Month: March 2016

Fighting Terrorists, Part II

How do we as a free society protect ourselves from terrorists without in the process losing our freedom to our protectors? To the extent that terrorists are part of organized groups, our counter terrorism agencies need to identify and track the members of such groups with tools and techniques that do not violate our individual privacy. As such groups often operate internationally, the information collected should be shared with similar agencies in other trustworthy countries, though this has been and will remain challenging given quite different data standards from one jurisdiction to another. Individuals identified as part of a terrorist network, or suspected of such involvement, or suspected of having potential interest in such involvement should be closely watched wherever they are. The risks of such state scrutiny to our civil liberties are obvious, but should be pursued with proper oversight and care. The careful balancing of these conflicting objectives is a critical aspect of successful, largely free societies.

The above measures can be helpful up to a point, but they cannot eliminate all risks of terrorism even if we should give up all of our liberties to a security garrison state, which hopefully we still have the courage to resist. Throwing up our arms and bunkering down every time a terrorist blows himself and others up only feeds the enthusiasm of the terrorists. Just as even the safest societies have and will always have some criminals, we can never be fully free of terrorists. Effective policing and a respected, fair, and efficient court system will minimize but not eliminate crime. Most mass murders in the U.S. have been the work of mentally disturbed individuals. While we can do better at identifying and helping those who might otherwise undertake mass murders, we will never succeed fully even if we lock up every person we think has such potential, and those Americans who still value their freedom enough to face such risks would not want to live in such a society.

In the past, terrorist attacks and mass murders in the U.S. have been perpetrated by a wide range of groups and individuals, including white supremacists, black extremists, anarchists, anti-Semites, Puerto Rican nationalists, anti-abortion radicals, and the emotionally disturbed, to name a few. Today’s best identified terrorist risks come from the Islamic State (Daesh) and the radical Islamists who join them or are inspired by them, though the vast majority of deaths in the U.S. from mass murderers since 9/11 have not been at the hands of Muslims.

The threat from Daesh is particularly challenging because it is built upon religious beliefs. The radical religious beliefs of Daesh are incompatible with modern civilization.[1] Killing non-believers, whether by suicide bombings or otherwise cannot be justified by the religious or moral beliefs held by most of humanity, whether Jewish, Christian, Muslim, humanist, or whatever. Virtually all terrorist attacks in the United States since 9/11 have been, and can be expected to be, committed by Americans. Of those few claiming to act in the name of Islam, we have benefited from American Muslims reporting radicalized, potential terrorists in their midst to the authorities. This helps explain why so few of these attacks have been by Muslims. Attempting to protect us from such attacks via the police methods noted above cannot stop those who are driven by what they believe is right in the eyes of their god (or those who are mad more generally). They are prepared and even eager to die for those beliefs. If some individuals are willing to blow themselves up for what they believe in, it will never be possible to totally prevent them from occasionally achieving their goal.

Deterring radicalized Islamist youth from their terrorist plans would require convincing them that their understanding of Islam is wrong. Given their willingness to die for their beliefs, undermining those beliefs is likely to be insufficient, though it is important. Virtually all young people seek an understanding of the purpose of their lives and moral values to guide their behavior. Muslims are best equipped and best placed to convince radical Islamists that their understanding of their religion is wrong. But all of us through our Churches, Mosques, Synagogues, schools and our culture more generally must do a better job teaching our young the moral values, and where appropriate the religious beliefs, that should guide their and our behavior toward our fellow man appropriate to living together in the modern civilized world. Coercion will not be enough.

[1] See my earlier blog: https://wcoats.wordpress.com/2015/12/18/fighting-terrorists/

Work-Leisure Choice and growth

A recent dinner companion inquired whether an economy that was not growing was necessarily a problem. What she had in mind was whether people choosing more leisure to enjoy their incomes rather than continuing to work the same or longer hours created an economic problem. The short answer is no. I will explore that issue further and then make a point about the propriety of governments making work/leisure choices for us rather than leaving the choice to us.

Our incomes grow when we work longer hours, acquire improved skills, work with more tools, or work with better tools. The economy as a whole grows without individual incomes necessarily increasing when more people work (i.e., when the population grows). Unless you are very pessimistic about the prospects for continued innovation and technical improvements in each worker’s productivity, our incomes will continue to increase even if we don’t work longer hours.

Over the last 65 years the average annual hours worked by employed Americans dropped from 1,910 to 1,710 while real disposable personal income per capita (in 2009 dollars) increased from $10,000 to over $38,000. Over the longer period of a century or two the drop in hours worked and the increase in per capital income have been much more dramatic. This dramatic increase in income reflects better skills, more capital (tools) and better capital. But it is less than in would have been if people had not chosen to enjoy that income by working less and playing more. The over all economy can adjust to any of these – growing, stagnate, or shrinking income.

While Bernie Sanders may think that the best way to increase the standard of living for the poor is to redistribute to them some of the high income of the wealthy, most everyone else would agree that only economic growth has and can continue to lift large numbers of the poor out of poverty. Global poverty (per capita income below $1.25 per day) dropped from 50% in 1980 to 20% in 2011, an astonishing achievement totally beyond what any amount of redistribution could have accomplished. Most of us think that the proper purpose of redistributing income is for the better off to finance a safety net floor for those unable to work. This dramatic increase in income was the result of improvements in worker productivity (i.e., better skills and more and better capital) not working longer hours.

But what about the choices workers have made and are making about the hours they work vs. the hours they play with the proceeds of that work once they are well above poverty? Over time as most people’s incomes have grown they have generally reduced the long hours worked six or more days a week. Employers and workers strike deals that maximize the profits of the firm and the happiness and well-being of employees. Why then do many governments feel that they need to legislate the matter? Why, for example, did French Socialists feel compelled to legislate a 35-hour workweek a few years ago?

In limited cases, a public safety argument might make sense to over ride the preferences of workers and their employers, for example, if truck drivers felt included to push themselves more hours than they could safely stay awake at the wheel. Mr. Hollande’s French government is now proposing to remove the 35-hour limit and relax other labor market restrictions. I hope they succeed, as leaving more of such decisions with the people themselves will result in happier workers and a more productive economy.

This issue came up a few years ago in connection with the Greek financial crisis. Here are two of my blogs written three years apart on the situation in Greece: https://wcoats.wordpress.com/2012/02/26/saving-greece-austerity-andor-growth/,     https://wcoats.wordpress.com/2015/02/08/greece-debt-and-parenting/ To over generalize, it is often the case that people living in temperate climates (such as Greece and the Southern cone of the EU) work less and have lower incomes. If they are freely choosing to enjoy more leisure in the lovely climate in which they live, they are no doubt happier and better off because of it. Greece’s problem was not that its many Zorba’s had a great zest for life and played more than they worked. Its problem was that after getting away with playing on other peoples’ work/money, they thought they should be entitled to continue doing so. The balancing of work and leisure that is optimal is a person-by-person decision. The economy will be fine and will adjust to whatever these preferences are. People at different income levels and/or different preferences within the same economy will likely make different choices. There is no justification for the government to impose its notion of what is optimal uniformly on everyone. This is just another example of government over stepping its proper role.

 

Fairness or Envy?

After many decades of impressive and relatively steady increases in the standard of living (increases in real per capital income) of all quintiles of the American income distribution, since 2000 all quintiles have lost ground. In the run up to 2000 incomes in the top quintile increased more rapidly than those in the lower quintiles resulting in a less equal distribution income.

Mean income

The mean real incomes of each quintile are lower now (2014) than they were in 2000. However, the percentage decline has been larger for the middle and lower income quintiles (see table below) leaving the more unequal income distribution in place. Some of the relative gains of the top quintile are attributed to the growing premium for higher education, but as claimed by the Occupy Wall Street demonstrators, some have not been earned by providing higher valued products.

Income table

Most of us do not resent and in fact are grateful for those whose wealth resulted from inventing and giving us products we greatly enjoy. However, we are rightly angry at both political parties for increasingly supporting crony capitalists—those who benefit from their connection with and influence on the government—who benefit at the expense of the rest of us. They are capturing economic rents at the expense of the rest of us rather than enjoying the fruits of greater productivity.

The broad political consensus in the United States that we are each entitled to the wealth we each create, but must fairly share in the cost of providing our national defense, public goods and a satisfactory safety net for the poor, seems to be falling apart. In the economic sphere, the left increasingly favors one group, the working class represented by labor unions, against the professional and entrepreneurial classes. Classical liberals (i.e., economic conservatives) champion fairness – a level playing field – and the freedom to get rich if you work harder, or create a better product, or a more efficient way of producing what people want. They champion measures that facilitate entrepreneurship and economic growth without much regard for its impact on income distribution. Trade – globalization – is an essential part of promoting economic efficiency and thus growth, allowing, if not forcing, firms to shift resources into goods for export in which they are relatively more efficient in order to pay for the cheaper imports enjoyed by the average middle class consumer.

The Republican Party more so than the Democratic Party, though not by much, has increasingly been failing to preserve a level playing field in various areas (Wall Street, defense industry etc.). But the embrace of protectionism offered by Donald Trump reflects either class warfare or ignorance of globalization’s enormous contribution to our standard of living. The big trade and industrial unions of old—think of the United Auto Workers in Detroit—followed a different drummer. They were not interested in fairness but rather fought to bring economic rents (monopoly returns) to themselves at the expense of other workers via a deal with their employers to create, defend, and share monopoly returns. This worked with the auto industry, where auto workers earned at least double the prevailing wages for nonunion workers with comparable skills as long as GM, Ford and Chrysler could hold off competition from German and Japanese (plus a growing list) auto producers via a combination of tariffs and safety standards. Globalization gradually destroyed this monopoly arrangement and almost killed the American automobile industry until U.S. automakers relocated to southern, non-union states.

While good working conditions are win win for workers and employers, pushing up wages above their competitive level either drives firms to other locations (non union states or abroad) or kills them all together. Voters supporting protectionist policies either don’t understand that they lower the standard of living for most people (here and abroad) by lowering the overall productivity of workers or they seek to exploit monopoly rents for themselves at the expense of other workers.

Such thinking was dramatically illustrated by the recent strike of workers at Tesla Motor’s giga battery factory project in Nevada. As reported in the Washington Post on March 2: “On Monday, hundreds of workers walked off their jobs at the giant battery factory that Tesla Motors is building in the desert outside Reno, Nevada. It wasn’t your typical picket: They weren’t protesting bad working conditions, or making a show of force around contract negotiations. Rather, they were protesting other workers — specifically, the fact that they were from somewhere else.” Their complaint was that workers from out side Nevada were willing to work for less than the $35 per hour that members of the local union were making. These were not “foreign” workers from South of the border. These were workers from Arizona and New Mexico. The out of state workers obviously found their “low” wages with Tesla in Nevada better than the wages they would receive staying at home so they were better off coming to Reno.

The Post further reported: “That dispute explains an important debate underway right now in all sorts of skilled trades: Builders say there’s a labor supply problem, which needs to be fixed by bringing more people into the field from across the country and across the border. Worker groups say there isn’t a supply problem — it’s just that builders aren’t paying enough to make the jobs worth someone’s while.”

Trump’s pledge to protect America workers from cheap Chinese and other imports so they can produce them in the U.S. at a higher cost, is bad economics and bad policy. He is pledging to benefit one group of workers at the expense of other workers and at the expense of the standard of living more generally. This is not what the Republican Party has stood for in the past and not what it should stand for now. It should stand for fairness and equal opportunity for workers and entrepreneurs to benefit from doing things better and thereby raising their incomes and the income of the nation. The principle of fairness is widely held in the United States but has always had to battle for dominance against the temptation of the zero sum claims of special interests for government to serve their interests at the expense of others and at the expense of fairness. Donald Trump and Bernie Sanders are appealing to special rather than general interests at the expense of fairness.