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To start, I’m just going to put this right here:

Slade’s piece is, in essence, a defense of conservative anti-poverty policy as expressed through a critique of progressive/social democratic anti-poverty policy and its critique of conservative anti-poverty policy. I made it sound confusing, when actually it wasn’t – Slade focuses on defending conservative anti-poverty policy by explaining that the conservative counterfactual to the status quo is not the current pre-transfer distribution of income but instead a larger pie and fewer barriers to work and entrepreneurship.

As Slade suspects, I disagree, though obviously there is some overlap between Slade’s conservativism, which is definitely libertarian-flavored, and my own preferences – more immigration, less war-on-drugs, less occupational licensing, etc. What I want to dig into, though, is more Counterfactuals 202, and for that I want to hone in on this part of Slade’s piece:

It’s important to realize here that standing against a certain policy proposal is not the same as standing with the status quo. When right-of-center reformers say Obamacare is a bad law, they’re not endorsing the health care system that was in place immediately before its passage. Similarly, when conservatives and libertarians question the wisdom of the “war on poverty,” we are not putting a stamp of approval on the levels of poverty that existed 50 years ago, or on the ones that remain today. Our position isn’t that poverty does not matter. We just recognize the chosen prescription has turned out to be a poor one.

The Obamacare example in particular is a productive one to discuss, since it’s much more narrow in scope – a single, well-defined, recent reform package as opposed to half-a-century of a broad philosophy of governance – and because the issue of Obamacare and counterfactuals cuts both ways.

You may recall that, in addition to the larger and more-vocal right-wing opposition movement to Obamacare, there was a smaller but no less vocal or strident progressive opposition movement, perhaps best epitomized by Marcy Wheeler dubbing the Senate bill “neo-fuedalism.” While I don’t agree with that perspective, I am not wholly sanguine about Obamacare. Firstly because of specific problems or drawbacks to the act as written and enacted, but also because I vastly prefer adopting a single-payer or even nationalized system – universal coverage, better outcomes, and a trillion dollars a year? Yes, please.

But I supported and advocated for the passage of Obamacare. Why? Well, I could have, like Slade, simply stated “I prefer my counterfactual to Obamacare; ergo, oppose” and moved on; but instead, I looked at my preferred counterfactual probabilistically – what are the likely actual counterfactuals to Obamacare? Do I support those more than Obamacare? And the answer to that question was “absolutely not” – I would much rather, even though a kludge too friendly too industry, expand coverage to the uninsured and experiment with serious cost-control reforms then leave the status quo in place indefinitely, which was the overwhelmingly likely actual counterfactual in the case of Obamacare.

I’m not certain how much this applies to the conservative counterfactual case; it’s entirely possible that many conservatives genuinely believe that Obamacare is a net negative development. I would argue, though, that conservatives passed up a tremendous amount of leverage in shaping Obamacare, which Democratic leaders from the President on down would have gladly exchanged for political buy-in. So the conservative counterfactual in the case of Obamacare should be something more like “knowing that Obamacare would be enacted and Obama would be reelected, should we have played ball with the inevitable and shape it more to our liking rather than dig in to indefinite total opposition?” An interesting question.

And while this logic is, as I said above, much harder to apply to the overall war on poverty, it’s not impossible. A point I always try to stress to conservatives is that the opposite of welfare-state social democracy is not conservatism; it’s Communism. The modern welfare states of Western Europe and the United States fundamentally emerged as the capitalist response to the then-seemingly-inexorable growth of Communist power. “We can have our cake of economic growth and individual freedom and eat social justice too,” was the message, to totally dismember the metaphor.

I’m not certain, from reading Slade’s piece, exactly how the contours of her conservative counterfactual to welfare-state democracy differ from the policy status quo of the Eisenhower Administration. But I will ask her to think a little harder on Michael Lind’s question of “why are there no libertarian countries?” and to consider not just the idea of a preferred counterfactual, but the odds of that counterfactual coming to pass, and coming to pass in the way you imagine it, and working out the way you think it might. Which is not to say that principle should always be sacrificed on the altar of hyper-realistic incrementalism; just that a realism in the realm of political economy has as much to say to ideological priors as vice-versa.


These two Bryan Caplan posts have gotten some attention, in my circles largely negative, in my opinion largely deserved. Read them for yourself.

If I wanted to boil down the difference between the Caplanian worldview and my own to a handful of mostly-binary questions, it would look a little something like this?

  • Is it possible for a society to be sufficiently just that poverty can be deserved?
  • Is it possible to know if a society to be sufficiently just that poverty can be deserved?
  • Is our society that society?
  • Is it possible to adjudicate individual desert?
  • If so, who can or should adjudicate individual desert?
  • Is the coercive nature of redistributive taxation worse than the deprivations of poverty?

Bryan Caplan’s answers to these seem to be “yes, yes, yes, yes, Bryan Caplan, yes;” mine would be “no, no, no, no, not applicable, no.” I could go through each of these and dig in, but I think people get the idea and there’s something in particular I want to hone in on.

What strikes me about this is not how selfish it is, which is a common and quite accurate and salient charge lodged against this mindset, but about how arrogant it is. Bryan Caplan is apparently so philosophically confident in his bourgeoisie values and epistemologically confident in his own judgment that his inevitable conclusion is that widespread suffering is not only inevitable but just regardless of the material possibility of ameliorating that suffering because Bryan Caplan believes it so.

What’s a little odd about this is that it is so anti-consequentialist as well as so anti-humble. Often libertarian and conservative types combine a Hayekian argument about consequentialism and humility – the challenges of central planning, the seen and the unseen, public choice, perverse incentives, etc – and Caplan does some really, really perfunctory handwaving in this general direction. But basically his whole argument boils down to a set of immovable priors that amount to a hermetically-sealed hyper-egotistical justification for why anyone taking a penny of what of what is likely several hundred thousand dollars in compensation he receives every year from his various teaching and research jobs as well as book sales without his express and euvoluntary consent is a moral outrage whereas a prosperous-in-aggregate society in which widespread poverty persists is not.

Needless to say, I find his sauce pretty weak. This doesn’t even mention the chutzpah of emitting all this gas while collecting the bulk of his compensation from the state.

big externalities spending g's

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.

Ashok Rao busts me for being lazy this morning, and he has me dead to rights. I blithely waved away a further discussion of what would actually happen if there was a large secular increase in aggregate saving on the part of the poor. I was lazy about this, and in my defense, I was using “economic disequlibirum” as a stand-in for saying “a) I’m at the office, b) I didn’t think it was entirely relevant to the final conclusion of my post, and c) I was feeling lazy.”

So now that, at the very least, condition a) has been relieved, let’s take a look at Ashok’s point. He notes – quite correctly – that 1) even if you make unrealistically egalitarian assumptions about the initial wealth distribution that increased saving by the poor doesn’t affect the ratio very much, and the more broad point that 2) the wealth gap between rich and poor will continue to increase so long as the rich save at a higher rate than the poor regardless of the initial distribution. Both of these are correct, but they do end up being somewhat tangential to the real question re: the effect on the economy on a substantial secular increase in the social desire to save.

This is, in fact, a much disputed question in economics, and what effects it might have (and whether that effect depends on whether current conditions are recessionary and whether we’re at the ZLB) are not the subject of much consensus. As a general point, though, Americans used to save much more, so if we decided to save more now, in all actuality it may not have much economic impact at all.


But just because things used to be one way doesn’t mean that, under current conditions, they could just be that way again – a lot has changed since the 1970s and perhaps it might not be so simple to revert back to saving that much. Tangentially, I’m really not a huge fan of the distinction between “saving” and “consuming” anyway, so maybe I’m not the perfect person to be breaking this down, but what the heck, let’s give it a shot:

What happens to the economy when the poor start saving more depends on what “savings” is in this context. Let’s start with some real data – the lowest quintile of Americans take home 3.4% of national income, and therefore a 1% increase in the savings rate of “the poor” (defining that as coterminous with the bottom quintile of earners, which is totally not actually correct) would result in an increase in the total national savings rate of .034%. So we’re talking pretty small taters, frankly, which is really the key issue.

But beyond that, we can still discuss the theoretical side, which truly does depend on what “savings” means. If it means “putting the money into deposit accounts at banks” then the aggregate effect of those savings depends on whether it increases loaned funds from that bank in an amount that equals or exceeds the forgone consumption. The reason the “paradox of thrift” doesn’t always hold is that the saved money “has to go somewhere” which means it could (though not will) become someone else’s consumption (of perhaps a more durable good) that will offset the loss in more short-term oriented consumptions. So the disequilibirum” that results could be a net loss in output and/or it could be a sectoral shift in output, and how disequilibirum-izing you think that is depends on how PSST-y you think the economy is or more broadly how inflexible it his, how high transaction and discovery costs are, how rooted labor markets are, that kind of thing.

Anyway, the point is, while this is theoretically all interesting, my two conclusions from Ashok’s post are a) the net short-term economic impact of even a substantial shift in the savings preferences of the poor will be small and b) I still think the conclusion of my prior post was right because it wasn’t dependent on whether or not a) is true.

Ethan Gach at TLoOG puts his finger on what it was about Noah Smith’s article about the poor and saving that didn’t sit quite right:

Hmmm, I wonder what would happen if everyone started saving as much income as they reasonably could? Where would the high yield investments be with so much capital sloshing around? How would the markets react when aggregate demand plummets even further?

Snark aside, the key here is that, while it would benefit any individual poor person to save more (assuming, of course, that’s possible given their income and cost-of-living, which is not an assumption I’m eager to make), if every poor person somehow stumbled onto Smith’s article and tried to save more it might generate economic disequlibria that wouldn’t benefit anyone. This is semi-related to the point I’ve made before that aggregate saving is a very different animal than individual saving.

IMHO, the best thing we can do for poor people is to a) give them money and other stuff (mostly healthcare), but perhaps more importantly b) make American richer so that we can more easily afford to give poor people money and healthcare. Public policy-wise, this mostly means investing in things that increase forward-looking productivity – high-speed rail, super-fast public internet access, etc. If America is richer tomorrow than it is today, than transfer programs can either a) grow without affecting the real net incomes of those paying for them or b) can remain at current levels of generosity while simultaneously allowing effective taxes to decline or making more public investment possible. That makes the political economy of the welfare state more sustainable and leads to a virtuous cycle. I don’t think it’s a coincidence that most wealthy nations have generous social safety nets.

Note that this is distinct from the right-wing trope that economic growth automatically benefits the poor because every time GDP grows golden coins rain from the flying limousines of the rich onto the heads of the grateful poor. The key is still in active support networks for the poor and the way that economic growth tends to strengthen them

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