Archive Page 2

Filthy lucre

[by JSC5]

I’m amazed how common it is to believe that people who’s job it is to help others shouldn’t benefit too much in the process. Here’s the latest installment, from the New York times, quoting politicians and professional worry-worts:

“A nearly $1 million salary and benefit package for a nonprofit executive is not only questionable on its face but also raises questions about how the organization manages its finances in other areas,” said Senator Tom Coburn, Republican of Oklahoma. …

“Many donors feel that paying the leader of a charity a six-figure salary is outrageous,” said Ken Berger, [president of the website Charity Navigator]. … “I’m not advocating poverty wages,” he said. “But arguing that those working for the benefit of the neediest people in our society should make millions and multimillions like corporate leaders defies common sense.”

A world in which it “defies common sense” to compensate people highly when they provide goods and services on a charity basis that are undersupplied by a market economy is a world in which lots of people believe that money is dirty. The outcome of such a belief – low pay in the NGO sector – ensures that only the children of the ruch can afford to do things like conduct research into development interventions abroad, or run an organization connecting at-risk youth with older adults.

The world I prefer to live in is a world in which we encourage the provision of charitable goods and services by making sure that salaries at all levels are sufficient to encourage bright people with new ideas to get into the field and improve efficiency. And if someone happens to live well by doing good, then more power to ’em!

Now, of course, there is some sort of tradeoff here. High salaries in the non-profit sector could attract good people, or they could be a waste of resources that could have otherwise gone to additional provision of charity goods and services. Clearly both happen, to a certain extent. Just like with faux-scandals over corporate pay, the answer in the NGO world is to strengthen the transparency of the donor market, strengthen board oversight of NGO management, and increase competition among providers of charity goods and services so that more efficient and successful organizations can prosper, while lurking behemoths fall.

Do markets understand politics?

[by JSC7]

Ezra Klein weighs in on Tyler Cowen weighing in on the Krugman/Rogoff debate about what debt-to-GDP ratio America can stand before growth starts to feel a drag. Klein says that maybe we shouldn’t be worrying about the specific number, but rather how well our political system can deal with the problem in general. Money quote:

But the driver behind that question is not how much debt we have, it’s whether our political system can make the difficult choices to deal with that debt. So long as the political system is working reasonably well, we can get out from even quite a lot of debt. But the more it breaks… the more it has reason to worry.

What I think is worth asking, if that’s the case, is how well our business world understands the political system. We talk a lot about how politicians don’t understand economics, but what if the reverse is true? Even assuming no change in the system itself, it’s a pretty opaque system to someone who isn’t involved in it (not relevant to the budget, but all the stuff coming out of the Top Secret America report can’t be an anomaly). But, of course, you have to factor in the political systems ability to change itself, especially in response to crises (like a ballooning deficit). I don’t know how many people on Wall Street have a good sense of this.

Especially when it comes to the budget deficit, you can see the possibility of a self-reinforcing feedback loop. Businesses think that government will respond reasonably to a large deficit, and so U.S. Treasury prices stay low, but because Treasury prices stay low, the government doesn’t feel an imperative to fix the problem, and maybe even continues to make it worse. If that’s a threat, then I’m glad we’re having debates about what debt-to-GDP levels are feasible, because it at least gives us a chance to point to a concrete number and say, okay, now we have a problem, rather than relying on markets to correctly predict politicians or vice-versa.

A note to everyone who looks like the people from the bar last night: you’re on my list

[by JSC5]

If you were looking for a concrete example of what I was talking about in my previous post on how terribly puerile our privacy culture is these days, then look no further.* The libertarian/conservative law prof blog Volokh Conspiracy has you covered. Here’s Prof. Kenneth Anderson talking about the effect the JournoList ‘scandal’ has had on his perceptions of reporters in general:

When I was reading Peter Finn’s reporting on the Washington Post website on the CIA for my previous post, and despite this being a widely reported, straight-facts story, and despite my long-time, continuing, unstinting admiration for Peter Finn as a reporter on national security and related issues at the WaPo, I do admit that one of the first thoughts in my head was … is he a JournoLister?  And if he is, do I need to somehow discount his account as being part of a pre-conceived narrative?  And if so, by how much? 

So Kenneth Anderson used to have tremendous respect for Peter Finn’s work as a reporter because of his extensive body of work as a journalist. But post-JournoList, suddenly Kenneth Anderson has grave doubts about Peter Finn’s reporting — so much so that he’s decided to cast aspersions about Finn’s work on a widely-read media outlet.

That’s quite an about-face to be caused by one listserve. For those of you who’ve rationally decided to care more about your own things than the latest inside-the-beltway ‘scandal’, here’s a brief recap. JournoList was a private listserve for center-left journalists, opinion writers, professors, bloggers, and public intellectuals. From what I know, J-Listers used it to chat about current events, policy, sports, gossip, and the state of journalism. Some members clearly used it to let off steam. Dave Weigel, a former journalist/blogger for the Washington Post, famously used it to complain to his friends on JList about Rush Limbaugh and some other celebrities on the right. Someone with an anti-Weigel axe to grind leaked the JournoList archives to a new right-wing website called the Daily Caller. It was a win-win for all involved in the shady deal: the Daily Caller got a bunch of new hits, and the leaker got Weigel fired and may have destroyed his career (we’ll find out in a few years).

Some conservative media outlets decided to run with the story that JournoList was a liberal cabal coordinating stories and manipulating the news. The evidence to support this view is pretty weak / non-existent, but that hasn’t stopped some people – like Kenneth Anderson – from moving into full freak out mode.

It’s probably unfair to single out Kenneth Anderson, since there are plenty of other examples, but I think it’s important to have a concrete example of how insane our culture has become. Anderson used to have a very high opinion of some journalist named Finn based on years of experience consuming and appreciating  his reporting. But now that some partisan hack media outlets are publishing vague accusations of journalistic misconduct among a group of people on J-List, Anderson is suddenly extremely distrustful of ALL JOURNALISTS. I apologize for the profanity, but that’s just fucking nuts. I’ll echo my colleague JSC7 in asking why vague allegations about JList, or specific citations of intemperate words said in private, should be such a powerful signal that should change a person’s professional credibility despite years and years of actual work product that could provide a more accurate source of judgment?

Let me put this another way: A random, untrustworthy dude on the street comes up to you and says that some heinous shit went down at a local bar last night. Do you (A) dismiss the bum’s allegations and go on with your life unless you get some actual, credible information, or (B) gasp in horror and publicly question the morals and credibility of anyone who even looks like the people who would have been in that bar last night — even if you had just recently asked one of them to be your newborn child’s godfather?

Common sense says (A). Certain oh-so-earnest and concerned political operatives on the right say (B).

Does this mean that everything about JournoList was above board? I don’t know. I wasn’t on it. But nothing yet has come out that makes me think JournoList was any more problematical than an office water cooler. So like any sane, good-spirited person, I’m choosing not to believe the worst and most outlandish conspiracy theories until I see some credible evidence. I’d like to even stop reading, writing, or caring about this topic untill/unless this credible evidence materializes. Unfortunately, the cause of maintaining standards of decency and privacy is too important.

* The title of the piece in question, as you’ll notice if you click through, is “A note to all the non-JList reporters”. Combine that with my bar analogy later in the post and you have the odd title to my blog post. Sorry about that.

Nudging our way to freedom?

[by JSC7]

There’s been some debate in the blogosphere this last week about an article on nudging*. It’s in the Bill Easterly vein of saying, hey, nudging is cool and all but it’s no panacea, and sometimes you need to push. From an economics point of view, I find the topic fascinating, and worked on a few research projects that dealt with these sorts of nudging questions while at school. From a policy side, though, there’s always been something that bugged me about the nature of the debate, though I could never put a finger on what exactly that was, until I read Chris Blattman’s response to the aforementioned article. Key quote:

…if we really want to change a behavior, we have to change incentives (like prices) or impose restrictions. We don’t nudge people away from domestic violence, for instance, we criminalize it. We don’t just encourage people to stop smoking, we tax the socks off cigarettes.

The obvious rejoinder is that not everyone is comfortable with regulating and taxing and messing with prices. Nudging’s appeal is that it preserves free choice and minimizes state manipulation.

Italics mine. Blattman’s characterization of nudging’s appeal is 100% accurate, but I think the appeal itself is misguided. Worse, the nature of the appeal suggests that many of nudging’s advocate don’t understand the point of nudging.

The underlying thought behind nudging, and much of behavioral economics, is that mental costs are often as important as monetary ones. Classical economics assumes that the most important characteristic of a product is its price. Changing the price of gallon of milk by five cents will have much more impact than, say, where in the supermarket you put that milk (in fact, the latter is assumed to have no impact at all). Behavioral economics comes along and says, hang on a minute, let’s use cool experiments to prove otherwise. What we’ve concluded from these experiments is that non-monetary costs are not negligible. Okay, so rather than just having monetary costs in your equation for how much milk you buy, you now have to factor in both monetary and mental costs.

Is there some kind of fundamental difference between these two kinds of costs? As far as the economics is concerned, no. And yet, policy people seem to be enamored with the idea that raising the monetary costs of a transaction reduces free choice while raising the mental costs of a transaction does not. They’re turning a semantic difference into a normative one. The point of nudging is that we take advantage of the peculiar irrational wiring of our brains in order to unconsciously change our actions. The point is to circumvent our usual (suboptimal) decision-making apparatus. How does that retain free choice any more than a tax (if anything, I can see an argument for the reverse)?**

The idea that nudging ‘minimizes state manipulation’ also seems to stem from strange logic. I think people who think this are conflating the how much a particular state manipulation costs with how much is actually being manipulation. The nice thing about nudges is that there are certain tricks we can implement to get people to do particular things, and often these tricks are quite easy to implement. It may be cheaper to nudge than to pass a tax law, collect the tax, audit, enforce, etc.*** On the other hand, a consumer will probably see none of this. If you buy two packs of cigarettes a week with no intervention, and one pack a week with either a tax or some nudge in place, would the state be manipulating less if it implemented the nudge instead of the tax?  No, it would be the same manipulation, only more efficient. The state is still meddling in your consumption. Ron Paul should still be upset. It can just meddle on the cheap.

The big picture problem is that behavioral economics puts into question some traditional assumptions about human rationality, and offers some cool byproducts of doing so. Policy people snatch up those byproducts, but continue to hang onto dated ideas about human rationality, and thus can say with a straight face that nudging both actively changes people’s choices and gives them more freedom to choose at the same time. They should ask themselves, what is the value of a choice that we know, ex ante, we will not choose?

* If the word nudging means nothing to you, it’s an idea in behavioral economics that has made its way into pop public policy via this book. The gist is that there are certain problems we can solve by making small structural changes that seem trivial but actually matter a lot, like improving health by making unhealthy foods slightly harder to reach or increasing bank use among the poor by making forms easier to fill out.

** Interesting aside: with taxes, we have progressive and regressive taxes, the former taxing rich people proportional to their wealth, like the income tax, and the latter taxing everyone equally, and usually hurting the poor more, like a hike in subway fares. A nudge is like a mental tax (or subsidy, depending on which way it goes). Is it regressive if it disproportionately affects stupid people? What happens to people with non-standard thought patterns?

*** Although not necessarily. I’m sure there are plenty of nudges that would work but would be a pain to implement, like putting an actor posing as a hobo next to liquor stores.

How to end tax expenditures the right way

[by JSC5]

As per Ezra Klein in today’s Wonkbook, Martin Feldstein has a plan for decreasing the deficit: end tax expenditures.

Now, regular readers of the blog will remember tax expenditures from one of my old posts inspired by the craziness of Hawaii’s ‘Exceptional Tree’  tax deduction. The basic point to remember with tax expenditures is that they give people money through the tax code instead of by cutting them a check directly. In many ways, tax expenditures and direct spending are exactly the same: the net effect on recipients is the same (they get more money), and the net effect on the government is the same (it gets less revenue).

But tax expenditures come with a whole host of negative effects. By making Swiss cheese of the tax code, they make compliance overly complicated. They distort work and income incentives. They don’t need to be reauthorized, so they tend to persist for a long time without any legislator taking a look at them and making sure they’re still a good idea. Furthermore, most people miscategorize tax expenditures as tax cuts instead of spending, so they are easier to enact and harder to repeal than regular spending programs. Just about any economist would tell you that we should run spending programs through normal spending procedures while keeping our tax code standardized and simple.

So it’s unsurprising that veteran economist/conservative political operative Martin Feldstein has come out against tax expenditures. As a foe of tax expenditures myself, I heartily welcome the support. And yet I find it hard to really trust his plan. Let me explain.

Feldstein begins his argument for cutting tax expenditures by mentioning three areas in particular that rely on the tax code for spending: education, child care, and health insurance. One gigantic tax expenditure – the mortgage-interest tax deduction – doesn’t get a mention until the very end of the article, when Feldstein says it’s probably best to  slightly reduce (not eliminate) the deduction “to avoid economic disruptions.” Did you catch the pattern? Tax expenditures that liberals and Democrats support get the axe. Tax expenditures that conservatives and Republicans support are handled with kid gloves, since – gosh! – they’re particularly important!

The lesson I draw from reading Feldstein’s politically-opportunistic support for tax expenditures is this: if we’re really going to end spending programs through our tax code, then we need to do it all at once and for everything. If you take it issue-by-issue, then there’s always going to be a big lobby in support of that particular expenditure and a small minority whose primary concern is tax expenditures in general. Mr. X is a high income homeowner and votes yes on eliminating education tax credits and no on mortgage-interest deductions. Mrs. Y is a low-income renter and votes the opposite way. Nothing gets done.

My proposal is simple: pass one bill to eliminate tax expenditures as a way to run programs and automatically convert all tax expenditures into equally-sized direct expenditures. Everyone congressperson who dislikes tax expenditures as a tool of government can get on board — regardless of the actual content of any particular tax expenditure. Tax expenditures won’t get used as a political football by advocates with an axe to grind. Then we can leave decisions about actual levels of spending to a case-by-case review at Congress’s leisure.

We get the benefits of a vastly-simplified tax code, with easy compliance and standard, predictable incentives. And small government conservatives would still find plenty to like here. The calculus has changed: everyone now realizes that these are real dollars being spent, moving through the regular appropriations process.

That’s what real concern about tax expenditures looks like. And that’s why I doubt Professor Feldstein’s commitment to Sparkle Motion.

What is an objective journalist?

[by JSC7]

As usual, unfashionably late to the party on the whole Dave Weigel “What happens on the mailing list stays in the mailing list” fiasco, but watching it play out has been a doozey. Here’s JSC5 bigger picture take, the Bernstein post he commented on, and some other reactions (1, 2, 3, 4). I don’t know, the whole thing seems to be one straw man after another. The one reasonable point that people have made is that reporters can have strong opinions about whatever topic they cover, though I feel like even there the analysis tended towards abstraction. Would we get up in arms if an environmental journalist sent a private e-mail talking smack about BP? Would we get angry about a correspondent in Burma told a buddy that he hoped the junta would set themselves on fire?

You can’t answer no to that question, yes to the Weigel equivalent, and still believe in the objectivity of news. If you answer the two questions differently, it’s probably because you think there’s something inherently worse about the Burmese junta than merits aggressive reporting from contrarian reporters, and that that something is lacking in conservative U.S. politics (Weigel’s beat). Now, that might be true, but if you think that reporting should change based on your opinions about the topic being reported on, then you’re not asking for objective news, because objective news would presumably have some standards that are independent from your personal tastes.

Which brings me to the bigger topic, which I haven’t seen mentioned in the Weigel case, which is how the hell do we measure objectivity in journalism in the first place? We can call a journalist voluminous, hardworking, concise and precise with his facts, but how do we go about calling him objective? In psychology there’s a word signaling, which means using something to signify something else (like, walking with a swagger to signal that your genes are the awesome). Weigel’s Journolist rant was taken as a signal of his lack of objectivity. Somehow, this rant managed to outweigh whatever signals of objectivity his entire opus of journalistic work was emitting.

This should be setting off red flashing alarms. I would hope that the Washington Post had some kind of opinion about Weigel’s objectivity before they saw the rant. If you called the in 2009 and asked them, hey, is Weigel an objective reporter?, they could have done more than shrug their shoulders. Somehow, though, a few lines about Matt Drudge’s self-immolation totally tipped the scales.

What this suggests to me is that it’s really hard to tell an objective journalist from a non-objective one. I haven’t heard anything more rigorous than a bells-and-whistles version of “I like to think I’m objective, and I like Weigel’s reporting.” If a show of hands is the best we’ve got, well, then we don’t got much, and whether Weigel should or should not have been fired is not the question we should be asking. Instead, we should be asking why ancillary factors like Journolist rants can totally change our evaluation of articles that have, without complaint about their objectivity, already been edited, published and consumed.

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This is a group blog. JSC5 currently writes from the US. JSC7 writes from behind the Great Firewall of China.

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