"Adulthood" and Financial Independence

Jessica at ...and another thing points out this essay from Newsweek bemoaning the tendency for young adults to continue to live off of their parents' generosity post-college. The whole thing's pretty much statistic-free (although the author does cite a "majority" of her NYC-dwelling peers at one point), but for a sense of its objections an excerpt will suffice:

Higher rents and the need for deeper pockets are part of the charm associated with city living, but urban pricing aside, it is possible to live in any city regardless of your age or income; it just takes a little budgeting and prioritizing. Surrendering to lifestyle flexibility may be unattractive, but sometimes it's necessary. It's easy to "keep up with the Joneses" when financial responsibility is someone else's problem. The fact is, my peers who flood out of designer stores, arms adorned with shopping bags, wouldn't be able to afford their purchases without ringing up a massive credit-card debt. By continuing to provide for their twentysomething kids, parents hinder their children's ability to be financially responsible. If you don't learn to budget early on, what will inspire you to do so when your finances become your own prerogative?

...

There is something to be said for writing that rent check each month and knowing you've managed to live comfortably on your own terms. Racking up $500 shopping sprees on Mommy and Daddy's credit card may have its momentary allure, but the adult part of me believes that working for what you have is much more rewarding than being handed it on a silver platter. And I have my own mom and dad to thank for that.

I get the impression Jessica's somewhat more hard-nosed about this phenomenon than I am. It's already considered socially acceptable to have people spend some 25% of their lives with the intense support of their parents; a few more years hardly seems like a big deal to me. There's something abstractly romantic about financial independence, but I don't know that I'd wish it on anybody.

What I will say, though, is that this sort of thing highlights the absurdity of worshipping "success" the way people sometimes do in this country. As often as not, people who seem successful have, in fact, succeeded at very little beyond sustaining the momentum that they were born into. And by the same token, people who seem like "failures" tend not to have failed at anything in particular, but often have managed not to slip further down the economic ladder despite various inherited disadvantages.

To also get in a swipe at the media, here, one really gets a sense for what segments of American society the mainstream media represents when it seems to them worthwhile to run an essay complaining that parents are giving their big-city-dwelling kids too much money. While I'm sure that credit card debt is a problem for a lot of households, it's not like the problem for most people is that their credit card debt is underwritten by their parents.

Update: Because this made me laugh, I'm going to say it's related.

Redistributing Wealth vs. Killing People

Will Wilkinson makes a peculiar argument against the idea that wealth should be redistributed to minimize inequality now so that various sorts of injustices don't happen later:

The argument on offer here is an argument for preemptive redistribution. We have to redistribute so that injustice doesn’t occur. But this kind of argument, like arguments for preemptive war, face a high bar. You need to be pretty convincing that in the absence of preemptive action, something bad will occur. I think egalitarians almost never get over that bar.

Um, no. The way you justify taking preemptive action to avoid any problem is by evaluating the likelihood of realizing various costs and benefits. You don't go to the dentist only when you can make a "pretty convincing" argument that you will get a cavity if you don't. You should go to the dentist because you can make a pretty convincing argument that doing so is likely to help you avoid and/or stay on top of cavities. This is true even though going to the dentist is likely to impose very real costs on you now.

I don't mean to be nit-picky about this, but Wilkinson's rhetorical slight-of-hand, here, serves mostly to make the "bar" for preemptive redistribution seem bizarrely high. In reality, by any reasonable standard, the bar for preemptive redistribution is much, much lower than it is for preemptive war, mostly because the likely costs of preemptive war are much, much greater than the likely costs of preemptive redistribution.

P.S. - As an additional note, I'd point out that once you get past various naïve conceptions of property rights, the bar for justifying preemptive redistribution becomes lower still. The analogy with preemptive war obscures far more than it illuminates.

Update - Will says I'm neglecting the main point of his post (viz., that there doesn't seem to be much evidence that, in general, a high level of inequality "in fact increases the chance of exploitation or unfair procedures" by the relatively wealthy). Which is true! (Was I obligated to? Maybe I don't understand all of my bloggerly obligations.)

So to be fair, I don't have much to say on that question, although it strikes me as the kind of thing that's best looked at on a case-by-case basis.

But the portion of his argument that I quoted is either relevant or it's not, and the main point of my post was that the preemptive war analogy is really not that helpful of a way, in practice, to look at preemptive wealth distribution, or wealth redistribution generally, for that matter. I think it mostly serves as a rhetorical device to make the justificatory bar seem higher than it really is. (Which isn't to say there isn't a bar at all.)

Predictions - DeLong - 10/4/2008

Predictions are cheap, especially on the internet. So why not keep track of them?

Hearing that President Bush extended unemployment benefits, Brad DeLong makes the following prediction:

It seems to me likely that--whatever happens to the economy--George W. Bush has just produced four bad unemployment-rate headlines on the Saturdays August 2, September 6, and October 4.

Expiration Date: October 4, 2008.

The Logic Of Welfare

Over at Free Exchange, they're speculating as to why societies that are so generous with their welfare states can also be so selfish with their immigration laws.

I diagnose the issue as a a cultural disconnect between the ostensible justification for the welfare state, and the actual operation.

The conscious justification is "We need to take care of the needy". But of course, if this were the actual logic, no Western government would spend any money on domestic poverty programmes; they would ship all the money abroad to countries where poverty is really dire, and let the people at home, who at least have things like clean water to drink, shift for themselves.

The actual pattern of thought is "We need to take care of our needy compatriots", with a much weaker "We'd like to take care of other needy people, money and time permitting".

I think this is right, but incomplete. Even if we cared about the needy without regard to their nationality or status as "compatriots", we still wouldn't "ship all money abroad" because, realistically, that wouldn't be a very effective way of helping people. Whether or not our compatriots deserve more aid, they're easier to help.

Making foreign aid effective is notoriously tricky business. Actually, the folks at the Economist themselves put it thusly:

Poor governments tend to be corrupt and inefficient; the countries do not have the complementary assets to make use of vast inflows of aid. There are some convincing papers showing that aid is negatively correlated with outcomes, even after controlling for the fact that screwed up countries tend to attract sympathetic donors. Raghuram Rajan, a professor at the University of Chicago who was, until recently, the chief economist at the International Monetary Fund, has a relatively new paper with Arvind Subramaniam indicating that foriegn aid makes poor economies less competitive by raising real exchange rates, a developing-world version of dutch disease. Recent evidence also indicates that aid may undermine good governance, by giving the government a source of revenue that, unlike taxation, does not depend on the goodwill of their constituents.

That was four months ago, though, so maybe their editorial position has changed.

8 Weeks Vacation A Year!

Matthew Yglesias thinks that Finland "may have taken things too far" in legislating a whopping 39 days of mandatory vacation time per year for its workers. I say, by what standard? Finland's GDP grew by 5.5% last year, compared to our own modest 3.4%. They seem to be doing just fine.

Blood, Water, Etc.

Mark Kleiman makes an argument against free trade that's a lot like an argument I made when applying to an undergraduate political philosophy seminar at Cal:

Economic exchange is an important means of facilitating cooperation, but it is not the only means. Kinship, norms enforced by reputational effects, and state action also organize cooperation. It is neither irrational nor morally wrong for me to be more eager to benefit, and more reluctant to harm, those with whom I cooperate more, because they are my relatives, because they are my neighbors or my co-workers or my fellow-members of other groups that embody collective social capital, or because they are my fellow-citizens.

The sovereign state has the capacity to pay for public goods by compulsory taxation, thus avoiding the free-rider problem. Wages or profits earned by people or firms that pay U.S. taxes are more important to me than wages or profits earned by those who pay taxes elsewhere, because I get a share of those wages or profits in the form of greater expenditure on public goods or reduced taxation. But even putting that aside, the feeling of community among Americans or Mexicans or Germans or Thais has all sorts of beneficial results (along, of course, with some quite horrible ones).

Does that mean that nations should be entirely selfish? No, any more than the fact that parents care more about their own children than they do about other children means that families should be entirely selfish. In particular, a big, rich country like the U.S. ought to be a generous contributor both to world-scale public goods and to the needs of the global poor.

The thing is, for my application I also had to make an opposing argument.

I agree that it seems very plausible to say that we have special, or additional, moral obligations to "those with whom [we] cooperate more", like relatives, co-workers, teammates, etc. Lumping all of those groups together, though, obscures the fact that even if that's true (and let's just assume it is), the degree of additional obligation is measured on a sliding scale. For example, however much extra weight my parents deserve in my moral calculations, odds are that the woman who lives in the apartment below mine deserves rather less, and that the clerk who checked my ID at Albertsons this evening should get less still. And the further removed an individual is from my day-to-day life, the harder it becomes to discern which features of our relationship warrant this sort of special moral attention. By the time we're talking about call center operators in Virginia, our actual relationship is pretty vague indeed and it seems to me that we've slid pretty far down that sliding scale. How much further down, really, is the Mexican factory worker?

What's more, even if interpersonal relationships create additional moral considerations, so do other factors. Most notably - as Kleiman himself mentions - we're way richer than the other people we're considering trading with. If liberalizing trade would benefit the citizens of other countries at some expense to American citizens, then surely it matters how much poorer than our own those other citizens are. Nobody thinks the rule is to promote your family's well-being at any cost to others.

Now, I think that Kleiman feels like he's accommodating that egalitarian concern by endorsing the idea that "a big, rich country like the U.S. ought to be a generous contributor both to world-scale public goods and to the needs of the global poor." But if it's OK to tax our relatively rich compatriots to help out relatively poor foreigners, why is it not OK to allow certain jobs to move across the border, instead of cash? Free trade, on this account, is just de facto foreign aid, with the additional likely benefit (in many cases) of bringing more, cheaper goods to American consumers.

P.S. - Of course, Brad DeLong's response to all of this is going to be much simpler. My understanding is that he's a pretty strict utilitarian, and so would reject from the start the suggestion that, say, family members "deserve" any special moral consideration at all. Sure, maybe as a rule of thumb it's good to make the well-being of one's family a higher priority than the well-being of strangers, because this will probably tend to create the greatest happiness overall. But it's not like your aunt, qua your aunt, is somehow more special than other peoples' aunts. After all, it's hard to imagine something more random than the fact of you being related to your aunt. As they say, you don't pick your family.

Jobs In Berkeley

Ah, Berkeley:

Every teenager and young adult who lives in Berkeley would be promised a summer job under an ambitious plan the City Council is weighing.

The council will take the first steps Tuesday toward guaranteeing a summer job for every resident 14 to 23 years old.

...

"Berkeley over the years has developed a pretty good reputation for working with young people. We have to extend that reach," said Councilman Max Anderson, who along with Councilman Darryl Moore and Bates proposed the plan. "Certainly the needs are there."

...

Every summer the city gets about 400 qualifying applicants to fill 100 to 150 jobs. The jobs, which typically pay $7.50 an hour for 30-hour workweeks, are mostly in the city's parks and maintenance departments.

This from the SF Chronicle. I appreciate the sentiment, but I'm not sure the still-in-school demographic ought to be the highest priority in terms of increasing employment opportunities.

What's more, one of the city's motivating factors is the fact that crime tends to increase in the summer. It's not clear, though, that summer vacation is the major culprit. The number of hours being spent out and about, both by potential victims and potential criminals, increases in the summer. Bicycle ridership - and therefore bicycle theft - also goes up with the temperature. People leave windows open to cool off, allowing easier home or vehicle intrusion. Lots of things change in the summer, and it's not obvious to me that school vacation is one of the major contributors to crime increases.

Of course, the evidence does strongly suggest that lower unemployment is strongly correlated with lower crime, but I don't know that that observation is meant to cover 14-year-olds. In any case, I'm pretty sure that whatever employment/crime relationship does exist is likely to hold more strongly for people who aren't also in school than for those who are, since students are disproportionately dependents of others.

So maybe kids aren't the members of society most in need of jobs.

On Liberty & Utilitarianism

Radley Balko marvels at the fact that Barney Frank can be both a fan of John Stuart Mill and "a big government socialist on most economic issues". The implication - or assumption - is supposed to be that Frank is being inconsistent, presumably because he hasn't thought through his beliefs very carefully.

Except that, as it turns out, John Stuart Mill's Utilitarianism is one of the most influential books in the history of...egalitarian liberalism! Mill was a big fan of freedom, definitely. At the same time, though, he thought that the organizing principle of society - and life generally - should be the "greatest happiness principle", which "holds that actions are right in proportion as they tend to promote happiness, wrong as they tend to produce the reverse of happiness." That is the fundamental ethical principle of Mill's philosophy. Note that it says not a single word about liberty.

Once you factor in the law of diminishing marginal utility, Mill's ethics offer a powerful argument that will frequently justify redistributing significant quantities of wealth from the rich to the poor - i.e., big government socialism, as defined by our right-wing friends at Reason.

And not to hassle Balko with needless details, but Mill was also an advocate, in many cases, of government intervention, provided that it was to the benefit of society's aggregate happiness. In later years he was essentially a socialist himself, but even earlier on he advocated free markets primarily because he thought they were an effective way of promoting happiness, not because they were ends in themselves. And that really gets at the central flaw of libertarian thinking, doesn't it?

Gentrification: discuss

Lisa and I were discussing gentrification and I suddenly realized I don't have a very solid basis in my opinion that gentrification is generally a good thing (or at worst and neutral thing). So What are your opinions

Thompsonomics

Ezra Klein looks at the following comment from Fred Thompson and asks, "What the hell sense does that make?":

This issue is particularly important now because massive, unfunded entitlements are coming due as the baby-boom generation retires. We simply cannot afford higher taxes if we want an economy able to bear up under the strain of those obligations. And beyond the issue of our annual federal budget is the nearly $9 trillion national debt that we have not even begun to pay off.

Well it makes sense from the point of view of a contender for the Republican nomination for president, who very likely understands, but cannot explicitly acknowledge, that many members of his target audience would prefer that the government stop providing these entitlement benefits altogether.

Personally, I found another of Thompson's complaints even more preposterous:

Perhaps the most fascinating thing about this success story is where the increased revenues are coming from. Critics claimed that across-the-board tax cuts were some sort of gift to the rich but, on the contrary, the wealthy are paying a greater percentage of the national bill than ever before.

The richest 1% of Americans now pays 35% of all income taxes. The top 10% pay more taxes than the bottom 60%.

As of 2001, the richest 1% of Americans controlled 33% of the nation's wealth. Meanwhile, the richest 10% controlled 70% of the nation's wealth. Note that that is not only more than is controlled by the bottom 60%, but also more than is controlled by the bottom 90%. So it's not clear what to make of Thompson's comment, here, except to assume he thinks that under a fair tax regime, people pay a share of the taxes identical to their share of the population, with no reference to income or wealth. I say we call that the Super-Flat Tax, and give Thompson all of the credit for it.

Markets in some things but not others

Tyler Cowen at Marginal Revolutions is one of the libertarian bloggers on my rss feed. He has a regular feature called “Markets in Everything”. The idea being that markets are so powerful and evasive that they spring up everywhere. Though this is interesting so is the opposite: instances where markets are inefficient and non-existent. I was thinking about that today at work.

My office - like many software companies - has a department specifically devoted to development of the core product (we just call it "Dev"). We also have a computer system for tracking change requests for the core product. So, for example, if you find a bug that needs to be fixed you enter a description into a system and it gets doled out to one of the Dev programmers who fixes it. The same process works for enhancement requests. With every change request documented and cataloged the only question is how to match up programmers with tasks: i.e. how do you coordinate workers with jobs that need to be done. In our society this task is often handled by markets. At my company - like all software companies that I know of - markets are almost never used. To see why you have to try to flesh out what such a market would look like.

If the Dev management wanted to dole out tasks using markets they might select tasks for the developers to bid on. Each developer would call out the number of hours he think it will take him and (assuming the task is fixed) the lowest bidder wins. Once completed they'd get paid. Several problem present themselves immediately:

1. Even a large company has a relatively small number of developers; They could easily collude to raise prices. A liberal like myself would call that "unionizing" and of course management doesn't want that.
2. If a developer had special knowledge of a task that allowed her to complete it much faster than anyone else she'd seek to merely underbid the others by a small amount. That way she'd get credit for many more hours of work than she actually worked. Considering that it is much easier to fix bugs in code you wrote yourself this is not an unrealistic possibility. You could also combine this with 1 and get collusion among the few developers who know how to tackle a given task.
3. The naive bidding system described here could easily be gamed by a developer who writes bugs into his code so he could fix them later at a profit.

More fundamentally, are markets shunned in this capacity because they're less efficient than command-economy style central planning or for some other reason?

Economists vs. Normative Conclusions

A while back my friend noted how he hates when economists use their economic principals to draw normative conclusions offering as an example this piece from Slate which said "spending on gifts is a resource allocation disaster". Another friend rejoined that no, real economists never do this and that it just looks like economists are making normative statements because certain subjects are easier to study than others when using the tools of economics. So for example, it's not that economicis normatively favor free-trade over economic equality, it's just that it's easier to measure GDP than it is to quantify how much inequality increases due to free trade.

Today I read Tyler Cowen, one of my favorite libertarian blogger post this:

My colleague Dan Klein continues his pathbreaking work on the sociology of the economics profession. He asked petition signatories why they favor increasing the minimum wage. The results are striking, most of all for how far they stand outside traditional economic reasoning...
(emphasis mine)

What follows is a list of comments by lefty economists where they argue for raising the minimum wage on normative - not economic - grounds. Very few of them make any kind of economic argument at all. Most of them make arguments concerning a desire for equality.

It seems Cowen is jumping from "increased economic output is what we usually study in economics" to "if you concern yourself with other things than you are acting contrary to economic thought". This kind of thinking is just pernicious.