Two People Can’t Consent To Harming A Third Party

Writing about Emily Witt’s "What Do You Desire" (which I haven’t yet read itself) and admirably defending consent as a standard of behavior and morality to aspire to, Conor Friedersdorf writes:

Consent isn’t enough to guarantee that sexual behavior is moral. Adultery, the deliberate conception of unwanted children, the careless spread of H.I.V.—all could happen in consensual encounters.

Whoa, whoa, whoa. This is a myopic definition of "consent." Let’s break this down:

Adultery is wrong because it is breaking a very meaningful (and some would say sacred) contract between two people. If you you have sex with not-your-spouse without that spouse’s knowledge and consent then it’s cheating, adultery, and wrong.

"deliberate conception of unwanted children" – huh? How could it be deliberate if its unwanted? Even if you rephrase this as the "irresponsible conception of unwanted children" the problem is that you’re presumably harming a child by carelessly bringing it into the world, therefore harming a third party.

If you have HIV and you fail to inform a sexual partner, that partner has not truly "consented" to the act because they were insufficiently informed. If both parties know yet for some reason fail to adequately protect each other, they’re placing a burden on others – future sex partners of the at-risk partner, their friends and family, the social institutions that will bear the cost of their care.

In all of these cases, the reason consent between the individuals committing the sex act is insufficient to justify them morally is because they are generating harms to third parties. If you own a house next door to Conor Friedersdorf’s house, and I buy it from you with the intent to knock it down and built a giant coal-fired power plant there, and you know that and are fine with that, and there are no legal prohibitions, that’s still not a moral thing to do because it’s not very nice to Conor.

Friedersdorf does a good job defending consent, but I would argue his definition of "consent" is insufficiently broad.

We Work To Live, So When We Can Live Without Work, We Will

Kevin Drum’s fantastic piece on our robot future is best read in tandem with Peter Frase’s piece Four Futures. Whiel Drum’s piece is much more detailed on the likely path technological progress will take, Frase’s piece by virture of its author’s more heterodox perspective more easily grasps something Drum struggles with. Namely: work is not the point.

We (meaning those humans lucky enough to live in the developed world) currently live in a society where, to a large degree with some variation, the social contract is as follows: if you can work, you likely must; but in exchange, your needs will be met and above-and-beyond that you will be given claims on the output of our socioeconomic system, and if for some reason you are temporarily without work you need not fear the worst.

This system developed because it was optimal; it was optimal because, in a post-industrial world aggregate social wealth is a positive externality, ie, the product of everybody working was more than the sum of its parts. Therefore, while the system could bear a certain amount of free riding, too much and you lose the broad sense of stability and security that knits the whole thing together and therefore implosion.

However, systems that emerge for practical reasons often become reified into self-justifying ideological constructs; that is, when it is advantageous for humans to believe in something, they do, and once the belief system takes hold widely and firmly enough it tends to persist past its usefulness. And so it will be with work – the idea that hard work is in-and-of-itself a good, as opposed to merely a means to an end both individually and collectively, will die hard.

But, die it must. For when the robots and computers lead to prosperity not merely orders of magnitude higher than we currently experience but orders of magnitude of orders of magnitude higher, tethering the rights to claim a share of that prosperity with once’s willingness to toil, despite both the uselessness of the toil and it’s lack of meaning to the toiler, will be simply cruel. Therefore, when Drum says "we’re not prepared for [a future of mass unemployment]" and frets about redistribution of income and capital he’s implicity buying into the idea that employment is the end and not merely the means to broad-based prosperity. A world where nobody is employed and everyone has everything is utopian, not dystopian. This world will be so different from ours that it will be difficult to even apply the current frame of post-industrial early-informational capitalism to it.

This is not to say we are in for a future of couch potato-ism. While some will certainly opt for that, there will likely still be a value on participatory activity and a value on things created by humans. Which is to say, there will be a lot of artists and artisans, a lot of restaurants, a lot of informal sports leagues, a lot of therapists. People will still compete for status, always, forever. But what there won’t be is a necessity to sit in a cubicle or stand on a factory floor or behind a cash register for forty hours a week. And we’ll all be better off for it.

Debt/GDP Isn’t A Great Way To Understand The Debt Burden; Alternatively, Bourbon Goes Great With Vermouth, Bitters

Taking a step back from the Excel FAIL heard ’round the world, it should be clear to most reasonable people that (Sum of Princpal of Debt Held By Public)/(Gross Economic Product) is not a very good way to understand the actual impact of government debt on socities. Even waving away the form of the debt (ie, whether it’s denominated in a currency the state has the authority to print), it’s very clear that various circumstances relating to monetary policy, trend growth, and structural factors are vital to understanding the impact of the debt-load on society. Karl Smith made this point excellently the other day, and springboarding off of that, I have a proposal. Someone – not me, because I’m busy, dammit – should create an index of the present value of all future interest payments owed by the government divided by the present value of NGDP into perpetuity. This is easy if you consider government debt a kind of perpetuity in which the principal is continually rolled over until it shrinks to a vanishingly small amount of NGDP, which it is. Therefore, the true burden of debt is all the interest owed on it, forever. That number should be easy to project as long as you know the current coupon amount and rollover date for all government debt, as well as have a rough estimate for what the prevailing interest rate will be whenever any given bond is rolled over. This is probably pretty easy to guesstimate without actually knowing the data to that fine a degree. The best way to do this would be to index future expected interest rates to future expected NGDP (since they are closely linked), and you could then see the actual share of future economic output that will have to be paid out to bondholders.

Or you could have a Manhattan. I like Manhattans.

Aggregate Social Wealth is a Positive Externality

This is probably belaboring the obvious, but especially in light of the prior post it is worth noting that there are large external benefits to a society that increases in total aggregate wealth even if that wealth is not equally distributed. This becomes obvious when, like Planet Money did, you ask people whether they would rather be rich 100 years ago or middle-class today. Of course you’d rather have an iPhone and antibiotics – having the ability to consume a high share of social output matters less when “social output” is mostly servitude and pheasant. The vastly increased volume, quality, and diversity of what we have now means that you can eat delicious food for $10 from your local Thai or Vietnamese or Burmese or Indian or Bengali or Japanese or Chinese or Korean or Mexican or Salvadoran take-out joint (just to name a few) that would have been mind-bogglingly exotic to the insanely rich American or European of the McKinley era. This also becomes obvious when you ponder whether you’d rather be rich today but in a poor country like, say, India. Being rich in India would be nice. There are amazing houses to live in and some really great shopping, and you’d get to consume a lot more servitude than a similar-rich American. On the other hand, major roads in India are still clogged by goats and cows. Take your pick.

This is likely what frustrated me so much about Mr. Money Moustache - not his own choices, which are his own, but his preachy self-righteousness. Mr. Money Moustache can live so well on so little in large part because the rest of us are working so much harder to keep streets clean, power running, vaccinating, fighting crime, and so on and so on. Mr. Money Moustache is massively benefiting from the positive externalities of living in the wealthiest society Earth has ever produced and is sufficiently oblivious to that fact as to suggest his own choices could and should be everyone’s simultaneously.

Without more commentary, it is also worth noting the latest research on happiness and income both across and within countries.

Don Boudreaux Is Wrong About Inequality

Don Boudreaux (does reading Cafe Hayek make me a masochist, BTW?) thinks he has something here, but he doesn’t:

If (by whatever criteria) the process is fair, then the outcomes are fair.  If the process is not fair, then at least some outcomes are lamentable.  If those lamentable outcomes involve too little income for Smith and too much for Jones, then this income difference is evidence of the unfair or skewed or crony-fied process.  But the object of my concern in such situations isn’t the income difference as such; rather, it’s the unfair or skewed or crony-fied process that gave rise to it.

Forget about how much work is being done here by the parenthetical; this is mostly specious and otherwise useless. Let’s use some real life examples:

Let’s say black people are enslaved and forced to labor for centuries. I bet Prof. Boudreax and I would certainly agree that process is unfair.

Now let’s say that all slavery is abolished, and the entire socioeconomic system (somehow) peacefully replaced with a system that Prof. Boudreaux considers completely fair on a forward-looking basis. Are outcomes now fair? I would argue, no, because the inputs are biased then even an ideal process can’t produce ideal outcomes. But let’s say that the process iteratively produces improved outcomes. At what point does it produce ideal inputs that then lead to truly ideal outputs via the ideal process? One iteration? Two? Ten? Never? What if the theory of the second-best kicks in – where, once any condition of optimality is changed, you cannot presume that you can maximize your target goal by maintaining all the conditions that would have produced the ideal outcome under the original optimal set?

What if a process that is ideal at some time t produces outcomes that alter the process at some time t+x? Take Robert Nozick’s infamous example of Wilt Chamberlain, whereby ideal inputs and an ideal process can produce outcomes many would consider unfair (though, obviously, not Nozick or Boudreaux [or probably Wilt the Stilt]). What if Wilt decides that, now that he is vastly richer than everyone else in society, he is going to bribe a politician to sell him state assets at below-market prices. What if inequality, even inequality produced via ideal processes with ideal inputs, inexorably produce outcomes that lead to non-ideal processes?

What about luck? What if what distinguished Prof. Boudreaux’s Jones and Smith was some completely unpredictable and random event – an asteroid incinerates Jones’ barn, a once-in-a-thousand-year storm destroys Smith’s ship? What determines whether Facebook becomes a world-beater and not Friendster or MySpace? Can even an ideal process mitigate for those inequalities? What if luck, or chance, or events beyond human control and understanding, drive most of the gaps between life outcomes?

I agree with Prof. Boudreaux more than he probably would suspect. I believe that a system that allows for private property, broad freedom to transact, and inevitable dispersion in the distribution of wealth is likely ideal, both from a utilitarian and non-utilitarian perspective. Yet Prof. Boudreaux accuses those who worry about these inequalities of smallness, of envy, of corroded character. I would argue that it is he who has exploited a certain myopia and smallness to leverage a handful of economic insights into a worldview that justifies a corrosive lack of empathy and a smallness of the soul.

The Unavoidable Casualties of Gentrification (and What To Do About It)

Matt Yglesias, with whom I largely agree on issues of urban planning, smart growth, and density, nevertheless elides something very important when he writes:

Some of this may reflect a misunderstanding. If Gudger is worried about taxes, then she’s presumably a homeowner worried about an increase in property values that would actually be pretty lucrative for her. But something like 57 percent of D.C. residents are renters, and it’s almost certainly more than that in poorer communities. And those renters are correct to think that improvements in neighborhood-level public services and amenities will in many cases be against their interests. That’s a very unhealthy political dynamic. Disagreement is a natural part of democracy, but disagreement about the desirability of things getting better is a symptom of a larger policy failure. After long decades of urban decline, cities that are once again growing need to think about creating housing abundance not just niche programs for the poorest of the poor. A better city that more people want to live in needs to sound like a good proposition—like it means more jobs and a broader tax base than can support more services—rather than an engine of displacement.

Here’s the thing – if you are a homeowner in a once-poor neighborhood that is now rapidly gentrifying, you probably have received a windfall. If you purchased a home in Shaw in a year beginning in “19,” you’ve probably seen a nominal return on investment in that time in the several-hundred-percent range. The complicating factor is that all that gain is in a single, (mostly) indivisible and highly illiquid asset and that, while your income likely did not increase by several-hundred-percent, your property tax bill sure did. So if you’re a working class probably-black person  who bought a house in DC for less than $100,000 in the 80s that’s now worth $500,000 thanks to drastically lower crime and Metro and Big Bear then in one sense you won the lottery, but the only way to collect your winnings is to leave your home and community. For a lot of people, that’s quite the catch.

And it’s not so obvious that there’s anything you can do about that. A cap on yearly property tax increases would only mitigate the problem while creating perverse incentives for policymakers. A shift from a property tax to a land tax wouldn’t change the fact that it is, in fact, the land that increased in value. Re-zoning for higher density is a good idea but will also, as Yglesias himself has noted, make the land even more valuable not solving the problem. Something like Chicago’s Tax Increment Financing keeps the benefits in the community but doesn’t change the dynamic. In the end, without some very direct, kludgy, and in many ways counter-productive interventions into the general system, when a neighborhood sees a large and rapid increase in desirability you’re probably going to scatter the incumbent residents whether they rent or own.  And while you have probably created a large net improvement in social welfare, there’s still a substantial and difficult-to-quantify cost in lost communality that’s hard to recoup.

The strangeness of the current situation is driven by what was, essentially, a one-two punch of political upheaval and a lead epidemic that made what are, fundamentally, very desirable neighborhoods temporarily very undesirable. When those factors largely dissipated and you toss in something like a shiny new subway we were always going to find ourselves in this odd situation. The good thing about it is that it will largely correct itself and the neighborhoods that “ought” to be expensive will be and vice-versa and then we can begin to re-establish community and more directly transfer resources from the rich inhabitants of gentrified neighborhoods and the exiles who weren’t lucky enough to have owned their home.

On “GIF” and Acronym Pronunciation

Just a note on this whole "how do you pronounce ‘GIF?’" business: the pronunciation of an acronym need not bear any direct relationship to the pronunciation of its constituent words. For example:

AIPAC – pronounced A-pack, even though neither "America" nor "Israel" start with "A" – it’s not "ä-i-pack"
NASA – pronounced NA-su, even though neither vowel sound matches it’s word – it’s not "NÂ-sa"
NATO – pronounced NA-to, even though neither vowel sound matches it’s word – it’s not "NA-tô"

"Squarely," you may be saying, "these are all vowel sounds, not consonants like in ‘GIF.’" And to that I say – vowels are letters, too, and words that start with vowels are words, too, and if you disagree you are vowelist, good sir. And tell that to them:

Damn right it’s "jif."

[pronunciation, GIF, AIPAC, NASA, NATO, vowelism, deep thoughts]

Game of Thrones v. The Hyperinflationistas

the ultimate goldbug

So I’m a little late to this whole Game of Thrones thing, but I’m making up for it, having watched every episode in the last month as well as reading A Game of Thrones and making my way through A Clash Of Kings (my goal is to catch up with the show by the end of the season and read all the books by summer’s end). And since Matt Yglesias has been econ-blogging from GoT I figured I might as well get on that wagon while it’s still bandy. Also, it involves ragging on the "hyperinflation in America is imminnent!" set and while that’s like shooting fish in a barrel, sometimes shooting fish in a barrel is fun!*
Something that always puzzled me re: predictions of looming hyperinflation is where the predictors think the supply constraint is. Even if you accept certain assumptions about "money printing" that I would quibble with, it’s not an increase in the money supply that leads to inflation per se it’s growth in the money supply that oustripts growth in real goods and services. Assuming "velocity" is constant (whatever that means) to assume that mo money = mo debasement means you have to assume that level of goods and services is constant. If you magic a $20 bill out of nothing and hand it to me I might decide to give it to an unemployed person or stuff it in my mattress or buy something with an extremely elastic supply schedule like a nice haircut. But I might also buy gasoline! To assume that "all this new money" will lead to hyperinflation you have to believe that the economy is producing as much as it can produce or that there is some real constraint on the economy.
Here’s a great example – in A Clash of Kings, when Tyrion Lannister is scoping out King’s Landing (which has seen an enormous influx of refugees since war erupted) he makes this observation:

"The markets were crowded with ragged men selling their household goods for any price they could get…and conspicuously empty of farmers selling food. What little produce he did see was three times as costly as it had been a year ago."

This, of course, implies annualized inflation in King’s Landing of 200%. That’s hyperinflation! But the reason for it is not an influx of money (say, the Lannisters minting more gold to pay off the Iron Throne’s sovereign debt) but severe supply shortages – the war is both reducing the productive capacity and capital wealth of the Seven Kingdoms as well as massively disrupting transportation networks. This is firstly a nice example of the principles behinf Paul Krugman’s work on economic geography but secondly goes to show that hyperinflation a) doesn’t necessarily require an increase in the money supply just as an increase in the money supply doesn’t necessarily engender inflation and b) that hyperinflation is usually a symptom of underlying dysfunction and catastrophe. Certainly there are supply contraints in the modern American economy but given that commodity prices are falling and lots of people aren’t working while putting everyone back to work through monetary expansion would cause some inflation it wouldn’t evaporate all dollar-denominated wealth and it certainly wouldn’t do that while there are vast amounts of underutilized resources in the economy.
*Actually, as of late I’ve been more in to shooting fish in mid-air with a bazooka.

In Which Adam Ozimek Forgets About Demand

Trying to explains how a skills shortage in STEM fields could persist without increased wages, Adam Ozimek writes:

To put it concisely, I think what people may be observing is very elastic labor demand. Consider a manufacturing firm that is selling widgets in a global market. If they pay workers $15 an hour they can sell widgets for $1 and the global market will buy what from an individual firm’s perspective looks like pretty much however many they can make at that price. But at $15.50 an hour the widget cost and price goes up by one penny and they can sell zero on global market. This means the firm is willing to hire a marginal worker, and in fact many marginal workers for $15 an hour, but cannot profitably hire any more workers at more than that.

Technically this isn’t a shortage, and is similar to what the “skills shortage” critics would say is just business owners wanting to pay below market cost. But it does explain why the “just raise the wages” solution doesn’t really help the industry. If it’s a zero economic profit industry and prices are set on a global market they may be unable to.

He does qualify this by saying "[t]echnically this isn’t a shortage" but boy does that not do his first paragraph justice.

If there is a STEM skills shortage, what that means is "employers are demanding more of a certain kind of labor and there’s not enough to meet demand." It is helpful to reason a step backwards – why would employers be so interested in hiring workers with these skills if the demand for the final product is so elastic? Most demand curves are downward sloping, which means at least some people are willing to buy it at some price. The price elasticity of demand is our way of framing how much the quantity demanded by the market changes when the price changes. If, in this case, every widget is being purchased at the market price, but the quantity demanded at P $X+0.01 = 0 then there is no skills shortage because there is no supply shortage. A skills shortage flows from a supply shortage. By Ozimek’s argument there is a "shortage" in everything. Right now I am experiencing a "shortage" in time machines, unicorns, and Maseratis, but I live in Alexandria, VA so I’m experience a real shortage in housing which is why the price of housing in my neighborhood, city, and metro area continues to rise and rise.

By definition for an economically-meaningful shortage to exist there has to be some gap between supply and demand and that means there has to be actual supply and demand. Just because employers want cheap labor doesn’t mean they’re demanding it, in the economic sense.

[supply, demand, labor, STEM, skills, shortage, where's my time machine?, widgets, elasticity, Alexandria]

What Does Government Borrowing Crowd Out?

Ryan Avent says some things he probably considers uncontroversial, because he says so:

That’s because there are relatively uncontroversial ways in which high levels of government debt can and do affect growth. Government borrowing can crowd out private investment, induce uncomfortably high levels of inflation, and create a need for distortionary taxation.

I’m going to go ahead and say – some of this is at least somewhat controversial! A bold stance, indeed.

Let’s say the government wants to spend some money. The government can choose to finance it in two ways:

1) It can raise taxes.
2) It can borrow.

Obviously. But what does that mean?

In the first scenario, the government identifies a place where there is some money and takes it. It’s good to be the king.

In the second scenario, the government makes an offer – anyone who wants to patriotically volunteer their money to the government will get a series of small reward payments for many years, followed by the eventual full refund of their nominal volunteered sum.

Either way, the government has withdrawn an equal amount of money from society. The primary difference, it seems to me, is two-fold:

1) The money comes from different places.

2) In the latter scenario the government has obligated itself to future payments.

Item 1) is what’s usually paraphrased as "crowding out investment" – the presumption that money borrowed would have been put to use in ways that engender long-term growth, whereas money taxes would have come from mere "consumption." Regular readers (if you exist, that is) know I am not a fan of the saving/consuming dichotomy, but I am willing to indulge the idea that resources withdrawn by the private economy by government borrowing are systematically different than those withdrawn by government taxation. Let’s come back to this.

Can government borrowing "induce uncomfortably high levels of inflation?" Not if the Fed says it can’t! And the Fed has been pretty good at keeping inflation limited since the Volcker era.

Can government borrowing "create a need for distortionary taxation?" Sure! But so does taxing the money in the first place. If the government spends money and funds it all through taxes, there will be a lot of deadweight loss. If it funds at least some of it through borrowing, there will be presumably less deadweight loss since the money was coughed up voluntarily.

But look – here’s the data

Here’s real federal debt held by the public v. real federal interest payments since 1970:

So, not a terribly correlated series.If you’re the naturally loggish type:

Which shows a more correlated series at least during the 70s and 80s but note that starting in 1985 while the debt begins to rise and rise the total interest payments mostly stall out.

So, given the large increase in public federal debt over the last 30 years, we have seen decreased inflation, stagnant real interest payments (which means shrinking real interest payments as a share of GDP) and…so where’s the "crowding out?"

Any discussion of these issues without talking about the financial system, the central bank, the status quo ante of the macroeconomy, etc, isn’t very useful.