field of health, what are the public goods and what are the private goods?

When I have a toothache, and I go to a dentist, and I get better, this is a private good. Yet, most government spending is oriented towards building `primary health centres’ and hospitals and such like. Even if these worked well — i.e. even if they were not characterised by theft and incompetence — they are a bad use of public money as they deliver private goods and not public goods.

A public good is something that is `non-rival’ (my consumption of that good does not reduce your access to it) and `non-excludable’ (it is not possible to exclude me from benefiting from this good). The best example is clean air. My breathing in clean air does not diminish the amount of clean air available for you. When one more child is born, it is not possible to exclude him from benefiting from clean air.

What are the public goods in health? A few examples that come to mind:

• Statistics. Measurement of what is going on about health in India.
• Epidemiology. Tracking down and eradicating Smallpox. Mounting a response to fresh strains of the common cold.
• Running public systems that measure and ensure that medicines are not counterfeited, are properly stored in a cold chain.
• Running certification systems. Enforcing against quacks that practice medicine.
• Getting research done on diseases that matter on India, and releasing the findings into the public domain (i.e. unencumbered by patents).

An objectives-and-accountability perspective

The Indian State is in a crisis. The two key factors at work are mission creep and a lack of accountability.

Mission creep has set in because in India, almost any do-gooding is seen as the responsibility of the State. We need to narrow the mission statement of the State to a tangible set of public goods. Clarity of mission, and a controlled and narrow mission, is of essence to obtaining performance.

Consider the principal-agent relationship between you and your contractor. If the contractor is failing to deliver, you would narrow down the specifications given to him, and monitor him tightly to make sure the work gets done. That is precisely what we need to do, in the principal-agent relationship between citizens and the State. The State has failed on a sprawling mission. We need to narrow down the tasks given to the State, and tightly monitor the delivery of results.

Government and government agencies will work well when they have narrowly defined functions and strong accountability mechanisms. In the field of health, absent measurement of health outcomes, there is no accountability.

Conclusion

Is there a Dengue epidemic in India? We don’t know.

An information system about the health of the people of India is a public good. It should achieve pride of place in the responsibilities of the State. However, health expenditures in India are squandered on private goods. To add insult to injury, there is theft and incompetence, so even these attempts at delivering private goods do not work so well. But the main point is that running PHCs and hospitals should not be done, even if the Indian State had the ability to run these things well.

In order to reconstruct the Indian State, we need to push on the combination of narrowing the mandate (focusing on a few core public goods) and strong accountability mechanisms.

Although they captured 129 tons of cocaine on its way to the U.S. last year, the Coast Guard thinks that close to 500 tons could now be making it through. “My staff watches multi-ton loads go by,” Rear Adm. Charles D. Michel told The . . . → Read More: I Wonder If They’re Yellow]]> Drugs are apparently being imported into the US by submarines:

Although they captured 129 tons of cocaine on its way to the U.S. last year, the Coast Guard thinks that close to 500 tons could now be making it through. “My staff watches multi-ton loads go by,” Rear Adm. Charles D. Michel told The Times. Part of the problem is a new class of fully submersible craft, three of which have been seized in recent weeks. (Before, the subs were only semi-submersible, depending on a snorkel to bring in air for the engine.) These new drug-running subs are capable of carrying up to ten tons of cocaine at a time and can run from Ecuador to Los Angeles without coming up for air. On top of it all, officials are also worried that these subs could be used by terrorists. [Emphasis added.]

Let me see if I get this straight:  We have a costly federal policy to slow down or possibly eliminate drug use.  While this policy has been in place, drug usage has increased, which is the exact opposite effect intended by the policy.  This has occurred in spite of the price of drugs increasing by the ban (in terms of direct cost, risk, and seeking alternatives).  In sum, we’ve spent a lot of tax money making the problem not go away.
Furthermore, basic economic principles would suggest that there is a causal link between an increase in government spending on the war on drugs and the increase in drug usage and its attendant ill social costs.  By making certain drugs illegal, the price of such drugs generally increases because supply is limited.  However, the increasing prices attract new suppliers who rush to capitalize on the high prices.  Some of these suppliers inevitably get weeded out of the supply chain by law enforcement, which creates perpetual supply shortages, and consequently perpetually high prices, which perpetually attracts new suppliers.
Additionally, this causes consumers to seek legal alternatives to drugs, which means going to legal but riskier alternatives.  Going from, say, pot to alcohol is one example of this. Another is the production of brand-new compounds that manage to escape bans since they were not previously made illegal due to their non-existence.  Alternatively, some people turn from expensive illegal drugs to cheap illegal drugs (this is the main theory as to why meth became popular).
Thus, not only has the war on drugs failed, it was never winnable in the first place.  The incentive structure set in place never dealt with the fundamental issue:  demand.  By attacking supply, the federal government ensured that drug prices would go up and that there would be a steady stream of interchangeable suppliers, while simultaneously encouraging consumers to try risky but legal alternatives, or riskier, cheaper, illegal alternatives.
And what is the result of this mess?  Not only has drug use increased, and not only are taxpayers on the hook for an unwinnable war (the hallmark of an empire, if I’m not mistaken), but the federal government has subsidized the development of enemy weapons.

Now, I’m not necessarily inclined to think that every appeal to national security is completely valid when it comes to determining policy, but it can’t be denied that federal policy has been responsible for subsidizing the development of cheap submarines that could hypothetically be used in attacks against the US.    Furthermore, the war on drugs has required that federal government constantly intervene in other nation’s affairs—particularly South American nations—which increases the odds of a terrorist attack.  Thus, federal policy has done its damnedest to ensure that the US is not only more likely to be attacked by terrorists, but it has also subsidized the terrorists’ weapon development program in the interim.
The best solution to this complete failure of a policy is to call it quits.  Doubling down on the war on drugs doesn’t change the incentive structure of the drug market, and will thus only make the problem worse.  The federal government is inept anyway, so expecting it to clean up its mess is a pipe dream.  Therefore, the best solution is for the government to stop, and in so doing stop making the problem worse.

How much do senior citizens rely on Social Security? Even more than you might think. A new study finds that more than 46 percent of Americans . . . → Read More: Dependency]]> Some hack is complaining about how people who were promised that the government would take care of them are relying on the government to take care of them:

How much do senior citizens rely on Social Security? Even more than you might think. A new study finds that more than 46 percent of Americans die with less than $10,000 in financial assets, with many spending the end of their life strongly dependent on the government.

There’s a lot of stupidity in this first paragraph.
First, since you can’t take anything with you when you die, what good is it to have any assets left at death?  Yes, you could always leave an inheritance for your children, but if leave a certain amount of wealth to your kids, the government takes half of it, unless you’re crafty enough to spend a sizable portion of your wealth on lawyers in order to not spend a sizable portion of your wealth on bureaucrats and their politician lackeys.  Furthermore, your kids could waste your inheritance because you were a terrible parent who didn’t raise them right, so there’s no point in leaving anything to them anyway.
Second, the whole point of having government programs was to pay for people to not have to worry about paying for things in their old age.  The government was supposed to provide for them.  How could anyone possibly expect others to refrain from receiving government benefits when the whole point of said benefits was to give them to as many people as possible?  (I, of course, refer more to social security than other programs, though I’ve yet to hear of any social spending program turn down money because it wasn’t interested in increasing its scope.)  Why begrudge people for taking advantage of a system that asked to be taken advantage of.

Why should low financial asset levels be a problem, then, if these seniors’ income seems to remain steady? After all, you can’t take it with you. With almost no financial assets, these seniors “have little capacity to pay for unanticipated needs such as health expenses or other financial shocks or to pay for entertainment, travel, or other activities.”

Again, the whole purpose of having government programs, like Medicaid or Medicare, or, recently, ObamaCare, is so that people don’t have to worry about unexpected health expenses.  The government promised to step in.  Why should anyone be surprised when people start acting like the government is supposed to step in?
Also, a lot of the things on the list are completely unnecessary.  Travel, entertainment, and other activities?  Yes, these things cost money, but is it really so heart-rending if some old fart can’t buy tickets to Batman?  Or can’t go see the Grand Canyon in their own RV before they take the eternal dirt nap?
Really, this is a story about a non-issue that only matters now because the government is going broke and is going to have to find a way to cut the budget.  Of course, it’s hard to feel bad for those currently lamenting the problems seniors face today when a lot of these problems were easily predicted by those who opposed the government welfare programs in the first place.

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I’ve complained a few times that opponents of austerity refuse to define what they’re opposed to. Naively, I’d assumed that austerity meant that governments were cutting spending. Actually, it turns out governments continue to spend more money during period of austerity and even periods of “crippling austerity.” I’ve done . . . → Read More: A Welcome Definition]]> Foseti provides one for “austerity”:

I’ve complained a few times that opponents of austerity refuse to define what they’re opposed to.
Naively, I’d assumed that austerity meant that governments were cutting spending. Actually, it turns out governments continue to spend more money during period of austerity and even periods of “crippling austerity.”
I’ve done some investigation and I now believe I can define “austerity.” Here goes:
Austerity is when more than half of a country’s working age population has to . . . wait for it . . . seriously, I hope you’re sitting down for this . . . go to work at an actual job every day.*

One way to tell that Krugman et al are big-government socialist shills is simply by noting that they use the word “austerity” in a rather vague manner to refer to countries that are apparently not Keynesian enough in their approach to dealing with the current economic crisis.  Basically, Krugman’s version of austerity is not spending cuts or tax increases, but rather deficit spending that doesn’t incur a large enough deficit.  I don’t see how this is austerity as much as a milder form of irresponsibility, but then I’ve never won any prizes in economics, let alone one in honor of Alfred Nobel.  So what do I know about austerity?