Should government food assistance programs have nutritional requirements?

Some of the foods you can purchase through WIC.

Probably.

There’s good reason to believe that adding nutritional requirements to government food programs is a better use of money and leads to better health outcomes for the people in said programs.

WIC (Women, Infants, and Children) is a state-run program that helps low-income women and children purchase healthy food. WIC has specific guidelines for the quantities and types of food recipients can purchase, all of which have to meet certain health standards. In this program there is no way to purchase soda, candy, pizza, baked sweets, ice cream, etc. SNAP (Supplemental Nutrition Assistance Program, often referred to as “food stamps”) is a federally-funded program helping low-income people purchase almost any food.

The USDA explains that SNAP is for purchasing any food or food product for home consumption and that this definition includes “soft drinks, candy, cookies, snack crackers, and ice cream” and similar items. Data suggest these types of purchases make up at least 17% of SNAP spending . In 2017, about 42 million people used SNAP at an average of $125.79 per person per month, meaning the government spent about $11.3 billion that year buying junk food for low-income people. What are the arguments for spending so much on junk rather than using those funds to ensure low-income people have high quality food?

Opponents of SNAP nutritional requirements give many reasons for why nutritional requirements are not feasible or effective: we can’t come up with clear standards for what is “healthy,” it would be too complicated and costly to implement such standards, restrictions wouldn’t stop people from buying unhealthy food with their own money, and people in higher income brackets purchase similar amounts of unhealthy food.

Yet WIC has managed to define what constitutes healthy food and implement a program based on those boundaries. In fact the USDA describes WIC as “one of the nation’s most successful and cost-effective nutrition intervention programs.” There is evidence to suggest people participating in WIC (especially children) have better nutrition and health outcomes than their peers. Conversely, there is evidence to suggest people who receive SNAP benefits have worse nutrition than income-eligible people who don’t participate in SNAP. For example:

Changing WIC changes what children eat – May 2013

Comparing July to December in 2008 and 2011, increases were observed in breastfeeding initiation (72.2-77.5%); delaying introduction of solid foods until after 4 months of age (90.1-93.8%); daily fruit (87.0-91.6%), vegetable (78.1-80.8%), and whole grain consumption (59.0-64.4%) by children aged 1-4 years; and switches from whole milk to low-/nonfat milk by children aged 2-4 years (66.4-69.4%). In 1-year-old children, the proportion ≥95th percentile weight-for-recumbent length decreased from 15.1 to 14.2%; the proportion of children 2- to 4-year-old with body mass index (BMI) ≥95th percentile decreased from 14.6 to 14.2%.

Trends in Obesity Among Participants Aged 2–4 Years in the Special Supplemental Nutrition Program for Women, Infants, and Children – November 2016

The prevalence of obesity among young children from low-income families participating in WIC in U.S. states and territories was 14.5% in 2014. This estimate was higher than the national estimate (8.9%) among all U.S. children in a slightly different age group (2–5 years) based on data from the 2011–2014 National Health and Nutrition Examination Survey (7). Since 2010, statistically significant downward trends in obesity prevalence among WIC young children have been observed overall, in all five racial/ethnic groups, and in 34 of the 56 WIC state agencies, suggesting that prevention initiatives are making progress, potentially by impacting the estimated excess of calories eaten versus energy expended for this vulnerable group (8).

The Supplemental Nutrition Assistance Program – September 2015

Child SNAP recipients consume more sugary beverages, processed meats, and high-fat dairy products, but fewer nuts, seeds, and legumes than income-eligible nonparticipants. Similarly, adult SNAP recipients consume more fruit juice, potatoes, red meat, and sugary beverages, but fewer whole grains than income-eligible nonparticipants. In another study, SNAP participants had lower dietary quality scores overall, and consumed significantly fewer fruits, vegetables, seafood, and plant proteins, but significantly more added sugar than income-eligible nonparticipants.

The study specifically compares SNAP nutrition to WIC nutrition:

In one study comparing the grocery store purchases of SNAP and WIC households in New England, SNAP households purchased more than double the amount of sugary beverages per month (399 ounces) than WIC households (169 ounces), 72% of which were paid for with SNAP dollars. In a 3-month study, new SNAP participants significantly increased their consumption of refined grains compared with low-income people who did not join. In a study of Hispanic Texan women, SNAP participants consumed 26% more sugary beverages and 38% more sweets and desserts than low-income nonparticipants.

Furthermore, most of the people who use SNAP believe the program should not allow recipients to purchase unhealthy food:

54% of SNAP participants supported removing sugary drinks from SNAP eligibility. In another survey of 522 SNAP stakeholders, 78% of respondents agreed that soda, and 74% agreed that “foods of low nutritional value” such as candy and sugar-sweetened fruit drinks should not be eligible for purchase with benefits. Seventy-seven percent of respondents believed that SNAP benefits should be consistent with the DGAs [Dietary Guidelines for Americans], and 54% thought that SNAP should be reformulated into a defined food package similar to WIC.

I want to live in a society where people are healthy and no one goes hungry. SNAP can and should serve both goals.

Would Open Borders Lead to the Migration of Liberal Ideas?

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King’s College political theorist Adam Tebble was recently interviewed about his latest paper on epistemic liberalism and open borders. Explaining epistemic liberalism, he says,

Epistemic liberalism is a tradition of thought that places questions about knowledge, complexity and social learning at the heart of debates in political philosophy, initially with regard to debates about economic organisation and distributive justice.  Key thinkers in this tradition are Karl Popper, Michael Polanyi and of course Austrian School economists such as Friedrich Hayek, although there is also something to be said for including David Hume and John Stuart Mill on the list, given what they have to say about justice in extended or ‘large’ societies and about our liberty to engage in ‘experiments of living’ respectively.

I pick up where these authors, and particularly Hayek, leave off by claiming that epistemic considerations are not just crucial to debates about distributive justice, but also to more fundamental questions about the status of the background norms and conceptions of the good that inform the economic choices that we, either as self-interested individuals or as other-regarding pursuers of collective projects, may make. Thus, in Epistemic liberalism: a defence I seek to build upon Hayek’s claim about the existence of an economic knowledge problem – where the knowledge relevant to our deciding what to do with resources is for a variety of reasons uncentralisable – to claim that there also exists a more profound cultural knowledge problem.

How does this relate to open borders?

In contrast to much of the literature on migration and justice, and especially in contrast to that which defends a more liberal position, the argument I make in favour of more open borders focuses not upon the interests of immigrants or of the already-resident, but upon those whom migrants leave behind in their countries of origin.  In this sense my argument represents something of a breakthrough, for it seeks to claim the interests of those left behind for those arguing in favour of the more liberal approach, rather than leaving them to be appealed to in arguments against it, most notably by writers on brain-drain.  My argument, then, can be read as a response to brain-drain critiques of more open borders and to scepticism about freedom of movement in general.

There is some very interesting work in this area, particularly on social remittances and their effects by authors such as Kathleen Newland and Peggy Levitt.  Both their work and studies by others in development economics do show how, through visits home, via regular communication, or both, immigrants also remit the values of their adopted nations to those they have left behind.  Indeed, there is evidence to suggest that not only the relatives of immigrants, but those who live near to them, are also impacted by this phenomenon.

What’s more, “open borders not only enable migrants to assist those left behind in ways that alternative cross border resource transfer mechanisms cannot, but also assist governments to do the same, via a process of what I call ‘state signalling’.”

Check out the whole interview and the full paper.

More on Free Trade

From Art Carden over at Forbes:

A new paper forthcoming in the journal American Economic Review: Insights estimates the effect of trade with China on American consumers and shows us what we stand to lose if we don’t end the trade war.

In “Estimating US Consumer Gains from Chinese Imports,” economists Liang Bai of the University of Edinburgh and Sebastian Stumpner of the University of Montreal and the Bank of France study price data from the Nielsen Homescan panel to find that trade with China reduced the prices Americans paid for consumer tradables by 0.19 percentage points per year. You can download a draft of the paper here.

Bai and Stumpner argue that about a third of the consumers’ gain from trade with China comes from greater product variety while the other two-thirds come from lower prices for the goods people were already buying.

Another way to put it is that inflation was lower–prices didn’t rise as rapidly–because of trade with China…The direction of the result won’t surprise economists, who have argued for centuries that international trade helps a country’s citizens by making it possible for them to get more with every hour of their hard-earned labor.

Scott Lincicome of the Cato Institute weighs in as well:

Trade and globalization have provided undeniable economic benefits for the vast majority of American families, businesses, and workers. Most obvious are the consumer gains. Several recent studies have found that freer trade with China, for example, has generated, through increased competition and lower prices, hundreds of billions of dollars in U.S. consumer benefits — benefits that, according to economists Xavier Jaravel and Erick Sager, are the equivalent of giving every American “$260 of extra spending per year for the rest of their lives.” Consumer gains from imports, in general tilted toward the poor and the middle class, are especially tilted toward them when it comes to goods that are made in China and sold at stores like Walmart. The magnitude of such benefits also debunks the well-worn myth that free trade is mainly about cheap T-shirts. Indeed, trade’s consumer surplus is a big reason that Americans today work far fewer hours to own far better essentials than at any prior time in U.S. history.

Then there are trade’s overall benefits for the economy. A 2017 Peterson Institute paper calculated the payoff to the United States from expanded trade between 1950 and 2016 to be $2.1 trillion, increasing U.S. GDP per capita and per household by around $7,000 and $18,000 — with benefits, again, disproportionately accruing to households in the bottom income decile. The U.S. International Trade Commission, moreover, found in 2016 that U.S. bilateral and regional trade agreements such as NAFTA generated small but significant annual increases in GDP, as well as in employment and real wages among highly skilled and less skilled American workers. As the American Enterprise Institute’s Michael Strain has noted, trade-skeptical populists who downplay this impressive macroeconomic boost ignore that, as our current economic moment attests, a small bit of extra GDP growth can mean big things for lower-wage, lower-skill workers in terms of employment and possible government assistance.

Trade and globalization also support American companies and workers, even in manufacturing. The Commerce Department, for example, has estimated that almost 11 million jobs depended on exports of U.S. goods and services in 2016, and foreign direct investment in the United States — the necessary flip side of our oft-maligned trade deficit — supported millions more. Meanwhile, American companies that adapt and thrive in today’s economy most often do so by making use of imports and global supply chains. The San Francisco Fed, for instance, recently estimated that almost half of U.S. imports are intermediate products purchased by American manufacturers to make globally competitive finished goods; the country’s biggest exporters, therefore, are also its biggest importers. Numerous other studies have found that the vast majority of the value of an American company’s assembled-abroad product (such as an iPhone, assembled in China) accrues to the U.S. company, including its workers and shareholders — not to the place of final assembly (despite what a gross bilateral trade balance, which attributes an import’s full cost to its final export source, might say).

…My 2017 survey of the academic literature on over a century of U.S. protectionism pre-Trump showed that, with very few exceptions, it imposed immense economic costs on American consumers, workers, and companies (more than $600,000 per year for every U.S. job created) while also failing to open foreign markets or resuscitate protected American firms and workers over the longer term. In case after case, the jobs still disappeared, and the companies either went bankrupt or came back to the government for more help. And it’s happening again: Though American steel consumers are paying much higher prices than their global competitors, U.S. steel-industry stocks lag far behind the S&P 500 index. For these and related reasons, economists of the Left, Right, and center continue to oppose tariffs overwhelmingly (93 percent of a recent IGM Economic Experts Panel of dozens of top economists, to be exact), and they support freer trade and globalization.

Say again: free trade is good.

CBO on the Minimum Wage

I’ve talked about the minimum wage a lot here at Difficult Run. The following comes from the Congressional Budget Office’s July report. It pretty much captures one of the major trade-offs of minimum wage hikes.

The people who get the wage increases will obviously be better off. Not so for the 1.3 million (at $15 an hour) who lose their jobs.

So the question boils down to this: are we willing to make that trade?

Are Americans Religiously Literate?

I’ve written a lot of about political knowledge (or the lack of). A recent Pew study tests Americans’ religious knowledge and the results aren’t exactly inspiring. When it comes to Christian or biblical basics, the majority of the population answers correctly. Less so when it comes to Islam, but still a majority.

Most Americans are familiar with key elements of Christianity, terminology of nonbelief, basics of Islam

When you start to move beyond these religions, however, the knowledge drops drastically.

Three-in-ten or fewer Americans know when Jewish Sabbath begins, that Rosh Hashana is the Jewish New Year

One-in-five Americans know Protestantism (not Catholicism) traditionally teaches that salvation comes through faith alone

The next bit reminded me of an incident at church a few years back. During a lesson, the teacher made a comment about how he “never asks about other people’s religion, but they always ask me about mine.” He took this as evidence of the “truthfulness” of Mormonism. I did not hesitate to point out that their curiosity likely had less to do with the Church’s “truthfulness” and more to do with us being a supposedly weird, polygamous cult with a different book. I then noted that learning about other religions improves interfaith dialogue by allowing us to better communicate with those of different faith backgrounds.

As the data below demonstrate, that teacher was not alone: Mormons are some of the most well-versed when it comes to the Bible and Christianity, but some of the least knowledgeable regarding other religions.

Evangelical Protestants get the most questions right about Christianity; Jews are most well-versed in world religions

Overall, it appears that American religious literacy is pretty meh.

The Benefits of Global Technology Diffusion

Relying on a global dataset from the European Patent Office (PATSTAT), researchers were recently able “to trace knowledge flows using cross-patent citations, that is, the extent to which countries cite patents from other innovators as prior knowledge in their own patent applications. A first look at the data (Figure 3) suggests knowledge flows have increased significantly over the last two decades, and China and South Korea (depicted in Figure 3 as ‘other Asia’) have become substantially more integrated in global citations, both as citing and as cited innovators.”

They also find that “the share of technology leaders’ knowledge that diffuses to emerging market economies has increased steadily and significantly over time – and this finding is robust to excluding China from the ‘recipient’ economies (Figure 4). In contrast, the diffusion of knowledge from the G5 to (non-G5) advanced economies has remained flat or even moderated somewhat – albeit from a higher level – since the global financial crisis.”

It turns out

that both emerging market and other advanced economies have been able to capitalise on knowledge flows from the G5 to increase domestic innovation (measured by patenting) – with foreign knowledge playing a relatively larger role than domestic R&D in emerging market economies. These results also apply to productivity, suggesting that knowledge from the G5 has contributed to boosting income levels in other countries. The impact on productivity is economically meaningful, especially for emerging market economies. For instance, between 2004 and 2014, knowledge flows from the technology leaders may have generated, for an average country-sector, about 0.7 percentage point of labour productivity growth per year (Figure 5). This amounts to about 40% of the observed average sectoral productivity growth in this period.

Finally, the researchers’ “results point to a positive empirical relation internationally” between competition and innovation. They conclude,

Globalisation has intensified the international diffusion of technology, which is crucial to share growth potential across countries and boost global growth. The positive impact has been particularly large for emerging market economies, helping increase productivity for them, and supporting income convergence. Our results also suggest that the growing competition from emerging market economies may lead to more innovation, even in advanced economies.

Immigration Horrors Aren’t Exactly New

So remember that wall Trump keeps promising? Seventy percent of it was completed by previous administrations. Which is to say that immigration idiocy didn’t suddenly begin in 2016.

When it comes to deportations, the Trump administration hasn’t reached the heights of the Obama administration. According to Axios, “Immigration and Customs Enforcement has deported more immigrants this fiscal year than any full fiscal year of Donald Trump’s presidency, but it has yet to reach Barack Obama’s early deportation levels, according to new internal Department of Homeland Security figures obtained by Axios.”

From Reuters

According to the Marshall Project, the current detention system has been continually expanding over the last 25 years:

Under President Bill Clinton the daily population in detention tripled from what it had been in 1994 to nearly 20,000 at the end of his second term. A pair of laws passed in 1996 and signed by Clinton resulted in a vast expansion of the system, introducing mandatory detentions for asylum seekers and legal immigrants who had committed crimes, indefinite detention and additional spending on enforcement. In the aftermath of the terrorist attacks of 9/11, President George W. Bush also cracked down on immigration, ending a policy in 2005 that permitted those being caught crossing the border to be released until their court dates. By the time Barack Obama took office, the average daily population had ballooned to more than 30,000.

Though detention numbers dipped briefly under Obama, by the time of the 2016 election the daily average had reached just over 34,000 after an influx of Central American migrants at the southern U.S. border. In each administration, the growth of the detention system was used to broker political compromises in lieu of dealing with an overburdened immigration system.

This is why claims that “children in cages” began under previous administrations are actually true (though the Trump administration has taken it to 11). And at least some criticisms began under the Obama administration. For example, National Review pointed to a 2011 PBS Frontline special that shined a critical light on the administration’s immigration enforcement:

The yearlong investigation did an extensive and deep dive into the U.S. immigration enforcement system and stories of hidden abuse in detention centers. The nearly hourlong report makes for harrowing viewers: Women who have been detained complaining about being harassed by guards for sexual favors, sexually assaulted by guards, and guards threatening to kill the women they are harassing if they talk. A single mom with two daughters who overstayed a visa gets deported back to Mexico just because she changed lanes without signaling. Cops describe patrolling neighborhoods with significant number of illegal immigrants, where people instinctively run from the sight of a police car. A mother of five American-born children being deported over a speeding ticket.

The report describes, “a vast network of 250 detention centers, from county jails to large centers run by private prison companies, where immigrants facing deportation are held until they can be removed from the country. In the past decade, three million immigrants have been detained in the system.” The report shows white-domed tents surrounded by barbed wire, and are described as overcrowded warehouses of people. Those who have been through the detention centers describe beatings, racial slurs, official coverups, and threats to deport anyone who complains. The problem is described as more than a few “bad apples,” but more of “barrels of bad apples.”

…In the Frontline report, the administration insists the current enforcement policies are necessary to protect the American people. The report shows the president traveling to El Paso and boasting, “We have strengthened border security beyond what many believed was possible. We now have more boots on the ground and we are deporting those who are here illegally.” The deputy director of ICE boasts of “record-breaking numbers in terms of criminal alien removals” that include “1,000 murderers, 6,000 sex offenders, 45,000 serious drug violators. As we expand the deployment of Secure Communities, focus on criminal aliens, you’ll see that number continue to go up and up.” Officials from the administration boast that they’re finally taking enforcement seriously, a contrast with their lax predecessors.

One of the president’s immigration advisors callously declares, “At the end of the day, when you have a community of 10 million, 11 million people living and working in the United States illegally, some of these things are going to happen. Even if the law is executed with perfection, there will be parents separated from their children. They don’t have to like it, but it is a result of having a broken system of laws.”

Critics complain that the administration’s policy is just “enforcement on steroids.” The report warily details how ICE has extended its reach by enlisting the help of local law enforcement to better identify illegal immigrants who have committed crimes — turning local cops into a de facto enforcement branch of federal immigration law.

All of this really should teach us to not deify political administrations. What’s more, it should break the brain of every rabid anti/pro-immigration, pro/anti-Trump Republican/Democrat.

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Once More For the People in the Back: Nordic Countries Aren’t Socialist

Mocking Spongebob Meme | bUt WhAt AbOuT sWeDeN!! | image tagged in memes,mocking spongebob | made w/ Imgflip meme maker

So here’s something I’ve been saying for the last few years. From The Washington Post:

Undoubtedly, the Nordic nations, with their high incomes, low inequality, free politics and strong rule of law, represent success stories. What this has to do with socialism, though, is another question.

And the answer, according to a highly clarifying new report from analysts at JPMorgan Chase, is “not much.”

Drawing on data from the World Bank, the Organization of Economic Cooperation and Development and other reputable sources, the report shows that five nations — Sweden, Denmark, Finland, Norway and the Netherlands — protect property rights somewhat more aggressively than the United States, on average; exercise less control over private enterprise; permit greater concentration in the banking sector; and distribute a smaller share of their total income to workers.

“Copy the Nordic model if you like, but understand that it entails a lot of capitalism and pro-business policies, a lot of taxation on middle class spending and wages, minimal reliance on corporate taxation and plenty of co-pays and deductibles in its healthcare system,” the report notes.

It goes on to point out that the majority of Nordic countries

have zero estate tax. They fund generous programs with the help of value-added taxes that heavily affect middle-class consumers.

In Sweden, for example, consumption, social security and payroll taxes total 27 percent of gross domestic product, as compared with 10.6 percent in the United States, according to the JPMorgan Chase report. The Nordic countries tried direct wealth taxes such as the one that figures prominently in the plans of Sen. Elizabeth Warren (D-Mass.); all but Norway abandoned them because of widespread implementation problems.

The Nordic countries’ use of co-pays and deductibles in health care may be especially eye-opening to anyone considering Sanders’s Medicare-for-all plan, which the presidential candidate pitches as an effort to bring the United States into line with European standards.

The Post concludes,

These countries are generous; but they are not stupid. They understand there is no such thing as “free” health care, and that requiring patients to have at least some skin in the game, in the form of cost-sharing, helps contain costs…If they have established anything, it’s not socialism, or even the dominance of a benevolent state, but responsible governance. They have achieved a clear division of labor, between government (which arguably has a comparative advantage in health insurance and education) and the private sector (which is better at producing and distributing most other goods and services).

What the Nordic countries don’t do is pretend that society can have a strong and efficient social safety net without a big, mandatory financial contribution from the middle class. Nor do they deal punitively with the private sector, upon whose productivity the entire system ultimately depends.

American socialists’ enthusiasm for the northern European systems may be sincere. We shall see whether it can withstand full and accurate information about how those systems actually work.

Are There Children in America Living on $2 a Day?

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From Reason:

Claims that millions of Americans are mired in extreme poverty, barely surviving on $2 or $4 a day, are false, according to a new working paper from the National Bureau of Economic Research.

The paper, released June 3, is by Bruce Meyer, Derek Wu, and Victoria Mooers of the Harris School of Public Policy at the University of Chicago and by Carla Medalia of the U.S. Census Bureau. Some households that income surveys erroneously categorized as extremely poor actually had “net worth in the millions” of dollars, the authors found.

…The new NBER paper takes aim at a Nobel laureate in economics, Angus Deaton, who claimed that 5.3 million Americans in 2015 were living on less than $4 a day. It also criticizes work by a professor at Johns Hopkins, Kathryn Edin, and by a professor at the University of Michigan, H. Luke Shaefer. Edin and Shaefer are authors of a book, “$2.00 a Day: Living on Almost Nothing in America,” that claimed about 3 million children lived in households with incomes of $2 a day or less.

“We find that 92% of the households categorized as extreme poor based on survey-reported cash income are misclassified,” Meyer and his coauthors write. “Many of the households included in survey-reported extreme poverty appear to be better off than the average American household based on numerous indicators of material well-being.”

Rather than millions of extremely poor American children, Meyer and his co-authors found the 285,000 households in “extreme poverty” were either single individuals or “households with multiple childless individuals.”

They write, “this result likes in stark contrast to the focus in academic and policy circles on the plight of extreme poor households with children.”

They write that “the errors in the income level exaggerate the level of extreme poverty.”

The new study, according to Reason, relies on “information from the 2011 Survey of Income and Program Participation (SIPP) as well as administrative tax and benefit program data” and found that

“of the 3.6 million [non-homeless] households with survey-reported cash income below $2/person/day,” the vast majority—92 percent—were “not in extreme poverty once we include in-kind transfers, replace survey reports of earnings and transfer receipt with administrative records, and account for the ownership of substantial assets.”

In fact, new research shows “more than half of all misclassified households have incomes … above the poverty line” entirely.

…The composition of extremely poor households also differs from common understandings of it: “Among the 285,000 households left in extreme poverty, 90% are made up of single individuals. Households with multiple childless individuals make up the other 10% of the extreme poor. Strikingly, after implementing all adjustments, [none of the SIPP surveyed] households with children have incomes below $2/person/day.”

I’ve talked about this $2-a-day claim before. The data supporting it seemed sketchy then. Appears even more so now.

The Economic Illiteracy of Journalists: Venezuela Edition

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Modern journalism often makes me want to go lay down in the middle of I-35 during rush hour traffic. I’ve complained about economic illiteracy before, but I think this one from Pacific Standard takes the cake. It begins,

These days it seems you can’t talk about socialism without being required to talk also about Venezuela—largely because certain people on the right bring up the failures of Venezuela every time the word “socialism” appears. Right-wing pundits claim incessantly that socialist policies are to blame for the terrible conditions that Venezuelans are now living through.

But this story is fundamentally false.

And who does the author consult to establish the falsity of this story?

  • A Marxist (Wolff), which is about as fringe as fringe can get in economics. Marxists are the anti-vaxxers of mainstream economics.
  • A supporter of Modern Monetary Theory (Galbraith), which has virtually no support among mainstream economists.
  • Noam Chomsky.

The author declares,

Most crucially, it was a government rife with corruption that shattered Venezuela…Anat Admati, a professor of economics and finance at Stanford University, tells me that corruption can devastate any country. Regardless of the ideology that inspires your economic policies, Admati says, if there’s too much corruption, the country will fail…Corruption, not socialism, is the malignant tumor on democracy worldwide—in Venezuela, yes, but also here at home.

First off, to say socialism has nothing to do with Venezuela’s collapse is absurd. A 2018 report from the Council of Economic Advisers provides a rundown of some of Venezuela’s socialist policies, from the nationalization of industries (such as oil) to heavy taxation on earning and spending to price controls. Using a synthetic control methodology, economists Kevin Grier and Norman Maynard compared Venezuela’s performance under Hugo Chavez to its expected performance based on similar oil-producing, non-socialist Latin American countries. They find that “after 1998 (the year of Chavez’s successful presidential campaign) synthetic and actual Venezuela sharply diverge. By 2003, Venezuelan per-capita income is more than $3500 below that of synthetic Venezuela, and the gap exceeds $2500 in all subsequent years. It appears that Chavez’s leadership and policies were quite bad for the overall level of wealth in Venezuela” (pg. 8). They conclude, “We find that although average incomes rose somewhat during his time as president, they lagged far behind where they might have been if Chavez had not taken office” (pg. 14). In short, the oil boom masked Venezuela’s socialist underbelly. When the oil prices collapsed, the rot was exposed.

Even still, to say that “corruption, not socialism” led to Venezuela’s downfall reminds me of a quip by the assassin Vincent (played by Tom Cruise) in the film Collateral. After a dead body falls on his cab and the realization sinks in that Vincent is responsible, a shocked Max (Jamie Foxx) says, “You killed him!” Vincent, unfazed, responds, “No, I shot him. The bullets and the fall killed him.” It’s a distinction without a difference.

In their book Why Nations Fail: The Origins of Power, Prosperity, and Poverty, Daron Acemoglu and James Robinson distinguish between inclusive and extractive institutions, with the former creating the conditions for prosperity. “Inclusive economic institutions,” they write,

…are those that allow and encourage participants by the great mass of people in economic activities that make best use of their talents and skills and that enable individuals to make the choices they wish. To be inclusive, economic institutions must feature secure private property, an unbiased system of law, and a provision of public services that provides a level playing field in which people can exchange and contract; it also must permit the entry of new business and allow people to choose their careers…Inclusive economic institutions foster economic activity, productivity growth, and economic prosperity (pg. 74-75).

In other words, inclusive institutions are largely free-market economies. On the other hand, extractive economic institutions lack these properties and instead “extract incomes and wealth from one subset of society to benefit a different subset,” empowering the few at the expense of the many (pg. 76).

The Fraser Institute’s Economic Freedom of the World (EFW) Index, published in its annual Economic Freedom of the World reports, defines economic freedom based on five major areas: (1) size of the central government, (2) legal system and the security of property rights, (3) stability of the currency, (4) freedom to trade internationally, and (5) regulation of labour, credit, and business. According to its 2018 report (which looks at data from 2016), countries with more economic freedom have substantially higher per-capita incomes, greater economic growth, and lower rates of poverty. This makes economic freedom an excellent proxy for Acemoglu & Robinson’s “inclusive institution.” What’s more, Venezuela comes in dead last in the list of 162 countries. Drawing on the EFW Index, Georgetown political philosophers Jason Brennan and Peter Jaworski point to a strong positive correlation between a country’s degree of economic freedom and its lack of public sector corruption.

“Corruption,” writes economist Joseph Connors, “is institutionalized exploitation and…it becomes institutionalized in the least capitalist countries. Transparency International, the creator of the Corruption Perception Index, is an organization dedicated to eradicating corruption. According to its metric of corruption, people who live in capitalist countries experience significantly less corruption than people in less capitalist countries. Market competition helps explain why this is true. Market competition diffuses power, and corruption thrives on centralized power. Thus, capitalism provides the environment that allows markets to keep corruption at bay.”

Granted, a lack of corruption could very well give rise to market reforms and increased economic freedom instead of the other way around. However, recent research on China’s anti-corruption reforms suggests that markets may actually pave the way for anti-corruption reforms. Summarizing the implications of this research, Lin et al. explain,

Reducing corruption creates more value where market reforms are already more fully implemented. If officials, rather than markets, allocate resources, bribes can be essential to grease bureaucratic gears to get anything done. Thus, non-[state owned enterprises’] stocks actually decline in China’s least liberalised provinces – e.g. Tibet and Tsinghai – on news of reduced expected corruption. These very real costs of reducing corruption can stymie reforms, and may explain why anticorruption reforms often have little traction in low-income countries where markets also work poorly. China has shown the world something interesting: prior market reforms clear away the defensible part of opposition to anticorruption reforms. Once market forces are functioning, bribe-soliciting officials become a nuisance rather than tools for getting things done. Eliminating pests is more popular than taking tools away … A virtuous cycle ensues – persistent anticorruption efforts encourage market-oriented behaviour, which makes anticorruption reforms more effective, which further encourages market oriented behaviour.

There is also evidence that suggests that more government fingers in the pies increases corruption. For example, a 2017 study finds that larger municipality councils in Sweden result in more corruption problems. A 2009 study finds that more government tiers and more public employees lead to more bribery. Finally, a 2015 study shows that high levels of regulation are associated with higher levels of corruption (likely because of regulatory capture).

So while some may think socialism couldn’t have crippled Venezuela because Sweden, they’re wrong. And wrong in a big way.

More on Trump’s Trade War

I’ve touched on one of these papers before, but NBER Digest has a nice rundown of recent work on Trump’s trade war. One study finds

that the costs of the new tariff structure were largely passed through as increases in U.S. prices, affecting domestic consumers and producers who buy imported goods rather than foreign exporters. The researchers estimate that the tariffs reduced real incomes by about $1.4 billion per month. Due to reduced foreign competition, domestic producer prices also increased. The prices of manufactured goods rose by one percentage point relative to a no-trade-war scenario. The reduction in real incomes represents the welfare cost of higher consumer prices, less the government revenue collected by the tariffs and the additional income of domestic producers who were able to sell their products at higher prices.

This could end up being “especially costly for multinational companies that have made substantial sunk-cost investments in supply chains in other countries, for example by relying on facilities in China or other impacted countries. The study estimates that around $165 billion worth of trade has been rerouted to avoid them.”

Another study

estimate[s] that the new tariff regime reduced U.S. imports by 32 percent, and that retaliatory tariffs from other countries resulted in an 11 percent decline of U.S. exports. They use these responses to estimate import demand and export supply elasticities, and then apply these estimates to calibrate a general equilibrium model of the U.S. economy with detailed input-output linkages. They estimate that higher prices facing U.S. consumers and firms who purchased imported goods generated a welfare loss of $68.8 billion, which was substantially offset by the income gains to U.S. producers who were able to charge higher prices ($61 billion). The researchers estimate the resulting real income decline at about $7.8 billion per year, a value broadly comparable to the net income decline estimated in the previous study. 

What’s more, “The average real wage of workers in tradeable sectors declined by 0.7 percentage points, with a standard deviation of 0.4 percentage points across counties, with workers in the Midwest suffering more than those in other regions.” The protectionist policies also appear to be (of course) political. It turns out that “the U.S. tariffs protected industries that tended to employ workers in the most politically competitive counties. Foreign governments imposed retaliatory tariffs in sectors based in more Republican-leaning counties. The researchers estimate that counties with at least an 85 percent Republican vote share bore losses over 50 percent greater than counties in which the Republican vote share was less than 15 percent.”

Surprise, surprise.