Monday, December 30, 2013

Abundance Requires Real-Time Knowledge of Scarcity

Most politics consists of factions talking past one another in a process of loyalty signaling.  Obamacare is no exception.

Supporters have defended the law by describing individuals who have qualified for health insurance through the exchanges at lower prices than they had previously paid.  This defense is effective within the progressive paradigm, which is built around the goal of transferring resources to affiliates by taking it from non-affiliates, via the state, with the goal of imposing justice.

Please allow me to talk past those defenders in support of a different paradigm.

Obamacare as an expression of progressivism seems especially vulgar to me.  The law is such a Rube Goldberg device for the delivery of health care, there is no way of knowing what groups of citizens end up paying and who will benefit.  In that way, I think it fails, even as a progressive policy.  As a first order effect, it does appear that fines and penalties are imposed on businesses, especially on larger businesses, and subsidies are paid to families, pro-rated based on income, and this does reflect a typical line-up of progressive affiliations.  But even before we leave the first order effects, there appear to be arbitrary transfers from young people to older people, and many instances where people across the socio-economic spectrum are losing coverage based on some arbitrary combination of the law's requirements.

Beyond the first order outcomes, there appear to be penalties imposed on employers for hiring the poor and incentives for employers to drop or change coverage in any number of arbitrary ways.  The only things we can say for certain about the law at this point are that (1) it creates a non-transparent method for state-direction in the disposition of health care and (2) it obfuscates the cost of that disposition.

Abundance is not a naturally occurring outcome.  The natural human condition is one of poverty or of temporary abundance quickly nullified by Malthusian reality.  We only escaped that inevitability when some miraculous combination of cultural and political developments created an economic context roughly described as:
From each according to his need, to each according to his ability.
This means that the measures of need and ability are distilled through the individual; disposition and costs are personal and transparent.  This is the only sustainable source of abundance.  Obviously charity complements this ethic, by fulfilling needs left unmet.  But, the engine of abundance requires charity work to be parallel to this ethic - not in opposition to it.  (The corollary - From each according to his ability, to each according to his need - describes both (1) as-yet-unattained utopia and (2) slavery.)

So, if we want to rid ourselves of abundance, a very effective first step would be to obfuscate sources of scarcity and hide costs.  Public policy has been engaged in this for the better part of a century, most notably in education and health care, possibly never more so than in Obamacare (excepting the NIRA).  And, consumption of these services is understandably enveloping more and more of our productive capacity.

When I hear the above defense of Obamacare, I hear someone saying that what the law has accomplished so far is the destruction of information about scarcity.  It is a fetishization of egalitarianism and of healthcare.  The vast amount of that destruction could be avoided by simply handing out cash.  The problem is that, in many cases, if households received $10,000 in cash instead of a health insurance subsidy, they would choose to spend it on something other than health insurance.  That would be informational, but we have a hear no evil, see no evil policy.  We don't want information.  We want our political fetishes to be stroked.

A national income would seem to be such an improvement over this mess.  If every household started with a credit of some $10,000's - whatever we deemed appropriate as a minimum income - and then paid a flat income tax rate from the first dollar earned, then we could stop beating abundance down with all of these obfuscations of scarcity information.

This policy wouldn't end politics.  The optimal policy would leave us with some deserving and unlucky citizens who need more and some undeserving parasitical citizens who will be taking advantage of the system - in fact, we'd all probably find a little bit of ourselves in both columns.  We would be able to fight over the weight we should assign to those individual outcomes in managing transfers and determining the appropriate level of generosity.  And we would all want to express our political power over recipients by judging the ways they spend or don't spend their proceeds, so we will always be tempted to re-impose policies that undermine the individual liberty that is necessary for information about scarcity to be disseminated.  That temptation is so strong a part of human nature, I don't see how we will ever escape it.

Therefore, I'm not completely confident in the success of a national income policy.  Reforms in the 1990's replaced some former welfare policies with policies that lowered the net de facto tax rate on poor workers and removed some of the debilitating disincentives to work.  These were unalloyed improvements in the system of social support.  This led to a situation where more adult workers are taking low-paying jobs, because they can take those jobs without giving up all of their income supplements.  That was the point of the reform.  But, now, some people point to these workers and interpret the situation as corporate welfare, as if the employers are pocketing the public subsidies.

The progressive foundational tendency to view the population as collections of people with different levels of power which we need to help equalize leads to a view of prices resulting from a power imbalance between negotiating parties.  A worldview that treats corporations in general as monopolists naturally discounts the informational value of prices.  This is the foundation for support of minimum wage increases.  A model that denies any employment loss from the minimum wage is a model that attributes wage levels to powerful monopsonist employers.  I am afraid that there will always be a political force undermining the important informational function of prices.

The problem is that lack of bargaining power is a product of lack of productivity, so the empirical distinction that leads people off-track is a subtle one - too subtle for a counterargument to be persuasive.  If Malcolm Gladwell and I both walked into a publisher's office, he would be able to negotiate a much more lucrative contract than I would.  He would be a lot more powerful than I would be in that negotiation.  He would have power because he knows how to write books that a lot of people will buy.  His negotiating power is information.  It tells us something about the value publishers expect his books to create.  If we collect anecdotes about evidence of undeserved or abused power, and we use those experiences as a reason to disarm all negotiating power, we are destroying information, and thus, abundance.

I would note, in addition, that the sources of power imbalances beyond informational signals of value are much, much smaller than they are made out to be.  Take Wal-Mart as a typical example of the large, powerful corporation that takes advantage of a power imbalance to hire workers at low wages (so the story goes).  We have a similar imbalance of power as Wal-Mart customers.  Do you feel overwhelmed by the negotiating power of Wal-Mart when you shop there?  Are you beaten down and forced to pay above market rates for diapers and paper towels because of the power imbalance?  On the contrary.  In fact, if you pick up a $12 package of paper towels at Wal-Mart and tell the check-out clerk that you saw them at KMart for $9, the clerk will most likely deduct $3 without hesitation.  Power imbalances are much less important in the marketplace than what they are given credit for.

PS.  Paul Krugman gives a good example of how this paradigm, which begins with a virtuous intuition to take the side of the least powerful, can so quickly become bigotry:
Now, you may believe that employment is a market relationship like any other — there’s a buyer and a seller, and it’s just a matter of mutual consent. You may also believe in Santa Claus. The truth is that employment is, in many though not all cases, a power relationship. In good economic times, or where workers’ position is protected by legal restraints and/or strong unions, that relationship may be relatively symmetric. In times like these, it’s hugely asymmetric: employers and employees alike know that workers are easy to replace, lost jobs very hard to replace.
And may I suggest that employers, although they’ll never say so in public, like this situation? That is, there’s a significant upside to them from the still-weak economy.
I've mentioned before how bigoted thinking can very innocently arise from the innocent human quest for ideals (especially when our worldview feeds on a selective denial of scarcity).  Advocacy lends itself to us-vs.-them thinking, and it is very hard to maintain advocacy in large groups without accruing some bigoted tendencies.

Take Dr. Krugman's comment above.  Now, subtly switch the identities of his narrative.  Imagine it's 2009, you need your house painted, and house painters are dying for work.  You can really feel around for a low ball price from a good painter.  So, in this version of the story, you are the "employer" and small businesspeople are the "workers" in a poor economy.  Everything in that narrative is still basically true.

So, as a general proposition, in the market for home maintenance, is it not a matter of mutual consent?  Is it basically a power relationship?  Do legal restraints on your ability to freely contract with home painters help the home painter?  Do they help you?  Should home painters belong to a cartel that limits your choice of provider and price?  Home painters are always very easy to replace.  They clearly need you more than you need them.  And, were you delighted that the economy was in the stinker, so you could get such a great deal?

The truth is, in that specific case, you would have been happy to get such a service at such basement level prices.  But, there's no doubt that you would have traded that cheap service for a more prosperous community in a heartbeat.

When we set up paradigms that lock certain parties into the role of "other", we withdraw an important part of the process of engaging and judging, and we become opponents of truth-seeking, in, frankly, a rather ugly way.  We make a mistake if we believe that this problem is limited to contexts where the other is a race, or an ethnicity, or a sexual identity.


  1. This is amazing. You published this just in time for Blog Post of the Year. No exaggeration, this post is one of the best I've read this year.

  2. Krugman can really tie himself up;

    'In times like these, it’s hugely asymmetric: employers and employees alike know that workers are easy to replace, lost jobs very hard to replace.'

    Even 'in times like these' workers are NOT easy to replace. Bodies may be easy to replace, but productive workers are not. Of course, I've had practical experience training and managing workers, so what would I know about it.

    1. This is an important bias, I think - the tendency to ignore the real obstacles faced by people we don't identify with. The problem is that the bias makes the hypothesis seem more coherent to the proponent, but the apparent coherence is the product of an imposed ignorance.

  3. "there's no doubt that you would have traded that cheap service for a more prosperous community in a heartbeat."

    So -- if our paying painters very low wages results in a moribund economy, acting out of sensible self-interest -- we're looking at a classic coordination problem.

    Which is why redistribution from rich to poor (whether via min wages or eitc or health subsidies or education or whatever, in whatever combination) is necessary to maximize prosperity in a high-productivity monetary economy. We need to coordinate to achieve that maximization. The unfettered interplay of individual incentives actively precludes its emergence.

    1. The house got painted. This was a direct increase in economic activity. The payment from the home owner to the painter was a transfer. The size of the transfer has no bearing on the added economic value of the transaction. I don't see any reason to believe that there is any systematic economic benefit from transferring cash from homeowners to painters.