Tuesday, October 22, 2013

A Look At The Swiss Basic Income Initiative

The Swiss initiative to provide an unconditional income to all citizens is an interesting proposal for a number of reasons. It is a policy initiative that lands itself right in the field of battle between liberal and conservative ideologies. I will write a post later that examines the potential economic impacts of such a program but, for now, the ideological arguments is what interests me.

Conservatives are likely to view it as a disaster that will cause perverse incentives for an even larger portion of a nation's society instead of those benefiting from welfare programs. For conservatives, the basic income is a diabolical way to buy the approval of middle income citizens. The number that has been floated for the Swiss initiative is that every citizen will be given $2,800 per month. Theoretically, this monthly value could be strategically placed as the buy the favor of the median voter. For example, if the median voter pays $2,750 in taxes every month, then the transfer will make them better off and they will approve of the program. Anyone paying more than $2,800 per month in taxes will be worse off and the program will be a redistribution of their income to the rest of society.

Liberals are likely to view the policy as the endgame toward which most social welfare programs have been striving toward. It is finally a program that can effectively fight income inequality within a society without legal loopholes and arduous application requirements. A guaranteed state income would finally free important social groups from the need for financial survival. Struggling families will now have more time to spend raising their children properly and artists will break free of financial incentives to create an explosion of creative expression.

The interesting development in these discussion will be to determine how many conservative thinkers will be persuaded to support the initiative. A basic income program might actually reduce the bureaucratic mess of government because the program eliminates the need for many others. A basic income is unemployment insurance, food assistance, and social security all rolled into one. The complex process of applying/qualifying for government programs would be eliminated by simply sending the same check to every citizen. Conservative social values might be strengthened by such a program as divorce rates drop due to more stable marital relationship, absent the pressure of financial circumstances.

The basic income program is unlikely to pass in the short-term because it is too radical. It would be very surprising to see such a dramatic paradigm shift in the government of a developed nation in such a short period of time. However, the initiative will create some very important questions about the ideal future of human society.


I neglected to mention another aspect of the basic income initiative that will appeal to conservatives in my rush to type this up during my lunch at work. A basic income could actually improve the incentive structure of the economy by eliminating the cliff effects inherent in qualifying for many welfare programs. A person will no longer need to avoid getting a raise because it would actually make there circumstances worse by reducing the welfare they receive from the state.

Tuesday, October 15, 2013

Why the GOP Should Embrace the Beauty of Human Irrationality

There is the often criticized assumption in economics about the rationality of individuals. In theoretical economics, people are generally assumed to be perfectly rational which entails a number of caveats. The assumption does have great value in the field of economics but it tends to be bastardized when used as a pro-free market talking point for politicians. Politicians fail to mention the conditional assumption when they mention the rationality of market participants. The political notion of rationality seems to more closely adheres to the idea of personal responsibility for the cause/effect relationship of one's actions. However, the two different definitions of rationality are often confused because the political definition is never clearly stated. This confusion leads to petty arguments and frustration.

The beauty of the free market and America's economic/political system is its creativity. Advocates of the free market often cite America's leadership in innovation as the ideal of an economic system. The Randian uprising in the past decade in American politics stems from the wish to protect America's economy from developing an incentive structure that halts innovation. Unfortunately, the free market political movement has moved away from its core strength toward an anti-welfare message. The shift in message doesn't change the root of the movement at the grass roots level. People are attracted to the idea of America as a nation of dreamers and idealist who strike oil where everyone else has failed. The strength of the free market message is not in the idea of individual rationality but in individual irrationality. Steve Jobs did not make a rational decision by dropping out of college in order to sit in on random courses and eventually take a job with Atari. Many people have taken similar paths in life and ended with much less desirable outcomes than if they had received a college degree. However, we hear about the one that helped build an international empire that has sales rivaling the GDP of entire nations. We celebrate his decision despite the fact that it was irrational in the face of overwhelming statistics about his probability of success. Americans are a romantic people who worship the trailblazer and not the everyday foot soldier.

 Republicans should embrace the romantic version of the free market by praising the irrational confidence and passion of Americans who attempt to innovate by starting new businesses or applying for patents. The current free market philosophy of the Republican party comes off as a form of paternalism where people need to take responsibility for their lot in life. A shift toward policy objectives centered on patent/copyright reform, deregulation that favors new business formation, and state level changes to professional licensing laws would help to significantly improve the party's public image. The free market can be a great source of hope and inspiration but the current strategy of the GOP has made it seem like a punishing environment that advocates Social Darwinism. The support of the people can be won if the message is focused on the creativity of society instead of its jealousy of the rich.

Thursday, October 10, 2013

The Continuation of the Government Shutdown Could be a Reason for Optimism

The current impasse in the US government has become more convoluted with each passing hour. Reports continue to surface about the shocking level of intransigence in the right wing of the Republican party and its willingness to breach the debt ceiling. However, throughout the process, the battle over the debt ceiling and the battle over the government shutdown have been kept separate. The separation of the two situations is very important and it is even a reason for optimism. It is widely agreed that the government shutdown is a troubling situation but it is one that can be survived. "Essential" functions of the government are kept open with only a limited portion of the population bearing a heavy burden during the shutdown. It is also widely agreed that the debt ceiling would be a catastrophic scenario that should be avoided at all costs. The actual fallout from a debt ceiling breach is up for debate but the potential scenarios are not something to be chanced. Each scenario represents a different level of bargaining leverage and political exposure for the GOP. The government shutdown is a bargaining chip that is not difficult for many Republicans (and their voters) to accept. The government shutdown is acceptable because it fits within the party's demand for smaller government and it provides a forum to advocate for greater power at the state level. On the other hand, the debt ceiling is a poor bargaining chip because it impacts the government as a whole and provides no ancillary political benefits. A question has been posed by many and Ross Douthat's tweet is a good example:
The issue is that passing a two week CR right now is not something that Democrats are willing to do. A two week CR only serves as a way to delay the current shutdown. The only option right now is to sign the clean CR that Democrats have been proposing from the start. However, the only way such a clean CR will get passed is if the GOP is willing to go all in on the debt ceiling. An all in move to the debt ceiling would be a signal that the reports about Republicans are true. The removal of the government shutdown as a bargaining chip for the Republicans would signal that they view a breach of the debt ceiling as a real possibility. If Republicans anticipate a resolution to the debt ceiling standoff (which I believe they do), then the only way to avoid a total defeat is to move forward with the government shutdown. The party leadership anticipates that the debt ceiling will be resolved before the government shutdown, and that is a reason for optimism on the debt ceiling front. The continued government shutdown is a sad reality for the United States but it is a positive signal that the macroeconomy is not the hostage in this negotiation.

Wednesday, October 9, 2013

Why the GOP Kamikaze Strategy Won't Work for Democrats

A few days ago Joseph Weisenthal tweeted that the Democrats need a Ted Cruz of their own:

This idea was simultaneous appealing and repulsive to imagine as an established part of the American legislative system but there is an important reason why the tactics currently being employed by the GOP would not work for Democrats.

The problem is that there is legitimate uncertainty about the willingness to default on the part of a coalition within the GOP. It is generally believed that the majority of the elected officials on the right are not brazen or stupid enough to force a default of the US government. However, the expected probability of such an event is uncomfortably high due to a growing track record of extremist rhetoric and actions. The existence of this asymmetric information is the source of power being exploited by House leaders.

If the current situation were mapped as a game tree, last year's dabble with the debt ceiling set us down a previously ignored path because the expected payoffs to both political parties was assumed to be negative. However, now there is the creeping doubt that some House Republicans mistakenly believe that there is a positive expected payoff waiting for them at the end of the road.

The same strategy would not be credible if threatened by a coalition within the Democratic party for a number of reasons. For one, the Democratic party has exhibited more effective control of its members in recent history and the growth of such a faction within the party structure would likely be powerless. One motivation of rogue GOP members is the idea that they have nothing to lose from staking out this position. Voter groups adversely affected by the tactic of a government shutdown are can ignored for some Republicans. However, Democrats have built their party image around duty and fidelity to the suffering individual which makes a kamikaze threat by the party ineffective.

More importantly, at the core of the Democratic party, there is a feeling of something almost akin to manifest destiny. The history of the 20th and early 21st century has been a steady (and seemingly unstoppable) movement of progressiveness and liberalism. In the last two decades, America has become more liberal economically and socially. Time has been symbolic ally of liberals and conservatives feel the pressure. Ross Douthat wrote an excellent column about why the right is fighting this battle over Obamacare and the debt ceiling that touches upon the pressures of history. The Democratic party doesn't have a feeling of exasperation that has swelled over the previous decades to embolden them to take extreme measures.

Without the pressure of history and endogenous movements within the Democratic party toward a fervent ideology, there is no asymmetry regarding the intentions of Democrats. Such threats would sound like hollow, desperate attempts to fight fire with fire.