Ramesh Ponnuru points us to Curtis Dubay’s new research report on the impact of PEP and Pease on large families — the short of it is that the more children you have at a given level of household income, the higher your tax increase. 

Matt Yglesias argues that if congressional Republicans wind up accepting somewhat higher revenue levels in the near-term, it will be due to the influence of “militarists,” i.e., conservatives who are concerned about the depth of planned reductions in the rate of increase in defense expenditures, rather than reformists:

The view that the American military is dangerous underfunded is not popular among America’s smartest right-of-center pundits (presumably because it’s laughably wrong) but it has much more purchase in congress than other criticisms of where John Boehner and Mitch McConnell have taken the GOP. If the logjam breaks, it’ll be militarism not reformism that breaks it.

By Matt’s standard, I fall in both camps. Most reformist conservatives, like most conservatives in the post-Iraq era, see sharp reductions in defense expenditures as a reasonable concession to the demands of fiscal consolidation. But though I’m certainly more cautious about the armed intervention than I had been a decade ago, for a variety of reasons, I actually think that there is a logical thread connecting domestic reformism and what Matt calls militarism — a thread that those of a more rigorously libertarian bent will see as an intellectual weakness or flaw. One of the main drivers of increased defense expenditures are the rising costs associated with providing military personnel and retired military personnel with medical care. A closely related challenge is retaining a high-quality workforce when disciplined, capable workers, whether non-college-educated or otherwise, have other educational and professional opportunities available to them. The cost of meeting America’s existing set of national security commitments is rising, for the same reason that educational and medical are more expensive in relative terms than they were three decades ago: the “productivity” of war-fighting isn’t increasing as quickly as the productivity of, say, the manufacturing sector, yet the military has to compete with other sectors for workers. That is, the defense sector is a victim of Baumol’s cost disease. If you’re the kind of conservative who accepts that an aging society that guarantees older Americans access to high-quality medical care will probably have to spend more money to do so due to Baumol’s disease, etc., you might also recognize that if we’re going to retain our relative military edge over potential great power rivals, we’ll have to spend more money to do that too. I should stress that one could just as easily believe that we ought to pare back our commitment to providing older Americans with high-quality medical care and, similarly, that we ought to let wealthy Gulf petrostates and European and East Asian market democracies fend for themselves, which is fair enough. Or one might believe that innovation will allow us to actually shrink spending on both missions while meeting existing commitments, and perhaps even expanding them. I’m sympathetic to this latter camp, and we ought to do what we can to encourage labor-saving, productivity-enhancing innovation in the stagnant sectors. When it comes to planning ahead, however, I find that it is best to avoid relying too heavily on best-case scenarios. 

The U.S. military has grown more capital-intensive and firepower-intensive over time, and the rise of drone warfare can be seen as an effort to increase defense productivity. But counter-insurgency operations, for example, are intrinsically labor-intensive, which is one reason why I think it is wise for the U.S. to assiduously avoid engaging in counter-insurgency operations. When necessary, we should try to outsource or offshore counter-insurgency work to indigenous forces in a given country, or to military personnel drawn from lower-wage countries. Unfortunately, we can’t guarantee that this will always be possible, and so I tend to think that it is prudent to err on the side of caution when it comes to military expenditures, as a kind of insurance policy against geopolitical risk. There is no obvious way to adjudicate exactly how much we ought to spend, and I am sympathetic to the idea that there is defense spending that can be safely trimmed. I just don’t think we should be glib about the downside risks, particularly because a secure global commons is centrally important to the U.S. and the global economy and unipolarity, as William Wohlforth argued in 1999, has proven conducive to peace:

The raw power advantage of the United States means that an important source of conºict in previous systems is absent: hegemonic rivalry over leadership of the international system. No other major power is in a position to follow any policy that depends for its success on prevailing against the United States in a war or an extended rivalry. None is likely to take any step that might invite the focused enmity of the United States. At the same time, unipolarity minimizes security competition among the other great powers. As the system leader, the United States has the means and motive to maintain key security institutions in order to ease local security conºicts and limit expensive competition among the other major powers. For their part, the second-tier states face incentives to bandwagon with the unipolar power as long as the expected costs of balancing remain prohibitive.

There are other reasons why some reformists might also be militarists. Conservatives motivated primarily by a suspicion of concentrated power are often skeptical of the virtues of a sprawling national security state are going to want to cut it down to size. Those who share in the “militaristic nationalism” Matt invokes might feel otherwise, and this “militaristic nationalism” might also lead them to see military service as a vehicle of upward mobility.

Back in January, in a speech at the University of Michigan, Fed Chairman Ben Bernanke said, “I don’t believe significant inflation is going to be the result of any of this,” referring to QE3, the Fed’s ambitious bond-buying program. Bernanke’s critics were skeptical. Many assumed that the $85 billion-a-month program would spend inflation spiraling out of control. Yet for now, at least, it looks like Bernanke was right and his critics were wrong. Josh Mitchell of the Wall Street Journal reports:

A key gauge of inflation fell in April to its lowest level on record, a reduction that could take pressure off the Federal Reserve to wind down an $85 billion-a-month bond-buying program despite other signs of a strengthening economy.

Core prices, which exclude volatile food and energy costs, rose 1.1% in April from a year earlier, the Commerce Department said Friday. That matched the smallest increase in underlying prices since the agency began tracking them in 1960. Overall prices rose even less—just 0.7% in April from a year earlier.

A strengthening economy should boost inflation over time as consumers demand pay raises and firms gain latitude to boost prices. But considerable slack across the economy—due to high unemployment and weak demand—have kept inflation tame during the four-year recovery.

If anything, I’d argue that Bernanke’s real mistake is not embracing the Reagan-Volcker inflation target of 4 percent, or better still a nominal GDP level target set to grow at an annual rate of 4.5 percent, as it would, among other things, facilitate the deleveraging process, encourage risk-taking, and allow for real wage decreases in sector that might otherwise shed jobs. The potential role of somewhat higher inflation in encouraging risk-taking is relevant to another article in the Wall Street Journal, Ben Casselman’s impressionistic report on America’s rising risk-aversion:

In 1982, new companies—those in business less than five years—made up roughly half of all U.S. businesses, according to census data. By 2011, they accounted for just over a third. Over the same period, the share of the labor force working at new companies fell to 11% from more than 20%.

Both trends predate the recession and have continued in the recovery.

Investors, meanwhile, appear to be losing enthusiasm for startups. Total venture capital invested in the U.S. fell nearly 10% last year and has yet to return to its prerecession peak, said PricewaterhouseCoopers.

The share of capital going to new business ventures has fallen even faster, PricewaterhouseCoopers data show, and is more concentrated: Silicon Valley took 40% of venture funding in 2012, up from about 30% in the late 1990s.

Casselman offers a number of theories as to why risk-taking might have declined, ranging from the rising cost of medical care, onerous licensing requirements, and an aging population. His most promising suggestion is the following:

One barrier for prospective entrepreneurs may be the growing dominance of large corporations in nearly every industry, which make it tough for new ventures to gain a foothold. A small bookstore no longer needs just a better selection or a friendlier staff than the crosstown competition—it also has to compete with national chains and, increasingly, such Internet retailers as Amazon.

For the first time since such records have been kept, the Census found in 2008 that more Americans worked for big businesses—those with at least 500 workers—than small ones. The trend has continued since.

This is a strong case for the “invisible foot,” i.e., reforming the tax and regulatory environment to level the playing field for start-ups that are more likely to generate job-creating, quality-of-life-enhancing innovations than more risk-averse, set-in-their-ways incumbent firms. But Casselman doesn’t mention the role of inflation. One reason why new companies played a much bigger role in 1982 might be that the higher inflation rate of that era meant that investors were more willing to take a flier on young entrepreneurs. I don’t mean to suggest that inflation is some kind of panacea. It’s obviously not. But Reagan-Volcker inflation in the neighborhood of 3-4 percent could help address the risk-aversion problem.

On a loosely related note, Josh Barro sees the Fed’s embrace of a more aggressive monetary policy as a win for reformist conservatives — the key is that advocates of monetary easing only had to persuade Bernanke and a handful of his allies in the Fed, which is much easier than persuading politicians of the virtues of your various ideas.

:Stephen Goldsmith, the former mayor Indianapolis and former deputy mayor of New York city known for his expertise on public sector innovation, argues that state and local governments ought to move away from license and permit requirements and towards a more open-ended system that combines registration and basic rules of the road:

A city or state can license all its plumbers, electricians or beauticians, or it can simply require that those in the trade follow certain rules and procedures and inspect for compliance. Similarly, the permitting process for working at a new site produces additional expense. Cities spend significant time and resources permitting each home remodeling project, driving up costs for those who take the time to comply while providing an advantage to those who operate totally outside of the system.

Rather than licensing or permits, officials might simply require registration—a simple online form that certifies one is undertaking business at a certain address. [For example, some public entities now use online compliance portals, another important advancement cities can utilize in regulatory reform. Governments in places like El Paso, Chicago, New Jersey and Colorado allow businesses to report required information directly to the regulating bodies that monitor their activities]. In these jurisdictions business owners can increasingly avoid lines and submit paper forms to a series of offices that must then coordinate a swarm of new paperwork. Furthermore, storing this data in a centralized, accessible format means it can be broken down via data analytics to illuminate trends and characteristics of economic or residential development and guide policies. Such systems can reduce wait times, improve the speed of communications and reduce administrative costs, all by assuming that most companies generally comply with published standards. Why drive up homeowners’ costs by requiring a maze of permits for kitchen remodeling when registering that the contractor is undertaking such work should be sufficient? Such a notification would not require approval; inspectors could simply use civil or criminal forums to penalize bad conduct.

Rather than treat every regulated firm identically, regulators could use data mining to identify firms that are likely to prove troublesome:

Why not focus attention on those actors most likely to put the public at risk? Data mining can easily look at other applicant characteristics by combing data in other agencies for information that might trigger a deeper review: failure to pay taxes, employee complaints about working conditions, consumer complaints, operating under aliases, delinquent reporting of important issues and the like. This approach should drive inspectors’ priorities, time and attention. In New York I literally received weekly complaints from conscientious small restaurants about the business they lost and the cost of fines for nonmaterial violations. Yet, in order to guarantee consistency and avoid inspector abuse, most regulatory organizations value by-the-book enforcement, which too often discourages common sense. And almost any good inspector going by the book can find an infraction in any business or building. We no longer need to accept the tradeoff between accountability and discretion; we can have both. Digital tools now allow us to know where every inspector is all the time, how long he or she takes to inspect, what types of infractions are written, which ones are outliers, and who has produced the best-rated restaurants, the most violations, and so on. Big data not only provides much more insight into the regulated, but also into the regulator.

Restaurants that receive no complaints and have never been associated with adverse health outcomes should be free to run their businesses as they see fit, while restaurants that regularly receive complaints ought to subject to closer scrutiny. This approach has the potential to greatly cut down the burden on responsible business owners while reducing costs for regulatory agencies. 

In his debut post at Business Insider, Josh Barro argues that Frank Lautenberg was, at age 89, too old to serve in the U.S. Senate. The really galling thing is that during Lautenberg’s first race for the Senate in 1982, he not-so-subtly implied that his opponent, the Republican incumbent Millicent Fenwick, was at 72 too old for the job, as Adam Clymer recounts in his obituary. But I was mainly struck by Clymer’s description of Lautenberg’s various legislative achievements, starting with the national drinking age:  

Mr. Lautenberg’s first major victory came in 1984. A freshman senator in the minority party, he pushed through a provision to establish a national drinking age of 21, a measure that threatened to cut 10 percent of a state’s federal highway funds if it did not comply. He argued that the change would save lives by ending “a crazy quilt of drinking ages in neighboring states” and prevent those under 21 from driving over “blood borders” to get drunk and then try to drive home.

“He had to fight like hell to get it through,” Jay A. Winsten, associate dean of the Harvard School of Public Health, said in an interview. “The estimates are that the cumulative lives saved are in excess of 25,000.”

Roughly speaking, Winsten is implying that lives saved per annum are in the neighborhood of 1000. One wonders, however, if the fact that a national drinking age of 21 has turned millions of younger Americans into people who willingly and flagrantly violate the law every time they have an alcoholic beverage has offsetting consequences. In a working paper released in December of 2011, Philip J. Cook and Christine Piette Durrance found the following:

On January 1, 1991, the federal excise tax on beer doubled, and the tax rates on wine and liquor increased as well. These changes are larger than the typical state-level changes that have been used to study the effect of price on alcohol abuse and its consequences. In this paper, we develop a method to estimate some important effects of those large 1991 changes, exploiting the interstate differences in alcohol consumption. We demonstrate that the relative importance of drinking in traffic fatalities is closely tied to per capita alcohol consumption across states. As a result, we expect that the proportional effects of the federal tax increase on traffic fatalities would be positively correlated with per capita consumption. We demonstrate that this is indeed the case, and infer estimates of the price elasticity and lives saved in each state. We repeat this exercise for other injury-fatality rates, and for nine categories of crime. For each outcome, the estimated effect of the tax increase is negatively related to average consumption, and that relationship is highly significant for the overall injury death rate, the violent crime rate, and the property crime rate. A conservative estimate is that the federal tax reduced injury deaths by 4.7%, or almost 7,000, in 1991.

Drawing on these findings, Mark Kleiman (via Dylan Matthews) has made the following claim:

Doubling the federal alcohol tax from the current ten cents per drink to twenty cents would reduce homicide and automobile fatalities about . . . 7% each, saving about 3000 lives per year. It would cost a two-drinks-per-day drinker (at about the 80th percentile of all drinkers about $6 per month. (Fully internalizing the external costs of drinking would involve taxes nearer a dollar a drink.)

One wonders what might have happened had Lautenberg chosen to simply raise the federal alcohol tax rather than to coerce states into raising the minimum drinking age by denying federal transportation funds to those states that refused to comply. It seems at least possible that (a) substantially more lives would have been saved and (b) respect for the rule of law would be somewhat stronger. Like Kleiman, I tend to think that we’d be better off with no minimum drinking age:

There is good evidence that age restrictions reduce underage alcohol abuse and drunk driving. That is true even taking into account the inducement for kids to drink created by making drinking a badge of adulthood and the difficulty of teaching responsible drinking practices to teenagers who are forbidden to drink at all.

But against the benefits we must weigh the costs of making the vast majority of adolescents into lawbreakers. Nearly nine high-school seniors in ten report drinking. Criminalizing statistically normal behavior trivializes lawbreaking by enacting a law that almost everyone breaks, and breaks without apparent harm: Most teenage drinkers, like most adult drinkers, don’t have a drinking problem. The current drinking age has also normalized the acquisition and use of false identification documents, which seems like a bad idea in the age of terror.

Elsewhere, Kleiman has proposed the creation of “drinking licenses,” so that instead of stripping a problem drinker of his right to drive, we’d strip him of his right to drink or to purchase alcohol. This proposal is somewhat difficult to reconcile with phasing out the drinking age — but perhaps we could simply impose a much lower drinking age, at which point young people would be eligible to apply for said license. 

I should note, in a spirit of anti-churlishness, that whether or not one agrees with Lautenberg’s various policy positions, he did choose a late adulthood of public service over one of leisure, which is in some sense admirable. 

Scott Sumner looks to Australia for insight on the long-run growth potential of the rich market democracies, and he concludes on an intriguing note:

The way our modern society is structured, businesses will keep innovating and reducing costs, and this will lead to 0.5% to 1.0% per annum rise in measured RGDP/person. But that number is no longer very important. Instead the key issue will be how well society addresses the unpredictable challenges that will come our way courtesy of scientific advances—good or bad. Will there be genetically manufactured viruses that do all sorts of damage? Or will we find a way to stop the aging process? Or invent happiness pills? Will we genetically program our babies to have high IQs? When you think about the unexpected challenges over the next few centuries, it really doesn’t matter very much whether RGDP is growing a bit more or less than 1%. Something very, very big is coming along.

The “very, very big thing” Sumner references is Eliezer Yudkowsky’s “intelligence explosion” thesis:

All compound interest returned on discoveries such as the invention of agriculture, or the invention of science, or the invention of computers, has occurred without any ability of humans to reinvest technological dividends to increase their brain sizes, speed up their neurons, or improve the low-level algorithms used by their neural circuitry. Since an AI can reinvest the fruits of its intelligence in larger brains, faster processing speeds, and improved low-level algorithms, we should expect an AI’s growth curves to be sharply above human growth curves.

A more banal possibility, however, is that we might see an increase in “empowering innovations” that would make better use of our current endowment of cognitive skills, just as the advent of the automobile allowed ordinary individuals to do extraordinary, productivity-enhancing things. The paradigmatic empowering innovation of the past decade is probably the “ephemeralization” associated with the smartphone (i.e., the transformation of various gadgets — a phone, a music player, video games, a bar code scanner, a wallet, a GPS device, etc. – into software apps that can be part of a universal gadget), which has contributed to productivity in a number of ways. Yet it has arguably been more successful at improving the quality and quantity of our leisure and our consumption, at least for now. It will be interesting to see how the ongoing evolution of mobile and wearable computing will contribute to our ability to solve problems and to collaborate with others. 

When I saw that Pankaj Mishra of Bloomberg View had written a column riffing on Alexis de Tocqueville’s The Old Regime and the Revolution, I had hoped he’d focus on Turkey under Erdogan, which this week saw an eruption of fierce street protests. At first, a handful of environmental activists had gathered in Taksim Square to protest the transformation of a small park into a new commercial development. The ferocity of the police response sparked anger among other opponents of Erdogan’s AK Party, many of whom are left-of-center secularists concerned about what they see as Erdogan’s growing authoritarianism. And the so protests have grown larger, and they have spread to other major Turkish cities. Piotr Zalewski of Time sets the scene:

In a speech on Saturday, Erdogan struck a defiant tone. The Taksim redevelopment project would go ahead, he said, referring to the protesters occupying the square as “marginal groups.” “If you gather a hundred thousand people,” he said, addressing the opposition, “I will gather a million.” It was the kind of rhetoric designed to rouse the party faithful, not to appease the protesters. As such, it was symptomatic of precisely what brought people to the streets in the first place — the arrogance of power. Within hours of Erdogan’s speech, the crowds once again descended on Taksim.

For a government that enjoys the support of nearly half the population, plus a seeming monopoly on power, and which has presided over a decade of unprecedented growth — the economy has roared ahead at an average of 5% per year since Erdogan’s ruling Justice and Development Party (AKP) took the reins in 2002 — the protests are far from a death knell. They are, however, a wake-up call. Erdogan, who cannot run for a third term as Prime Minister, is believed to be planning on being elected President in 2014, but not before using constitutional changes to endow the post with executive powers, as in the U.S. or France. The ongoing protests, more than anything that’s preceded them — including the efforts of a largely impotent political opposition — threaten to derail such plans for good.

So far, the protests have included mostly young leftists, environmentalists and secularists, all of them core government opponents, but very few religious conservatives. For Erdogan, the greatest danger is that conservative Muslims, who form the AKP’s base, will flinch at the images of police brutality and begin to join the protesters’ ranks. That may be one reason why the government has pulled police forces out of Taksim and clamped down on the media harder and more visibly than ever. Many press outlets are downplaying the protests. On Saturday, one of the country’s leading papers, owned the Prime Minister’s son-in-law, buried the story. Later that evening, as clashes between police and protesters continued around Istanbul and other cities, CNN Turk, a leading news network, aired a cooking show, plus documentaries about a 1970s novelist, dolphin training and penguins.

The Erdogan government has in the past been shrewd about containing and diffusing opposition. What is interesting now is that opposition to Erdogan is emerging within his own political movement, as Zalewski suggests. To return to Mishra’s column, the relevance of Tocqueville to Turkey is pretty clear:

Wang Qishan, China’s anti-corruption czar, is reportedly among the senior leaders obsessed with what he sees as the book’s cautionary message: that increasing prosperity and piecemeal political reform didn’t protect France’s pre-revolutionary regime from violent overthrow.

The parallels between Tocqueville’s France are Turkey are hardly exact. But it does seem as though Erdogan, an incredibly deft populist, now finds himself on the wrong side of a “revolution of rising expectations.”

Gregory Besiger of the New York Post reports on House Ways and Committee Chairman Dave Camp’s efforts to reform the taxation of financial instruments, and how they’ve sparked intense resistance from the financial services industry. Though I don’t agree with all of Camp’s tax reform priorities — though I’m sympathetic to a broader base and lower rates, I’d prioritize a more generous child credit over substantially lower rates and it seems fairly clear that he does not agree — my strong impression is that he is in the right. Floyd Norris of the New York Times has explained Camp’s approach in broad outline, as has Richard Rubin of Bloomberg. Victor Fleischer of the University of Colorado Law School, writing in Dealbook, is a fan of the proposal:

The building blocks of our current tax system were laid down in 1954, long before derivatives were commonplace. Mr. Camp’s proposal would shift the taxation of financial instruments like options, swaps and futures from our current realization-based system to a mark-to-market system.

Suppose for example that you approach an investment bank to purchase an option to acquire 1,000 shares of Facebook at $30 a share, just above today’s market price. Assume the option is long-dated and expires in five years. By the end of the first year, assume the value of Facebook has increased to $40 a share.

Under current law, the option contract is treated as an open transaction, and the option holder would not pay tax on the appreciation in value until the option is sold or, if exercised, until the underlying Facebook stock is sold.

But Mr. Camp’s proposal would require the option to be valued at the end of each year based on what the profit would be had the option been sold and repurchased it at the end of each year. If the option declined in value, you would have the benefit of a tax loss.

Wall Street has responded cautiously to the proposal. A change in the law would not necessarily hurt Wall Street directly. Most financial instruments held by investment banks and some other financial institutions are already taxed on a mark-to-market basis because the banks are treated as dealers, not investors, under section 475 of the tax code.

The proposal would instead probably hurt individuals who enter into bespoke financial contracts with banks in order to avoid tax. The change thus might hurt Wall Street indirectly by reducing demand for such contracts.

But cleaning up the taxation of derivatives would also benefit Wall Street by making it easier for companies with business reasons to hedge risks to do so without facing tax uncertainty. (Legitimate business hedging would be carved out of the new mark-to-market system.)

The hope is that Camp’s reform will help make the financial system more transparent and stable, and that it will reduce the amount of time and energy firms devote to tax arbitrage. Camp’s work on this front is very encouraging — it is frankly some of the only encouraging news coming from Congress, with the possible exception of House Majority Leader Eric Cantor’s Making Life Work agenda and Utah Sen. Mike Lee’s emergence as a policy thought leader. I discussed Camp’s derivate taxation reform proposals in greater detail a few months back, but unfortunately we’re having some trouble with our archives. A GOP-aligned Wall Street lobbyist appears to have convinced some reporters that Camp’s tax reform efforts reflected a desire to punish corporate CEOs who had called for tax increases during the debt ceiling debate, but of course his reform would tend to benefit the kind of non-financial firms that joined the Fix the Debt coalition.

Cameron Abadi profiles Thilo Sarrazin, a German intellectual and social-democratic politician who has stirred controversy by arguing that Muslim immigrants are incapable of assimilating into German culture and, more recently, calling for a German exit from the euro. Cameron (a friend) casts Sarrazin’s work in a harshly negative light:

Europa Braucht den Euro Nicht [Europe Doesn't Need the Euro] also suffers from sloppy analysis, fuzzy math, and an adherence to a crude form of mercantilism. Throughout the book, there’s an implication that international economics is a zero-sum game: Sarrazin seems to be only interested in how economies are performing relative to one another, rather than whether those economies have improved in absolute terms. As evidence for his claim that Germany hasn’t profited from the euro, Sarrazin cites statistics showing that the percentage of German exports to European countries dropped over a period of 10 years. He doesn’t mention that Germany’s exports to Asia, and above all China, increased dramatically in that period.

Similarly, when Sarrazin discusses another of his central claims—that the euro has caused massive economic harm across southern Europe—among his main evidence is that France’s median per-capita income in 1999 was 15 percent higher than the European Union average and only 8 percent higher in 2010. He fails to mention that the country’s per-capita gross domestic product in that same period nonetheless improved by an annual average of 1.5 percent (better, it’s worth noting, than Germany’s 1.22 percent). Then there are the questions about the euro crisis that Sarrazin avoids completely—for instance, whether budget surpluses in the German economy helped inflate the real estate bubbles that eventually popped in Ireland and Spain.

Not having read Sarrazin’s book, I can’t speak to whether or not he makes his effectively. But the case for a German exit from the eurozone, and the case against the euro more broadly, is rock-solid for precisely the reason Cameron raises at the end of that last paragraph, as Michael Pettis, a finance professor at Peking University and author of The Great Rebalancing, explains:

To insist that the Spanish crisis is the consequence of venality, stupidity, greed, moral obtuseness and/or political short-sightedness, which has become the preferred explanation of moralizers across Europe begs the question as to why these unflattering qualities only manifested themselves after Spain joined the euro. Were the Spanish people notably more virtuous in the 20th century than in the 21st? It also begs the question as to why vice suddenly trumped virtue in every one of the countries that entered the euro with a history of relatively higher inflation, while those eastern European countries with a history of relatively higher inflation that did not join the euro managed to remain virtuous.

The European crisis, in other words, had almost nothing to do with thrifty Germans and spendthrift Spaniards. It had to do with policies aimed at boosting German employment, the secondary impact of which was to force up German national savings rates excessively. These excess savings had to be absorbed within Europe, and the subsequent imbalances were so large (because German’s savings imbalance was so large) that they led almost inevitably to the circumstances in which we are today.

For this reason the European crisis cannot be resolved except by forcing down the German savings rate. And not only must German savings rates drop, they must drop substantially, enough to give Germany a large current account deficit. This is the only way the rest of Europe can unwind the imbalances forced upon the region in a way that is least damaging to Europe as a whole. Only in this way can countries like Spain stay within the euro while bringing down unemployment.

But lower German savings don’t mean that German families should become less thrifty, only that the average German household should be allowed to retain a much larger share of what Germany produces. If Berlin were to cut consumption taxes, or cut income taxes for the lower and middle classes, or force up wages, total German consumption would rise relative to GDP and so national savings would fall – without requiring any change in the prudent behavior of German households.

To ask Spanish households to be more “German” by saving more is not only impractical in an economy with 25 percent unemployment (it is hard for unemployed workers to increase their savings), it is counterproductive. Lower Spanish consumption can only cause even higher Spanish unemployment, until eventually Spain will be forced to abandon the euro and so regain control of its ability to absorb or reject German imbalances. [Emphasis added]

It is much easier to argue that Germany has gained at the expense of peripheral Europe since the creation of the euro than it is to argue the opposite. And so Sarrazin’s moralistic critique of southern Europe is misplaced. But the upshot — than Germany ought to leave the eurozone — remains the same, not least because Germany would benefit from having stronger trading partners. One of the more exciting developments in German politics has been the rise of Alternative für Deutschland (Alternative for Germany), a centrist political movement that calls for the restoration of the deutsche mark. Though its support remains modest, it has, like Sarrazin, forced a conversation about the alternatives to a toxic economic status quo. Without such a conversation, the danger of a truly ugly political turn steadily increases.

Artur Davis observes that the Democratic reformers of the 1980s who paved the way for the Clinton presidency weren’t nearly as unified as we’ve come to believe:

First, the history: for all of the varnished memories of exactly how Bill Clinton and the Democratic Leadership Council reframed their party, it was no masterpiece of cohesion around policies or specific goals. To be sure, Clintonian reformers were virtually all free traders and advocates of tougher teacher standards and charter schools. To a person, they thought that welfare was too easy to obtain and even easier to depend upon, which distinguished them from 20 years of liberal rhetoric. But these were relatively small sized pieces of the conversation at the time. On a much larger array of issues, Democratic reformers were all over the map. Some were ardent social liberals, who even then touted gay rights, others were notably sympathetic to the pro life movement and uncomfortable that liberalism verged on being libertarian. Some were anti-affirmative action, just as many thought anti-quota talk made them sound like mini Pat Moynihans (a Democrat, but a liberal scourge for years for his advice that the subject of racial injustice could use a dose of “benign neglect”). Some thought it a priority to readjust Reagan era tax rates to take a bigger chunk from the wealthy, others were self-consciously pro-business (the DLC’s bills were always heavily footed by industry lobbyists) and promoters of corporate rate cuts. One camp embraced comprehensive healthcare reform, another feared it was too costly and smacked of sixtyish redistribution.

There was, in other words, a consensus on a few second tier agenda items, disarray on the hottest subjects in politics, mixed with a strategic instinct about making Democratic political language more middle class friendly, deemphasizing identity based appeals, and there was a fondness for the word “community” without a lot of common ground on what that meant.

Yet, for all of the ambiguity, Democratic reformers in the gap years between Reagan and Clinton mattered a great deal. They introduced thematic arguments that were foreign to the liberal activists who had controlled the Democratic nominating process since 1972: notions like personal obligation, mutual responsibility and the concept that a downsized government could more efficiently promote progressive values, and that all of these principles were not code words for survival of the fittest. And by driving these arguments, DLC style Democrats showed a side of their party that was more attractive to blue collars and suburbanites than the interest group beholden, socially permissive brand of their intra-party rivals.

Artur concludes by arguing that conservative reformers are trying to do something broadly similar — though not always aligned on specific policies, they are united by the view that sluggish income growth and insecurity are vitally important challenges, that government can and should play a role in facilitating upward mobility, and that entrenched inequality in access to high-quality education and medical care poses a threat to social cohesion. There are modest signs that some conservatives, like Utah Sen. Mike Lee, Florida Sen. Marco Rubio, and House Majority Leader Eric Cantor, are interested in finding ways to reconcile the traditional small government concerns associated with the Tea Party movement with a more affirmative, middle-class-friendly agenda. But as Ramesh Ponnuru has observed, congressional Republicans seem intent to chase after bright, shiny objects.

Dylan Matthews, a dyed-in-the-wool utilitarian, describes a small coterie of young professionals who’ve chosen to take highly remunerative jobs in order to donate large sums of money to charities that aim to alleviate poverty and suffering among the world’s poorest, inspired by Peter Singer’s argument that middle-income and more affluent individuals in developed countries ought to do just that:

It’s hard to imagine a 25-year-old Peter Singer envisioning that an article he published in Philosophy and Public Affairs would push people like Jason Trigg into the financial sector. But the 66-year-old Singer of today welcomes the result. In between fending off religious opponents and helping lead the animal rights movement, he’s been doing a fair bit of giving advocacy himself. He has his own group, The Life You Can Save, spun off from his book of the same name, which also organizes at universities and works as an informal ally of Giving What We Can and 80,000 Hours.

And he embraces earning-to-give as among the most ethical career choices one can make, more moral than his own, even. “There is a relatively small group of philosophers who actually have a big influence,” he says from his home in Australia. “But otherwise, the marginal difference that you’re going to make as a professor of philosophy compared to somebody else is not all that great.”

The article is excellent, and it has already prompted a number of telling reactions. Dana Goldstein, a left-of-center journalist who focuses on education policy, expresses some skepticism:

I’m a fan of some of the organizations, like GiveDirectly and GiveWell, that are loosely part of this movement toward ethical, high-impact giving, with few or no requirements for the individual recipients of aid. Yet I worry about an ethical stance in which any career choice is socially responsible, as long as one pledges to give generously to charity. The fact is, the number of people who choose to make millions in order to give money away is infinitesimal; the ability to donate generously is typically cited as a guilty liberal’s justification for richly rewarded work in fields, like finance, that can be defined by bad social values, such as lobbying for lower corporate tax rates, taking advantage of low-income consumers right here in the United States, and bad labor practices. That’s not to say progressives should never work on Wall Street or for Big Food/Pharma/Tech; indeed, we need social justice-committed people within those fields to argue and work for ethical change. But the ethical behavior must go beyond individual philanthropy itself and toward efforts to make corporations better American and global citizens.

Goldstein’s examples are interesting — she links to a New York Times article on efforts to reduce corporate income tax rates, which Aparna Mathur and Kevin Hassett suggest would have salutary effects on wages; another link references the subprime mortgage crisis, but there are of course downsides associated with denying individuals with impaired credit access to home loans (see Gene Steuerle on homeownership as a means of reducing racial wealth disparities); and finally she references U.S. firms that have been reluctant to sign on to the Accord on Fire and Building Safety in Bangladesh, where the rise of the garment industry has been associated with dramatic declines in extreme poverty. One interesting question is exactly what being a better corporate citizen entails. As a general rule, multinational corporations maintain more stringent health and safety standards than indigenous firms in the developed world. Bangladeshi garment manufacturing firms are subcontractors with limited leverage, and there is a reasonable case to be made that multinationals ought to make more of an investment in improving safety standards. Yet it is hard to dispute that conditions for Bangladeshis working in subsistence agriculture are in many cases worse, and indeed more threatening, than for those who participate in the global economy. Reasonable people can disagree on all of these issues. But one wonders if lobbying for higher corporate income tax rates or calling for restrictions on lending to individuals with impaired credit or encouraging multinational firms to shift production from extremely poor countries to somewhat less poor countries that can comfortably afford higher health and safety standards without additional investment would necessarily be the better way to go. I’m not averse to more stringent lending standards. It is important, however, that we recognize that more stringent standards will involve a trade-off. 

Dylan’s article reminded me of Julian Sanchez’s thoughts on why “wordsmith intellectuals” — Robert Nozick’s term — gravitate towards government solutions to social problems, like entrenched global poverty:

If the best solutions to social problems are generally governmental or political, then in a democratic society, doing the work of a wordsmith intellectual is a way of making an essential contribution to addressing those problems. If the best solutions are generally private, then this is true to a far lesser extent: The most important ways of doing one’s civic duty, in this case, are more likely to encompass more direct forms of participation, like donating money, volunteering, working on technological or medical innovations that improve quality of life, and various kinds of socially conscious entrepreneurial activity.

You might, therefore, expect a natural selection effect: Those who feel strongly morally motivated to contribute to the amelioration of social ills will naturally gravitate toward careers that reflect their view about how this is best achieved. The choice of a career as a wordsmith intellectual may, in itself, be the result of a prior belief that social problems are best addressed via mechanisms that are most dependent on public advocacy, argument and persuasion—which is to say, political mechanisms.

It seems equally possible, however, that a post hoc desire to justify the choice of such a career might play a biasing role. A person without extravagant material tastes can live quite comfortably as an academic or writer, and the work itself is highly interesting and intrinsically appealing. But intellectual jobs of this sort tend not to leave one with the resources to devote large amounts of money to charitable causes without significantly curtailing consumption of minor luxuries: meals out, shows, electronics, vacation travel, enrichment classes for the kids, and so on.

If the world is primarily made better through private action, then the most morally praiseworthy course available to a highly intelligent person of moderate material tastes might be to pursue a far less inherently interesting career in business or finance, live a middle-class lifestyle, and devote one’s wealth to various good causes. In this scenario, after all, the intellectual who could make millions for charity as a financier or high-powered attorney, but prefers to take his compensation in the form of leisure time and interesting work, is not obviously morally better than the actual financier or attorney who uses his monetary compensation to purchase material pleasures. Both are declining to sacrifice personal satisfaction in order to help others—one has just chosen a form of compensation that can’t be taxed and redistributed easily. If private efforts are ineffectual or relatively unimportant compared with political action, however, the intellectual can rest assured that he’s satisfying his moral obligations by paying taxes and writing persuasively in support of the appropriate political remedies.

This account seems consistent with our current political rhetoric, in which progressive political views are taken to signify compassion and concern for the badly off, while conservative or libertarian views are (progressives often say) evidence of callousness or selfishness. [Emphasis added]

Really, this entire post is just an excuse for me to lift Julian’s content. The individuals Dylan describes seem to believe that private action can do a great deal of good — for example, giving directly to poor people in the developing world might in some be preferable to government-to-government transfers, also known as overseas development assistance. Yet amassers of great wealth who build useful, scalable technologies can also do a great deal of good even in the absence of any benevolent motivating impulse. For example, the spread of mobile telephones in Bangladesh has greatly improved quality of life and income levels. Technologies that first flourished among affluent Finnish teenagers have become a lifeline for millions of the rural poor. This doesn’t mean that people who are other-regarding and those who are not are equally morally praiseworthy. I have no idea. But it is very possible that people who are solely motivated by curiosity and novelty or a desire for recognition could have a much bigger positive impact than people who devote their lives to social justice.

Ross Douthat has written a brief primer on reform conservatism that (not surprisingly) totally crushes it. 

Matt Yglesias discusses University of Haifa sociologist Tali Kristal’s new work on the (possible) role of declining unionization levels on wages across sectors, and he includes the following excerpt from a American Sociological Association press release:

“It was highly unionized industries — construction, manufacturing, and transportation — that saw a large decline in labor’s share of income,” Kristal said. “By contrast, in the lightly unionized industries of trade, finance, and services, workers’ share stayed relatively constant or even increased. So, what we have is a large decrease in labor’s share of income and a significant increase in capitalists’ share in industries where unionization declined, and hardly any change in industries where unions never had much of a presence. This suggests that waning unionization, which led to the erosion of rank-and file workers’ bargaining power, was the main force behind the decline in labor’s share of national income.”

Scott Winship has provided historical context that might have some bearing on Kristal’s analysis in “Overstating the Costs of Inequality“:

Analysts such as Jared Bernstein (of the Center on Budget and Policy Priorities) often claim that worker pay has not kept up with productivity, citing this as evidence that gains at the top were effectively stolen from the middle.21 While it is true that wage increases have lagged behind productivity growth in recent decades, my ongoing research suggests a simple explanation: Compensation outpaced productivity growth during the mid-20th century (in the peak years of unionism), and recent decades have seen a correction in which productivity levels have had to catch up to pay. On balance, the numbers still favor workers: If President William McKinley had been told in 1900 how much higher productivity would be in 2013 and had used that information to guess how much higher hourly compensation would be, his prediction would have been too low.

The same dynamic might not apply to trade, finance, and services, which represented a much smaller share of tht total work force during the mid-20th century than in recent decades. Had construction, manufacturing, and transportation not experienced deunionization, perhaps offshoring and automation would have played an even larger role. Kristal makes a related observation in her paper:

The final component of workers’ relative bargaining power is more global and relates to U.S. trade with low-wage countries. As U.S. trade barriers have fallen in recent years, low-wage countries like China and India have begun exporting to the United States many of the more labor-intensive products (e.g., t-shirts and sneakers) formerly produced domestically. This import penetration places U.S. workers in direct competition with lower-paid workers in developing countries. Competition curbs workers’ bargaining power, brings down the wages of the least-skilled U.S. workers (Wood 1994), increases earnings inequality among workers (Alderson and Nielsen 2002), and reorients manufacturing activity toward capitalintensive plants (Bernard, Jensen, and Schott 2006). Therefore, although importing manufactured goods from less-developed countries increases the economy’s income, it does not translate into a rise in average earnings and thus decreases labor’s share (Kristal 2010).

Kristal’s paper raises a number of interesting questions. Yet I wonder if there are other differences between the union and non-union sectors she identifies that might be salient, per Erik Brynjolfsson and Adam Saunder’s description of “digital organizations” in Wired for Innovation:

In Wired for Innovation, Erik Brynjolfsson and Adam Saunders describe how information technology directly or indirectly created this productivity explosion, reversing decades of slow growth. They argue that the companies with the highest level of returns to their technology investment are doing more than just buying technology; they are inventing new forms of organizational capital to become digital organizations. These innovations include a cluster of organizational and business-process changes, including broader sharing of information, decentralized decision-making, linking pay and promotions to performance, pruning of non-core products and processes, and greater investments in training and education.

Brynjolfsson and Saunders go on to examine the real sources of value in the emerging information economy, including intangible inputs and outputs that have defied traditional metrics. For instance, intangible organizational capital is not directly observable on a balance sheet yet amounts to trillions of dollars of value.

Note that while digital organizations are in some sense flatter and less hierarchical, they rely more heavily on performance-based compensation — this combination (more autonomy, but also more variation in pay) seems uncongenial to traditional unionism, which tends to emphasize lockstep promotions and well-defined job roles.

Jason Furman, a well-regarded left-of-center economist and veteran of the Clinton and Obama administration, has been named chair of President Obama’s Council of Economic Advisors. No one doubts Furman’s qualifications, and I’ve admired his work for a long time — particularly his somewhat contrarian 2007 call for progressive cost-consciousness in health reform. Furman is the best kind of centrist neoliberal, and his appointment is an encouraging sign. Yet I was struck by the following from Peter Coy’s short piece on Furman in Bloomberg Businessweek:

In contrast to Krueger, a lifelong scholar who used the CEA as a bully pulpit for presenting economic concepts, Furman has been involved in policy for years. In 1996, while still in graduate school, he landed a one-year post as special assistant to President Bill Clinton for economic policy. He also worked as a senior economic adviser to World Bank Chief Economist Joseph Stiglitz and for Clinton’s National Economic Council. He advised Al Gore on his 2000 presidential campaign, Wesley Clark and then John Kerry in 2004, and Obama in 2008.

How is it that a young graduate student in his mid-20s land a job as a special assistant to President Bill Clinton? Bright young people, including some acquaintances of mine, often find themselves in such roles, particularly when they are as bright as Furman. But another aspect of his biography, as described by Ruth Shalit Barrett in New York in 2009, might have also helped:

A native New Yorker with a swanky family pedigree—his mother runs a charitable foundation, and his father, a real-estate developer, has donated more than $20 million to NYU—Furman is expected to be named deputy director of the National Economic Council.

This occurred to me because the Furman Center at New York University, named in honor of Jason Furman’s father Jay Furman, does valuable work on housing policy, crime, and other urban issues. Some will no doubt see Furman’s rapid rise as a sign of the incestuousness of America’s power elite. It is worth noting, however, that while Furman is the son of affluent parents, his scholarly work and his policy work have been centrally concerned with bettering the lives of the poor. More broadly, while it is true that some other young graduate student might have done as good a job as Furman back in 1996, and perhaps someone from a less distinguished or prosperous background should have been given the same shot, Furman seems to have justified the confidence that was placed in him. 

I think of this as the Sofia Coppola question. Coppola may well be the most talented filmmaker of her generation, and I think she has almost unerring taste. Somewhere is one of my favorite films, and the forthcoming The Bling Ring looks hilarious and excellent. It is also true that Coppola benefited from having grown up in a family of filmmakers, which presumably gave her exposure and experience that allowed her to make impressive leaps early in life. So should we object to her success on grounds of nepotism or should we celebrate the fact that individual achievement is almost always built — in part, and in complex ways – on the achievements of others?

On the right and the left, there is a tendency to either discount the role of inheritance, i.e., the transmission of economic or cultural or social capital, or to reject its legitimacy. We hear this in calls for steeper inheritance taxes, for example. But of course one of the main reasons people build wealth is to better the lives of family members. The durability of inequality across generations flows from this partiality, yet a project of attacking this kind of partiality is deeply illiberal and deeply destructive, I would argue, of the creative energies that sustain a civilization like ours. Rather than focus on inequality as such, which is inevitable as long as partiality to family endures, I think we’d be better served by focusing on expanding the capacities of the most isolated and vulnerable individuals and families. The benefits that will flow from this project might take many decades to bear fruit, but this is the time-scale we ought to keep in mind. 

Laurence Ball, an economist at Johns Hopkins University, makes the case for shifting from a 2 percent inflation target to a 4 percent inflation target:

Suppose that central banks had been targeting 4% inflation in the early 2000s rather than 2%. Nominal-interest rates would have been two percentage points higher, allowing rates to fall by an extra two points before hitting zero. I estimate that this extra stimulus would have reduced average unemployment over 2010-2013 by two percentage points (Ball 2013).

Moreover, Ball argues that the supposed downsides of moderate inflation are greatly overstated. The main case against a somewhat higher inflation target seems to be that if we allow inflation to rise to 4 percent, it is all but inevitable that it will increase even further. Yet that is precisely the inflation target that had been in place during the Reagan-era economic expansion:

Central bankers have not always found 4% inflation unacceptable. Under Chairman Paul Volcker, the Federal Reserve ended the double-digit inflation of the 1970s, but it allowed the inflation rate to settle at about 4% from 1985 through 1988. This experience is often called the “conquest” of inflation (e.g. Sargent, 1999). Once inflation reached 4%, Volcker and his colleagues did not try to reduce it further. The Fed only tightened policy at the end of 1988, when inflation started rising again (Romer and Romer, 1994b).

Support for 2% inflation started to grow during the 1990s. Starting with Canada and New Zealand, many central banks adopted targets near 2% and pushed inflation to that level. In other countries, declines in inflation were partly accidental. In the United States, for example, inflation drifted down as a side-effect of recessions in 1990-91 and 2001. Once inflation reached 2% however, policymakers decided to lock in that rate for the long run.

Why do today’s central bankers oppose 4% inflation when Paul Volcker did not? The answer is not that research has identified new costs of inflation. Instead, policymakers have developed an aversion to inflation that is out of proportion to its true costs. [Emphasis added]

Ball attributes this excessive caution to the tendency of economic policymakers to fight the last war as well as to research which suggests that that central banks need to be ultra-hawkish to avoid a dynamic consistency problem. The experience of the Volcker era suggests that this latter concern is misplaced.

Despite the fact that Virginia and Colorado are both politically competitive states, Republicans in both states are making egregious unforced errors that threaten to doom them in upcoming statewide races. Josh Kraushaar of National Journal describes recent developments in Virginia, where the state GOP eschewed a primary race in favor of a convention that nominated an unelectable clergyman who focuses almost exclusively on social issues, including opposition to same-sex unions and, more broadly, to various civil rights protections for lesbians and gays. It is worth noting that a Washington Post survey released earlier this month finds that 56 percent of registered voters in Virginia back same-sex civil marriage, including 40 percent of Republicans. One problem is that the wording of the survey question is problematic, i.e., it asks whether gay marriage should be legal or illegal, when in fact the issue is whether or not same-sex unions ought to be eligible for civil marriage rights. But the shift since 2006 has been dramatic, particularly among GOP voters. If we assume that some non-trivial number of Virginia Republicans who oppose same-sex civil marriage rights nevertheless favor other rights and protections for same-sex unions, one gets the impression that Jackson’s views are in the minority. This needn’t be a liability in itself, as it is possible that opponents of same-sex civil marriage rights are more intense in their preference than supporters. And it is at least possible that Jackson’s status as a non-politician could prove an asset in an anti-politician climate. The challenge for Jackson, however, is that he doesn’t seem to be conversant with the kind of economic and policy issues that matter most to Virginia voters. Attorney General Ken Cuccinelli, the GOP gubernatorial nominee, has a number of vulnerabilities, but no one denies that he is familiar with the workings of state government. Just as the 2008 nomination of Sarah Palin appears to have damaged John McCain’s presidential campaign, Jackson’s nomination may well take what had been a roughly 50-50 race and tilt it towards Terry McAuliffe, the problematic Democratic gubernatorial nominee and Clinton ally. Beyond the gubernatorial race, no consensus candidate has emerged to challenge the popular Democratic Sen. Mark Warner in 2014.

And though the difficulties facing the Colorado GOP are not quite as colorful, they are just as serious. Kraushaar notes that Rep. Cory Gardner, a promising Republican candidate for statewide office, recently decided against taking on Sen. Mark Udall next year, leaving the party in a lurch. Tom Tancredo, the anti-immigration activist who won 36 percent of the gubernatorial vote as a third-party candidate in 2010, has entered the race for the Republican gubernatorial nomination, a move that will likely force his Republican opponents to either move closer to Tancredo’s anti-immigration stance, thus alienating swing voters, or loudly condemn it, thus alienating anti-immigration conservatives. Kraushaar ends his column with thoughts on the big picture:

These swing states are important precisely because they contain significant and growing numbers of the rising American electorate—Hispanics, single women, and young, college-educated voters—that are necessary for Republicans to win over for their long-term health. The party’s favorable short-term prospects in 2014—a path to a Senate majority can be won in exclusively Republican states—could easily blind Republicans to the long-term vulnerabilities it faces.

What’s remarkable is that these swing-state setbacks are taking place in what’s shaping up to be a promising political environment for Republicans. The off-year electorate, on paper, should be more conservative than in 2012, with younger voters and minorities less likely to show up for a midterm election. The scent of scandal threatens to weigh down Democrats over the next year. The implementation of Obama’s health care law, polling as poorly as ever, will be taking place right as the midterms begin in earnest. This is the stuff that should be catnip for prospective GOP recruits.

But instead we’re hearing crickets in these two Senate races, not to mention a handful of other battleground contests (Iowa, Michigan, Minnesota, and New Hampshire) where Republicans should be faring better. It’s awfully telling that Republican Senate candidates have already lined up in many of the deeply conservative states up for grabs, but there’s comparably little movement elsewhere. Talk about two Americas.

One theory, which is surprisingly popular in activist circles, is that the GOP would have more recruiting success if the party were more consistently opposed to measures like raising the federal debt limit and more committed to short-term fiscal consolidation, on the grounds that this would energize conservative voters and convince independents and centrist swing voters that the GOP can be trusted to not just slow the rate of growth in government spending but to actually reduce government’s footprint, while leaving old-age entitlements largely intact for current retirees and near-retirees. That is, many conservative activists believe that the political approach championed by Texas Sen. Ted Cruz, who ran behind Mitt Romney in 2012 (57.2 percent vs. 56.45 percent), is more likely to yield political dividends in states like Colorado, Virginia, Iowa, Michigan, Minnesota, and New Hampshire than the pragmatism of Tennessee Sen. Bob Corker. Another view is that independents and centrist swing voters are already convinced that the main goal of the congressional GOP is to shrink government as such rather than to increase employment levels or to address barriers to upward mobility, yet these voters tend to weigh job growth and affordability issues more heavily than short-term spending reductions.  

The best thing I’ve listened to this month, by a comfortable margin, is Russ Roberts’ conversation with Jim Manzi, founder of Applied Predictive Technologies, author of Uncontrolled, and a contributor to NRO, on the Oregon Medicaid study, which builds on Jim’s recent essay on the subject. The exchange is a useful primer on the analysis of experimental data, and it raises lots of interesting questions about how the results of the study have been interpreted by the major newspapers.

Cory Doctorow explores the relationship between the voluntary disclosure of personal information via social media and the growing appetite of governments for data about the political proclivities and personal habits of their citizens. 

The Pew Research Center has released a new report on the growing proportion of households with children under the age of 18 in which mothers are the sole or primary source of income. From 1960 to 2011, this share has increased from 10.8 percent to 40.4. And the relative representation of single mother families and families in which a married mother is the primary provider has also shifted over time. Single mother families have gone from 7.3 percent of the total to 25.3 percent while married mother/primary provider have gone from 3.5 percent to 15 percent. The report’s authors, Wendy Wang, Kim Parker and Paul Taylor, observe that the economic circumstances of single mother families and married mother/primary provider families are quite different:

The income gap between the two groups is quite large. The median total family income of married mothers who earn more than their husbands was nearly $80,000 in 2011, well above the national median of $57,100 for all families with children, and nearly four times the $23,000 median for families led by a single mother.

The groups differ in other ways as well. Compared with all mothers with children under age 18, married mothers who out-earn their husbands are slightly older, disproportionally white and college educated. Single mothers, by contrast, are younger, more likely to be black or Hispanic, and less likely to have a college degree.

One of the report’s more striking findings is that there is a sharp partisan divide over whether changing family structure is a legitimate source of concern:

The public’s opinions about unmarried mothers also differ by party affiliation and race. Republicans (78%) are more likely than Democrats (51%) or independent voters (65%) to say that the growing number of children born to unwed mothers is a big problem. Whites are more likely than non-whites to view it as a big problem (67% vs. 56%). The views of men and women on this issue are the same.

Given the differences in the life chances of children raised in stable marriages and those raised by single parent or disrupted families, the fact that so many Americans believe that the growing number of children born to unwed mothers is not a big problem is noteworthy. It could be that many Americans believe that there is no material difference between being raised by cohabiting parents as opposed to married parents. But there is a good deal of evidence to suggest that cohabiting families are far less stable than married families, whether in the U.S. or Europe. Though it would be churlish to characterize those who believe that the growing number of children born to unwed mothers as “marriage denialists,” I was reminded of divided public opinion on climate change, as documented by a Pew survey from October of last year:

Fully 85% of Democrats say there is solid evidence that the average temperature has been getting warmer, up from 77% last year and similar to levels in 2007 and 2008.

Nearly half of Republicans (48%) say there is solid evidence of warming, compared with 43% last year and 35% in 2009. The percentage of Republicans saying there is solid evidence of warming is still lower than it was in 2006 and 2007, but is now about where it was in 2008. A majority of independents (65%) say there is solid evidence of warming; that is up from 53% in 2009 and lower than from 2006 to 2008.

To return to the “breadwinner moms,” Wang et al. identify one of the main drivers of the rising number and share of married mother/primary providers: 

Married mothers are increasingly better educated than their husbands. Even though a majority of spouses have a similar educational background, the share of couples in which the mother has attained a higher education than her spouse has gone up from 7% in 1960 to 23% in 2011. In two-parent families today, 61% have a mother whose education level is similar to her husband’s, 23% have a mother who is better educated than her husband, and 16% have a father who is better educated than his wife.

That is, the divergence between women and men in skills acquisition and employment rates described by Melanie Wasserman and David Autor in “Wayward Sons” has already had an appreciable impact on dynamics within married families. Wasserman and Autor also describe the various ways in which the gender gap varies across groups, e.g., African American women have surpassed African American men across a number of economic and educational indicators more dramatically than non-Hispanic white women have surpassed non-Hispanic white men. Group differences of this kind are reflected in Pew’s findings on never married mothers:

Compared with single mothers who are divorced, widowed or separated, never married mothers are significantly younger, disproportionally non-white, and have lower education and income. Close to half of never married mothers in 2011 (46%) are ages 30 and younger, six-in-ten are either black (40%) or Hispanic (24%), and nearly half (49%) have a high school education or less. Their median family income was $17, 400 in 2011, the lowest among all families with children.

As family structure has changed, the share of women with children under the age of 6 participating in the labor force has increased dramatically — from 35 percent in 1975 to 65 percent in 2012. This development has tended to strengthen the political case for the expansion of subsidized access to early childhood education. Those of us who would prefer that early childhood education remain in the hands of civil society organizations or state and local governments are thus obligated to think through what an alternative approach might look like. Essentially, we can either decide that we want the public sector to take on the breadwinner role to allow low-income single mothers to raise their children full-time or we can decide to expand wage subsidies or work supports (or both) to allow low-income single mothers to combine child-rearing with full-time employment. Both options are potentially very expensive, though there is a reasonable case that the latter strategy is likely to be far more expensive than the former, as the latter strategy requires labor-intensive enforcement mechanisms that would be largely unnecessary under the former strategy. The welfare reform movement was motivated not so much by a desire to achieve cost savings, but rather out of a moralistic desire for conditional reciprocity. Working parents objected to the idea that poor women should be paid to work in the home rather than in the market. Moreover, many observers were concerned that “worklessness” in high-poverty communities had negative effects on the economic and educational prospects of children, and so there was a strong political impetus to shift from welfare to work supports, even despite the fact that this new approach created new costs, at least in the short- to medium-term. There is a third option, i.e., require labor force participation without also expanding wage subsidies or work supports. But this option is untenable in a slack labor market, unless we decide to use public sector job creation as a back-stop, and of course this is also an expensive strategy. 

The reason this third option is untenable is that we are discovering that we are dealing with a series of moving targets. It’s not just that the prospects of children raised in single parent or disrupted households aren’t getting better as quickly as we’d like. The position of these children is deteriorating in relative terms as college-educated parents in stable marriages do a better job of providing their children with the cognitive and noncognitive skills to flourish in knowledge-intensive service work. If we could somehow engineer a revival of marriage, there is at least some reason we could arrest this deterioration, given enough time. The problem, however, is that the relative advantage of marriage over cohabitation, as we’ve discussed, flows from what the sociologist Andrew Cherlin has called enforceable trust, i.e., in contemporary U.S. culture, a marital union is harder to dissolve than cohabitation. But as the stigma surrounding divorce continues to recede, this relative advantage of marriage is eroding, which suggests that it is more likely than marriage will decline over time among the affluent and college-educated in the U.S. (as it has in western Europe) than that it will grow stronger among the less affluent and the non-college-educated. This outcome is not inevitable, and I believe that we ought to do whatever we can to prevent it from coming to pass. It is, however, the most likely scenario, and it raises the question of how we should approach the challenge of cultivating skills in children raised in the bottom half of the income distribution if we assume that families continue to grow weaker. Civil society organizations can and should step into the breach. But we shouldn’t kid ourselves about the capacity of civil society organizations to act independently. In “Facing Up to Big Government,” published in National Affairs last spring, John DiIulio of the University of Pennsylvania vividly documents how dependent the voluntary sector is on the public sector.

The landscape described by Pew is of central importance to America’s economic and political future. The major party coalition that speaks most compellingly to the need to combine market and household production, to the challenges of the “sandwich generation,” and to economic aspiration more broadly will tend to have an advantage over the other. Republicans are at a disadvantage because disrupted families are underrepresented in the GOP coalition, which tends to be older and whiter than the Democratic coalition, and so these developments have in a sense snuck up on elected conservatives. Family life has changed so quickly that the generation gap is more like a generation chasm. Eventually Republicans are going to have to talk about and think about the interaction between changing family structure and a changing economy more rigorously, and when they do they won’t be weighed down by certain convictions that constrain their Democratic rivals (e.g., the widespread belief among Democratic voters that the growing number of children raised outside of marriage isn’t a big problem). At the same time, they’re going to have to deal with the fact that civil society organizations and families won’t be able to drive positive change entirely on their own. 

Jim Manzi has written a short reply to Mike Konczal on whether there really is such a thing as a “conservative reform” movement in policy. I agree with almost everything Jim has to say. Mike begins by identifying what he sees as the conservative consensus, as reflected in the congressional GOP, on a variety of policy issues, and then he questions the extent to which conservative reformers actually depart from this consensus. Jim focuses on identifying how and why his own views vary from the consensus as described by Mike. But Mike also goes on to ask whether the various reformist departures amount to much:

What are they adding to the table? As far as I read what reformers bring to the table, it consists of:

a. Monetary policy shouldn’t adopt a price stability mandate (or a gold standard, for that matter), and in fact Ben Bernanke could and should be doing more to help the recovery with the powers he has available. (Fiscal policy like the stimulus, however, is a bad idea that largely fails.)

b. Tax credits, particularly the earned income tax credit and the child tax credit, are successful programs which might even be expanded. They’re good even though they mean 47 percent of Americans pay no federal income tax, which conservatives hate. (“Predistribution” means of boosting low-end wages, like a higher minimum wage, should be avoided though.)

c. Financial institutions should hold more capital, and perhaps we should apply a “structural” reform to the sector like a size cap or siloing of functions.

d. The government protects incumbent interests in industry, both with obvious subsidies but also with certain property rights, like copyright.

Am I missing more? These are important things, but it’s really tough to think of this as a general new direction in policy. Much of it is actually a defense and potential extension of already-existing policies against people further to the right.

One challenge for Mike is that he is describing an idiosyncratic and diverse group of thinkers, and it’s not at all clear that the loose collection of conservative reformers he has in mind has coalesced into anything like a cohesive movement. That is, if the question is whether or not there really is a “conservative reform” movement in policy, the answer would have to be no under a stringent definition of a movement. It might be more apt to refer to a reformist tendency, which doesn’t so much represent a dramatic departure from U.S. conservatism as it’s been practiced in recent decades but rather a shift of emphasis. Last fall, Evan Soltas wrote a column on how Republicans have embraced increasingly ideological language to characterize policy positions that are in many cases fairly familiar or banal, a development which he associates with the rise of the Tea Party movement. The aging of the Republican primary electorate and the evolution of the campaign finance regime — specifically the weakening of the major political parties and the growing strength of independent expenditure groups and risk-averse incumbents representing ideologically homogenous constituencies — has contributed to this larger rhetorical shift. Mike is dismissive of conservative reformers because he finds (correctly) that they are basically conservatives. But of course that is the point. The reformist impulse is fundamentally conservative, as it aims to preserve what is best in our current mix of institutions through incremental change.

Yuval Levin has argued that the challenge facing conservatives is that the mixed economy settlement of the postwar era, in which a generous old-age safety net co-existed with a reasonably healthy, open, and competitive private enterprise economy, is not aging well, as the basic design of U.S. health entitlement programs has exacerbated cost growth and is driving a substantial increase in the size and reach of the federal government. And so preserving something like the mixed economy settlement of the postwar era will require redesigning health entitlements, among other things. The goal is not to abandon the federal commitment to a generous old-age safety net, but rather to put it on a more sustainable footing and, relatedly, to encourage empowering innovations in medical care that might lower its cost while raising its quality. This is hardly a utopian ambition. It does, however, entail challenging the interests of a wide range of incumbent interests, including interests that are in many cases supportive of conservative policy goals. Physicians, to name the most obvious example, tend to oppose measures that empower other medical professionals, like nurse practitioners and physician assistants, at their expense. Conservative reformers will generally be more inclined to put pressure on incumbents of this kind than most current members of the House GOP, who are, for obvious reasons, more sensitive to real-world conservative constituencies. One question for conservative reformers is whether they can conceive of and successfully pursue alternative constituencies, just as GOP opponents of the Stop Online Piracy Act (SOPA) eventually realized that the entertainment industry wasn’t the only organized interest group that had a stake in the regulation of the internet. 

My sense is that Mike and his allies believe that only those who see the financial crisis as an indictment of U.S. capitalism ought to be taken seriously. This view has gained credence on the center-left, and it has helped foster an intellectual resurgence among more radical critics of U.S. political economy. I suspect that this is why Mike has devoted considerable energy to arguing against the “market monetarist” interpretation of the crisis and the post-crisis malaise — he seems to recognize that if the market monetarists are right, the Great Recession is better understood, in Robert Hetzel’s words, as a reflection of monetary disorder and not market disorder. Mike suggests that the departure of conservative reformers on monetary policy is fairly trivial. But it is actually very important along a number of dimensions. Whereas most conservatives have struggled to find a post-crisis narrative, market monetarism, like the supply-side thinking of the late 1970s, gives center-right thinkers a “non-zero-sum” economic narrative. If one embraces the market monetarist thesis, one needn’t maintain that the only road to recovery is to endure high unemployment as we work our way through a skills mismatch. Rather, what we need is for the central bank to keep nominal output growing at a steady rate, as this will allow entrepreneurs, investors, and workers to make decisions about the future with confidence. There are, of course, conservative reformers who reject the market monetarist thesis, but I would argue that they are in a tougher position intellectually than those who do. 

Then there is the question of ”predistribution,” or regulatory efforts to shape the marketplace before taxes and transfers. As Mike understands, minimum wage regulations are hardly the only imaginable predistribution intervention. There are many other ways in which the public sector can shape the labor market, e.g., human capital policy, family policy, and immigration policy. Most of the conservative reformers favor robust reform of K-12 and higher education. The advent of charter schools is a development that has been celebrated by neoliberal centrists and conservatives alike, and conservative reformers tend to see it as paradigmatic of their approach to public sector reform. Yet many conservative reformers also favor more far-reaching reforms, like course-level instructional choice, that will introduce elements of competition and empowering innovation into traditional public schools, per Clayton Christensen et al. On family policy, conservative reformers — particularly those of a more culturally conservative bent — are amenable to family-friendly tax reform and, to a lesser extent, modest marriage and relationship education efforts that are designed to reduce the burdens on child-rearing and to encourage family stability. Given the scale of the family disruption problem, these measures aren’t likely to have a dramatic effect, yet they represent a recognition of the extent to which family life structures economic life, i.e., the extent to family life is very a matter of predistribution. Immigration policy, meanwhile, is deeply tied to predistribution, as the skill endowments of immigrants have a powerful impact on their earning potential, and thus on the demand for redistribution via taxes and transfers. 

More broadly, one might think of efforts to reduce the debt bias in the tax code and to scale back other protections for incumbent firms as a strategy of “predistribution,” as Ashwin Parameswaran has suggested, and the same can be said of efforts to reform the financial sector. Again, this isn’t about a radical effort to restructure the U.S. economy. William J. Baumol, Robert E. Litan, and Carl J. Schramm characterize the U.S. economy as a blend of “entrepreneurial capitalism” and “big-firm” capitalism, and they see this (rightly) as a good thing. The question is whether we’ve struck the right balance between these two modes. Christensen, whom I see as a crucially important figure for conservative reformers, though he is a scrupulously nonpartisan intellectual, has argued that an excessive emphasis on husbanding capital has damaged the U.S. economy, and contributed to sluggish job growth in recent decades. Suffice it to say, Christensen’s critique of the Doctrine of New Finance isn’t a call for a state-guided economy, and the same is true of Amar Bhide’s intriguing critique of debt market liquidity. Rather, Christensen and Bhide are seeking to explain how certain deficiencies of the post-1970s American economy have actually undermined the best aspects of capitalist dynamism. 

Mike sees support for wage subsidies and work supports among conservative reformers as little more than a defense of the status quo, and that’s fair enough. Some conservative reformers, however, favor a larger reordering of anti-poverty policy. The challenge, according to this framework, is that upward mobility from the bottom fifth of the household income distribution is extremely limited for a variety of reasons, ranging from the intergenerational effects of exposure to concentrated poverty to the weakness of social networks among the very poor to the lasting consequences of living in high-crime neighborhoods. So while the old right-of-center crime control agenda — which Mike critiqued in a fascinating article in the socialist magazine Jacobin, which notably doesn’t spend much time describing the post-1960s surge in violent crime — was oriented towards the concerns of nonpoor suburbanites, a new right-of-center crime control agenda might be best understood as part of a larger effort to fight the causes of persistent poverty. One aspect of this shift is already underway, namely the embrace of criminal justice reform by conservatives who recognize that incarceration damages the earnings prospects of ex-offenders, which in turn damages the prospects of the children of ex-offenders.

There is much more to be said. But if Mike’s claim is that conservative reformers are basically conservatives, he is clearly correct. The much bigger issue, in my view, is that many of the conservative who object to conservative reformism — who’ve been fighting House Majority Leader Eric Cantor’s efforts to reform higher education and efforts to craft a coherent and workable replacement for the Affordable Care Act, etc. — don’t seem to appreciate that reform is necessary to preserve what conservatives value most about American life.