Saturday, January 2, 2021

Trust and Quality of Government in a Polarized Age

Kevin Vallier’s new book, Trust in a Polarized Age, has a clear message: Trust matters. If we want to combat the increasing political polarization that is bane of our times, we need to tend to the institutions on which trust depends, and which themselves, in turn, depend on trust. 

By trust, Vallier means two things: Social trust, “that trust which each member of a society has that other members of her society will generally follow publicly recognized moral rules,” and political trust, “that trust which each member of a society has that governmental institutions will follow fair procedures and produce positive results.” (p. 6) He sees the two as joined in a virtuous circle through the intermediary of good government: “Since social trust creates good governance and good governance creates political trust, social trust creates political trust by proxy.” And to close the circle, he maintains that institutions of good government, by enforcing trustworthy behavior, create conditions that favor political trust and build general social trust. (p. 214) 

By good governance, Vallier means liberal governance – in the sense of classical liberalism, not the American usage that makes liberalism a synonym for the political left. Yet, Vallier does not defend liberalism as an ideology. He focuses more pragmatically on five key liberal rights practices: freedom of association, markets and private property rights, social welfare programs, democratic constitutionalism, and electoral democracy. (p 277) His message is that if we embed these liberal rights practices in our institutions, trust will follow, polarization will recede, and a world in which politics is not war will become possible.

As someone engaged in empirical research on the quality of government, I found this all intensely interesting. Although Vallier’s book is primarily a work of political philosophy, I could hardly wait to fire up my spreadsheets to investigate the many hypotheses he suggests. Do trust, quality of government, and liberal rights practices really matter? Do they matter everywhere, or only in countries that are already liberal? The answer is that trust and good governance do matter, but the story is not always a simple one. Some of the patterns are quite complex, so the results reported in this commentary should be considered preliminary.

Friday, December 11, 2020

Why Libertarian Environmentalists Should Take Locke Seriously

 

In an well-argued essay, Jonathan Adler argues that libertarian environmentalists ought to take property rights seriously. No writer has had a greater impact on classical liberal and libertarian thinking about property than John Locke. It follows that any would-be free market environmentalist must take Locke seriously. And not just Locke’s theory of property. His theory of government, as laid out in his 1690 Second Treatise, is equally important. In what follows, I will argue that considering Locke’s ideas on both property and government leads to conclusions that justify even stronger policy actions that Adler advocates.

Locke on property

Locke states the essence of his theory of property in this famous passage:

Though the earth, and all inferior creatures, be common to all men, yet every man has a property in his own person: this no body has any right to but himself. The labour of his body, and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature hath provided, and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property. It being by him removed from the common state nature hath placed it in, it hath by this labour something annexed to it, that excludes the common right of other men: for this labour being the unquestionable property of the labourer, no man but he can have a right to what that is once joined to, at least where there is enough, and as good, left in common for others.” (Chap. 5, sec. 27)

A few pages later, Locke makes it clear that the principle for acquiring property applies not just to acorns gathered in the woods, but to the land itself: 

As much land as a man tills, plants, improves, cultivates, and can use the product of, so much is his property. He by his labour does, as it were, inclose it from the common. (Chap. 5, sec. 32)

Thursday, November 12, 2020

What's Wrong with Libertarian Environmentalism

In an essay in Critical Review a few years back, Jeffrey Friedman had a go at explaining what’s wrong with libertarianism. His sixty-page argument can be summed up in a single sentence: “Philosophical libertarianism,” he wrote, “founders on internal contradictions that render it unfit to make libertarians out of anyone who does not have strong consequentialist reasons for libertarian belief.”

The conflict between the philosophical and consequentialist sides of libertarianism is nowhere more sharply on display than when applied to environmental issues. This commentary explores the dilemma of libertarian environmentalism and the ways–none of them entirely successful–in which its practitioners try to escape it.

Tuesday, November 10, 2020

Bipartisan Rules to Meet the Coming Fiscal Policy Challenge

President-elect Joe Biden will face serious fiscal policy challenges as soon as he takes office. A hoped-for V-shaped recovery from the Covid-19 pandemic has turned into a something that looks more like a long-tailed Nike swoosh. Business closings, mostly classed as temporary back in March and April, are, increasingly, proving to be permanent. Short-term unemployment is falling, but long-term unemployment and involuntary part-time work are increasing. Evictions and foreclosures loom over cash-poor working-classfamilies, who are estimated to have accumulated as much as $70 billion in back rent owed. Meanwhile, state and local governments, whose spending is constrained by balanced-budget rules, are laying off teachers and fire fighters. The trade deficit remains high and the Fed has no room left to cut rates to stimulate investment.

In a normal world, such a situation would cry out for fiscal stimulus. Ominously, however, the deficit hawks of the Republican party, who slept through the badly timed and budget-busting Tax Cuts and Jobs Act of 2017, are starting to stir. They said “No” to any last-minute stimulus before the 2020 election, and their appetite for austerity will be ravenous once they are fully awake. If Republicans hold their majority in Congress, they will have a major role in determining policy in 2021, so little is going to get done without at least a scintilla of bipartisanship.

“But,” you say … “Aren’t the budget hawks right this time? Just look at the numbers!”


Yes, they are right to point out that under current policies, as measured by the Congressional Budget Office, the federal debt is rising fast. It is about to exceed its previous record as a percentage of GDP and it is projected to go on rising for the next 30 years. But those raw numbers tell us little of use for fiscal policy. A rational set of budget rules neither automatically precludes nor condones large budget deficits or a debt ratio that rises over time. To understand what a rational set of budget rules would actually look like, read on.

Thursday, November 5, 2020

A CBO Roadmap to Near-Universal Healthcare

 

On October 1, the Congressional Budget Office released a detailed report, Policies to Achieve Near-Universal Health Insurance Coverage. The report outlines four broad approaches to the long-sought goal of universal, affordable access to healthcare for all Americans. The CBO cautiously aims only for near-universal coverage, which it defines as coverage for at least 99 percent of the population. The report argues that 100 percent coverage is unattainable, since some people would inevitably decline to participate–even if they were eligible at no cost–on religious grounds or because they did not want to bring themselves to the attention of authorities, among other reasons.

Each of the four approaches offers potential improvements over what we now have under the ACA, and ways out of the unthinkable chaos of a court-ordered end to the ACA, with no viable replacement. The alternatives range from a Sanders-like single-payer plan bold enough to appeal to the most progressive Democrats, to others that are sufficiently market-oriented to pass judgement with any but the most curmudgeonly Republicans. One of the CBO’s alternatives squarely hits the sweet spot of radical moderation– the Niskanen Center’s hallmark.

Here is a brief outline of the four approaches, with some pros and cons of each. 

Saturday, September 19, 2020

Quality of Government: A Statistical Portrait

In a recent three-part essay, the Niskanen Center’s Brink Lindsey acknowledges all that the modern market system has done to incentivize innovation and coordinate the production and distribution of goods and services. He is concerned, though, that the economists who have assumed leadership of the free-market intellectual movement sometimes take the existence of markets themselves for granted. He adds a vital qualification: 

A well-functioning market system is neither self-executing nor self-sustaining. To achieve what they are capable of, markets need to be embedded in and supplemented by supportive legal, political, and social institutions. 

The idea that institutions are important to the proper functioning of a market economy is hardly new. Harold Demsetz’s work on property rights and Douglass North’s writings on institutions and transaction costs are well-known landmarks in the literature. The question of quality of government (QoG) is a somewhat narrower, but still broad question within the study of economic institutions. Bo Rothstein’s 2011 book on QoG provides an excellent overview of the literature and many original contributions. 

The scope of this commentary is much less ambitious than any of these classic works. As a “statistical portrait,” it is more descriptive and exploratory than a rigorous exercise in hypothesis testing. Still, by highlighting some key relationships, I hope to point the way to potentially fruitful topics for further research. And even with these disclaimers, the findings reported here shed light on important questions regarding the relationship of QoG to democracy, personal freedom, and the satisfaction of basic human needs.

Monday, July 13, 2020

New Research Boosts Our Understanding of the Effective Marginal Tax Rates for the Poor


Does the American welfare system adequately encourage the poor to achieve self-sufficiency, or is it a “poverty trap” that locks welfare beneficiaries into a lifetime of dependency? The question has been debated endlessly with no clear win for either side. 

In large part, the dispute turns on a concept known as the effective marginal tax rate (EMTR) faced by poor and near-poor households. The EMTR is the percentage of any additional earned income that a household pays in taxes or loses in government benefits. Critics argue that high EMTRs leave little incentive to work, and even for those who do work, they mean that their efforts do little to help them to lift their disposable incomes above the poverty level. What is the point of getting a job if taxes and benefit reductions are going to eat up 75 percent or more of your earnings, even without figuring in expenses like child care, commuting, or work clothes? Supporters of the existing welfare system argue that punitively high EMTRs are rare. They emphasize that the current welfare system, despite its flaws, does raise millions of families out of poverty.

Recent research revives the longstanding debate over EMTRs. This commentary reviews studies that suggest that despite some changes for the better, critical segments of the low-income population, especially those with incomes close to and just above the poverty line, continue to face weak work incentives. Simply expanding eligibility for existing welfare programs will not fix the problem. As explained in the conclusion, a more effective approach to mitigating the poverty trap would be to cash out and consolidate current welfare programs, replacing them with a combination of universal income supports, universal child benefits, and wage subsidies for the lowest-paid workers.