Wednesday, December 28, 2016

Increasing freedom leads to greater opportunity and prosperity which leads to greater inequality and harder decisions in the future

This is simply unaffordable socialist tosh; Radical economic populism is the only thing that can save the Democrats now by Jeff Spross, about what you might expect from a thirty-something leftist radio/media/TV major.

Spross indicts democrats for not noticing the failure to deliver rising goods to the electorate and then goes on to recommend the type of policies which have failed to date, have failed everywhere, and have failed catastrophically.

It is the indictment which sparked a thought.
Many liberals probably think that sounds racist, untrue, or both. But the "deeper story" is actually anchored in reality more than they realize.

America's welfare aid is both skimpier and far more targeted to the poor than most Western safety nets. Ostensibly, that reduces spending and focuses help on the most needy. But it also inevitably leaves most Americans feeling left out.

ObamaCare is illustrative of this reality. Medicaid, which the Affordable Care Act expanded, may be stingy with providers and does not always have great networks, but overall, its recipients have to deal with relatively little cost-sharing — a major plus for those who get Medicaid. But people who make too much to qualify for Medicaid fall into the exchanges, where deductibles are eye-watering and insurance subsidies phase out far too soon. As a result, only the bottom 20 percent of Americans saw their incomes dramatically and systemically improved by the health reform law.

The story is the same for most other major programs: food stamps, TANF, housing assistance, energy assistance, child tax credits, and more. Nearly half of the money goes to the bottom 20 percent of the income ladder.

Government benefits that rise higher up the income ladder are often hidden in the tax code: Think of the deduction for mortgage payments, or the tax break to employers for providing health insurance. Cornell government professor Suzanne Mettler calls this "the submerged state" — an approach to policy design that actively prevents people from realizing they're being helped by the government.

But the plight of white working-class Americans goes beyond the structural problems with government benefits. Decades of wage stagnation, disappearing jobs, and lost benefits have rotted away livelihoods for huge numbers of middle- and lower-middle-class Americans. The costs of education, housing, and health care have skyrocketed, chewing into family budgets. Nearly half of Americans cannot afford an emergency expense of $400, and even many upper-class workers effectively live paycheck to paycheck.

In other words, the financial pressures, stalled livelihoods, dismal futures, and lost jobs brought on by rising inequality and the hollowing job market extend far beyond the bottom 20 percent. Meanwhile, these middle-class Americans experience government aid solely as something that goes to other people. Democrats' increased focus on social uplift for immigrants, black Americans, and working women are infinitely worthy causes, but they also inevitably read to many members of the white working class as further proof that help is going to everyone who isn't them.
There are elements of truth to the indictment along with some misstatements and omissions. It is not the accuracy of the claim which interests me but rather the train of thought that it sparked.

We are, on average and in general, much better off than we were a generation ago, both in terms of material prosperity and in terms of almost every other socioeconomic indicator. Yes, we suffered a great recession from which we have barely recovered and yes there has been continuing economic and industrial churn and dislocation over the past forty years. Those are great drivers of frustration and ennui.

But I wonder if there is something tangential, but more causative, going on. Look at the list that Spross trots out and let me slightly recast it.

In 1970, for a variety of historical and other reasons, there were good reasons for Americans to anticipate some continuing developments of the recent past. They could anticipate a comfortable retirement between the combination of company pensions and social security. They could anticipate affordable and reliable healthcare between company insurance and Medicaid/Medicare. They could anticipate adequate and affordable public education. They could anticipate affordable means of investing in their own homes. Housing, healthcare, retirement, education - all the big cost drivers were addressed.

All you had to do was stay employed and accept some marginal limits in your choices and aspirations. If you did that, everything substantial was taken care of. You didn't have to own responsibility for your own financial planning for retirement. You didn't have to set aside monies or take out loans for education. You didn't have to do trade-off decision-making regarding out-of-pocket co-payments versus limited networks versus deductibles for healthcare. You didn't have to consider adjustable rates versus fixed, standard versus balloon mortgage structures. Things were simpler.

Complexity and range of choices

Part of what happened in the next fifty years was an explosion of expectations. The expectations of the great middle expanded enormously. Not just a 1,500 square foot home but 2,500 and larger. Not just adequate healthcare but cutting edge. Not just a more-than-decent state university education but Ivy League. Not just secure retirement but indulgent retirement (cruises, travel, etc.). What we wanted expanded faster than what we could afford. That is part of what drove the expanding sense of frustration, particularly when loaded on top of the political, economic, and cultural disruptions and uncertainties post-1970.

But I suspect there is another dynamic in play here which does not perhaps get the attention that it should. Look at all those programs. In every case, over time, people were being given more choices as a matter of course. When deciding on buying a home, you could accept the limits of a 30-year fixed mortgage or, if you were confident in the rising real estate market, you could enjoy a much larger, more desirable home if you were willing to take the risk associated with a no down-payment, balloon mortgage.

People were freed up from the risks of company pension plans by owning their own retirement accounts but then had to manage those accounts. Instead of having a company look after their retirement finances, people were tasked with making their own decisions about how much to save, when to save it, and how to invest those savings. People were freed from local service health providers and could make a whole range of choices balancing cost and need and access and quality. You didn't have to be constrained by your local schools and public universities, you could consider charters and private schools and vouchers and Ivy Leagues through the power of guaranteed loans.

These didn't happen by accident. These outcomes were a matter of bipartisan public policy. We wanted more opportunities to customize the most strategic aspects of our lives to our own desires and circumstances. Policy gave us those opportunities.

But there have been a host of consequences to having more opportunities.
More choices
More complexity
More personal risk
More reward for intelligence and balanced behaviors (self-control, self-awareness, self-discipline)
More inequality
With the real estate bubble, between 5-20% of homes were foreclosed, delinquent, financially distressed. Even with the complete redesign of 15% of the economy (healthcare) we only reduced the uninsured from 45 million to 30 million. Student college debt has passed a trillion dollars with increasing uncertainty as to how much of that will be paid back. Private company retirement pensions have all but disappeared, government pensions are increasingly underfunded and there is rising alarm about the financial ill-preparedness for the baby-boomer cohort as they flood into their retirement years.

Yes, we have given people more freedom of choice and many have done exceedingly well from those greater range of choices. The shrinkage of the middle class from 64% of the population to 51% of the population has occurred primarily because most of that 13% moved into higher income brackets.

But there is more personal responsibility, there is more complexity (all those choices have to be made), and there are greater consequences to making bad decisions. The cognitive elite who also have solid behavioral attributes have done exceptionally well. Those who are not as bright and who lack fundamental bourgeois values (duty, respect, work-ethic, self-control, etc.) have done much worse than they likely would have in days when they had fewer decisions to make badly.

The halcyon 25 years post World War II up to 1970 were a unique period where the US, as victor, garnered all sorts of exceptional benefits and which established an impossible benchmark for ever accelerating productivity and wealth. That won't recur. We have to achieve real productivity improvement through diligent effort rather than historical happenstance.

I am not arguing that we reverse the greater freedoms and opportunities that we constructed after 1970. I am merely observing that there was an aggregate effect in terms of complexity and personal responsibility which has made personal experience more challenging and more consequential. It has also had unanticipated societal consequences in terms of inequality and in terms of who wins and loses.

Because we have focused solely on domain-specific policies, we tend not to discuss the aggregate effect and therefore tend to misunderstand what is happening. Hence the global rejection of the elite and the reversion towards nationalism.

How to live within our means, how to balance freedom and security, independence and complexity, average prosperity and inequality are the central issues which are glossed over when we over-focus on domain-specific policy issues such as the laundry list of decrepit policies Spross offers.

UPDATE: And why did all this come about? Well, emergent order out of a complex system is the glib answer.

I think there is a different, and likely more explanatory answer. Who makes the laws and writes the regulations? Doctors, lawyers, engineers, entrepreneurs, business executives and financiers. That is, the cognitive elite. Their intentions were almost always good and positive. But in the process of improving things, they always improved them from the perspective of those at the top of the bell curve and rarely from the perspective of those at the bottom. All the changes that have made things better for themselves have made things more complex, riskier, and more challenging for those not in the top half.

Or at least that is my guess. Pathological altruism on the part of the cognitively endowed from within their bubble.

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