One out of six

Noah Smith is a frustrating pleasure.  His inclination to find the data is estimable.  His capacity to misinterpret the data is hair-pulling.  

Both inclinations are on display in today's At least five interesting things: You Can't Just Do Things edition (#69) by Noah Smith.   It's actually six interesting things.

1. Cash won’t solve all of poor people’s problems

2. American colleges are in trouble

3. China is starting to curb “involution”

4. Why conservatives fear green energy

5. When Turkey tried getting rid of central bank independence

6. Those terrible tariffs

The first item, Cash won’t solve all of poor people’s problems, is very interesting.  Doubly so because Smith is a long time advocate of basic income policy.  He is here updating his priors with recent robust studies which find that basic income makes no measurable difference in the well-being of recipients.

The piece is rich in links to original sources and data.  

This is all extremely disappointing. In these well-designed real-world experiments, cash benefits are making people produce less in the market, while not really making their lives much better. And as Piper goes on to explain, nobody can really figure out why. People aren’t using the cash to buy drugs or gamble or whatever; they’re working a bit less, but mostly they’re just spending the cash on things they need. It just doesn’t make their lives look less like the lives of poor people.

If Basic Income is on your radar as a policy issue, this is a valuable update.  

Despite the honesty of presenting detailed data which undermines his prior belief, Smith still believes for really bad reasons.

A more valid counterargument — and one that Bruenig touches on, but could have been a lot more explicit about — is that poor people having more cash is simply a good thing in and of itself, whether or not their kids become healthier or they get a better education or they report less depression. Being able to afford more food, more transportation, more housing, etc. makes your life better, even if it doesn’t make you lead a healthier lifestyle.

This is why I still support cash benefits. (Though the recent results on disemployment do give me pause, because economies do need to produce things in order to have things to redistribute.)

The first paragraph is almost incoherent.  Two points.  The whole gist of all the recent studies is that, contrary to his last sentence in the first paragraph, being able to afford more does not in fact make your life better in measurable sense.  In the one sentence,

Being able to afford more food, more transportation, more housing, etc. makes your life better, even if it doesn’t make you lead a healthier lifestyle.

He disavows all the evidence he has just marshaled.  The data says that more cash makes no measurable difference in any desirable life outcomes but Smith ignores that.

The more important point is that all policies have costs, individually and collectively.  With Basic Income, the point is to justify coercively taking productivity from one group of people to benefit another group of people.  Smith is showing the data that the second group does not benefit in any fashion which can be measured.  What he is ignoring is the cost of coercively taking from those who are productive.  A cost that is both individual (people are poorer for the taxes they pay) and collective (a negative incentive towards productivity.)  

If Smith were to have argued that there is value to ensuring that poor people should have a guaranteed basic level of material well-being, then at least that would be coherent.  We can argue about the premise and argue about the degree of material well-being.  But he is supporting basic income (not material well-being) while demonstrating that basic income comes at an individual and societal cost and with no measurable benefit.  

Strikingly, Smith comes close to a really interesting observation in his final paragraph.  Close, but not quite there.

But I think the recent evidence points at a deeper truth, which is that many of the social ills we believe result from low income — drug use, poor health, broken families, violence, and so on — might not be solvable by giving people more TVs, sofas, cars, and cell phones. Material goods are important, but they aren’t everything, and we should be looking for additional ways to help poor people lead happier lives.

Most conservative, classical liberal, libertarian, classicists, and religious people would respond - Duh!  

Happiness and well-being are not determined by income.  They are a product of values, behaviors, and goals.  This has been known and discussed in philosophy for 2,500 years and in economics for 250 years.  Smith is skirting the deeper truth.  Material goods don't improve lives.  Peoples values, behaviors, and goals improve their lives.  But for someone from a coercive distributionist mindset, that deeper truth is anathema.  Far easier to transfer resources coercively, even if it makes no difference, than to get people to adopt values, behaviors, and goals which will help them lead better lives.  

Because ultimately the avoided deeper truth is that your well-being is only ever the product of your own individual efforts and not what a central planner chooses for you.  

1. Cash won’t solve all of poor people’s problems - This interesting things is usefully valuable.  Smith is somewhat incoherent in how he processes the new data but he does present it even though it contradicts his desired priors.  

From my perspective, I knew some of these new studies and not others.  A valuable update.  It reinforces my longstanding position:

1.  We need to agree on what constitutes an acceptable minimum physical well-being and figure out the policies which would effectively allow the least capable and least productive to achieve that well-being.

2.  Much of the answer to the first depends substantially, if nor overwhelmingly, on identifying are articulating what are the values, behaviors, and goals which allow individuals to increase their well-being.  

Point two is anathema to both left and right.  Conservatives rightly balk at government manufacturing culture.  Socialists balk at acknowledging individual agency as the source for individual well-being.  

As for the remaining five points.  The American college one is adequate.  Well known and written about by many for more than twenty years.  Known issues emerging as predicted.  He is just confirming what critics have predicted.  Alan Bloom is still right after all these years.

Points 5 and 6 are simply fluff with a twist of ideological prejudice.

3 and 4 are interesting because once again Smith is at odds with himself and the evidence.

3. China is starting to curb “involution” - The left are enamored by authoritarian central planning China as an alternate model to the US.  They are eager to trade in ephemera without addressing foundational philosophy and reality.  China, by engaging with markets in a socialist manner, has made wonderful progress in the past fifty years.  Because they are both authoritarian and totalitarian, they are able to transform that increased productivity into some seemingly spectacular gems - bullet trains, skyscrapers, blue-ocean navy, selective pinnacles of scientific research.  

But any national economy is always about total productivity and all people in the economy.  Authoritarians can concentrate incremental productivity into chosen areas and seem spectacular until they fail.  China rode the productivity curve upwards by pulling people out of low productivity agriculture in higher productivity manufacturing.  Once manufacturing began to crest, they switched into real estate which produce skyscraper but also ghost cities.

Because it was centrally planned, it has ended up being a gross misallocation of capital.  All that accumulated productivity, poof - up in smoke.  

And not just Real Estate.  China chose to subsidize Electric Vehicles and manufacture of solar panels and wind and batteries.  They are indeed the leading producer of those.  But it is all smoke and mirrors.  

Smith is updating us on China's central planning efforts to find how to redirect resources into sectors which can actually increase productivity and away from the currently favored sectors which are destroying productivity.

As I have been saying all along, China, independent of its demographic, economic, and international challenges, faces a core conflict inherent from the beginning of their reforms back in the 1980s.  They want the benefits and productivity that come from markets but markets depend on freedom.  More particularly on the free flow of information and distributed risk taking and decision-making.  The freedom necessary for markets to work effectively is in conflict with the coercive control of an authoritarian and totalitarian political system.  

The struggles China is going through to redirect investments into more productive sectors is what Smith is describing.  The next frontier is services but the services sector is even more dependent on freedom of information and individual decision-making than are agriculture and manufacturing.  The CCP is bumping hard up against the productivity boundary inherent in a command and control system.  

Increased productivity is no longer about allocating capital between sectors.  It is about how much freedom they are willing to tolerate in their system.  

Socialists and left-leaners have been enamored with the baubles of tall towers and production numbers of solar panels and the like without engaging in the reality of material life for the median Chinese or with the philosophical conundrum of growth through freedom versus stagnation in a command and control system.  

Which leads point 4.  In 3, China, Smith is acknowledging that the central planners are stuggling with increasing productivity and have made some pretty ghastly errors.

In 4. Why conservatives fear green energy, Smith is indulging in puerile and uninformed political mudslinging and mischaracterization without understanding the basics of the issue and without making the connection to the issues he is discussing in China.

Conservatives don't fear green energy.  That is childish argumentation.  Conservatives (and others, especially realists and engineers) argue two points.

Solar and Wind are incompatible with reliability requirements base load needs of all modern energy economies.  This is known and indisputable as seen in recurring grid failures in those economies most dependent on green energy.  This is an engineering issue with no discernible solution.

Solar and Wind are dramatically cheaper than they were a decade or two ago but so are carbon fuels.  Strip away subsidies (grants, rebates, tax subsidies, etc.) and solar and wind are not economically viable in a modern grid (they have their uses at the margin in special circumstances but not at a grid level).  

The dramatic upsurge in Solar and Wind in the US over the past decade is still marginal from a whole energy perspective.  Further, it is a house of cards.  Pull the subsidies and much of the current use-case for solar and wind disappears.  Which is what we are seeing under the new administration.

In his China section Smith observes:

Of course, it’s not clear whether this is a government-directed slowdown or a market reaction to the unprofitability of the lending boom of 2022-24. But it’s notable that solar and EVs, which seem to be seeing some of the most vicious involution — with even China’s standout national champion, BYD, under intense pressure from heavily subsidized rivals — are seeing particularly large seasonal drops in production:

Even in a command and control communist hybrid economy, the subsidies cannot continue forever.  As the subsidies disappear, so does the production.  EV cars are down 25% in China.  

A decade of subsidies and public policies are coming to grief on the shoals of economic reality, both in the US and China.  It is not a matter of political barbs and fearing green energy.  Green energy, at a macro national economy level doesn't have much of a role to play (other than nuclear which is excluded from green energy).  

For Smith, US conservatives are fearful and ignorant and are sabotaging a decade's investment in green energy.  But in China where investment is also moving away from green energy, it is just a matter of requiring better central planning.  Bah.