Archive for February 2021


We did much worse than Obamacare

Tyler Cowen has a post on various topics. This caught my eye:

Perhaps two things I was right about, but still not recognized as correct are: 1) post-2012 or so (but not earlier), unemployment was fundamentally a re-matching problem, and would not have been helped much by nominal decisions by the Fed, and 2) we could have done much better than Obamacare and no I don’t mean single payer.

Obviously I disagree about the post-2012 period, but I’d like to focus on Obamacare. Tyler’s right that we could have done much better, but he doesn’t mention that we’ve actually done much worse. But wait, didn’t we end up with Obamacare?

In fact, the most valuable part of Obamacare was the so-called “Cadillac tax” on health insurance, which would have gradually phased out the massive tax subsidy to health care, perhaps the most important single factor driving up costs and driving down living standards for working class Americans. It was phased out during the Trump administration, perhaps his single most destructive policy decision.

I recall that this Obamacare provision was touted by Democratic policy wonks as a huge gain in efficiency, and they were right. So why does hardly anyone even talk about the fact that we’ve ended up with a much worse system than Obamacare?

The answer is simple. We are now polarized into two tribes—Democrats and Republicans. Both tribes conspired to screw the public in order to bail out the bloated health care industry, and thus neither tribe wants to talk about this shameful act.

Don’t let the media tell you what the important issues are. The important issues are not cancel culture, GameStop, or even monetary policy. They are 400,000 in prison for drug crimes, 40,000 needless deaths from kidney shortages, US support for mass murder in Yemen, and lots of other stuff you hardly even see mentioned on twitter.

PS. People wonder what I mean by utilitarianism. Ponder this quote:

Speaking to KDTVWashington County Republican Party chair Dave Ball said: “We did not send him there to vote his conscience. We did not send him there to do the right thing, whatever he said he was doing. We sent him there to represent us, and we feel very strongly that he did not represent us.”

Yes, there are people who don’t care about maximizing aggregate welfare. They care about maximizing aggregate GOP welfare.

PPS. Make that GOP male welfare.

Understanding middlebrow

I’ll get to the NYT eventually, but first let’s look at the middlebrow sector of the film industry. And by the way, middlebrow is not the middle of the population, it’s roughly the 90th to the 99th percentile. Highbrow is the top 1%. And then there’s rest—Kardashians, professional wrestling, etc.

This is from American Splendor:

Mattress Guy 1: So how smart is she?
Mattress Guy 2: I don’t know. I guess she’s about average.
Mattress Guy 1: Average? Average is dumb!”

[BTW, nothing wrong with being dumb. I’m not dumb about movies, but I’m dumb about plenty of other things. I used to get Cs in French class—do you know how hard that was to do in the 1960s? And then there’s my “computer skills”.]

I often check out middlebrow TV entertainment on Netflix, and almost always give up after a few episodes. Last year it was The Queen’s Gambit and Borgen, but there are 100s of other examples one could cite. These series are generally not bad—they often have decent acting and OK screenplay’s—but no one would say they are works of art. No one will re-watch them in the 22nd century, the way we now re-watch classic films from the 1920s and 1930s.

One possibility is that middlebrow meets two appetites, the thirst for stories and the itch to be exposed to something new, such as the world of chess or European parliamentary politics. The soap opera aspects are sort of like sugar to help the medicine go down.

There’s no point in bemoaning the fact that Netflix offerings are uninspired or that the Academy Awards usually ignores the best films. That’s not their audience! That’s not to say there haven’t been great films with wide appeal, but the whole point of the Academy Awards is to reward the picture with the biggest appeal to the 90% to 99% audience, not the bottom 90% or the top 1%. (And no, Parasite winning last year doesn’t prove me wrong—Burning winning would have proved me wrong.)

A company like Netflix can’t become big and rich by appealing to the audience that likes films directed by Tarkovsky and Hou Hsiao-shien. And do you really expect the Academy to give out Best Picture awards in a way that implicitly acknowledges that most Hollywood directors are not in fact “artists”, and the makes the TV viewers at home feel dumb?

The NYT has 7.5 million subscribers, mostly progressives in the 90-99% range. These people feel very smart, and they are in fact smarter than 90% of the population. So there’s no point bemoaning the fact that the NYT is not about to tell it’s readers that, “Actually, we provide middlebrow news analysis, and if you want brilliant inspired analysis you need to read blogs like SlateStarCodex.”

Yes, the NYT story is awful in all the ways that are currently being discussed by its critics, but the fundamental problem is inescapable. Any time a powerful middlebrow entity (which wrongly thinks it’s highbrow) evaluates an actual highbrow entity, you will end up with a mixture of resentment and incomprehension. This case is no different. It’s just how things work.

Scott Alexander should view this story as a badge of honor. “My insights are so subtle that even the NYT was in over its head trying to figure me out.” I have no doubt that if the NYT tried to evaluate my blog they’d get it right. My stuff is not over their heads. My posts are relentlessly middlebrow in everything other than monetary policy.

But at least I know highbrow when I read it.

PS. Off topic:

Number of Trump impeachments: 2

All other presidents: 2

Senators from his own party that voted to convict: 8

All other presidents: zero

Expansionary monetary policy causes recessions

Imagine a large flat piece of land out West. If a series of rivers run through this land for millions of years, it will create a series of canyons. In order to cross this land, hikers have to trudge up and down, up and down. Not good.

Instead assume that a set of giant piles of rock are dumped on this flat land, creating a series of mountains. Hikers must climb up and down these mountains to cross the land. Not good.

Suppose you start with a stable monetary policy, and no business cycles. They you start doing tight money every few years, creating a boom and bust cycle in the economy. Not good.

Or, suppose you start with a stable monetary policy, and then do a highly expansionary policy every few years. Once again, you create a series of business cycles, booms and recessions. Not good.

Many people understand that contractionary monetary policies can create business cycles, but far fewer understand that expansionary monetary policies are equally likely to create business cycles. (Austrians get it.)

The optimal is roughly 4% growth in NGDP, year after year.

I’m currently not all that worried about the economy overheating, but not because I don’t think it would be all that bad if it did. It would be very bad if the economy overheated, likely creating a recession soon after.

So don’t listen to people making arguments that were already discredited in 1968, that is, people claiming that overheating wouldn’t be that bad because it would help workers to find jobs. The actual risk of an overly expansionary monetary policy is that it would cause a subsequent recession.

Back to geology. You don’t want northern Arizona. You don’t want central Colorado. You want Kansas.

The Fed’s gradually building credibility behind it’s 2% AIT. Keep up the good work!!

Cat People is a horror film

I’m referring to the classic 1942 version, directed by Jacques Tourneur and produced by Val Lewton.

But as explained in Reason magazine, it’s nowhere near as horrifying as this cat:

Read it and weep. Just one more sad casualty in the War on Drugs.

Liberalism’s darkest decade

Perhaps you are a boomer, currently outraged that millennials seem unable to understand that it’s not OK to sign a petition to have your boss fire one of your colleagues. You wonder what’s wrong with the younger generation. Have they no sense of basic human decency?

Or perhaps you are a member of the Greatest Generation, who were appalled that the young boomers reacted to all their sacrifices (WWII) and accomplishments (1960s prosperity) by becoming a bunch of drug addled hippies who rejected conventional morality.

But no generation was betrayed worse than the liberals of the late 19th century. In a period of 7 short years, a supposedly “liberal” president presided over the most appalling string of policy outrages in US history. Here are just some of the highlights:

1. In 1913, Wilson issued an order segregating the federal government. This was done so that whites would not have to suffer the supposed “indignity” of working next to blacks.

2. In 1913, Wilson signed the first income tax. At first, the tax was not that unreasonable. Most people didn’t have to pay any tax. The upper middle class and rich paid a 1% income tax, while the super rich paid 7%. But in the long run it became a monstrosity.

3. In 1913, Wilson signed the Federal Reserve Act, creating an institution with power to influence monetary policy but lacking the skill to do so wisely. The Fed played a major role in causing the Great Depression, which led directly to the success of the Nazis in Germany.

4. In 1914, Wilson signed the Harrison Act, which regulated (and later banned) narcotics. This led the the horrific War on Drugs, which has destroyed so many lives, and even entire countries.

5. In 1916, NYC enacted the nation’s first citywide zoning laws. The early rules (for things like setbacks) didn’t do much harm, but as with the income tax these laws eventually became very destructive.

6. In 1917, the US entered WWI. This tipped the balance against Germany, assuring that the most powerful country in Europe would lose the war. That made a rematch almost inevitable. Thus both the creation of the Fed and the US decision to enter WWI indirectly contributed to WWII and the Holocaust.

7. In 1917 and 1918, Wilson signed a series of laws that made it a crime to criticize the US decision to enter WWI. Free speech was effectively dead for the duration of the war.

8. To his credit, Wilson vetoed the Volstead Act in 1919, a law banning the sale of alcohol, but only because he objected to one narrow provision. It passed over his veto.

Some progressives might raise an eyebrow over my Fed and income tax views. To be clear, I’m not in the “Abolish the Fed” camp. The Fed we have today was basically created in 1935. The original Fed was a disaster, presiding over (and helping to cause) both the most unstable 20 years of monetary policy in US history and the worst banking crises. It was an utter failure. (Even the revised Fed has made serious mistakes, but it’s gradually learning from its errors.)

As far as the income tax, most of the harm done is not from the work disincentives (I favor a progressive consumption tax, which has basically identical work disincentives.) It’s not even the bias against future consumption (which hurts high savers like me.) Rather the biggest problems are the distortions it creates, the things people do to avoid paying taxes.

Thus the income tax deduction for health insurance has played a major role in pushing US spending on health care from 5% to 18% of GDP. And that plays a major role in reducing growth in our living standards.

Most people have a “follow the money” approach to economic analysis, whereas you actually want to follow the output. All the labor and materials going into that wasted 13% of GDP (above Singapore’s 5% of GDP) could have been used to provide average Americans with better housing, nicer cars, more restaurant meals and more trips to Disney World. Because we produce lots of medical goods that don’t make us happier, our living standards suffer.

As Noah Smith recently point out; it’s not so much about the money as it is about what we produce, and the ways in which we are making that production excessively costly. The income tax is far from the only problem, but its a big one. We should have a progressive consumption tax.

Progressives are feeling their oats right now, and I can’t blame them after the Trump fiasco. But this is the party that repealed a luxury tax a few decades back because they worried it was reducing output in the yacht making industry. (No, I’m not joking.) This is the party that at a local level often wants to stop big bad housing developers from building houses. Good intentions are not enough. If you don’t understand EC101, you aren’t going to be able to help anyone.