Mass death is a supply shock, too

Become a Patron!It became fashionable in the 20th century to distinguish between two kinds of sudden changes, or "shocks" that could impact an economy, for better or worse: demand-side shocks and supply-side shocks. This conceit has played such an important role in economic policy-making, it's worth looking at iconic examples of each kind.After World War II the US government suddenly had far less use for bombs, ammunition, sailors, and soldiers, and the economy entered a brief but steep recession as workers were laid off, factories went dark, and GI's flooded back from the front. Once the nation's manufacturing base was retooled for peacetime production and export, the economy quickly recovered. This shock was a classic demand-side shock: as the economy transitioned to peacetime, folks cut back on their spending, holding onto cars and appliances slightly longer that they might have otherwise, eating out less, making clothes last slightly longer, and so on. Once they were re-hired in peacetime industries (and their war bonds matured), their spending shot straight back up.Supply-side shocks reflect the opposite phenomenon, with the most iconic historical example being the OPEC oil embargo of 1973-4. Dramatically higher prices for imported oil, then a major input into the US economy, caused prices to rise and even led to rationing of retail gasoline in the United States. Those who commuted by car suffered particularly, but all consumers saw higher prices on at least some goods. Again, the economy eventually recovered by retooling to be less oil-import-dependent, through investments in domestic oil production and more fuel efficient vehicles (at first from Japan, and eventually from US factories).

Public health measures create both demand and supply shocks

This very real distinction between demand and supply shocks to the economy eventually evolved into quite distantly-related political beliefs. Political liberals came over the years to believe that most or all economic shocks are demand shocks, and the solution is massive aid to consumers in order to support the demand for products. Political conservatives came to believe that most or all economic shocks are supply shocks, and that supply could be increased by reducing taxation and supervision of companies and wealthy investors.These positions are so well-entrenched that they instantly sprang into life during the debate and passage of the early coronavirus response bills. Democrats demanded and won immediate cash support to offset the sudden demand shock: newly-employed workers with a stimulus check and a federal top-up to their unemployment insurance payment would decrease their spending by less. Republicans demanded and won support to offset the supply shock: a business offering pickup or delivery services might have a fighting chance to stay afloat if its payroll and rent were subsidized by EIDL or PPP loans (or both).Ideally, the next phase of disaster relief would contain a similar logic: if Democrats demand $3 trillion in support for demand, and Republicans demand $3 trillion in support for supply, and the President demands $3 trillion in support for the hospitality and leisure industry, we might someday see our way out of this crisis.

People are an economic resource

The reason I've highlighted the two extremes above, the "pure" demand shock (a sudden cut to military spending) and the "pure" supply shock (a sudden drop in the availability of oil), and the corresponding responses to each, is that it's a model that breaks down immediately when you apply the framework to a pandemic disease that causes human deaths. The reason is simple: human beings are the source of both demand and supply.To understand this requires pivoting entirely away from the idea of people as "consumers" who spend less because of their lower income and "businesses" that experience higher input costs. Here we can consider the classic example of a "human life supply shock:" the Black Death, which helpfully was written up in exactly these terms in the latest issue of Jacobin magazine.The economic history of the Black Death that has come down to us, and reflected in the Jacobin article, is that workers experienced increased bargaining power compared to landlords, given that the amount of capital (land) was fixed while the number of workers available to work it had greatly fallen. That negotiating power was offset, in part, by the landlords' control of the state's machinery:

"At Knightsbridge even the carpenter who made the stocks with which to imprison those workers who refused to swear obedience to the Statute of Laborers was paid at the illegal rate of five and a half pence per day."

This fundamental question, whether the loss of a human life is a supply shock or a demand shock, is reflected precisely in the debate we're having today over the proper response to the coronavirus pandemic. The more deaths that can be assigned to retirees, nursing homes residents, low-wage workers, and people of color, the more we can justify re-opening businesses that serve young, white professionals.Everyone knows this is immoral, whether or not they admit it, but it also doesn't make any economic sense on its own terms. Nurses, doctors, paramedics and orderlies aren't just valuable because of the spending they inject into the economy (the demand shock when they die or are laid off), they also supply care, and their deaths reduce the overall amount of care available in the economy. It takes years to train medical professionals, and each one that dies prematurely reflects years or decades of lost medical care supply.

Conclusion

I do not like and try not to use the expression "human capital." Capital is a distinct concept with a distinct meaning, and labor perfectly describes the application of work to capital in order to produce value. We already have the excellent terms "education" and "training," so "human capital" appears to me to be entirely redundant and unnecessarily confusing.That being said, education and training cost time, they cost money, and they require physical infrastructure like those dangly skeletons in medical school classrooms. I strongly believe we need to be training more doctors, at lower cost, with worse MCAT scores. You may believe we need to be training fewer doctors, at higher cost, with higher MCAT scores. But whichever side of that divide you fall on, killing off our existing doctors, nurses, and home care workers through bad policy is obviously a mistake: mass death doesn't just kill consumers, it kills suppliers as well.Become a Patron!

My Unemployment Insurance Saga, or, Not All Heroes Wear Capes

Become a Patron!This is a post I've been looking forward to writing for 7 weeks, and had started to give up hope I'd ever be able to publish: today I found out my unemployment insurance claim has finally been approved and paid.

How unemployment insurance "works"

Until the present crisis, most white collar professionals have only had the vaguest idea of how the unemployment insurance system works. Even now, college-educated workers have seen much lower rates of job loss than non-college-educated workers, due to a combination of factors, like the ability of knowledge workers to work from home and the ability of firms to pay workers while on furlough through forgivable loan programs like the Paycheck Protection Program. Still, college-educated worker unemployment has risen past its previous high during the Great Recession, exposing the middle class, often for the first time, to the system they designed to crush the poor.With that in mind, here's a brief summary of how the US unemployment insurance scheme works:

• employers pay an unemployment insurance premium, set at a percentage of their employees' wages, that is "rated" based on the frequency with which their employees claim unemployment insurance benefits. New employers have their rate set based on their industry classification. For example, there is a ferry that runs between Bayfield, WI, and Madeline Island in Lake Superior, the largest of the Apostle Islands. Since Lake Superior freezes each winter and the ferry does not run, the crew of the Madeline Island ferry spends the winter living off unemployment insurance, which gives the ferry line a high unemployment insurance "rating," a cost they bake into fares during the months when the lake is navigable.
• benefits are set by states based on employees' income in the four calendar quarters preceding the most recently completed calendar quarter of work. As insane as this already sounds, it is slightly more insane than that, as my case illustrates. I lost my job on March 31, and was finally able to submit my application on the 2nd or 3rd of April. However, that meant my last completed week on the job ended March 29, meaning I had not worked the entirety of the 1st quarter of 2020. My last completed quarter of work was therefore the fourth quarter of 2019, and my benefits were calculated based on the four quarters preceding that: Q4 2018 to Q3 2019. Since my salary increased from quarter to quarter, this meant my two highest-earning quarters (Q4 2019 and Q1 2020) were both excluded from my benefit calculation.
• this does not ultimately matter that much because maximum benefits are set so low. In the District, the maximum benefit is set at $444 per week, while I qualified for only $315 per week based on my income. $129 per week is real money, and I would prefer to have it than not, but the fact is unemployment benefits, under normal conditions, are simply inadequate to survive, whether you receive the minimum or the maximum benefit.
• you're ineligible for benefits if you quit voluntarily, are fired for cause, or receive severance pay (technically your benefit is reduced by the amount of your severance pay). My understanding is that this is one of the most important drivers of severance pay for white-collar workers: if your employees are ineligible for unemployment benefits, then your employer "rating" (see above) isn't affected, so you save money on the unemployment insurance premiums for all your remaining employees.

The unemployment insurance application — and my first mistake

The District of Columbia unemployment insurance application, like most states', is broken. This is not news and I won't try to make it more interesting than it is. It was written in a forgotten programming language, never updated or maintained, and can only handle a few users at a time. My great triumph in finally successfully submitting my application was, after entering my personal details, selecting "employer not listed" as my last employer instead of my actual last employer, which was, in fact, listed.On one page of the application, which turned out to be the essential page, I was asked to explain my separation from the job. As I recall, the radio buttons were something like:

• laid off
• furloughed
• discharged
• fired for cause
• voluntary separation

I have come to understand that these terms all have very specific meanings in the world of unemployment insurance, but they meant essentially nothing to me, so I chose "discharged." I was then invited to give a description of the terms of my discharge, and I wrote something generic like "firm could not support my employment."I have come to understand that if I had simply selected "laid off" or "furloughed," my claim would have been approved almost immediately. I think of "laid off" as a trade union term referring to someone whose factory is decreasing production, while a "furlough" is when the federal government can't pay people due to Ted Cruz's antics in the Senate. Neither seemed to apply to me, so I chose "discharged" — and I chose unwisely.

File your ongoing unemployment claims, forever

Once my application had been submitted, I received a barrage of snail mail from the Department of Employment Services, consisting chiefly of my benefit determination (the $315 mentioned above) and my ongoing claim form. This form asked whether I was able-bodied, looking for work, started school, received a pension, basically anything that would make me ineligible for benefits going forward.Each week I would receive a paper copy of this form, with the words printed at the bottom: "An issue has been established with your claim so it cannot be paid at this time. Please continue to file your weekly claim forms. A claim examiner will contact you if additional information is required."I dutifully filed my weekly claims, harassed DOES over Twitter and e-mail, and made half-hearted attempts to reach someone by phone (three hours on hold was long enough for me).

A ray of hope

Finally, at 7:29 pm on May 14, a full 6 weeks after submitting my initial claim, and after filing 6 ongoing weekly claims, I received a call from an unknown DC number. K* explained she was calling because there was an issue on my claim (talk about old news). She just needed a little more information about the conditions of my separation, and she had a few oddly specific questions.K* then said after she submitted my information she needed to give "them" 24 hours to respond. It took me a second to realize she was talking about my former employer, but that based on my information she was recommending approving the claim.I then asked how I could get in touch with her and she, hilariously, said, "this is my cell phone number, and if you need to contact me please call and leave only one voice message, and do not give it to anyone else."It's easy to understand her concern: once you find someone who is able to actually process a claim, you would naturally want to give their phone number to everyone else who is struggling to get their claim approved! But I assured her that the number was safe with me.

A sleepless night

I don't know why, after 6 weeks of calming filing my ongoing claims and receiving no benefits, I suddenly decided to spend all of last night tossing and turning, thinking about how I would proceed if my claim were denied. How I would file my appeal, what I would say, how carefully I would explain my case. Are appeals being conducted in person, by mail, by videoconference?In hindsight, I wish I had logged into my account after midnight last night before going to bed, to see that my last 6 weeks of benefits had suddenly appeared as "paid" in my account, as I belatedly discovered this morning.I point this out specifically to highlight that there are two sources of stress built into our unemployment insurance system: inadequacy and uncertainty. Having a known, inadequate amount of money is one source of stress. But having an unknown, inadequate amount of money is entirely different: the stress of uncertainty is easily capable of exceeding the stress of inadequacy.

Unemployment insurance was a mistake

Since it is one of the only cash benefits available to the working class, unemployment insurance is one of the first programs targeted for supplementary support by Democrats during the periodic crises of capitalism. During the present crisis, benefits have both been extended from 26 to 39 weeks and increased by $600 per week through the end of the July benefit period.It is good that this was done, but hopefully the foregoing makes clear that this system does not work because it was not designed to work: do workers fired for cause have lower expenses than those who are laid off? Do workers who voluntarily leave their employers have lower rent, eat less, or wear out their clothing slower than those involuntarily discharged?Consider an alternative: income insurance is a perfectly reasonable product to be offered by the private insurance industry. If a company entices an employee to move across the country to New York City or San Francisco, they buy a house or condo, settle in, but then don't prove to be a good fit for the job, you can imagine an insurance policy that guarantees their income for 6 months or a year, even if they're no longer employed. A "golden parachute," if you will.But what the working class needs is not a punitive unemployment insurance scheme that checks and cross-checks their every move, demands they report every job application they submit, and cuts them off when they prove themselves unemployable and worthless.What the working class needs is an unconditional, universal basic income. Only then will we see what employers are willing to pay to convince us to work for them.Become a Patron!

After the plague: an economy of addition or subtraction?

Become a Patron!I got a nice response to my first post on personal finance during the plague so, as long as we're trapped inside together, I'll be sharing some more thoughts on what the pandemic means and how we can choose to respond to it.Over the past few months, a lot of people have stumbled into an uncomfortable truth: as Mindy Isser elegantly put it in Jacobin, Workers Are More Valuable Than CEOs. Doctors are essential, hospital billing departments are not. Teachers are essential, charter school lobbyists are not.When our our sclerotic Congress finally authorized universal cash transfers and expanded unemployment benefits they were making the ultimate concession: money is essential, work is not.I call this the ultimate concession because it betrays the lie at the heart of the capitalist order, which is that the only economy possible is the economy of subtraction. The economy of subtraction is expressed in its purest form by the concept of "full employment." Full employment is when everyone is doing something (the high priests generously excuse students and prisoners from their calculations), without regard to whether what they're doing has any value. Everyone who could be doing something, but isn't, is thus both a personal failure and a systemic failure: you can blame fiscal policy, monetary policy, education, the family, the quality of video games, but you must find someone to blame for the failure.The plague has forced on a reluctant population, and even more reluctant lawmakers, the opposite scenario: an economy of addition. Since the nature of the virus means as many people as possible need to isolate themselves until the threat has passed, instead of asking the welfare-state, means-tested, work-requirement question "is there something you can do?" we're asking the human question, "is there something you must do?" Farmworkers must work so that food is produced. Truck drivers and train conductors must driver and conduct so that food can be delivered. Utility workers must maintain our infrastructure so that we can communicate. Grocery workers must stock shelves so that people can find what they need as quickly and efficiently as possible.The present moment is proof, if you needed it, that the economy of subtraction is not the only economy that's possible, and whether or not you and your work have been deemed essential, you're now experiencing what the economy of addition looks like. Less driving, more time with your family, pets, and sourdough starter, more chores getting done on time, more long walks, more time with your neighbors and less time with your coworkers, and less driving (I know I already mentioned that, I just really hate driving).There are also things you're no doubt missing: travel, sports, dining in restaurants, conventions, festivals. But the economy of addition doesn't preclude any of those things. It merely says that if they are worth doing, they are worth paying for. The economy of subtraction blackmails people into unnecessary work with the threat of poverty, homelessness, loneliness, and an early death. But we are now living proof that we don't need those threats to survive, we've simply chosen to use them in order to enrich a tiny class of wealthy perverts.Today's most fashionable cliche is that we've put the economy "on pause" and are waiting for the plague to pass so we can enjoy a "snap back" or "v-shaped" recovery. If the economy of subtraction worked for you before the arrival of the plague, you're properly eager for its return as well. But this interlude shows that we have had a choice all along: a universal basic income, Medicaid for all, a living wage, paid family and medical leave, tuition-free higher education, and a Green New Deal won't be easy to win. But don't let anyone tell you they're impossible: you're living proof that they're just within reach.Become a Patron!

Why even the perfect income tax can't substitute for a wealth tax

Become a Patron!After they finish hemming and hawing about "constitutional" arguments, opponents of proposals for an American tax on very large fortunes typically make one of two arguments:

• a more-progressive, better-enforced income and estate tax code could achieve the same revenue goals as a wealth tax, or;
• a value-added tax, like those used to fund European social democratic welfare states, would be a better method of raising the same amount of revenue.

I think the arguments for a wealth tax are fairly intuitive to an ordinary American, but since these opposing arguments are made with such consistency, I also think it's worth breaking down the problems with each.

A tax on current income can't fix past errors

One of the most interesting problems in the US income tax code is that no one has any idea what the "correct" income tax brackets and rates are. The brackets in use during the Clinton administration produced two years of budget surpluses, before the original temporary Bush tax cuts, the permanent Obama extension of those cuts for all but the highest earners, and the additional temporary Trump/Ryan cuts went into effect.But perhaps, as Alan Greenspan argued at the time, the Clinton tax code raised too much revenue, and by paying off and thereby depriving the world of secure US debt, our budget surpluses would eventually strangle the global channels of commerce.So, what is the "right" income tax code? Is it the permanent Obama tax rates and brackets, which we'll revert back to in the 2026 tax year? Or is it the Clinton tax rates, which produced a fiscal surplus at the end of the 1990's before Bush's cuts and wars devoured the federal budget?What's even worse, in addition to gutting federal revenue for a decade, the Trump/Ryan income tax cuts made some modest improvements: raising the standard deduction and capping the state and local tax deductions reduced the number of filers who benefit from itemizing deductions, and over time might even put some downward pressure on home prices.Simply reverting to the Clinton tax code would reverse that modest progress; the next round of income tax reform, in addition to raising rates, should instead build on those positive changes by eliminating itemized deductions entirely.The $10 trillion question is, what shall we do about the debt we incurred paying for those tax cuts?

Conservatives are right: it's a mistake to fill the hole with income taxes

People sometimes get upset around here because of my distaste for conservative politicians, but there's no partisan content to the observation that people respond to incentives. When you tax income, you discourage income-earning, and when you subsidize income, you encourage income-earning. Once we agree on this simple observation, we can have all the partisan fights we like.My point here is quite simple: the people paying taxes under the perfect income tax system, whether it is higher, lower, or the same as today's income tax system, will not be the same people who benefitted from the income tax cuts of yesteryear.During the 2000's, a high-earner  saw their top federal income tax rate fall from 39.6% to 35% between 2003 and 2012, rise to 43.4% between 2013 and 2017, and fall again to 40.8% in 2018 and 2019. That means between 2003 and 2019, these policies overall increased the deficit by $410,000 per million taxable dollars in the top tax bracket.But the people in that top tax bracket, in those years, are now 16 years older. The years when the US Treasury was shoving out $27,000 in free money per million dollars in earnings were likely the highest-earning years of their lives. Now, they're retired or nearing retirement, easing out of the workforce, perhaps taking on some light consulting gigs, and carefully managing their estate plans and taxes.It's absurd to say that a high-earner today, whatever the correct calculation is of their fair contribution to their federal, state, and local governments, should also have to pay the share of wealthy individuals who paid too little for the preceding decades!

A VAT is clumsy, ineffective, and un-American

As I mentioned up top, a value-added tax, which is a complicated form of national sales tax, is one answer to this problem: while people may have squirreled away unfathomable fortunes during the low-tax years, we can get them, or their descendants, to pay their share when they eventually spend it. You may have avoided income taxes on the money you use to buy a yacht, but a 10% VAT lets us reclaim the same money on the back end.But a value-added tax is a clumsy solution, for two reasons. First, since it's paid by the poor and wealthy alike, either tax rebates or additional, clumsily-targeted low-income tax cuts are required to make sure it's the wealthy who end up bearing the burden. Second, and even worse, it makes the mistake of assuming that the value of wealth is in the spending, and however popular this belief is elsewhere, it's never had any purchase among Americans. The extremely wealthy are incapable of spending even a fraction of their fortunes, but that does not make them poor — on the contrary, it makes them rich.

Conclusion: a wealth tax surgically targets the beneficiaries of our past mistakes

The idea of a wealth tax is the simplest, cleanest expression of the sentiment that something went wrong. Again, this has no partisan content. Both Democrats and Republicans, every time tax reform is enacted, rush to assure us that actually, ultimately, eventually, we'll raise more revenue, we'll reduce the deficit, we'll grow the economy more quickly.The deficits were real but the growth was fake. And now we're left with the question: who will make up the difference? Should we all pitch in together with a national sales tax? Should we all tighten our belts and agree to cut Social Security benefits? Should we forego infrastructure spending or disaster recovery?Or should we ask the beneficiaries of five decades of folly to agree that we simply made a mistake, and that it's time to make it right?Become a Patron!

Prosperity, precarity, anxiety, and solidarity

Become a Patron!As we plunge into a second decade of economic and employment growth since the global financial crisis, I've noticed an interesting divide open between different methods of experiencing the present moment. It's interesting because while the divide has political content, it isn't intrinsically partisan, and the divide goes far beyond party politics.

Prosperity

You cannot describe the present moment without describing the US recovery from the depths of the global financial crisis: almost a decade of continuous monthly employment growth, record-low unemployment, and GDP growth.Contrary to mainstream economists' expectations, employers have been willing to dig deeper into the reserve army of labor and hire previously marginal applicants: those without a high school degree, with criminal convictions, or with a spotty work history.This is what prosperity is supposed to look like: good-paying jobs for all who want them, rising wages, and rising living standards.This has led the prophets of prosperity to ask a simple, obvious question: "What are you complaining about?" The system is working. Incomes are increasing. Don't rock the boat — you may not like the water.

Precarity

Precarity is a term usually used in reference to the "gig economy," the bizarre 19th-century piecework labor popularly embodied by Uber, Lyft, GrubHub, and their many competitors. I don't find this framework particularly useful, simply because virtually no one is employed in the gig economy. That may sound shocking, if you regularly order rides, food, liquor, or cannabis through an app, but it's true: research suggests about 1% of workers participate in the gig economy. That's not nothing, but it's also not driving any important changes in American life (not least because none of the "gig economy" companies have ever managed to turn a profit, and will inevitably be washed out with the next tide).To me, precarity describes a different phenomenon: the fact that even the beneficiaries of prosperity understand that their well-being is delicate, fragile, contingent, or in a word, precarious.This manifests itself in a thousand different ways: how willing is a newly-employed diabetic to reject her boss's sexual advances, knowing that losing her job means losing her access to insulin? How willing is a new father to take time off to bond with his child? How willing is a barista to refuse to clock out before she finishes cleaning the Starbucks?This does not mean these people aren't beneficiaries of prosperity, low unemployment, and rising wages. It means they are conflicted. They know a new job, more hours, or a raise will increase their gross income. But does a raise that increases a worker's income out of Medicaid eligibility increase or decrease their well-being? Will a new job make a worker ineligible for SNAP, the earned income credit, or housing assistance?Just like prosperity, precarity is a real, material way people experience the world. Most importantly, it isn't "subjective." It isn't just some worker's "opinion" that they'll lose their health insurance if they lose their job. That's actually how the system works: they will lose their health insurance if they lose their job. Maybe they'll qualify for Medicaid, maybe they'll qualify for subsidies on the Affordable Care Act exchanges, but the one thing they definitely won't qualify for is employer-based health insurance; they will lose their insurance, full stop.

Anxiety

Obviously precarity causes stress, anxiousness, pain, and suffering. But I want to precisely identify a different phenomenon. Anxiety is the experience of knowing you are not yet the target of state harassment, while knowing you could be at any time.This has obviously been the principle experience of immigrant and immigrant-adjacent communities during the Trump administration. Iranian-Americans had not been targeted for border harassment until the current conflict began, but as soon as it did, they began being held for hours without cause at a Canadian border crossing.Now, what is more true: that Iranian-Americans had no reason to worry about being targeted for harassment by the state, since they hadn't yet been harassed by the state, or that a nationwide regime of racist harassment is a threat to all minority communities, whether or not they have yet been targeted?The prophets of prosperity say, "what are you complaining about? You've got a job, and you haven't personally been targeted for racist harassment." The anxious, regardless of their prosperity, say "what makes me different from the people you're already arresting and throwing into cages?"

Solidarity

Solidarity poses a fourth and final question: how should people who know (or think they know) they won't be affected by economic changes, health insurance reforms, or a racist police state relate to these issues? I want to isolate this group because it is the obvious target of the "why should you care?" appeals. After all, the unemployed care about employment because they're unemployed. The precariat cares about the welfare state because their livelihood is precarious. The oppressed care about justice because they're the victims of injustice. They all, in short, have a reason to care.But why should anyone else care? I think there are a few obvious, and a few not-so-obvious, reasons.

• To dispense with the obvious, if you have the influence or power to create a more just society, you should exercise that power whether or not it benefits you personally, and the less it benefits you personally, the more pressing your moral imperative is: the less vulnerable you are to the tides of political fortune, the more committed you should be to protecting those who live below sea level (not to stretch the metaphor too far).
• You aren't as financially secure as you think you are. The primary mechanism for long-term care insurance in the United States is dual eligibility for Medicare and Medicaid; to trigger eligibility, you have to deplete the overwhelming majority of your assets. Most people, who have no savings, are dual-eligible almost immediately. A tiny minority have sufficient assets that they'll never be dual-eligible. But there's also a broad group of people who think their net worth makes them "financially independent," but who will in fact have to spend down virtually their entire net worth before they become dual-eligible.
• You may not be as American as you think you are. We know that native-born Americans are having their citizenship questioned because their birth certificate was signed by a midwife. Do you know who signed your birth certificate?
• Your identity may not be as safe as you think it is. We know Iranian-Americans are being targeted for persecution by immigration authorities because of current events. But until a few weeks ago, Iranian-Americans seemed like some of our most loyal citizens. How sure are you that your ethnicity, your party affiliation, your sexual orientation, or your country of origin isn't going to be the next reason we start harassing people at the border?

Conclusion

There will always be people saying, "you have citizenship," "you have a job," "you have health insurance," "you have legal permanent residency," so what do you have to worry about?Those people are telling you to sit down and shut up. But I'm telling you to stand up and speak up. You don't have to do it "for the vulnerable." You are the vulnerable. Do it for yourself.Become a Patron!

Why workers should fight for entrepreneurs and entrepreneurship, too

Become a Patron!Even though this blog is committed to promoting entrepreneurship, I often say I don't think everyone should become an entrepreneur, for the fundamental reason that not everyone wants to become an entrepreneur. Plenty of people want to go to work, do their job as well as they can (or as badly as they can get away with), and get paid a predictable amount on a predictable schedule.But the flip side of that is plenty of people do want to become entrepreneurs, but don't because of the unfathomable complexity of our system (which I obviously strive to make as fathomable as possible).I compare entrepreneurship to the decision whether to live in a city, a suburb, or a rural area. It's true that living in a city is much more environmentally sustainable than living in a suburb or rural area, due largely to shorter driving distances, increased access to public transit, and the higher heating/cooling efficiency of multifamily structures compared to single-family homes. But I don't think everyone should live in a city because not everyone wants to live in a city. My view is simply that since more people want to live in cities than can currently afford to, and given the environmental benefits, we should strive to make city living more easily accessible.In the same way rural residents benefit from the lower greenhouse gas emissions of city residents, what's often missing in this conversation are the ways workers benefit from entrepreneurship — even workers who do not themselves become entrepreneurs.

The most important job an entrepreneur creates is their own

The idea of a "labor market" is a metaphor strained so hard you can see it coming apart at the seams. Virtually no one shows up to the "labor market" each day and puts out labor offers which are matched by labor bids from employers until the "market" clears. There are exceptions, of course: in certain neighborhoods in certain cities in certain parts of the country, I'm told, you really can drive up to the Home Depot parking lot and bargain one-on-one with day laborers for exactly one day's work.But that's a curio: most laborers are not day laborers, and most "day" laborers are not actually employed by the day (it takes a couple days to replace a roof).Still, the "labor market" is a metaphor that's stuck around for a reason: you can see with the naked eye the fact that when firms are profitable, growing, and in need of additional workers, they become more desperate to hire, and when they're unprofitable, shrinking, and laying off workers, they only replace absolutely essential personnel. If you squint at this observation just right, it kind of looks like a "labor market."But if you take the metaphor of a "labor market" even half-seriously, then it has an extremely important implication: when entrepreneurship removes a worker ("supply") from the labor market, it increases the market price of all the labor remaining in the market. And, importantly, this is true regardless of the success or failure of the enterprise.

Eliminating barriers to entrepreneurship is pro-worker

Operating a profitable business is hard, but lots of things are hard, so that doesn't bother me much. What concerns me are barriers to entrepreneurship. To give some obvious examples:

• the lack of a universal national health insurance scheme means employees, who pay workplace health insurance premiums, have to decide whether to go uninsured, switch to a public health insurance program, or buy insurance on an ACA exchange when starting a business. What is easy and simple for an employee requires a sprawling spreadsheet for an entrepreneur.
• the different rules for workplace-based savings schemes like HSA's and 401(k)'s mean workers have to weigh the loss of one set of tax benefits against the benefits of gaining another.
• special treatment for business distributions compared to wages means that workers have to calculate whether a lower pre-tax business income may actually increase their take-home pay.

While these specific concerns are obviously tailored to problems in the United States, I want to make clear that the United States has an unusually good environment for entrepreneurs and entrepreneurship. In the United States, it is still possible to become an entrepreneur. These problems are even more significant in countries where the administrative burden simply puts entrepreneurship out of the question.

The problem is complexity, and it will run out of control if we let it

This is, obviously, at its core a political problem. But it is not a partisan problem. Republicans, famously, want to weaken the position of workers by making them increasingly reliant on their (stingy) workplace benefits. Democrats, famously, want to strengthen the position of workers by making them increasingly reliant on their (generous) workplace benefits. But the problem in both cases is the workplace as the locus of the welfare state.Barack Obama was not a perfect president and the Affordable Care Act is not a perfect law, but since its pro-worker provisions affected so many more people, its pro-entrepreneur provisions have gone less noticed: Medicaid expansion was explicitly supposed to be a form of health insurance for new entrepreneurs; premium subsidies provide affordable health insurance for more profitable businesses; guaranteed issue and community rating provide health insurance for successful businesses.The sabotage of this system by Republican officeholders is an urgent crisis, but we need to be realistic about the problems in the system itself: it relies, first and foremost, on workplace benefits, and as long as it does so, it is an obstacle to entrepreneurship, and so is definitionally anti-worker, no matter how generous the benefits are.

Conclusion: workplace-based policies are a guarantee of stagnation and decline

Back in April I wrote about a little-known giveaway included in the Smash-And-Grab Tax Act of 2017: the paid family and medical leave credit. Under that law, employers who provide their workers with paid family and medical leave (by the end of 2019) receive a rebate of a portion of their after-tax wage cost in the form of a refundable business tax credit.But entrepreneurs don't, and you see this tendency across the board: every policy that promotes employment has an equal and opposite effect on the appeal of entrepreneurship. The more money the government spends subsidizing workers, the less appeal there is in entrepreneurship, and the higher the supply of labor, depressing any hypothetical benefits that might flow down to workers themselves.Before we succumb to the stagnation of other developed countries that have gone all-in on workplace-based policies, we need to start asking some simple questions:

• is a benefit universal, or is it means-tested?
• is a benefit universal, or is it employer-based?
• is a benefit universal, or is it location-based?
• is a benefit universal, or is it family-based?

Today the United States has an underdeveloped system of means-tested, employer-based, location-based, family-based policies. If we're going to expand that system as much as we need to, we also need to expand it in a way that is universal and leaves room for entrepreneurs to exit the labor market and workers to demand higher wages.Become a Patron!

"Social cohesion" and the bigot's veto

Become a Patron!Last week I wrote about the way people use and abuse terms like "horizontal equity," "intersectionality," and "cultural Marxism," stripped of their original context and brandished as weapons for whatever the speaker's agenda happens to be:

• If you're embarrassed to say you think it's good that college graduates are forced to defer home purchases, retirement savings, and childbearing for years or decades in order to service their student loans, you can insist your concern is actually one of "horizontal equity."
• If you're embarrassed to say you think it's good that the black LGBTQ community is particularly vulnerable to state violence, then you can say your real problem is that "intersectionality" has gone too far.
• If you're embarrassed to say you believe in white supremacy, you can always say de-platforming white supremacists is a classic tactic of "cultural Marxists" on college campuses.

I find this method of distraction and dissembling incredibly tiresome. If you know anything about the subject and try to address its technical application, you're met with a dead-eyed stare because the terms are being invoked as cudgels, not arguments. But if you try to address the underlying issues of poverty, racism, and white supremacy, you're told that you're ignoring the actual argument, which has nothing to do with poverty, racism, or white supremacy, but is instead a rational stand based on the sophisticated application of philosophical principles.

Immigrants don't destroy "social cohesion," bigots do

The current fad on the anti-immigrant right is to set aside the thorny questions of economic benefit and cost which dominated the debate over levels and flows of immigrants since at least the 1980's. Those arguments, most will now concede, have been lost: immigration to the United States both increases the prosperity of the United States and greatly improves the economic fortunes of the immigrants themselves, serving as a kind of negative-cost foreign aid.Since anti-immigrant sentiments were never based on economic analysis to begin with, the consensus that high levels of immigration in fact benefit the American economy never stood a chance of changing any minds. All it did was force the opponents of immigration who want to be taken seriously to find new ground, and the ground they have settled on is euphemistically referred to as "social cohesion."It wouldn't be fair to exclusively cite the bigots at the National Review, so I'll instead give New York Times columnist Ross Douthat the opportunity to explain this argument:

"there are various reasonable grounds on which one might favor a reduction. The foreign-born share of the U.S. population is near a record high, and increased diversity and the distrust it sows have clearly put stresses on our politics. There are questions about how fast the recent wave of low-skilled immigrants is assimilating, evidence that constant new immigration makes it harder for earlier arrivals to advance, and reasons to think that a native working class gripped by social crisis might benefit from a little less wage competition for a while. California, the model for a high-immigration future, is prosperous and dynamic — but also increasingly stratified by race, with the same inequality-measuring Gini coefficient as Honduras."

Douthat continued the following week:

"First, as mass immigration increases diversity, it reduces social cohesion and civic trust. This is not a universal law, as the economics writer Noah Smith has pointed out; there are counter-examples and ways to resist the trend. However, it is a finding that strongly comports with the real-world experience of Europe and America, where as cultural diversity has increased so has social distrust, elite-populist conflict, and the racial, religious and generational polarization of political parties."

What I find particularly illuminating about these quotes is how Douthat bounces back and forth between the active and passive voices. First increased diversity sows distrust. Then there are questions (whose questions?) about assimilation. Then the working class is gripped. Then mass immigration reduces social cohesion and cultural diversity increases (compared to what?).

How much do you trust bigots with the veto?

Interestingly, what comes through loud and clear throughout Douthat's "moderate" views on immigration is that not even Douthat is vulgar enough to accuse immigrants themselves of being responsible for any of these supposed harms. This is actually a fairly common stance on the right: if you lived in a "shithole country" you'd want to immigrate to America too!The problem, in these terms, doesn't lie with immigrants, it lies with American politicians for refusing to protect our borders and enforce our immigration laws, thus inviting social dissolution and political polarization. Reducing levels of immigration, especially unskilled immigration, is thus the responsible way to reconstruct the "social cohesion" of American life.But here we come full circle to the original problem of debating people who aren't arguing in good faith. The premise of a "moderate" immigration-restriction agenda is that if total immigration flows are reduced and tilted in favor of higher-skilled immigrants, then objections to immigration will dissipate. But that is not an argument about immigration, that is argument about bigots. It is an argument that bigots can and will "turn off" their bigotry once they observe falling levels of low-skilled immigration, that bigots can be brought to the table, negotiated with, compromised with, and will then move on to other issues.But what evidence do we have that bigots are willing to move on once an immigration "compromise" has been reached? When have bigots ever laid down their arms after achieving victory? After the slaver states were "redeemed" did Southern bigots settle down and peacefully exercise political power, or did they lead a decades-long campaign of terrorist violence against the black population of the South? After Clinton implemented the "Don't Ask, Don't Tell" policy, were bigots satisfied, or did they continue to entrap and drum out gay servicemembers? Today, almost a decade after the repeal of DADT, the Republican president is seeking to discharge transgender servicemembers.

Conclusion: social cohesion is real, and it comes through defeating bigotry

Just like "horizontal equity," "intersectionality," and "cultural Marxism," social cohesion is a perfectly real phenomenon. But social cohesion isn't something that happens to us when politicians police the border effectively, or regulate immigration appropriately. Social cohesion is something we create when we participate in our communities, when we empathize with our neighbors, and when we fight for justice.If pressing "1" for English pisses you off in 2019, your problem isn't unskilled immigration. Your problem is that you're a bigot. So knock it off.Become a Patron!

"Horizontal equity" is a perfectly reasonable idea used exclusively to make bad arguments

Become a Patron!Every once in a while a term of art is plucked from the world of academic literature and spread around like manure by journalists and pundits until people who have no idea what it originally meant start using it in casual conversation. What percentage of conservatives griping about "intersectionality" have ever read Kimberle Crenshaw's original analysis of the ways black women are multiply-burdened? What talking head whining about "cultural Marxism" on college campuses has even glanced at one of the texts of the Frankfurt School?This is not to criticize people who don't care about philosophy, which is a perfectly reasonable position; it's to criticize people who pretend to care about philosophy in order to defend their pre-existing beliefs, but refuse to seriously engage with it.

"Horizontal equity" can't help you if you don't identify the relevant axis

In the wake of Elizabeth Warren's plan to forgive some student debt, Matts as diverse as Bruenig and Yglesias have agreed that the main concern with the plan is one of "horizontal equity."Horizontal equity is the banal idea of justice which holds that similarly-situated people should be treated similarly. This principle is embodied in the United States Constitution in a variety of ways, through the Due Process and Equal Protection clauses of the 14th Amendment, and through the prohibition of bills of attainder in Article I. In general, Congress can pass only general laws, not laws respecting individual persons.But this general principle of justice does nothing to answer the question of who belongs to the similarly-situated group:

• Is a non-college-attendee who never took out student loans "similarly-situated" to a college-attendee who did?
• Is a college-attendee who paid their tuition without the need for loans "similarly-situated" to one who took out loans?
• Is a college-attendee who has paid off their student loans "similarly-situated" to a college-attendee who has not paid off their student loans?

Different problems have different solutions

The problem student loan forgiveness sets out to solve is simple, easily defined, and well-documented: after making housing, health insurance, and student loan payments, borrowers do not have enough money left over to save for retirement, settle down, invest in their community, or have children.People who do not have student loans because they never enrolled in higher education do not have those problems, but they surely have other problems: lower incomes, high housing costs, and expensive health insurance.People who do not have student loans because they have already paid them off also have problems: they may have prioritized their student loan payments over savings, for instance, and face lower income in retirement or precarity in case of unemployment.Trying to combine these groups into a single "similarly-situated" mass makes no sense: one group needs student loan forgiveness, the second needs affordable housing and health insurance, and the third needs adequate income security in retirement.To say student loan forgiveness doesn't help people who never took out student loans, or those who have already paid them off, misses the point: different problems have different solutions. Each of these problems has a solution, but solving one doesn't need to come at the expense of solving the others.If student loans are causing a problem, student loan forgiveness is the solution to that problem. If high housing prices are causing a problem, affordable housing is the solution to that problem. If unaffordable health insurance is a problem, affordable health insurance is the solution to that problem. If low savings are a problem, beefing up Social Security old age benefits and unemployment insurance is the solution to that problem.Horizontal equity only demands that everyone with student loan debt, everyone who needs housing, everyone who needs health insurance, and everyone who needs income security be treated equally, not that everyone born in the same year receive an identical amount of government assistance and pay an identical amount in taxes every year.Become a Patron!

Three bad and one good way to think about public higher education and tuition

Become a Patron!Elizabeth Warren made a splash this week with her plan to both ensure public higher education is tuition-free and forgive up to $50,000 per student of the existing stock of federal student debt.I already offered my hottest takes on Twitter, but I think a lot of the disagreements surrounding public tuition and student debt revolve around fundamentally different conceptions of the nature and purpose of higher education. As often happens in politics, that means people who think they are disagreeing about one thing (the appropriate level of tuition at public universities), are actually disagreeing about something else (what is education, who owns it, and who benefits from it?).I think there are basically four ways to look at the issue, and it's these competing perspectives that lie at the heart of the disagreement.

Education as a Private Capital Good

In this view, education is literally treated as an investment, made by the student, in a combination of individual "capital" (knowledge, experience, and credentials) and social "capital" (meeting friends, spouses, and business partners). Like many investments, the upfront cost is large, but since it yields an even higher time-weighted and risk-weighted return, it's still an investment worth making.Since education is a purely private capital good, purely private commercial loans are an obvious way of financing that investment. In a rationalized educational system, students would simply be charged for the appropriate fraction of their instructors' time, controlled for salary, enrollment, and overhead, and then borrow the necessary amount semester-by-semester at a market rate of interest.While this perspective has been beaten into Americans by the Reagan-Clinton neoliberal revolution, it's important to understand how completely novel it is, and what its real-world implications would be.First, what is the cost of overhead? If we are to completely rationalize the charge on the student's side of the equation, it seems necessary to likewise rationalize the expenses on the university's side of the equation. If they are to charge the entire cost of providing education, then the federal government should also capitalize the cost incurred through the Morrill Land-Grant Acts. Profitable universities, of course, would be able to take out long-term loans to finance the one-time cost of reimbursing the federal government for their land, but some institutions would no doubt fall into default and the federal government would have to seize and auction them off.Second, what is the market rate for an unsecured debt by a 17-or-18-year-old borrower? If the payoff to higher education has a barbell distribution, with a high percentage of low-income dropouts and an above-average income to graduates, the market interest rate would have to be astronomical: low-income dropouts and graduates will declare bankruptcy, while high-income graduates will repay their loans early.If higher education is a purely private capital good, obviously there's no reason for the federal government to get involved with loan guarantees or financing, and without them, it's unfathomable that private sector financing will be available at all.

Education as Intergenerational Wealth Transfer

Until 2015, this was the unspoken premise of a lot of opposition to universal tuition-free public higher education. And then in 2015, the unspoken became spoken, when Hillary Clinton insisted that "I am not in favor of making college free for Donald Trump's kids" (Interestingly, she did not insist on means-tested co-payments at public libraries, swimming pools, parks, museums, or elementary and secondary schools, so I gather the Trump clan is free to visit them at will without furnishing their tax returns).The logic here is simple: since we refuse to appropriately tax high incomes, and we refuse to tax estate transfers, and we refuse to treat capital income the same as earned income, the only mechanism we have left to tax the wealthy is through our system of public higher education, where we charge them full tuition. If tuition were low or non-existent at our public universities, we would lose our last remaining option to share any part of the largest private fortunes in the world.Hillary Clinton is a savvy politician, and she made this argument for a reason: it has immediate, emotional appeal. The trouble is, it begs the question. If we taxed high incomes properly, why would we need to single out high-income parents for additional tuition charges? If we taxed estate transfers properly, why would we need to finance universities with levies on high-net-worth parents? If we taxed capital income properly, why would we need to single out high-capital-income parents for special tuition fees?

Education as Class War

If "stick it to the rich" is one version of the argument for public higher education tuition, "stick it to the poor" is its mirror image, helpfully illustrated on Twitter. In this version of the story, public higher education is not a public or private investment, it's an ordinary consumption good. The poor buy cheap public higher education for less money, and the rich buy expensive public higher education for more money; the poor go to technical colleges, the rich go to flagship universities.I appreciate the fact that this view has resurfaced precisely because it disputes the entire premise of American meritocracy. College graduates do not become more qualified because of anything that takes place during the course of their education; rather, they're more qualified because of their starting wealth.However, if anyone really believed this was true (and I think almost no one does), the consequences would be radical. Graduates of elite universities would not receive more consideration during job applications, they would receive less, since such a large percentage of their education is attributable to their starting wealth, rather than any accrued qualifications.Needless to say, almost no one explicitly professes this belief. Rather, you end up with just-so stories wherein the well-genetically-endowed accumulate their wealth through hard work and intelligence, their children inherit their hard work and intelligence genes, and so the people who "deserve" to attend elite universities (thanks to the genes) also happen to be able to afford it (thanks to the wealth). There's even a term for it in the eugenics literature: "mismatch theory," whereby it's downright dangerous to admit the poor to elite universities where they are destined to underperform.

Conclusion: Student Debt as Aggregate Demand Management

It would be unfair to conclude without sharing my own view of the student debt crisis, which is simple: the experiment has failed.Federal student loans (and other federal programs like Pell and FSEOG grants) were intended to address a particular problem: if Baumol's cost disease causes the cost of public education provision to accelerate faster than the increase in productivity in the higher education sector, then the states (which are constrained by balanced budget rules) will be forced to radically reduce the quality of education they offer or radically increase their taxes to finance it, and over time gradually but permanently reduce the education level of the American people.Instead, the federal government decided to print money in order to finance those public education services. But this decision created a different problem: if the federal government had simply assumed the cost of operating the nation's public universities, the entire cost of that operation would be brought "on-budget," creating an expense that would have to be matched with increased taxes or debt.Instead, we went a different route. Rather than simply operating, and paying for, a system of nationwide free public universities, we created a system of federally-backed student loans. This has the great technical advantage of creating an entry on the asset side of the federal ledger. Indeed, the federal student loan program is "profitable," in the specific, bizarre sense that the money it earns in principle and interest payments exceeds the amount it loses in loans discharged due to death, disability, or other reasons.President Obama made important changes to the system again with the introduction of Income-Based Repayment, which allows the remaining balance of federal student loans to be discharged after 20 years of payments.The question remains, however: why assign the cost of a publicly-financed system of colleges and universities to the people who happen to attend them? If graduates earn higher incomes, then we can easily impose a progressive income tax that captures a share of their increased income over that of non-graduates. If graduates accumulate more lifetime wealth, then we can easily impose an estate tax that reclaims far more than the cost of their attendance at a public university. If graduates earn an unusually high share of income from capital, we can easily equalize the tax treatment of income and capital gains (as we did it as recently as the 1980's).The experiment was simple: if college attendees really exerted a unique upward pressure on wages and prices by earning and spending much more money than non-attendees, then isolating them for specific surcharges might have made sense, in order to prevent overall price inflation. But the experiment failed. In the very worst cases, it turned into just another bullshit means-tested program that no one qualifies for.The fact is, we already operate a system of publicly-financed colleges and universities, because we know as a country we rely on the graduates of that system. All that's left is to admit it.Become a Patron!

What would total employer-employee collusion look like?

Become a Patron!I've lately been researching some employer-side tax benefits and binge-listening to an organized-crime-themed comedy podcast, which I'm not going to name because it's so vulgar that I strongly discourage anyone with a weak stomach or guilty conscience from listening to it (e-mail me if you're interested), and the two eventually crystalized in my mind the following question: how would you organize a business with the explicit goal of maximizing the total benefits made available to the collective pool of both owners and employees?This is an interesting question because the employer-employee relationship is traditionally treated as adversarial. Employees ask, beg, plead, and strike for higher compensation and benefits, and employers hire strikebreakers and scabs, enlist the National Guard, and sue, delay, and terrorize in order to pay as little as possible in compensation and benefits.But there are other models. In the FIRE blogging community, it's de rigueur to "employ" your kid as a "model" so you can start making Roth IRA contributions while they're still in the womb, or at least as soon as they have a Social Security number.And likewise, anyone who has watched the entire run of the Sopranos more than once knows that Tony needs his W-2 from Barone Sanitation. While it observes the forms of an employer-employee relationship, it's what Baudrillard might call a simulation or simulacrum of employment: an imitation or a replica of an original that has long since ceased to function as designed or imagined.That eventually made me ask the question: if many of our public programs are designed around an adversarial employer-employee relationship, what would complete employer-employee collusion look like? In other words, if the total pool of profits were shared between everyone at the company, how would you organize the company to maximize the amount of benefits the entire collective received?

Workplace benefits

This may seem obvious, but it's important: there is a wide range of methods to distribute profits to employees in ways that are not taxable to either the employer or the employee.

• Dependent Care Flexible Spending Accounts. While many people associate FSA's with health insurance, Health FSA's are not available to the employees of firms that don't offer health insurance. Fortunately, Dependent Care FSA's are, and have higher contribution limits ($2,500 if married filing separately, $5,000 otherwise). These accounts can only be used to pay for dependent care (not healthcare) expenses, but that includes a wide range of childcare costs for children up to the age of 13, and dependent adults. Anyone with either kind of dependent will no doubt find it easy to find $5,000 in eligible expenses per year, but note that like health care FSA's, dependent care funds expire at the end of each calendar year.
• Workplace retirement accounts. Our employer-based welfare state affords enormous advantages to employees whose employers happen to offer workplace retirement plans. Obviously, if you have complete collusion with your employer, you'll both want to maximize your contributions to those plans. Employer contributions unfortunately have to be made into pre-tax accounts, but employee contributions (up to $19,000 in 2019) can also be made into after-tax Roth accounts, semi-permanently shielding the income from taxes on interest, dividends, and capital gains.
• Paid family and medical leave credit. I wrote up this benefit in detail on Tuesday, but the short version is that if an employer adopts a written policy offering 100% wage replacement for up to 12 weeks to all employees making up to $72,000 per year for all Family and Medical Leave Act purposes, the federal government will provide a tax credit credit of 25% of that wage replacement. Without total collusion, this simply offsets the cost of having to accommodate an employee's absence. With total collusion, the collective can get a tax credit of up to $4,150 per year, per employee earning up to $72,000 (25% of 12 weeks at 100% wage replacement). There is no limit on the number of years or number of times the leave can be taken to be eligible for the credit (up to 12 weeks per year).

Tailor payroll to family size

Because of the way our benefits system privileges employment income, under conditions of total collusion it's essential to report the lowest possible wage eligible for the highest possible benefits. I've written about these "minimax" conditions before, but to review, the most important benefits are:

• Earned income credit. The federal EIC phases in based on both tax filing status and number of dependents, meaning the optimal amount of earned income for each employee is highly dependent on the exact composition of the employee's household, ranging from (in 2018) $6,800 in income and a $519 credit for a single adult with no dependents to $14,300 in income and a $6,431 credit for a filer with 3 children.
• Child tax credit. The new $2,000 child tax credit doesn't require as much careful calculation as the EIC, but it still phases in and out, so under conditions of total collusion you'd want to make sure each employee with children has at least enough income to trigger the entire $2,000 credit. The key thing to keep in mind is that $600 of the credit is only refundable against tax liability, so you need to make sure each employee with children has at least $600 in tax left over each year to claim the entire credit.
• Supplemental Nutritional Assistance Program. SNAP, the successor program to "food stamps," is phased in and out like the earned income credit, and is based on family size like the child tax credit, but has additional employment requirements. Under conditions of total collusion, you'd want to make sure each employee was recorded as working at least 20 hours per week in order to satisfy SNAP's work requirement.
• Medicaid / Affordable Care Act subsidies. This is one of the most important areas of collusion, because it interacts in such a complicated way with the others. In Medicaid expansion states, it's essential to keep each employee's income below 138% of the federal poverty line for that employee's family size, while in non-expansion states, it's essential to make sure their income is just above 138% of the poverty line, so they'll be eligible for the maximum ACA subsidy.

You need a patsy

There's one big problem you run into right away when developing a conspiracy to maximize the transfer benefits of the welfare state on behalf of a collective: you need an employer. This isn't the end of the world, but it's also not trivial: several of the benefits I described above aren't available to the owners of companies and so-called "highly-compensated employees." This has some odd knock-on effects under conditions of total collusion.The highly-compensated employee test is complicated, but a truly committed crime family could find workarounds. For example, if the collective distributed 4.9% ownership to 20 totally unrelated people, then none of those people would meet the 5% ownership test. But, until your collective expands to that many people, you have the problem of assigning ownership to someone who won't, for example, be able to benefit from Dependent Care FSA's or certain employer-side 401(k) contributions. That's fine, but ideally you'd want to rotate the role among people who would be eligible for the fewest work-related benefits. If an "owner" gave birth, for example, you'd want to shift ownership to someone who wasn't incurring present-year dependent care expenses.

What do you do with the money?

This is sometimes treated as the most complicated part of the conspiracy, but it's actually the simplest. After all, once the business has completed its payroll, and once the "owner" of the business has taken the distribution of profits, the owner is free to do with that money whatever they wish.Now, it would certainly be illegal, and I would never encourage or even suggest, that the "owner" of a business "distribute" the "profits" of a "collective enterprise" to its other members as compensation for their labor. Those would be wages, and would need to be reported to the appropriate authorities, with appropriate state, local, and federal payroll taxes deducted and withheld.But hypothetically, under conditions of total employer-employee collusion, whomst amongst us has not made periodic transfers to our friends, relatives, and co-workers? And whomstsoever amongst us has ever even pretended to pay taxes on those transfers? The fact is, once money has been flushed out of a business through payroll or the distributions of profits, we can do anything we want with it. Even give it to our friends.Become a Patron!

Bill Cassidy has the worst paid parental leave plan yet

Become a Patron!This morning I hauled myself out of bed early to go down to the American Enterprise Institute and listen to Bill Cassidy discuss the outlines of his plan for paid parental leave. The dervishes at AEI already uploaded the video, so you can take a look for yourself, if you can stand to listen to politicians speak for more than 30 seconds at a time. Bonus: if you hear someone guffawing off-screen a few minutes in, that's me laughing at the idea anyone is going to fall for his schtick.

The problem with existing Republican paid leave plans

I've written at length about this before, so won't belabor the point here, but the existing Republican proposals for a national paid leave program are based on forcing new parents to choose between the financial support they need to take time off work and the financial support they need to retire with dignity. It's a cruel choice to force anyone to make: do you turn down paid parental leave and return to work a few days or weeks after giving birth or adopting a child, or do you accept paid parental leave and suffer from a permanently lower income in retirement?

Cassidy's plan is designed to become as unpopular as possible as quickly as possible

If you watch past Cassidy's Hee Haw routine with Aparna Mathur (who has also graced these digital pages before), you can enjoy the much more interesting follow-up discussion between several panelists from several points on the political spectrum. The panelists over-generously described Cassidy's plan as a work in progress, the specifics of which they didn't dare speculate about. This is incorrect: a carefully trained ear allows you to clearly identify the core tenants of Cassidy's plan. Since I have such an ear, I can tell you: folks, it's not great.The first question any paid leave plan has to answer is, who is the beneficiary of the program? This might sound like a weird question, but the answer matters a great deal. In traditional paid leave programs, the beneficiaries are thought to be the workers. This allows you to apply the same logic across the board: workers are entitled to a certain number of days or weeks of paid (or in the United States, unpaid) leave to deal with a serious illness, to care for a relative, or to bond with a new child. Cassidy's plan answers the question differently: the baby is the beneficiary of the program. Why does this matter? Because it means his plan provides paid parental leave exclusively to one parent. Cassidy is a homophobe, but not an idiot, so he allows that "under some circumstances" a child's father could take the leave instead, but it's clear despite his hemming and hawing that his plan will only cover one parent. This is not parental leave, it's maternity leave, and there's a reason virtually every other social democracy has abandoned it in favor of parental leave: it reinforces gender stereotypes in the home, it penalizes the employers of women and subsidizes the employers of men, and at the most basic level it keeps fathers apart from their children during a critical early bonding period.The second question is, who is eligible for the program? Is the program universal, or is the program exclusively for those with earned income? How recent must the earned income be? Is the triggering event the birth of a child, or is the triggering event leaving work to care for a newborn child? Are you still eligible if you continue to work while caring for your child? This question has been answered in a variety of ways in a variety of contexts, and I have made clear to the relevant organs that it's one of the objections I have to the most important Democratic proposal for paid family leave: I would prefer a universal allowance detached from work history, rather than a benefit exclusively for those with work histories and tied to their earnings record. But Cassidy's plan goes the other direction: only mothers making less than $70,000 a year will be eligible for his benefit. My readers are no dummies, so they're already asking: how will income be measured? Is it based on an individual earning record, a joint earning record, or on tax returns? Can you game the system by having children at particular times of year before taxes are filed? Can you game the system by getting married — or by getting divorced? The issue is not that these are unanswerable questions. The issue is that people should not have to ask them!Having spent half an hour in a room with him, I can confirm that Bill Cassidy is a dumbass. But however little firepower he's working with under the hood, I absolutely do not believe any of this is accidental. This plan is designed, top to bottom, to generate as much animosity and antagonism towards the welfare state as possible, at the lowest possible cost. If a paid maternity leave plan like this were passed, it would be used as a cudgel by employers against workers ("if I give you a raise you won't be eligible for maternity leave"), workers against workers ("can you believe our janitors get paid maternity leave and we don't?"), and fathers against mothers ("really you can't afford to keep working since you're entitled to maternity leave").

Conclusion: this plan won't pass, but that doesn't let Republicans off the hook

There is one realistic plan for comprehensive paid family and medical leave on offer: the FAMILY Act. That's not to say it's perfect. I think the benefit should be fixed, universal, and unlinked from earnings history. But I've lost that fight, and the fact is, if you want a near-universal benefit that includes paid medical leave, caregiving leave, and parental leave, financed with a small payroll tax, you have to support the FAMILY Act, because it's the only game in town.None of the Republican efforts to destroy retirement security and worker solidarity will pass, but they weren't written to pass. They were written to serve as vehicles for Republicans to say that they, too, care about providing the paid time off American workers desperately need. But it's just not true. If they did, there would be 100 Senate votes for the FAMILY Act. Instead, there are 47 votes in favor of paid family and medical leave, and 53 votes against it.You know what to do.Become a Patron!

That's not how any of this works, Amazon edition

The recent debacle in New York over Amazon's plan to open an office there under the hilarious marketing slogan of "HQ2" (or maybe HQ1.5, or maybe HQ2.14159?) gave finance journalists, who I've long insisted are the laziest people on earth, the opportunity to cluck their tongues about the poor state of "financial literacy," and gives me the opportunity to debunk a few of the more absurd claims that are consistently trotted out when cities and states, and now even the federal government, offer tax incentives to attract business activity to particular areas.

Yes, economic development subsidies are a "real" cost

State and local economic development programs typically have three components:

1. the government undertakes a massive buildout of infrastructure in order to make the site suitable for development. Sometimes this also includes regulatory waivers, like the environmental and labor regulation exemptions around the Wisconsin Foxconn plant (which, as a reminder, will never open). In the case of the Amazon office complex, "rather than going through the city’s extensive land use review process, known as ULURP, the state will take the lead and override local regulations on the lot, currently zoned for manufacturing space."
2. the target of the economic incentives then usually (but not always!) uses its own money to build out the commercial use of the site.
3. finally, once the site is operational, the costs of the subsidies are supposed to be eventually "recouped" through payroll, income, and sales taxes generated by the new economic activity.

A lazy financial journalist looks at these three components and says, "economic development subsidies do not have a real cost, and stopping them does not save money, because they are provided against economic activity that does not currently exist and would not exist without the subsidies."But Indy Finance readers aren't lazy financial journalists, so they ask some obvious follow-up questions:

• If a massive buildout of infrastructure is required in order to make a site suitable for development, why hasn't it been done yet? If an area of one of the richest cities in the world does not have adequate water, sewage, or transportation connections to make it possible for businesses to open in that area, it represents a serious failure of governance that has nothing to do with any individual business's willingness to operate there. An enormous number of people are eager to live and work in New York City, so leaving areas of the city underserved by public services is an active, ongoing harm that should be eliminated as quickly and efficiently as possible.
• If zoning and environmental regulations are preventing businesses from opening in an area, then they should be carefully considered to make sure the regulations are achieving their goals and are not needlessly obstructing development with little or no public benefit. This is true, obviously, regardless of whether any individual business is interested in operating there. After review, bad policies should be repealed and good policies should be retained.
• Once appropriate infrastructure is in place, and once appropriate zoning and environmental regulations have been decided on, why should policymakers care what (legal) businesses operate in the area? This is sometimes, wrongly, split into the idea of "good" (well-paid, college-educated, predominantly white) jobs and "bad" (poorly-paid, high-school educated, minority) jobs but this is not a distinction that makes any sense from the point of view of the government or the economy. Well-paid workers are well-paid because their employer finds it worthwhile to pay them well, poorly-paid workers are poorly-paid because employers can get away with paying them poorly. If an area supports well-paid jobs, the employees will be well-paid, and if it supports only poorly-paid jobs, the employees will be poorly paid.

At this point it becomes clear why economic development subsidies are a "real" cost. With or without economic development subsidies, the government can pay for a massive infrastructure buildout. With or without economic development subsidies, the government can right-size environmental and zoning regulations. But in one case, businesses choose to open in the area based on the commercial appeal of the area and pay their taxes in full, while in the other case, one or more subsidized businesses opens in the area based on the subsidies provided and pays just a fraction of the taxes they'd otherwise owe.The difference between the "taxes-in-full" regime and the "subsidized taxes" regime is the real-world cost to the public of the economic subsidies, and it's a real, budgetary cost that has to be paid with higher taxes, reduced public services, or increased debt.But finally, and I know you saw this coming, the "subsidized taxes" regime serves as an additional tax on all the businesses that would love to operate in Long Island City but don't get Amazon's sweetheart deal. It doesn't matter whether you're a dry cleaner, a livery cab operator, a restauranteur, or a venture capitalist: New York wanted to set aside the land it had prepared, at taxpayer expense, for commercial use for a single business it had decided upon in advance. Everyone else who wants to open a business in Long Island City would have to pay their taxes in full, and compete for workers and resources against a $2.988 billion head start.

Conclusion

If New York City's infrastructure is too bad, improve it. If New York City's zoning regulations are too strict, loosen them. If New York City's taxes are too high, cut them. But don't tell me you can get a free lunch by subsidizing a single business promising to hire 25,000 people, when millions of people around the country and the world are dying to move to New York to live, work, start businesses — and pay their taxes in full.

The more unrealistic your goals are, the more of them you need

I got to thinking the other day, as I so often do, after seeing somebody toss off a joke on Twitter. The gag is an asset manager being told by a prospective client, "I need real, net of fee returns of 8%, so I don’t think you are a fit." The asset manager drily replies in .gif form, "Correct." My immediate response was not to the "realistic" or "unrealistic" element of an 8% return, net of fees. My response was to the idea of "needing" one return or another.

What return do you need?

If you want to operate a private space program like Jeff Bezos or Elon Musk, you need many billions of dollars. For the sake of argument, let's say ten billion of them. Now, ten billion dollars sounds like a lot of money, but it's not an impossibly large amount of money. According to Forbes's (always-suspect) list, there are about 150 people in the world with fortunes that large. The formula is simple: you start a company (or, like Eduardo Saverin, be roommates with someone who starts a company, sue him, renounce your US citizenship, and move to Singapore), hire some competent managers, wait for the stock market to get frothy, go public, and presto, you're worth $10 billion.The trouble is, there's no point in operating half a space program. That means if your managers are a little less competent or the stock market is a little less frothy, you might only walk away with $5 billion — not nearly enough to land a man on Mars. If you don't want to strand Matt Damon halfway there, then you need a different goal. For example, the University of California system budgeted the collection of $3.15 billion in tuition and fees in 2016-2017, meaning with $5 billion you could pay the tuition and fees for every student in the University of California system for a year (and still hang on to almost $2 billion).The point is not that financing public education in California is a less worthy goal than sending Matt Damon to Mars. The point is that you can't afford to send Matt Damon to Mars, so you need a backup goal.And indeed, this is a perfectly common situation to find oneself in. On a visit to a steakhouse you might prefer the $150 cut of meat to the $45 cut, but choose the $45 piece anyway because you can't afford the $150 option. It doesn't make your choice "less authentic" or "worse" in any meaningful way; it simply means you've arrived at a particular balance of your preferences and your constraints.

Your goals don't need to be realistic if you have enough of them

At this point you might object that there's a big difference between a $150 steak and a reusable rocket that can land on a platform floating at sea. But I don't see any difference at all: to afford the steak you need another $105, to afford the rocket you need another $9,999,999,955. In both cases, your ability to meet your goal depends on your starting assets, your income, your savings rate, and the return on your investments.Personal finance advice often ends up eliding this by saying the only goal worth thinking about is to acquire "as much as possible." Traditionally, that's been used to mean as much money as possible. "The Millionaire Next Door" became a classic of the genre by observing that even a middle-class income allows healthy white people to accumulate millions of dollars if they live frugally enough. In our own time, the FIRE community turns this logic on its head and says the goal is to acquire as much freedom as possible, i.e. working the least possible amount of time required to liberate oneself from the drudgery of work.If "as much (money, freedom, whatever) as possible" is the only way you know how to think about your goals, then you end up with more or less identical advice: earn as much money as possible, spend as little money as possible, and invest in the most aggressive portfolio you will be able to stick with through market volatility.But acquiring "as much as possible" is obviously not the only way to set goals. Most significantly, it takes all potential goals that decrease your net worth off the table. Giving away a million dollars may feel good for a moment, but it also reduces your net worth by a million dollars, which makes it theoretically indistinguishable from buying a new car, renovating your kitchen, buying organic groceries, or sending your kids to private schools.

Have enough goals to accommodate reality

Fortunately for them, but much to the consternation of personal financial columnists and bloggers, in the real world people seem to have no trouble organizing their lives around multiple goals. People do buy organic groceries, even though they could invest the difference in price. People do renovate their kitchens, even if the renovations cost more than any higher final sale price of their house. People even send their kids to private schools, unfortunately.While I find people are in general extremely effective at forming and executing goals within their means, they don't pay nearly enough attention to "upside risk:" the possibility that their income, savings, and return on investments will dramatically outpace their goals. Of course, setting unrealistic goals is, by definition, unrealistic. You don't want to commit to donating $1 million in 10 years, only to discover that a job loss, unexpected medical expenses, or global financial crisis leaves you with just $250,000.But you also don't want to commit to donating $250,000 and find that your investment has swollen to $1 million, leaving you with $750,000 you can't fathom what to do with. Is that a better problem to have than the reverse? Of course. But there's no such thing as a good problem, and if you find yourself suddenly on the spot trying to figure out what to do with $750,000, you're vulnerable to two serious errors.First, you might simply spend the money foolishly, or not at all. If you check your brokerage statement the same day you get a mail or phone solicitation from the Wounded Warrior Project, you might ship the money off to them to be spent on their lavish headquarters and advertising budget. Worse in its own way is simply choosing not to spend it and passing the problem on to the next generation.But the second problem is one I consider almost as dire: a big part of the pleasure of setting goals is working towards them, and experiencing satisfaction and disappointment as you draw nearer and farther away from them. In my other career as a travel hacker, I see my loyalty program balances rise towards the values I need to book the trips I want to take. Money's not entirely like that: there will always be things to spend as much or as little money as you like on. But the principle is the same: working towards a goal has a satisfaction independent of actually achieving it.

Conclusion: set unrealistic goals!

Most people have a sense of what they will do if their investments end up returning 5% instead of 8%. They'll move to a smaller house, they'll replace the car less often, they'll take fewer vacations, they'll leave less money to their children. But fewer people know what they'll do if their investments end up returning 11%, or 20%, or 100%, instead of 8%. Thinking about that problem sooner, rather than later, gives you more time to formulate the right goals and more time to relish getting closer to them, whether or not you ever end up getting Matt Damon to Mars. 

Means-testing and Appalachian roots

In October, 2017, the Washington Post published a very strange series of articles about the recipients of disability benefits in the United States. The entire series is worth reading for various reasons, but I want to direct your attention to one particular entry: After the check is gone.The principal character in the article, Donna Jean Dempsey, collects aluminum cans and hunts for wild roots towards the end of each month when her disability and SNAP benefits run out. The article refers to this as "the underground American economy, where researchers know some people receiving disability benefits are forced to work illegally."This is flatly false, and it's repugnant, but it's not surprising. The problem is not a dumb Washington Post reporter. The problem is an economy-wide revulsion towards self-employment.

"To work illegally" is a nonsense phrase

In the United States, our laws rest uneasily alongside our intuitions. Most people, most of their lives, work for large employers who mostly run competent "human resources" departments that mostly follow the law.That creates the enormously convenient presumption that whatever your employer is doing is probably legal. You won't always be right, but periodic high-profile class action lawsuits serve as a kind of warning signal to large employers to stick close enough to the law not to be caught out and become the next sacrificial lamb.Nonetheless, the fact is that it's virtually impossible for a worker to violate employment law.Instead, when people say a worker is "working illegally," they typically have one or more of three totally distinct ideas in mind:

• The worker is engaged in an illegal activity. For example, many forms of drug trafficking are illegal, so if your job is to traffic drugs, you might be "working illegally" in the sense of receiving pay for illegal activities, but the laws you're violating aren't employment laws, they're laws against drug trafficking.
• The worker is employed in violation of employment law. It is illegal to hire some categories of workers, like certain non-resident aliens and minors below a certain age for certain types of work. It's illegal to pay less than the applicable minimum wage. It's illegal not to report your employees' income. But it is not illegal for minors to work; it's not illegal to accept less than the minimum wage. These are crimes committed by employers, not by workers, and penalties are levied against employers for the benefit of the injured workers.
• Finally, there's a third sense which seems to be what our intrepid Washington Post reporter had in mind: a worker might have reporting requirements about the sources of outside income they receive, for example if a benefit program has restrictions on the amount of work they can do while continuing to receive benefits. But even in this case, it is still not employment law that is being violated; the work is not illegal, rather it is being reported improperly.

There's nothing that says these categories can't overlap: a non-resident alien (whose immigration status prohibits them from working in the United States) might engage in drug trafficking (illegal activity) and fail to report their income to the IRS (reporting violation). But none of these are violations of employment law: they're violations of immigration laws, drug trafficking laws, and tax laws, and knowing the difference between them is essential to thinking clearly about these issues.

Donna Jean Dempsey is not working illegally

Now let's return to the unfortunate case of Donna Jean Dempsey and Mallory, West Virginia. First, let's agree that there's nothing "illegal" about any of the work taking place:

• Donna Jean collects cans in order to sell them to a local recycling company. The recycling company does not appear to be violating any labor laws, and indeed operates a lively Facebook page so doesn't seem to be trying to operate "under the radar" in any way. It's possible there are tax reporting violations, for example if the owner deliberately declines to issue 1099-MISC forms where they're required, but nothing like that is alleged in the article.
• Donna Jean collects wild roots from the nearby mountains and sells them to the same recycling company. Again, you can imagine circumstances where this might be illegal, if she was collecting and selling bald eagle feathers for instance, but I don't know of any reason why Appalachian ginseng, Solomon’s seal, or bloodroot would be protected by any state or federal laws, and sure enough, that's not alleged anywhere in the article.

What is clearly true is that Dempsey is not properly reporting her aluminum-can-and-wild-root scavenging income.

14 easy steps to get right with the law

What would it take for Ms. Dempsey to bring herself into full compliance with the state? Here's a quick guide:

1. Apply for a West Virginia State Business Registration. This registration is required for "all purposeful revenue-generating activity engaged in or caused to be engaged in with the object of gain or economic benefit, either direct or indirect," so Donna Jean clearly qualifies.
2. Apply for an Employer Identification Number from the IRS. While not strictly required, this is going to make it easier for Donna Jean to file the state and federal taxes for her business.
3. Open a Free File Fillable Forms accounts.
4. Attach Schedules 1, 4, C, and SE to form 1040.
5. Begin with Schedule C, and add up all her income on line 1. Fortunately, since she's scavenging her inventory she doesn't need to deduct the cost of goods sold on lines 4 and 42.
6. In Part II of Schedule C, she'll want to deduct any expenses she incurred for the business, for example the "pruners for digging roots" she purchased, as well as any mileage costs she incurred driving to and from the mountain and the recycling facility. That means completing Part IV, "Information on Your Vehicle." She'll want to be especially careful keeping records of these expenses since vehicle deductions are a common target of IRS audits. Maintaining a paper log of her vehicle miles traveled is likely sufficient, but she should consider buying an app that allows her to track her vehicle travel more precisely in case of an audit. After completing Schedule C, she'll copy her net profit or loss over to Schedule 1, line 12, and Schedule SE, line 2.
7. At that point, she'll want to move over to Schedule SE and calculate her self-employment taxes. Thankfully she can probably use the "short" form of Schedule SE and use the Free File Fillable Forms "Do the Math" feature to calculate her self-employment tax, and then copy over her self-employment tax to Schedule 4, line 57, and half her self-employment tax to Schedule 1, line 27.
8. She can then complete Schedule 1 by copying line 12 to line 22 and line 27 to line 36.
9. Moving back over to Form 1040, she'll copy the numbers from Schedule 1, line 22, to Form 1040, line 6, and Schedule 1, line 36, to Form 1040, line 7.
10. Next, she'll subtract Schedule 1, line 36, from Schedule 1, line 22, multiple that number by 0.2, and write the result down on Form 1040, line 9.
11. Moving to Schedule 4, she'll copy the amount from line 57 to line 64, then copy that number back to Form 1040, line 14.
12. Now she'll subtract Schedule SE, line 6 from line 3, open up the Form 1040 instructions and turn to page 53, find the row corresponding to that number, and copy the figure on that line back to Form 1040, line 17a.
13. At this point she should be able to allow Free File Fillable Forms to complete the rest of the calculations, and print and mail or electronically submit her return.
14. Then do the whole thing over again for West Virginia.

Means-testing is a tax on those least able to pay it

At this point, you may have gotten the mistaken impression that I'm being sarcastic. After all, no one reasonably expects a disabled person with lifelong cognitive difficulties to file state and federal taxes in order to report $500 in income from salvaged roots and cans.But you're wrong. It may be unreasonable, but expecting sick and disabled people to report trivial amounts of self-employment income is exactly what's implied when a journalist drops in and reports uncritically that people are "working illegally." The statement is precisely that in addition to any health challenges they face, in addition to the grueling manual labor they perform, they should also meticulously report their income in order to avoid accidentally "stealing" benefits they're not entitled to.If that sounds insane to you, it's because it is. But it's not an exaggeration to say that's how our means-tested benefit system is designed to work.

Means-testing turns everyone into criminals and cops

There are two problems inextricably tied up in means-tested anti-poverty programs:

• program design is so arbitrary and absurd that people are encouraged to lie in order to game qualification requirements;
• program design is so arbitrary and absurd that non-beneficiaries rightly assume beneficiaries are gaming qualification requirements.

Gaming qualification requirements is easy. If your hours fluctuate week-to-week, nothing could be easier than applying for Medicaid or SNAP with a paystub from one of your "low" weeks, since benefit administration offices mechanically calculate your annual income from your weekly or biweekly paychecks. You're "supposed" to submit updated paystubs if your income rises, but obviously no one does if it will reduce their monthly benefit or disqualify them from Medicaid. Poor people can't afford to be that stupid.But gaming qualification requirements is so easy that non-beneficiaries are also aware of how easy it is. And that's how you end up with folks quoted saying things like:

"'I think it’s a joke,' his cousin, Nathan Vance, who applied for disability earlier this year, told him one night after seeing a man on disability sell Vance a bundle of roots for $12.50. 'People I know of run the mountains all the time. . . . And yet they’re on SSI. Beating the system.'" (emphasis mine)

This creates the absurd situation wherein beneficiaries are being encouraged to game the system through terrible program design, while non-beneficiaries are encouraged to judge and ridicule beneficiaries for gaming the system!And indeed, this is precisely the pattern you see in the real world.

Pay for universal benefits with progressive income taxes

There's no secret program design, no special form with particularly well-designed fields, no worksheet with particularly cunning flowcharts, no particularly well-trained administrators that can solve this problem. Naming the problem is itself naming the solution: provide universal benefits to everyone, then pay for them with a straightforward progressive income tax.No more phase-ins, no more phase-outs, no more checking in at the welfare office, no more continually reporting income to case officers. No more case officers at all. No more cheating, and no more accusing people of cheating.I do not say that this is particularly likely to occur in the next 5, 10, or 15 years, or even in my lifetime. But it doesn't ever have to happen at the federal level, or the state level: now that you know how our anti-poverty programs are broken, and how to fix them, you have the power to tell your friends to knock it the hell off when they accuse desperately poor people of "gaming" the system they're forced to live with as it actually exists.

Learning to love Baumol's cost disease

Baumol's cost disease is one of the simplest ideas in economic theory, but I experience it as a kind of brain worm: once you know about it, you see evidence of it virtually everywhere. You can read the Wikipedia page as well as I can, but this is how I think about Baumol's cost disease:If productivity is increasing economy-wide, labor costs have to rise in sectors where productivity is rising more slowly in order to maintain the same quality and quantity of production in those sectors.Consider an economy with only two industries: pizza production and hamburger production, both of which employ high school graduates for $1 per day. If the productivity of the hamburger industry were to double (say some new grinding technology or patty-pressing machine is developed), some combination of three things has to happen: hamburger factory owners charge lower prices, pay higher wages, or collect more profit. But to the extent that higher productivity is passed along to hamburger factory workers in the form of higher wages, it also has to raise the wages of pizza factory workers, since all pizza factory workers are qualified to work at hamburger factories and, all else being equal, would prefer to make more money rather than less money.The pizza factory owners now also have to arrive at a combination of three options: accept lower profits (or, if necessary, go out of business), accept lower quality (hiring high school dropouts instead of graduates, for instance), or laying off some of their workers and reducing the quantity of pizza they manufacture.Economy-wide, this process plays out constantly and with little fanfare, although of course in hindsight the effects can be dramatic. Motorized cab operators could serve many more customers per hour than horse cab operators, which put upward pressure on the price of horse cabs to the point that today they are only available at great expense to go in circles around Central Park. Industrial furniture manufacturing made the small amount of furniture still produced by hand in the United States a pricey luxury good.

Baumol's cost disease makes the same quantity and quality of labor-intensive services more expensive

The key problem, Baumol's namesake "disease," arises when productivity is flat or only slowly rising in a sector where people refuse to compromise on quality or quantity. Childcare is a straightforward example: say one well-trained childcare provider can adequately care for a maximum of 6 infants at a time. In this case, an economy-wide rise in productivity leaves parents with the same options as the pizza factory owner: they can accept lower quality (hiring poorly-trained or untrained childcare providers or accept more crowded childcare facilities), pay higher wages to match the economy-wise rise in productivity, or go out of business (care for their own children or remain childless). If the parents demand the same quantity and quality of childcare, they're forced to "share" the economy-wide rise in productivity they participate in with childcare providers whose productivity has not increased.The exact same problem arises in the provision of public-sector services. If a fully-qualified teacher can provide quality instruction to a maximum of 30 high school students at a time, then an economy-wide rise in productivity mean either raising teacher salaries or lowering the quality or quantity of instruction. If a well-trained IRS phone agent can provide quality answers to a maximum of 30 callers per day, then an economy-wide rise in productivity requires either raising IRS phone agent pay or reducing the quality or quantity of IRS phone services.Baumol's cost disease is often invoked in the public sector, but as the example of childcare (which is largely provided privately in the United States) shows, it has nothing directly to do with who is responsible for providing a service. Rather, the question is how fast or slow productivity rises in a sector compared with the economy as a whole, and how willing people are to accept lower quantity or quality of service provision.The point is that if productivity in a sector is flat or rising slowly compared to the rest of the economy, and consumers are unwilling to compromise on quality or quantity, they must "share" some of the economy-wide productivity growth with workers in less-productive industries.

Baumol's cost disease is a moral foundation of calls for redistribution

The most important ideological movement today is the movement for redistribution. The Affordable Care Act was at its core a redistribution of medical services from those with stable, long-term employment to freelancers, the self-employed, and low-income workers. "Free college" is a demand for the redistribution of educational services from the children of well-off professionals to the children of workers, immigrants, and the poor. The teacher strikes we've seen over the past few years are a call for all students to receive the quality education the most privileged students already receive.Baumol's cost disease makes the problem clear: wealth and income inequality mean that most private sector workers don't have enough to "share" with workers in less-productive industries; low-income workers send their kids to public schools with 45 kids in a classroom while high-income professionals send their kids to private schools with 25 students per classroom. The question is not whether low-income workers are willing to compromise on the quality or quantity of education their children receive. It's that they don't have a choice: there's not enough leftover to "share."To the extent that people are unwilling to compromise on demanding high-quality childcare, healthcare, and education, increases in economy-wide productivity require increased redistribution. The flip side is that increases in economy-wide productivity mean there is plenty to go around.Calls for redistribution are simply demands that the plenty actually does go around.

Why have capitalists lost faith in capitalism?

I've been following with interest the evolving crisis over the United Kingdom's exit from the European Union, not because it affects me in any way but because it's less depressing than the American political system which I still have to rely on for my health insurance, retirement security, food safety, and environmental hygiene.However, the Brexit crisis has led me to ponder a question that's just as relevant here as it is over there: why do capitalists have such little faith in capitalism? To be clear, I don't think capitalists are wrong to have given up on capitalism, but I'm not a capitalist, so I don't have to explain myself. What has come to baffle me is when avowedly capitalist institutions admit that capitalism doesn't work, yet soldier on nonetheless staring straight ahead into the void.

Why should Brexit be a "crisis" at all?

As the cradle of the industrial revolution, the United Kingdom is the country enjoying either the first or second most sophisticated financial system in the world (the City of London would no doubt say the first, Wall Street's denizens would surely insist the second).In Walter Bagehot's "Lombard Street," a slender volume from 1873 that I would recommend to anyone interested in the development of financial capitalism, the author describes what is already a remarkably sophisticated system for the allocation of capital. As he tells the story, wealthy landowners in the South of England invested their agricultural profits in the North's growing manufacturies by literally buying industry's future receipts at a discount. This remarkable technique allowed money to flow to more productive regions and industries from relatively stagnant ones, and served as a key engine of the industrial revolution.But if you read about the United Kingdom's planning for Brexit, there's simply no glimmer of capitalism to be found. If the United Kingdom currently relies on agricultural imports from Europe for its food supply, then you would expect money to be flowing into the UK's agricultural sector to compensate for slower, more cumbersome, more expensive imports from the EU. If the UK relies on Europe's pharmaceutical sector for its drugs, you would expect money to be flowing into the UK's pharmaceutical sector in order to earn an outsized profit from the looming shortage of European medicines.After all, England voted to leave the EU over 2 years ago: we're not talking about an overnight decision or a sudden supply shock like the OPEC embargo of the 1970's. There has been plenty of time to turn fields over from crops destined for export to the EU and into the ones needed by the domestic UK market, plenty of time to convert abandoned warehouses into generic medicine factories, plenty of time to retrain biology researchers to work as quality controllers, financiers to work as customs inspectors, etc.Note that a "successful" reorientation of the British economy towards domestic production and away from trade would still leave the UK much worse off: global just-in-time supply chains, unified regulations with the UK's biggest trading partners, and the free flow of labor have made the UK much richer, and losing them will make the UK much poorer.But in 2017 the CIA World Factbook estimated the United Kingdom's per capita gross domestic product at $44,300, the world's 39th highest. If Brexit fully halved that to $22,150, the UK would fall to #87, just ahead of Bulgaria, a middle-income country that does not, to the best of my knowledge, suffer from shortages of medicine or food. If Brexit merely lower the UK's per capita GDP 25% to $33,225, it would be slightly poorer than the Czech Republic, but somewhat richer than Czechia's neighbor and former bandmate Slovakia, two lovely countries that, again, do not face serious shortages of food or medicine.All of which is to say, capitalism isn't some kind of magic spell that's destined to make a country rich: there are rich capitalist countries and poor capitalist countries. The only thing capitalism is supposed to do is allocate capital efficiently, and it isn't showing up to work in the UK or in the United States.So that's the question that I've been focused on more and more lately: what happened? Why can't capitalism do the one thing it's supposed to be best at, the one thing we rely on it for above all else: rapidly allocating capital to the industries where it's most needed? And, most strangely of all, how have capitalists come to agree that they can't be trusted to allocate capital?I think there are three overlapping — but not entirely satisfying — answers.

Concentrated capital needs to make bigger bets to move the needle the same amount

The situation Bagehot describes in late 19th century England is a straightforward matching problem: landowners in the rich agricultural districts earned somewhat more money than they needed to finance their gambling and garden addictions, and the small workshops and factories in the North of England needed small, short-term loans in order to bring their products to market. Since all the land was already spoken for, and there were no great agricultural investments to make, landowners had no alternative if they wanted to earn a return on their profit than to lend it out to industry. Since industry was small and fractured, that meant making lots of individual loans through the "bill brokers" Bagehot describes.But a simple mechanical problem arises when the overall level of wealth increases, and is exacerbated when that wealth is concentrated in fewer hands. There's a very important, very boring difference between investing $1,000 and needing to earn $100 per year in profit, and investing $1,000,000 and needing to earn $100,000 per year in profit. To do the former, you need to be right on a small scale exactly once. Hell, you can earn $100 on $1,000 once a month by just keeping track of the best bank account signup bonuses.But to do the latter, you can either be right on a small scale 1,000 times, or right on a massive scale once. If being right on a small scale doesn't become easier, then it takes 1,000 times as long to be right 1,000 times than it does to be right once.And that is, in fact, the exact pattern we see today: wealthier countries have much more capital to invest, but the skill and number of people charged with finding places to invest it hasn't grown proportionally. Perhaps the most iconic case is that of Japan's SoftBank, which has an unlimited amount of money to invest, all of which flows through a single person who has not, to the best of my knowledge, found a way to extend the day beyond 24 hours.In other words, a more concentrated distribution of wealth worsens the allocation of capital purely mechanically by reducing the number of people working to allocate it, and vice versa. Reorienting British production to serve British customers isn't impossible, nor even particularly difficult. Reorienting British investment to serve British customers is totally unfathomable due to the concentration of financial capital is so few hands.

Concentrated capital makes government intervention a more attractive investment

I've written before about "Opportunity Zones," one of the handouts included in the Smash-and-Grab Tax Heist of 2017. Opportunity Zones are intended to spur economic activity in "marginal" census tracts: not those so poor that investment is hopeless, but also not those prosperous enough that additional investment would crowd out existing businesses.Whatever you think about the merits of splitting up the country into "hopeless," "marginal," and "prosperous" areas, Opportunity Zones have an obvious defect: the unlimited tax benefit the federal government provides is available only to financial capital, and not to operating businesses. In order to qualify, all Opportunity Zone investments have to be made through "Opportunity Funds," which means operating businesses within the Zones have to compete for workers, supplies, and profits with investors who begin with a preposterous head start.My point is not whether Opportunity Zones are good or bad industrial policy. If I haven't convinced you they're bad policy by now, then you're beyond hope. My question is, how did an idea as bad as Opportunity Zones even become possible? How did financial capital, which is supposed to exist in order to allocate money to operating businesses, secure more favorable tax treatment than the operating businesses themselves?The answer is obvious: as concentrated financial capital struggles to find sufficiently large business opportunities to invest in, manipulating after-tax investment returns becomes more and more attractive. This has nothing to do with the availability of business opportunities in general: ten individuals might find ten investments that can yield a 10% return on $100,000 each without a single individual finding an investment that can yield a 10% return on $1,000,000. Meanwhile, the concentrated wealth of the single individual means lobbying for targeted tax benefits has an outsized return: $10,000 spent on government intervention would be the entire profit of each of the ten individual businesspeople, but just 10% of the return of the single investor.Importantly, this is not an argument about the "influence of money on politics." Rather, the point is that under any system of political influence, concentrated wealth will have concentrated, united interests and diffuse wealth will have diffuse, conflicting interests. The less likely individuals are to secure favorable government intervention due to conflicts with other stakeholders, the less likely they are to waste money lobbying for it. The more certain they are to achieve government intervention, the more likely they are to lobby for it and the more likely it becomes.

Business formation and the reserve army of labor

If the concentration of capital mechanically requires investors to seek out larger investments, and mechanically increases the ability of investors to create regulatory environments that put small businesses at a disadvantage, there's a third factor that might be best described as cultural. By "cultural" I don't mean "subjective" as opposed to "objective." Rather, I mean the way people integrate things like laws, expectations, customs, and norms into their lived experience.For example, the way the US federal tax code discourages business formation is not "subjective;" on the contrary, it's as clear as day. Transitioning from employee to self-employed requires relearning how to file your taxes from scratch. Transitioning from self-employed to employer is many times more difficult than that. The gritty 2018 tax code reboot will make both even more difficult.What that has effectively done in the United States is create a cultural expectation of employment (or failing that, unemployment), rather than business formation, an expectation that is even stronger in other Western countries. While it's not yet illegal to start a small business, everyone understands perfectly well that it's discouraged.I know of no better example than Trade Adjustment Assistance, a set of programs designed to compensate the domestic "losers" from reduced barriers to foreign trade. Workers unemployed due to changes in trade policy can receive "retraining" to get a better job. They can receive increased unemployment benefits during their "retraining." They can receive wage supplements if their new job pays less than their old job. But under no conditions can they receive assistance in starting a business to replace the one that closed and led to their unemployment in the first place!In other words, when the federal government reduces the number of firms, and reduces the number of jobs, it will retrain workers to better compete for the remaining jobs, but will do nothing to increase the number of jobs available or to reduce the number of workers who need to find work by starting their own businesses. Whether you think this is good policy or bad policy, there's no question that it objectively privileges employment over business formation.The materialist reasons for this have been known since at least the 1840's so I won't go into them here, but I think the consequences, in conjunction with the other two factors I described, are devastating and explain much of the current crises of capitalism in the UK and the United States.

Socializing growing losses and privatizing shrinking profits

What do you get when you have concentrated financial capital placing fewer, larger bets; public policy manipulated to ensure outsized returns on those bets; and a declining rate of small business formation?My suggestion is you get precisely what we see today: large businesses relying more and more on governments, because government is the only game left in town — capitalists losing faith in capitalism.When Governor Scott Walker of Wisconsin wanted to spur economic development, he offered the Taiwanese company Foxconn $230,000 in state subsidies per job created at a new plant in Racine County (fortunately, the plant will never open). When Amazon decided to open an office park in Long Island City, New York promised them $3 billion in subsidies.Whether or not you think state and local governments should be bidding against each other to attract employers, one alternative is so flagrantly absurd it was never even on the table: using state subsidies to encourage employees to form new businesses. State support is for the big businesses that know best; workers simply can't be trusted with that kind of responsibility.I am not a capitalist, and my preference would be for our largest industries to be explicitly socialized one by one as each collapses under its grotesque weight in turn, instead of bailed out and quietly re-privatized until the next crisis comes along and the pattern repeats. But if you do think capitalism is the ideal form of economic organization you should, perhaps ironically, be even more committed than I am to reducing the size, concentration, and influence of financial capital while removing obstacles to small business formation. The alternative, as we're seeing today, is messier, bloodier, and poorer.

Human Genetic Engineering Can't Work

At least not the way you want it to.

I've been thinking a lot lately about two related stories that recently crossed my desk. In one, our top Chinese scientists are apparently genetically engineering babies "with the goal of making the babies resistant to infection with H.I.V." The second is simply headlined, "Deformities Alarm Scientists Racing to Rewrite Animal DNA."

Now, you can split the difference between these perspectives in any number of ways. Is genetic engineering a medical treatment that people who are sick or at risk of becoming sick have a right to? If it's a medical treatment, how should we weigh the benefits and risks of treatment? Should we take into account the risk of modified genes being passed on to future generations in unknown ways? All good, interesting questions.

But at the end of these articles, journalists always feel compelled to throw in what I call the Gattaca question: "Ever since scientists created the powerful gene editing technique Crispr, they have braced apprehensively for the day when it would be used to create a genetically altered human being. Many nations banned such work, fearing it could be misused to alter everything from eye color to I.Q." [emphasis mine].

Genetic engineering won't work and we'll never know if it does

There are three key problems when it comes to genetically modifying embryos to produce desired outcomes in adults:

1. identifying the genes that are responsible for the desired traits in existing adults;
2. modifying those genes;
3. and assigning future adult outcomes to those modifications.

The technology associated with the second item has advanced by leaps and bounds in the last few decades, and there's no reason to believe it won't continue to advance. In 50 years we'll no doubt be able to target and edit individual genes with much greater precision than we can today.

But the technology related to the first and third items is infinitely more complex than merely editing strings of alleles.

When it comes to identifying the correct genes to modify we run into an immediate problem: we can only base our genetic guesses on the outcomes we observe in adult humans, and adult humans are subject to both social and environmental inputs. This is most often parsed through the lens of race in the United States, but the larger point has nothing to do with race and nothing to do with the United States.

I always like to look at statistics from abroad wherever possible in order to remove my own national and regional biases, so let's glance at Oxford University in England. An exemplary institution of higher education, no doubt applying the most rigorous possible screening process to make sure each and every admitted student is of the highest possible caliber. But if we were to collect our genetic samples from the student body of Oxford University, we'd find ourselves with a sample composed overwhelmingly of residents of Greater London!

And indeed this problem is universal. You don't need to go to an Indian Institute of Technology to get a genetic sample from a Brahmin. You don't need to go to Moscow State University to get a genetic sample from an ethnic Russian. You don't need to go to Hebrew University to get a genetic sample from an Israeli Jew. Just find the most privileged group in a society and each and every time you'll also find the "smartest," "most ambitious," "most charismatic," "most successful" group in the society.

But what if it turns out, after collecting all these samples, conducting rigorous double-blind randomly-controlled twin studies, and spinning more centrifuges than an Iranian nuclear plant, that all the most successful individuals in every society really do have some distinct set of genes in common (besides the 99% of genes we all have in common)?

Well, then you spend millions of dollars modifying your children's genes in order to make sure they have the "success gene." And once you've sunk a few million into the embryo, you may as well feed them a healthy diet, enroll them in good schools, pull some strings to land them their first job, buy them a nice apartment in a good neighborhood, and introduce them to the children of your wealthy friends so they can get married and have their own super-kids.

Hopefully you're starting to see the problem.

Genetic engineering is an expensive, ineffective way to produce super-soldiers

There are obvious reasons why the various branches of the world's militaries favor different kinds of candidates. An aircraft pilot has to be short enough to fit in the cockpit. A drone pilot has to have reflexes refined over years of video gameplay. A sniper has to maintain constant control over their breathing.

But why would any country try to plan the composition of its military decades in advance by genetically engineering super-soldiers? First of all, you've got to take care of the babies for years before they can even feed themselves. Then you've got to start training them, and only years later will you find out that some of them turn out to be too tall, too short, too smart, too dumb, or too lazy anyway!

When it comes to the genetic super-soldier question, I ask a simple question: what was the last war that was won because of the genetic superiority of the victors? Wars have been won and lost because of technology, because of manpower, because of patience, because of natural disaster, and a thousand other reasons. But I've never heard of a war being won or lost because of genetic superiority.

Of course, in 2038 when the People's Liberation Army occupies Washington, DC, everyone will credit the success of their super-soldier program. But if I survive the purge, I'm still going to be here expressing my doubts about the whole idea.

"Opportunity Zones" are a terrible idea, poorly implemented, but big ambitious policies can and do work

Over the course of 2018 we've seen increasing clarity about the so-called "Opportunity Zones" included in the Republican smash-and-grab tax heist of 2017. Over at Alpha Architect they have an excellent breakdown of the tax advantages of these investment vehicles, so I'll stick to the roughest possible outline:

• taxable capital gains (e.g. from the sale of an appreciated security in a taxable account) can be rolled into an "Opportunity Fund;"
• those rolled capital gains are untaxed for between 5 and 7 years, then are taxed at a preferential rate depending on the holding period;
• any gains within the Opportunity Fund itself are completely tax free after a 10-year holding period.

The one thing I would add to Alpha Architect's otherwise-comprehensive post is that they actually understate the advantages of Opportunity Funds: there are three separate discounts that should be applied to the initial taxable capital gains rolled into the Opportunity Fund. Alpha Architect discusses only the explicit, 10-15% step up in basis for rolled capital gains. But that amount is also fixed in nominal terms, while the taxes are actually paid in less valuable future dollars. That means in real terms your taxes are reduced three times:

• Once by deferring them 5-7 years (you'd rather pay taxes later rather than sooner);
• Once by reducing them by 10-15% (you'd rather pay less than more);
• Once by paying them in 2027 instead of in 2018 (you'd rather pay in worthless 2027 dollars than in precious 2018 dollars).

For way more details on the tax implications of these investments, do check out the Alpha Architect post linked above.

Should economic policy be pro-business or pro-capital?

Consider, if you will, Census Tract 2.01, in Missoula County, Montana. This census tract describes, more or less, the part of Missoula locals call "the Northside," and it's eligible for Opportunity Zone tax incentives.The first thing to realize is that there are already businesses on the Northside. The KettleHouse Brewing Company has a big brewery and event space there. All the big box stores on the East side of Reserve Street are in the Opportunity Zone; all the big box stores on the West side of Reserve Street are out of the Opportunity Zone. The hottest new restaurant in town is in the Opportunity Zone. The beloved, run-down local bowling alley falls just outside it. Just for fun I checked, and poor Karl Tyler Chevrolet is just over the census tract line, while DeMarois Buick GMC Mercedes-Benz is safely within it.The most obvious problem this raises is the question of fairness, and it's a perfectly fair objection, if you're so inclined. If Mr. DeMarois sells his dealership to an Opportunity Fund, then not only is he going to get a better price than if Mr. Tyler sold, but the outside investors who purchase his dealership are going to be able to sell Buicks, GMC's, and Mercedes-Benzes at lower prices due to their lower after-tax cost of capital, compounding the injustice.But I'm not particularly concerned with the cost of capital. My concern is with business, which has nothing to do with the cost of capital, no matter how much financial capitalists try to convince you otherwise. Whether a brewery is profitable depends on whether it is making more money from selling beer than it costs to make beer. Whether a car dealership is profitable depends on whether it makes more money selling cars than it pays the manufacturer for cars. Whether a bowling alley is profitable depends on whether it makes more money selling games of bowling than it pays people to rummage around in the bowels of the building freeing stuck pins and whatnot.And the problem with Opportunity Zones is that it's an extravagant, expensive tax advantage handed out only to financial capital, not to businesses, including within the Opportunity Zone itself. If the Burns St. Bistro expands their hours, or adds more space, or hires more staff, they owe taxes on their expanded profits. If an Opportunity Fund buys the lot next door, hires their staff away, and sells the place in 10 years, their investors walk away without paying a cent in taxes.

Opportunity Zones point the way towards bold, ambitious policies

Like most people, I detest the 2017 tax reform bill because of its enormous transfer of the nation's wealth to the owners of existing capital. But while the structure of Opportunity Zones is just another example of that looting of the public, the enthusiasm among the financial elite does illustrate the potential of bold, ambitious policies.The key insight of the creators of Opportunity Zones was the magic of 0%. If you tell people they'll get a 10%, or 50%, or 90% discount you might be able to budge their behavior a bit one way or the other. This is, indeed, how municipal bonds work today. But when you tell people they'll pay nothing, ever, in taxes on an investment, they don't just get excited, they lose their minds.

What would a bold, ambitious, pro-business policy look like?

The fact that Republicans were willing to sign off on a policy with literally unlimited cost to the American taxpayer (remember, unlimited capital gains within the Opportunity Fund are completely tax-free after 10 years) should be an invitation to people who believe in the value of business, as opposed to capital, to be more ambitious in our demands.

• If we want to target specific areas for business development and growth, why not simply exempt payroll within Opportunity Zones from FICA taxes? That way existing businesses and new businesses would enjoy the same benefits as financial capital.
• If we want to encourage hiring, why not make hiring easy? Create a single federal portal to process payroll and withholding for employees, so there's no quantum leap between zero employees and one employee.
• If we want to level the playing field between small and independent businesses and those owned by financial capital, why not eliminate the employer's role in providing health insurance and retirement benefits?
• If we want to encourage worker-centered economic development, why not reduce business taxes to 0% on worker-owned cooperatives?

The key difference between these proposals and Opportunity Zones is that they are focused on businesses, not capital. The money spent, which would be considerable, goes to the businesses that are engaged in economic activity specifically to encourage that economic activity. For worker-owned businesses, that money goes to the workers. For privately owned businesses, it goes to the owner. And for corporate entities it goes to the corporation.Some people want to single out corporations for punishment; I don't feel any need to go that far. The corporation is a perfectly reasonably form of economic organization, where appropriate.But the one thing I know is that we shouldn't be singling out financial capital and specialized investment vehicles for special treatment while leaving actual operating businesses to suffer what they must at their hands.

Why is it necessary to give the problem a name?

Last week I wrote a brief post explaining why guaranteed government old age pensions, like Social Security in the United States, the State Pension in the United Kingdom, or Old Age Security in Canada, are the only mechanism that has ever been invented for ensuring security and dignity in retirement, and need to be centered in any attempt to reduce elder poverty.This is not an ideological, partisan, or political claim, it's simply a fact: every other attempt to provide retirement security has either failed, like IRA's and 401(k) plans in the United States, or relied on a supplemental government guarantee, like our Pension Benefit Guaranty Corporation. You can conceptually push back the government guarantee as far as you like, but if senior citizens are going to be able to count on income in retirement, that income is ultimately going to have to come from the public coffers, either directly or through some feat of financial engineering.At the end of that post, I mentioned in passing that "my preference would be fewer wars, higher taxes, and less debt, while if you’re a Republican your preference might be for more wars, lower taxes, and more debt." Reader Ben asked a thoughtful question:

"One thing that bothers me though is how you tend to attack Republicans and conservatives when you don’t have to.You could have just said you prefer fewer wars, higher taxes, and less debt. Which would be a valid, generalized, statement. Why did you feel the need to have to take a jab at Republicans/conservatives?"

Since Ben seems to have asked the question in good faith, I think I owe him a good faith answer.

Why must we give the problem we're facing a name?

We are 6 days away from a general election in which a third of the seats in the United States Senate and the entire House of Representatives will be filled, and if you did not know anything else about the world, you might carefully examine the résumés of the candidates in your district and select the most intelligent, honorable, and industrious public servants to fill those seats.But you would be wrong to do so. That's because the crisis facing America is not a lack of intelligence, a lack of honor, or a lack of industry in our public servants. The crisis facing America is the Republican Party.The Republican Party is a coalition of plutocrats committed to activating the racial and cultural grievances of their elderly voting base in order to secure power long enough to dismantle the regulatory state, tax base, and welfare system of the United States. And there are no exceptions.The "good," "honorable" members of the Republican Party are just as committed to dismantling our society as the vile reprobates. Ben Sasse wants to cut Social Security benefits just as much as Ted Cruz. Jeff Flake wants to poison our water, air, and soil just as much as Mitch McConnell. Susan Collins wants to cut taxes just as much as Rand Paul.Mitt Romney, the Republican Senate candidate in Utah, is by all accounts an honorable man, who will nonetheless immediately and passionately set about voting to strip health insurance from millions of Americans the second he takes office. The problem is not that Mitt Romney is a bad person; the problem is that Mitt Romney is a Republican.

The Republic may be doomed but we still have to live here

The shredding of our system of government in the hands of conservative ideologues is not something that gives me any pleasure. Gerrymandering, voter suppression, and the gutting of the Voting Rights Act by the god-emperors on the Supreme Court have caused a serious breakdown in the transmission mechanism between the needs of the population and the desire of elected officials to address them, and the entrenching of a conservative amateur judiciary means those losses will be extraordinarily difficult to recover from, if we are indeed ever able to.But we still have to live here. There will never be a moment when we get to say "ah, well, the bad guys won." Every single day we will still have to make the choices in our lives that will make the world a better place for ourselves, our children, and every future generation. And on Tuesday, November 6, 2018, that means sending Democrats to Congress.

The risks of specialized knowledge

The other day, I received an invitation to an event at the Brookings Institution called "The new American dream: Retirement security." This seemed right up my alley, so I clicked through to see the event details. The description starts off with some generic language:

"The American dream has drawn millions to the 'land of opportunity' and long encapsulated the idea that every citizen has the right to improve their lives. Yet, the current state of the U.S. retirement system may threaten the ability of some to fully achieve the American dream by ensuring their health and quality of life in retirement."

I naturally found myself nodding along, since the inadequacy of our old age insurance programs is a subject near to my heart. The description continued:

"The traditional three-legged stool of retirement—social security, pension, and retirement savings—is transforming into a wobbly one-legged stool,"

so far, so good,

"with personal savings and investment providing the only retirement security."

Wait, what?

Social Security is the only source of income security in retirement

It's been a while since I've written about Social Security, so let's do a quick refresher on how the program works:

• any time between age 62 and age 70, you can claim an old age benefit based on your income in the highest 35 wage-inflation-adjusted years for which you reported earnings;
• the longer you wait after turning 62, the higher your benefit is;
• your benefit will never fall;
• and your benefit is adjusted upward for inflation each year.

Because the benefit is paid in US dollars by the United States federal government, the system can never go bankrupt. This is retirement security.

Personal savings and investment provide income, not security

What is the difference between income and security?First, income fluctuates. If your savings are in a savings account then the interest rate might fluctuate monthly or quarterly. If they're in a CD ladder, then each time a CD matures you're forced to reinvest the principle at the currently prevailing interest rate. If they're in stocks, bonds, or mutual funds, then the dividends and coupon payments you receive will likewise fluctuate along with interest rates and economic conditions.Second, income is risky. If you don't have control over when you sell your investments, you risk selling them at depressed prices, permanently impairing your ability to generate additional income in the future.Finally, income is vulnerable to inflation. The very safest federally insured deposits may pay little or nothing in excess of inflation, meaning to generate real income you need to draw down your principal or invest in riskier assets.No one in their right mind should confuse personal savings and investment for retirement security. So why did the Brookings Institution?

The risks of specialized knowledge

If you said to me, "Social Security succeeded in lowering the elder poverty rate from 35% in 1965 to 10% in 1995, but some elderly people are still in poverty," I would say, "that's because Social Security benefits are too low and the minimum benefit needs to be raised so no seniors live in poverty."If you said to me, "many children in the United States live in poverty," I would say, "that's because children don't earn income, while requiring adult supervision, and we need a universal child allowance that reflects that fact."Specialized knowledge, the kind of knowledge possessed by scholars at the Brookings Institution, makes it very difficult for people to identify problems and propose solutions that address them directly. Once you know that 401(k) accounts exist, but that most people don't have access to them, and most people who do have access to them don't participate in them, then it's the most natural thing in the world to find yourself talking about how to expand access to 401(k) plans, how to increase participation, how to increase the quality of the investment options, how to ensure people are getting unbiased investment advice, etc, and calling that a set of solutions to "retirement security."But those questions are all downstream from, "how do we provide retirement security to elderly Americans?" That's a question we already know the answer to: bigger Social Security checks.Likewise, once you know the Social Security Administration collects more money than it spends and saves that money in a "trust fund" that will be used to pay benefits once outlays begin to exceed FICA tax revenue, and that the "trust fund" will be "exhausted" in 2034, then it's natural to start frantically wondering what combination of benefit cuts and payroll tax increases will be necessary to make the program "solvent."But if all you want to know is "how will the federal government pay for Social Security benefits in the future?" then the answer is obvious: the same way it pays all its other bills, a combination of corporate and individual taxes, estate taxes, licensing fees, seignorage, and debt. My preference would be fewer wars, higher taxes, and less debt, while if you're a Republican your preference might be for more wars, lower taxes, and more debt, but there's no use pretending Social Security benefits pose some unique threat to the Republic. That is the risk of specialized knowledge.