What is the belief you hold that is most likely to be wrong?

Another way of putting this question is: how does your ideology and social setting blind you? One way to answer is to look at those beliefs that you have the most incentive to deceive yourself about. What are your biases? For instance, I’m probably not as smart or as caring as I think I am, because I want to be smart and caring and I’m going to be on the lookout for evidence in favor of those two beliefs and be tempted to ignore or discount evidence against them. But then, too, there is the Dunning-Kreuger effect, so who the hell knows? Whatever we think about these traits, we’re probably wrong, but in the banal way that everyone else is likely to be wrong, too.

I have something like my old prompt about books that changed your mind. Even if we’re conscious of the dangers of motivated reasoning and motivated rationality, we can still point to those beliefs that we hold that we see as the weakest, perhaps not because we hold them in an effort to signal ability or loyalty, but because we find holding those beliefs useful for orienting further inquiry. So here goes:

  1. Moral Realism: The belief I hold that is most likely to be wrong is a belief in moral judgments that track something objective or at least non-agent-relative. After all, it’s difficult to engage in normative inquiry without believing that our researches track something. Just as philosophers of religion tend to believe in God and astrologers tend to believe in the predictive power of the stars, ethical and political philosophers tend to believe in their thing, too. If we’re wrong on this (as thousands of relativist undergraduates have confided in me) then we’re unlikely to find lasting success. And there is certainly some reason to believe that we haven’t seen much in the way of progress in normative inquiry, despite recent trends like the line that runs through John Rawls, Derek Parfit, Philip Pettit, and Elizabeth Anderson.
  2. Character Skepticism: the second-most-likely-to-be-wrong belief I hold is skepticism about the existence of persistent character traits. I went to school with a generation of scholars who were significantly motivated by what they thought of as the deconstruction of the subject or the death of the author, so there’s certainly a sociological or network effect bias to my skepticism. With all the evidence accumulating that character traits like conscientiousness have a genetic component, it’s almost absurd to pretend that there aren’t some traits that persist over time and context. Still, I find that skepticism to be very important for my discussions of moral equality, status emotions, and the fallibility or person-oriented judgments, and so I persist(!) in holding it. (Even while I hold many people in great esteem for what I take to be their persistent habit of being right, wise, or good.)
  3. The Basic Income and the Value-Added Tax: I’m not sure I’m “most likely to be wrong” on BIG+VAT, but I do think it’s the policy advocacy position where my confidence in advancing it is the least-well-matched by the sensus communis. Call it the “largest gap between my estimation of the evidence and the general estimate.” This blog got its title by my mixed feelings about utopian theorizing, but with BIG+VAT I do feel a bit like a utopian. Even beyond all the naysayers, there’s even some recent evidence that consumption (which a VAT would disincentivize) is an important component in reducing poverty. This suggests one reason to prefer income redistribution over VAT, and so the whole edifice is certainly shaky if the right empirical evidence comes along.
  4. The Unimportance of the Middle-Class: I tend to worry less about the middle-class than the least-advantaged, which leads me to worry more about the unemployed than the employed, more about global workers than domestic workers, and more about those without a college degree than those who have credentials. But there are lots of good arguments in political theory for a vibrant middle-class, not the least of which is Elizabeth Warren’s claim that “A middle class where people are falling out and into poverty is a middle class that has less room to bring people up and out of poverty.” So I may very well be wrong.
  5. The Inefficacy of Charter Schools: I tend to think that charter schools are an anti-union boondoggle, that they are less effective than the public schools they replace, and that the cherry-picked evidence in their favor usually depends upon hidden selection effects or a resurgence of racial segregation. Even in the best cases, they seem to offer a model that would not scale beyond the single school which has lucked into success, and I’m heartened by the Stanford study that showed that charters were twice as likely to be worse than regular public schools than to be better than them. But of course, a charter school advocate would say that we ought simply to close failing charters, leaving us with some schools that are equal to public schools and some that are superior to them: at the margin, that’s a good deal. And, too, not all charter schools are for-profit market-oriented corporate monstrosities; there are some innovative experiments in common-pool resource management going on within the charter school movement. Perhaps it is better to let parents dissatisfied with their public school options take the risk. If we believe in pluralism, these experiments might be a better way to match differing childrens’ needs with settings where those needs will be met. I dunno: I’m glad I’m not in charge of  K-12 education policy in this country.
  6. Incarceration and Drugs: Like many progressives, I suspect that there is something deeply wrong with mass incarceration and the drug war. Most of the people I know seem to agree with all the constituent arguments against the way criminal justice is practiced in this country. We’re deeply embarrassed by the number and racial composition of prisoners here. And yet the system remains, and both engaged citizens and smart, caring politicians seem powerless to change it. Clearly, there’s some piece of this puzzle we just don’t understand.
  7. Meat Eating: I’m pretty sure I shouldn’t be eating meat, and certainly not meat produced under the inhumane conditions in US factory farms. Yet I seem to be completely akratic on this front; I believe I shouldn’t, but I do it anyway. I’m certainly wrong, one way or another, because my actions and beliefs are in contradiction. This is more of an anxiety over that inconsistency than a likely-wrong belief, though, so maybe it’s not completely fitting with the principle of the question.

What are you most likely to be wrong about?

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.

Cap and Dividend

C&DimageScu pointed me to this discussion of a Cap and Trade dividend.

One issue, which would also apply to a carbon tax + dividend: this would hit exports but miss imports. Contrast that with a plain-old VAT, which hits imports but is refunded on export. This would make our goods less competitive, while encouraging us to import goods that are carbon intensive, externalizing our environmental effects. Of course, we’ve already been doing this: that’s why China is a larger carbon-emitter than the US: they emit our carbon for us. But this would exacerbate that effect.

Continue reading Cap and Dividend

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?