Arendt, Antisemitism, and the Chicago Teachers’ Union Strike

I am one of those ideologically-impure liberals that worries a lot about public sector unions. On the one hand, I favor workplace democracy and collaboration; on the other hand, I worry about the fact that as union membership has declined, the majority of remaining union members haved tended to be at the top of the income distribution and to have many other forms of cultural and social capital as well. A public sector union member gets input into the functioning of government as a voter, plus they get input into our government as a union member concerned about their own labor conditions. What’s more, public-sector unions are not all the same: to my mind there’s a difference between a teacher’s union and a police or prison guard union, and I’m not willing to be univocal in my support for both. Still, my bias is generally in favor of teachers: I am one, after all.

Caption BelowI recently read an interesting factoid about teaching: in the 1960s, 2/3 of all households had school age children. Today, only 1/3 do. Attempts to verify these have been unsuccessful, although the percentage has certainly been dropping for a long time along with the birth rate. (I also learned that 39% of Chicago’s public school teachers send their own children to private schools.)

Looking at the responses to the Chicago Teacher’s Strike, especially the way it pits centrist technocratic Democrats like Barack Obama and Rahm Emanuel against old-school labor progressives, I suspect that the falling percentage of families with school-age children is part of the problem. Sure, everyone agrees that education is important, but fewer families actually have current need of a good education, and so for better or worse they have begun to look at the costs rather than the benefits of strong schools.

In my view, this decline allows an interesting analogy with Hannah Arendt’s account of the growth of anti-semitism in Origins of Totalitarianism, which itself is derived from Karl Marx’s essay on On The Jewish Question. Arendt argued that Jews had failed to take advantage of their political and economic power while it was still extensive enough to garner protection from the Christian majority. When their role as scapegoat creditors was centralized into big (non-Jewish) businesses and a few Jewish financiers, the long-ignored differences between Jews and Christians exploded to the fore, with genocidal results.

Arendt bases this theory on Tocqueville’s account of the downfall of the French aristocracy:

“the French people hated aristocrats about to lose their power more than it had ever hated them before, precisely because their rapid loss of real power was not accompanied by any considerable decline in their fortunes. As long as the aristocracy held vast powers of jurisdiction, they were not only tolerated but respected. When noblemen lost their privileges, among others the privilege to exploit and oppress, the people felt them to be parasites, without any real function in the rule of the country.”

Troublesome as inequality and oppression may be, inequality without the power to back it up is even worse. Arendt suggests that the Jews refused to occupy a designated space within the European political economy, instead “choosing” to remain aloof no matter which class individual Jews would otherwise occupy. (Of course, it’s not so simple, but to Arendt it seems that there was a coincidence between the Jewish desire for group survival and the nation-state’s interest in preventing assimiliation.) Yet according to Arendt this became a great problem when successful Jews sought acceptance and assimilation into the professions and intellectual elites:

“Central and Western European Jewries had reached a saturation point in wealth and economic fortune. This might have been the moment for them to show that they actually wanted money for money’s sake or for power’s sake. In the former case, they might have expanded their businesses and handed them down to their descendants; in the latter they might have entrenched themselves more firmly in state business and fought the influence of big business and industry on governments. But they did neither. In the contrary, the sons of well-to-do businessmen and, to a lesser extent, bankers, deserted their fathers careers for the liberal professions or purely intellectual pursuits they had not been able to afford a few generations before.”

Arendt called this “political ignorance” that blinded the Jews to “the political dangers of antisemitism.” Certainly they understood the costs of social discrimination; what they did not understand was the way this would morph under totalitarianism:

“Whenever equality becomes a mundane fact in itself, without any gauge by which it may be measured or explained, then there is one chance in a hundred that it will be recognized simply as a working principle of a political organization in which otherwise unequal people have equal rights; there are ninety-nine chances that it will be mistaken for an innate quality of every individual, who is “normal” if he is like everybody else and “abnormal” if he happens to be different. This perversion of equality from apolitical into a social concept is all the more dangerous when a society leaves but little space for special groups and individuals, for then their differences become all the more conspicuous.” (55)

To be unequal when equality is understood as equality before the law is a blessing; to be unequal when equality is understood as a social requirement for membership in the political community is quite a curse. The more that Americans attend to income inequality, the more they will worry about Wall Street bankers, certainly; but they also worry about the local inequalities, those they see at work in their own communities. Wall Street is far away for most Americans; yet everyone has a local government, and most Americans can observe that the cars that park in the teachers’ lot are nicer than their own, while simultaneously noting that teachers have shorter days and longer vacations.

For Arendt, the backlash of resentment comes when those with a privilege lose the power to enforce it. The aristocrats tried to keep their privileges without preserving the authority to organize their communities, and they lost their heads; the Ancien Régime gave way to the centrally-administered bureaucracy. Teachers are no longer trusted to evaluate their own success or failure; more and more of their lesson plans are legislated or provided by centralized textbook publishers. Fewer families depend upon teachers than ever before, and those who do have political power don’t trust the public schools in large urban school districts like Chicago, New York City, or Washington, DC. In these and many other ways, the job of teaching K-12 education is being de-professionalized, in large part because we’ve tried to demand that education solve all of our problems and it simply cannot.

Perhaps this comparison is not the right one, but what I notice is that labor solidarity is increasingly exclusive of the least-advantaged. Especially during times of increasing unemployment, I worry that solidarity with laborers will not include those most in need. Unions are no longer primarily sources of solidarity between the lower and middle-class and a means of stepping into the middle-class; now they are sources of solidarity within some elements of the upper-middle class, i.e. those who are well above the median income in the United States. In this sense, public sector labor unions appear to command economic power while failing to achieve the cross-class solidarity that would legitimize that economic power for those who are worse-off. The resentment that emerges, then, appears to be driven by the demographic constitution of the union itself. As Arendt pointed out, rights without the power to protect them are useless: when you need them, they’re not there.

Even as teachers are losing political power, it appears that the political power of labor solidarity has an unfortunate tendency to accumulate among those who already have it. In the US, the people who most need unions don’t have them: Walmart workers; nurses and home health aids; agriculture and construction workers. Meanwhile, the people who least need unions get them: folks with graduates degrees and guns. Soon, perhaps, it will just be those with guns who can prevent the legislative undermining of their rights to collective bargaining.

(Continued in the next post, Public-sector unions as Public Work: The Case for Teachers)

Another Badly-Aimed Attack on the Basic Income Guarantee from Crooked Timber

John Quiggin has been taking up the case against the basic income guarantee at Crooked Timber recently. See here and here. Unfortunately, he is attacking a weak man version of the policy.

It doesn’t look like he actually opposes the BIG, in theory, but his objections all appear to demonstrate that a Basic Income is much too hard and expensive to implement, short of a revolution. As such, he ignores the experimental evidence out of Namibia, Manitoba, and the US. Quiggin starts by eliminating an unconditional and universal basic income guarantee and instead focuses on a means-tested guaranteed minimum. Then he assumes that this will reduce employment as workers leave the workforce (presumably to surf). He also assumes that it will be funded by income taxes, natural resource extraction taxes, or capital expropriation.

All of these assumptions are wrong, and caste the BIG in the worst possible light. The real appeal of the BIG is that it is easy to implement, can work piecemeal, will likely increase employment and productivity, and can ramp up slowly, and even unsteadily, to make the transition politically palatable and in accordance with the rule of law.

Cheap at Any Price (“Cost” versus “Dead-weight Loss”)

How much would a basic income cost? There are a few ways to ask this question:

  • “How much would we have to raise taxes in order to pay for this policy?”
  • “How much productivity would we lose under this policy?”
  • “What would the effective tax rate be under this policy?”

It’s important to note that these are separate questions. We would certainly have to raise tax rates to pay for a basic income: there is not a currently a revenue stream devoted to it. These higher taxes might reduce people’s propensity to work, and still more productivity might be lost because people choose not to work when their needs are met. However, depending on how those taxes are collected, such an increase might not increase the effective tax rate: the difference between the tax rate and the services supplied. The early Crooked Timber discussion totally confused effective rates with headline rates, in much the same way that people pretend that the rich actually paid 91% under Eisenhower. They didn’t.

The best way to ask this question would be:

  • “What is the dead-weight loss of a basic income guarantee and its associated taxation, compared to what we have now?”

The answer is that, on the most plausible accounts, a basic income guarantee is actually cheaper than the current system.

It’s important to note that the current cost of government in the US is approximately 21.41% of GDP. That’s the GDP divided by the Disposable Personal Income. Doing it this way adds back transfers payments and the positive benefits of government like firefighters and medical research. 21.41% is how much money we spend on all the stuff we don’t really want: invasions and aerial drones, pretextual traffic stops, cavity searches, TSA employees, drug warriors, and CIA black sites.

Government as a whole produces net benefits (a social surplus) because it makes transactions possible through the rule of law. Yet GDP probably overvalues government services and undervalues technological innovation over time, so it’s pretty controversial whether the number is anywhere close to this  21.41%  in reality.

In contrast, calculating the economic cost of a transfer payment is pretty easy: I take $100 from Bill Gates and give it to a poor person, there’s no lost disposable personal income in that transaction. Gates has less, but the poor person has more. Yet some ways of funding that transfer can be said to produce a dead-weight loss, an “excess burden” compared to other revenue-generating mechanisms. If it costs me $10 dollars to pay for the administrative costs of running the $100 transfer, the transfer tax costs 10% of disposable personal income. If Bill Gates produces $10 less income than he would otherwise because he has less of an incentive to work knowing that some of his money will be taxed, then the deadweight loss is 20%. ($10 from lost productivity, and $10 to pay for the transfer.) The current administrative costs of Social Security are 0.9%, which isn’t much, so the question is, how much less will Gates and the poor person work under the BIG?

It’s a trick question, of course: Bill Gates doesn’t work, and neither do the very poor! The capitalist allows his investments to work for him, and the poor can’t afford to work or they’ll lose their benefits. So some transfers are less distortionary than others.

Unconditional & Universal (Guarantees reduce Dead-weight Losses)

Here’s Quiggin:

The big question is whether current workers will respond by leaving the workforce and relying on the basic income. We’d expect and want this to happen to some extent – the whole idea is to free workers from absolute dependence on wage income. But if the shift is too large, the tax burden will become unsustainable.

How large is too large? Suppose the employment rate falls from 60 per cent to 50 per cent, and that capital income falls in line with labor income, so that a larger benefit cost is being supported by a smaller income.

The basic income guarantee solves a problem that Quiggin seems to think it creates: various parts of the government actively discourage remunerative work by creating a “poverty trap” consisting of various means-tested programs that are necessary for survival but are lost as incomes increase. Many of the poor literally can’t afford to work: they’re exiled from the (remunerative) labor pool. That’s a powerful coercive effect that more than trumps the lessened interest in employment felt by middle-class workers who conclude they have enough. This will also be a problem with a negative income tax, which is why a universal guaranteee is actually more efficient.

All of the experiments designed to test the employment effect found that work effort increased under a BIG: in Namibia, workforce participation rose from 44% to 55%! The poor can work for each other if they become the middle class. In Manitoba, hours worked by new mothers and teenagers decreased, but only because the teenagers focused on education and the new mothers on child-rearing. In that sense, remunerative work declined slightly, but productive work effort increased: this isn’t about a “right to surf.” Each marginal dollar earned still increases a poor family’s well-being, but now they can afford to make longer-term decisions by investing in human capital.

Note: the US experiments with negative income tax do show a 13% decrease in hours worked for wages, but similar increases in educational effort to Manitoba’s Mincome, and didn’t test overall employment effects from new labor market entrants because the unit of experimentation was the household. This is a famous moment in social scientific research, when we noticed that the “unit of analysis” matters.

Populations with a basic income guarantee work more, not less!

Tax Consumption, Not Income (If you want more of it, why tax it?)

Quiggin worries that marginal income tax rates needed to fund a basic income proposal might become unsustainable:

Depending on the design of the tax scales and the mix between income and other taxes, the marginal rate for the average worker would probably be around 40 per cent, and with a moderately progressive tax scale, lots of workers would be paying marginal rates above 50 per cent.

For a lot of people, the 50% marginal tax rate mark has psychological significance, since it seems like you’re working for more for the government than for yourself. But that’s precisely why we should focus our taxing attentions on consumption, a belief shared by the majority of economists on both the left and right.

A Basic Income Guarantee causes some to receive payments who don’t actually “need” it. But that’s not such a problem if we fund the basic income with a sales tax or value added tax. (A value-added tax, or VAT, is like a sales tax that is collected all along the supply chain rather than only at the point of sale: it’s cheaper to administer and harder to cheat than a sales tax.) That way, we can recapture the basic income grant paid to the very rich, who will spend more of their earned and basic incomes on consumption and thus repay the basic grant. I’ve written about this before, herehere, and here.

An ideal level for both the VAT and the basic income might be to cause the bottom two quintiles of the population to receive a subsidy paid by the top three quintiles. In the US in 2003, this would have been about $34,738: anyone earning less than this would be subsidized by anyone earning more. Other proposals might aim to redistribute around the median income of $44,000, such that a household earning the median income would receive exactly the same amount in basic income that they pay out in VAT (if they spent every penny they earned.) Since the basic income is designed to supply the poorest with the means of subsistence, the VAT might be as high as 30%: in the median proposal, each household would receive 30% of the median income (about $13,200) as a guaranteed payment, but the median income household would pay out the same amount over the year in sales tax, thus breaking even. This is the best way to widen the tax base while enhancing progressivity.

Transition is as Easy as a Tax Rebate (A BIG can start small!)

Quiggin claims that that the BIG+VAT would require a “big bang” rather than a slow transition:

The simplest way to get to a universal basic income would be to pay it to everyone, then recoup the cost, through the tax system, from everyone above the basic level. While conceptually simple, this way of doing things would be almost impossible to implement except as a ‘big bang’, and is also too hard for me to evaluate.

Along with Chris Bertram, Quiggin has been saying that the path to a BIG is totally unimaginable:

So, any serious approach must, as Chris suggests involve transferring a large proportion of existing wealth from its private owners to the public. Leaving aside questions of justice, I can’t see an obvious transition path here. The problem, as illustrated by the existing wealth-based funds, is that it takes a lot of capital to generate a return that would finance a UBI at or above the poverty line. In the US context, you’d need something much larger than the Social Security Trust Fund (2.7 trillion) to get near the target. On the other hand, it’s hard to see how a universal payment at a level far below the poverty line could mobilise the kind of popular support needed for a policy of radical redistribution.

Hardly! You can start with a partial BIG+VAT and grow it over time. The current proposals for a carbon tax or a national sales tax would both suffice. Make these important Pigovian taxes palatable by giving them back to the people using classic Republican tax rhetoric. Just don’t give them back in the same distributional pattern as they were collected: take a 5% tax on all carbon emissions, and use the revenue to pay every American a small annual income. Call it a “rebate.” A partial BIG wouldn’t replace the current welfare state, but it could help ween us off means-testing, reduce the size of the poverty trap, and help us iron out the kinks in this plan while supplying lots more evidence for pundits, wonks, and social scientists to study.

Take your time, the poor will still be here: we can do 5% now, and another 5% in a decade.

As it grows, the BIG can replace the expensive or particularly paternalistic parts of the welfare state, things like Social Security (which isn’t actually egalitarian) and food stamps. The BIG is tailor-made for these kinds of gradual tradeoffs; it enlists the middle-class in poverty-alleviation. Just think of all the ways in which conservative economists and progressive activists can ally to accomplish economically efficient policy changes: a minimum wage becomes a clear obstacle to employment (with no distributional upside) if everyone has a BIG, and that means even greater workforce participation, as would decreased unemployment insurance, which current employers must factor in to the cost of hiring decisions.

What’s more, we needn’t transfer any wealth at all! For a consumption tax, the current economy is all we need to get started: the household part of the US economy is worth $57 trillion or so. We only need to redirect the income stream from that enormous wealth. If a rich person lives as frugally as Warren Buffet, she won’t pay much in consumption taxes, but that’s okay. We don’t want to discourage investment and productivity increases! We want more of that, not less. We want less conspicuous consumption, right? We want less class difference! You may think that this requires wealth redistribution, but even the Scandinavian social democracies actually have quite large wealth inequality. What matters most is how people live.

Greece and the European Union

This Newsnight piece paints a picture of the widespread breakdown of the Greek social compact:

What was no joke were the clashes between police and the hardline protesters.[…] Time and again, on the grounds of confronting the rioters, police made incursions into large masses of peaceful protesters. […]I can tell you from repeated experience, it feels like a process of collective punishment of a peaceful majority.

I think this week caught Greece on the proverbial brink of something. The anger could easily solidify into anti-German sentiment, but with the conservatives and Orthodox right implicated in the first bailout, anger can more easily flow to the left.

[…]in the three hours I spent at or close to the front of the rioting on Sunday night, I did not see a single other television crew. Ours was repeatedly harassed, verbally and physically, most harshly by a small group of right wingers who accused us of being German.

The article details the effects of austerity on public services combined with widespread tax and fee defiance. Higher taxes and fewer public goods will create a spiraling legitimacy crisis, all while European leaders demand that Greece postpone elections. That means less democracy and accountability to the Greek people when they need it most. It seems untenable, and indeed even Jürgen Habermas has tempered his Euro-optimism with this:

“Sometime after 2008, I understood that the process of expansion, integration and democratization doesn’t automatically move forward of its own accord, that it’s reversible, that for the first time in the history of the EU, we are actually experiencing a dismantling of democracy. I didn’t think this was possible. We’ve reached a crossroads.”

The right answer seems obvious: default on the loans. Even the Financial Times proclaims it: “Greece must default if it wants democracy.” But there are problems. For one thing, Greece isn’t just in debt from past expenditures: it’s currently spending more than it takes in taxes. So a default isn’t the end of its troubles: it’ll still have to make costly cuts and increase taxation. Debt forgiveness won’t be enough: the Greeks would immediately need to go back to borrowing, only now the rates would be even higher since they will have signaled that loans should be treated more like gifts.

That means that the Greek government will not be able to avoid austerity through default and inflation. So what’s left?

  • Institute technocratic rule and massive austerity enforced by the IMF and the Eurozone
This seems to be the plan dreamed up by Greece’s creditors. Send in the efficiency experts, raise taxes and improve tax collection while cutting the public sector. Given the unrest and the lack of hope, this is absurdly unsustainable. A corrupt public sector and uncontrolled (and largely untaxed) private sector don’t become more legitimate when they’re all managed by foreign eggheads. “Do the Greeks even have a word for democracy in their language?”
  • Leave the Eurozone and allow the new drachma to inflate faster than the European Central Bank is doing

This is the Communist Party’s answer. But it faces many of the same problems of a simple default, only now exacerbated by capital flight. Leaving the Eurozone will dissipate the wealth that Greece must tax: the wealthy have been waging a quiet run on Greek banks and the behavior has spread to the working-class. They’ll likely disseminate the cash to non-Greek banks in the form of Euros, to avoid the devaluation of a new drachma. This may well be their best hope, and if Greeks vote for it, we should support their efforts to go it alone. But I don’t think they’ll enjoy the same post-default bump that Argentina got, and this actually seems like the course of action with the greatest number of possible unintended consequences. The Communists could easily end up destroying the Greek public sector in order to save it.

  • Institute a military junta in Greece

This is obviously the scariest prospect: I include it only to make the others seem more palatable than they’d otherwise be. But there was a coup d’etat in 1967, and the Junta ruled until 1974, and that’s recent enough that such a solution is still imaginable. Right now, the far left in Greece holds more appeal than the far right, but that need not last. What will the Communists do after their plan to leave the Eurozone and default on the debt fails to end the spiral of service-cuts, tax rises, and the resulting illegitimacy? Historically, austerity and low growth seem to lead people to value the fantasies of security and strong leadership that characterize military rule.

  • Institute a federal fiscal union with regular interstate tax/spending transfers

Right now, there’s little financial incentive for Germany and France to continue to subsidize Greek debt, and there’s little financial incentive for Greece to remain in the Eurozone. True, German and French banks are massively exposed to the possibilities of default, and this may well preserve the union for a while; but more than a financial bailout or an economic stimulus to jumpstart their economies, I believe the whole EU needs the political stimulus that only closer federation can supply.

Where the financial incentives fail, Habermas and other Euro-optimists have always suggested that cultural commitment to the ideal of European Unity would have to suffice. The way to cement this is to create meaningful democracy at the EU level, along with the mechanisms for regular taxation and spending decisions to be made throughout the entire Union.

Currency union without political unification has always been dangerous, yet it’s common to resist a political union because sharing governance gives people outside of our communities a legal claim on our resources and rights. Still, there’s plenty of evidence that this interstate transfer is what makes the United States function. Much as we in the US hate Congress, especially the way that politicians representing values we don’t share can still govern us… we can’t be federalists without them. And as a bonus, the perpetual transfers lead to better infrastructure investments in currently low-productivity states that allow those states to remain productive rather than suffering from adverse selection.

“More Democracy!” Yes, that’s my final answer.

The Money Illusion Manifesto

Here’s the gist:

I would like to argue that most of the really important public policy issues are not even part of the ongoing debate in the press.  Here are some examples:

1.  The huge rise in occupational licensing.

2.  The huge rise in people incarcerated in the war on drugs, and also the scandalous reluctance of doctors to prescribe adequate pain medication (also due to the war on drugs.)

3.  The need for more legal immigration.

4.  The need to replace taxes on capital with progressive consumption taxes.

5.  Local zoning rules that prevent dense development.

6.   Tax exemptions for mortgage interest and health insurance.

These 6 policy failures impose enormous damage on the country, far more than the issues typically discussed on the evening news.  Why aren’t they discussed?  I would argue that it is partly because the disagreements tend to break down on values, not ideology.  Most idealistic intellectuals agree with me on all of these issues.  They are not issues that divide the left and the right.  It’s also true that most real world politicians agree on these issues.  However their views are exactly the opposite of the views of intellectuals.  Hence there is no “policy debate” in either the political or intellectual arenas, and hence no “fight” for the media to report.  They become invisible issues.

I think this list goes a long way to explaining why idealistic progressives find so much to like in pragmatic libertarians.

Does Basic Income + VAT “Solve” Immigration?

File:US Customs and Border Protection officers.jpg
US Customs and Border Protection officers enforce our labor market protections with paramilitary techniques.

One of my favorite liberal policies is the basic income proposal. The idea is that all citizens have a basic guaranteed income, below which no one may fall. As the argument goes, this supplies more flexibility than basic provision of essential services, and renders recipients much more autonomous than they currently are, since the government tends to spend redistributed money on the things it values the most, rather than the things that the poor value the most. There’s also a fairly easy way to run such a program: instead of making the basic income available only to the poor, you can make it a citizenship grant available to everyone who files tax returns, like social security. This radically simplifies the administration and eliminates the wasteful need to inquire into the deservingness of the recipients. If you’re a citizen, you get a check. Alaska has a system like this for all residents.

As I wrote recently, the dark side of the basic income proposal is that it privileges citizens over non-citizens. Perhaps this dark side is mitigated a bit if every nation-state in the world enacts a basic income, but there’d still be horrible inequalities between nations. However, in this post I want to argue that this kind of inequality is better than the status quo: “second-best” ideal theorizing… with a dash of public choice caution for good measure. Continue reading Does Basic Income + VAT “Solve” Immigration?