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

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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.

Does Religion Lead to Good Sex?

Drawing on a new IFS study, David French writes in the National Review,

How many happy, sexually vibrant religiousmarried couples have you seen on popular television shows or movies — even in this era of fragmented, targeted entertainment? Now, compare that number (which is very, very close to zero) with the number of times you’ve seen liberation from religion portrayed as the key to sexual fulfillment.

How many times, amid the celebrations of sexuality on college campuses, do you hear the speakers at the various “sex weeks” say something like, “If you really want to improve your odds of enjoying a sexually satisfying life with a faithful partner, you might want to check out church”? Or how many wonkish progressives — the very people most likely to share charts and graphs about the effects of public policies or to pass around the latest social science about race, gender, and gender identity — will dwell on charts such as these, from the invaluable Institute for Family Studies:


He continues:

The global data reflected the U.S. reality. Highly religious couples “enjoy higher-quality relationships and more sexual satisfaction” compared with mixed or entirely secular couples. Moreover, in the global study, religion has an increasingly positive influence on fertility. Religious couples had “0.27 more children than those who never, or practically never, attend.”

Sadly, however, religious practice was “not protective against domestic violence.” There was no statistically significant difference in risk between secular and religious couples.

The IFS study doesn’t just explode progressive cultural stereotypes of unhappy, sexless religious prudes. Conservatives often think of feminists (especially secular feminists) as angry and joyless. But the study indicates otherwise. There was a “J-Curve in overall relationship quality for women.” It turns out that women in “shared secular, progressive relationships enjoy comparatively high levels of relationship quality.” They were surpassed only by “women in highly religious relationships, especially traditionalists.”

Less sex may also be contributing to less happiness. “IFS senior fellow Bradford Wilcox and IFS research fellow Lyman Stone followed Julian’s work by examining whether the sex recession was related to the measurable decline of happiness in America’s young adults. They concluded that “changes in sexual frequency can account for about one-third of the decline in happiness since 2012 and almost 100 percent of the decline in happiness since 2014.”” In short, the sexual revolution has brought about

its own brand of unhappiness, including — ironically enough — sexlessness…Sexual liberation has all too often brought neither sex nor liberation, and thanks to the work of the IFS, we can respond to felt need with real data. Are you seeking love in this life? The church doors are always open, and while matchmaking isn’t its purpose, the connection to a holy God carries with it connection to his flawed people, and in those connections you can find profound joy.

Stuff I Say at School – Part XIII: Political Ignorance and Policy Preferences

This is part of the Stuff I Say at School series.

The Assignment

A critical literature review of political ignorance among the public. This section briefly (though not exhaustively) shows how political knowledge affects political preferences and, therefore, potential policy outcomes.

The Stuff I Said

Somin writes, “Ignorance of the structure of government suggests that voters often not only cannot choose between specific competing policy programs but also cannot easily assign credit and blame for policy outcomes to the right officeholders.” As discussed earlier, Lupia is skeptical of the common measurements of political knowledge, arguing that the ability to recall particulars on a survey is not necessary to achieve “high-value social outcomes.” However, this is an empirical question. The summary of Caplan’s work in a previous section has already shown that economic information and education changes one’s views about economic issues. Summarizing the work of Martin Gilens and Scott Althaus, Brennan demonstrates that political knowledge influences policy preferences. As noted above, high-income is strongly correlated with high degrees of political knowledge. Compared to wealthier Democrats, low-income Democrats “more strongly approved of invading Iraq in 2003. They more strongly favored the Patriot Act, invasions of civil liberty torture, protectionism, and restricting abortion rights and access to birth control. They are less tolerant of homosexuals and more opposed to gay rights.” When demographic factors like race, income, and gender are controlled for, high-information voters “favor overall less government intervention and control of the economy…They are more in favor of free trade and less in favor of protectionism. They are more pro-choice. They favor using tax increases to offset the deficit and debt. They favor less punitive and harsh measures on crime, and are less hawkish on military policy, although they favor other forms of intervention. They are more accepting of affirmative action. They are less supportive of prayer in public schools. They are more supportive of market solutions to health care problems. They are less moralistic in law; they don’t want government to impose morality on the population.”

Relying on a 2017 survey, Oxford economist Max Roser finds “a connection between our perception of the past and our hope for the future.” The numbers suggest “that the degree of optimism about the future differs hugely by the level of people’s knowledge about global development. Those that were most pessimistic about the future tended to have the least basic knowledge on how the world has changed.”

At first blush, this may seem unrelated to policy. However, recent evidence suggests that declinism—a negative view of the state and evolution of society—and nostalgia for a supposedly better past are predictive of populist support.

Even though the data suggest more knowledgeable citizens are more likely to vote, there is also evidence that “more knowledgeable citizens are far more likely to falsely report voting than less knowledgeable ones…People who are knowledgeable and interested in politics but still choose not to vote are more likely to feel guilty for doing so, and therefore less willing to admit their nonvoting to the pollsters. As a result, the voting population is probably significantly closer in knowledge level to the general public than might be supposed.”

While all policy decisions ultimately rely on value judgments (which go beyond the blunt empirics), the evidence in this section suggests that degrees of political knowledge do influence policy preferences. If one is concerned about policy outcomes, one should also be concerned about voter knowledge.

Stuff I Say at School – Part XII: The ‘Why’ of Political Ignorance

This is part of the Stuff I Say at School series.

The Assignment

A critical literature review of political ignorance among the public. This section summarizes the scholarly explanations for the lack of political knowledge among the average citizen.

The Stuff I Said

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Though political ignorance is rampant among American citizens, scholars are quick to distinguish between ignorance and stupidity. Despite rising educational attainment and IQ scores, political knowledge among the general public has remained largely stagnant since the 1930s. In fact, Somin determines (in agreement with previous economic theories of democracy) that most political ignorance is rational. Political knowledge is costly in time and effort with little payoff in terms of political influence. At best, an American voter has a 1-in-10 million chance of changing the outcome of a presidential election. This optimistic number occurs only within a few swing states and only if the voter votes for one of the candidates in the two major parties. On average, however, the chance is 1-in-60 million. Numbers improve when it comes to U.S. Congressional elections (1-in-89,000) and state legislator elections (1-in-15,000), but the probability of changing the outcome still remains insanely low. Brennan argues that, from a strictly mathematical standpoint, the disutility of merely driving to the polls (i.e., the probability and cost of getting into an auto accident) is higher than the utility of the vote cast upon arrival. Given these hard data, political ignorance appears to be a rational trade-off. As Somin puts it, “Even a 100 percent altruistic person—someone who always chooses to prioritize the welfare of others over his own whenever the two conflict—would not rationally devote much of his time to acquiring political information for the sake of casting an informed vote. No matter how great the benefits to others of a “correct” electoral outcome, the altruist’s ballot has almost no chance of bringing it about; in a large electorate the change that his vote will be decisive is vanishingly small.”

Caplan’s explanation for voter ignorance extends beyond rational ignorance to what he calls rational irrationality: “Since delusional political beliefs are free, the voter consumes until he reaches his “satiation point,” believing whatever makes him feel best. When a person puts on his voting hat, he does not have to give up practical efficacy in exchange for self-image, because he has no practical efficacy to give up in the first place.” Not only does the acquisition of political knowledge provide a low return on investment, but irrationality can provide self-satisfaction at virtually no cost. This makes the choice to be seemingly irrational when it comes to politics understandable and arguably—if paradoxically—rational.

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Caplan elsewhere provides another likely explanation for voter ignorance: poor information retention. Drawing on literature in educational psychology, Caplan finds the “transfer of learning” in our educational systems to be less than impressive. Most students are unable to retain or apply their newfound methodological reasoning outside of the classroom and can usually only do so within the classroom after being instructed to apply a particular principle to their problem-solving. “Telling subjects to use a principle is not transfer,” says psychologist Douglas Detterman. “It is following instructions.” This insight complements the rational ignorance theory by demonstrating the difficult and costly nature of true education. This lack of transfer in learning shows up in various surveys of American adults who typically received public K-12 education:

The American Revolution Center tested 1,001 adult Americans’ knowledge of the American Revolution. Eighty-three percent earned failing grades. The Intercollegiate Studies Institute tested over 2,500 adult Americans’ knowledge of American government and American history. Seventy-one percent earned failing grades. Newsweek magazine gave 1,000 Americans the U.S. Citizenship Test. Thirty-eight percent scored too low to become citizens of their own country. On the 2000 American National Election Study, the typical person got 48% of the factual questions right; you would expect 28% by guessing…How many American adults know the Bill of Rights is part of the Constitution? The American Revolution Center reports a dismal 57%, but the truth is far worse. Since there were only four response options, you would expect roughly 25% of the ignorant to guess the right answer by chance…Not knowing the three branches of government isn’t like not knowing Hamlet; it’s like not knowing the letter “h.” If you don’t know that the Civil War came after the Declaration of Independence, you don’t understand American history. If you don’t know which parties control the House and the Senate, you don’t understand American politics.

Ian Anson of the University of Maryland introduces a more disturbing angle on the persistence of voter ignorance. In a 2018 study, Anson points to what is known as the Dunning-Kruger effect: “[a] widely cited phenomenon in social psychology [that] holds that individuals with low levels of competence will judge themselves to be more competent than they really are, while those with high levels of competence will underestimate their excellence.” This overestimation of one’s abilities and/or knowledge “affect[s] the ability of low achievers to overcome their incompetence because they are unaware that they lag behind others until their objective performance is measured and reported to them.” After surveying two groups (a total of 2,606 American adults) on political knowledge, Anson had participants evaluate their performance after priming them with partisan cues. The results showed that the worst performers (i.e., the most politically ignorant) were more likely to overestimate their performance. What’s worse, this overconfidence was exacerbated by partisanship. “This result is normatively worrying from the perspective of citizens’ ability to self-correct,” writes Anson, “as it may be that rationally ignorant Americans are especially confident that they are better informed than many of their (partisan) peers. The rationally ignorant fail to overcome their ignorance not just because they face steep costs and lack incentives to improve, but because they are unaware that they are relatively ignorant. They become increasingly hardened to the possibility that they are uninformed when partisan identities are activated, a commonplace feature of most contemporary political discussion.” Anson’s findings are bolstered by a recent study, which found that (1) “people choose to hear from those who are politically like-minded on topics that have nothing to do with politics…in preference to those with greater expertise on the topic but have different political views,” (2) “all else being equal, people are more influenced by politically like-minded others on nonpolitical issues,” and (3) “people are biased to believe that others who share their political opinions are better at tasks that have nothing to do with politics, even when they have all information they need to make an accurate assessment about who is the expert in the room.” This partisan selection process lowers the quality of the obtained information, further inflaming voter tendency toward ignorance and misinformation. Most scholars adhere to a theory of rational ignorance among voters: due to the poor incentives provided by a democratic system, most citizens determine that the costs of political knowledge (including the difficulty of making it stick) outweigh its benefits. Furthermore, the poorly informed suffer from “the double burden of incompetence” due to ignorance of their own ignorance, making change unlikely.

Stuff I Say at School – Part XI: The Extent of Political Ignorance

This is part of the Stuff I Say at School series.

The Assignment

A critical literature review of political ignorance among the public. This section specifically explores the academic literature on the extent of political ignorance, demonstrating that Americans know very little when it comes to politics and policy.

The Stuff I Said

What makes this particular skit humorous is how much it reflects reality. According to political scientists Christopher Achens and Larry Bartels, there is a “folk theory” of democracy that is widespread in American culture. This theory paints average citizens as engaged, well-informed participants in the political process, deliberating policies and selecting leaders who represent their well-reasoned preferences. “Unfortunately,” write Achens and Bartels, “while the folk theory of democracy has flourished as an ideal, its credibility has been severely undercut by a growing body of scientific evidence…That evidence demonstrates that the great majority of citizens pay little attention to politics.”

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Michael Delli Carpini and Scott Keeter have defined political knowledge as “the range of factual information about politics that is stored in long-term memory.” Most of the surveys on which claims about political knowledge are based consist of recall questions, which “are designed to measure whether or not a person has selected declarative memory.” Drawing on Carpini and Keeter’s work, Achens and Bartels display the ignorance of the typical American on these kinds of questions. For example, in 1952, “only 44% of Americans could name at least one branch of government. In 1972, only 22% knew something about Watergate. In 1985, only 59% knew whether their own state’s governor was a Democrat or a Republican. In 1986, only 49% knew which one nation in the world had used nuclear weapons.” Recent survey evidence continues to support these findings. A 2018 poll found that 67% of Americans cannot name all three branches of government. Another poll found that a sizeable minority (39%) of Americans think or are not sure if low GDP is better for the country than high GDP. The Woodrow Wilson Foundation recently found that only 1-in-3 Americans can pass the U.S. Citizenship Test, with less than half the population of all but one state (Vermont) being able to pass it. A 2014 Barna survey found that 84% of Americans are unaware that extreme poverty worldwide has decreased by more than half in the past three decades. Sixty-seven percent said they thought global poverty was actually increasing during that time. Similarly, a 2016 study found that only 8% of Americans believe extreme global poverty has decreased in the last 20 years. (A 2017 study placed the percentage slightly higher at fifteen.) The late statistician Hans Rosling often tested his audience’s knowledge of the state of the world. Overall, he found that only 5% of Americans could answer a multiple-choice question about global poverty correctly: worse than chimpanzees picking at random. This ignorance not only extends to basic facts about government, politics, and the economy, but to party makeup as well. A 2018 study found that “Republicans, Democrats, and independents, all overestimate the share of party-stereotypical groups in both the major parties.” For example, respondents thought 39.3% of Democrats belonged to a labor union (actual: 10.5%), 38.2% of Republicans earned over $250,000 a year (actual: 2.2%), and 31.7% of Democrats were gay, lesbian, or bisexual (actual: 6.3%).

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Georgetown political philosopher Jason Brennan divides the spread of political knowledge into four quartiles: “the top 25 percent of voters are well informed, the next 25 percent are badly informed, the next 25 percent are know-nothings, and bottom 25 percent are systematically misinformed.” According to data from the 1992 American National Election Studies, “93.4 percent of people in the top quartile, but only 13.1 percent of people in the bottom quartile, know that Republicans tend to be more conservative than Democrats. Among people in the lowest knowledge quartile, only 12.2 percent and 9.7 percent knew which party controlled the House of Representatives and Senate, respectively. The bottom 25 percent of citizens does worse than a coin flip when it comes to political knowledge—they are systematically in error.” When it comes to the demographics of these quartiles, political knowledge within the U.S.

is strongly positively correlated with having a college degree, but negatively correlated with having a high school diploma or less. It is positively correlated with being in the top half of income earners, but negatively correlated with being in the bottom half. It is strongly positively correlated with being in the top quarter of income earners, and strongly negatively correlated with being in the bottom quarter. It is positively correlated with living in the western United States, and negatively correlated with living in the South. Political knowledge is positively correlated with being or leaning Republican, but negatively correlated with being a Democrat or leaning independent. It is positively correlated with being between the ages of thirty-five and fifty-four, but negatively correlated with other ages. It is negatively correlated with being black, and strongly negatively correlated with being female.

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Legal scholar Ilya Somin’s work scours both the academic literature as well as a sweeping array of public surveys, including (but not limited to) the Annenberg Public Policy Center, Kaiser Health Tracking Poll, Pew Research Center, Bloomberg, Public Policy Research Institute, Reason-Rupe, and American National Election Studies. Voter ignorance is not merely in regards to “specific policy issues but about the basic structure of government and how it operates.” He concludes, “Extensive evidence suggests that most Americans have little political knowledge. That ignorance covers knowledge of specific issues, knowledge of political leaders and parties, and knowledge of political institutions. The evidence extends to many of the crucial issues at stake in recent elections from 2000 to 2014. Moreover, much of the widespread ignorance relate to fairly basic issues about the politicians, parties, issues, and the structure of politics.”

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Relying on the 1996 Survey of Americans and Economists on the Economy (SAEE), GMU economist Bryan Caplan compares (1) the average belief of the general public on economic issues, (2) the average belief of Ph.D. economists, and (3) the estimated belief of a category Caplan labels the Enlightened Public. This latter category is the result of Caplan testing for both “self-serving” and “ideological” bias among economists by controlling for family income, job security, race, gender, age, and income growth. The Enlightened Public essentially are the answers to the questions “What would the average person believe if he had a Ph.D. in economics?” or “What would Ph.D. economists believe if their finances and political ideology matched those of the average person?” Caplan discovers that the answers of economists/Enlightened Public differ greatly from the general public on most economic issues. For example, the general public is far more concerned about the supposed negative economic effects of taxes, foreign aid, immigration, business tax breaks, the number of people on welfare, affirmative action, business profits, executive compensation, technology in the workplace, job outsourcing, and corporate downsizing. Caplan’s controls and comparisons indicate that (1) economic information and education changes one’s views about economic issues and (2) the general public is lacking in these qualifications. This gap between economists and the general public is further confirmed by a 2013 study by Paola Sapienza and Luigi Zingales. Drawing on the Economic Expert Panel (EEP) and Financial Trust Index (FTI)—both from the University of Chicago—the researchers find that, “[o]n average, the percentage of agreement with a statement differs 35 percentage points between the two groups.”

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Despite the strong consensus on the typical American’s political ignorance, Arthur Lupia of the University of Michigan is skeptical of the explanatory power of these survey data. He argues that in many cases, it is “not demonstrate[d] that recalling the items on [the] survey is a necessary condition for achieving high-value social outcomes” and, therefore, not a good standard for measuring relevant political knowledge. He also questions the legitimacy of the American National Election Studies, showing that obviously correct answers were sometimes marked as incorrect due to an overly-rigid grading system. Finally, he notes that “decades of surveys and experiments provide evidence that “don’t know” responses are mixtures of several factors. Ignorance is one such factor. Low motivation, personality, and gender also affect responses.” However, Achens and Bartels point out that “insufficient motivation is endemic to mass politics, not an artifact of opinion surveys[.]” Furthermore, they hold Lupia’s feet to the fire for the vagueness of statements like “high-quality decisions” or “high-value social outcomes.” Uninformed voters are supposedly capable of these things, yet Lupia provides no concrete examples. Brennan also argues that public polls actually overstate how much Americans really know about politics and policy. The first reason is because these polls “usually take the form of a multiple-choice test. When many citizens do not know the answer to a question, they guess. Some of them get lucky, and the surveys mark them as knowledgeable.” These polls “count a citizen as knowledgeable if they know that we spend more on social security than defense, but they typically don’t check if they know how much more we spend.” Finally, these questions are about “easily verifiable facts…While most voting Americans cannot answer such questions, these questions do not require specialized social scientific knowledge.” Unfortunately, greater question complexity is associated with greater ignorance. According to Carpini and Keeter, “as the amount of detail requested increases and as less visible institutions or processes are asked about, the percentage of the public able to correctly answer questions declines.”

In sum, the scholarly consensus appears to recognize that the average American citizen knows very little about the major players, institutions, and processes of their government. What’s more, there is a significant gap between expert views on policy-related issues and that of the average American.

Who Bears the Cost of the Minimum Wage?

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From a forthcoming article in the American Economic Review (quoting from the draft version) on Hungarian minimum wage hikes:

Most firms responded to the minimum wage by raising wages instead of destroying jobs. Our estimates imply that out of 290 thousand minimum wage workers in Hungary, around 30 thousand (0.076% of aggregate employment) lost their job, while the remaining 260 thousand workers experienced a 60% increase in their wages. As a result, firms employing minimum wage workers experienced a large increase in their total labor cost that was mainly absorbed by higher output prices and higher total revenue. We also estimated that firms substituted labor with capital and their profits fell slightly. These results suggest that the incidence of the minimum wage fell mainly on consumers. Given the relatively small effect on employment, our results also suggest that minimum wages can redistribute income from consumers to low-wage workers without large efficiency losses. Our findings also indicate that the optimal level of the minimum wage is likely to vary across industries,cities and countries. In countries where low-wage jobs are concentrated in the local service sector (such as Germany or the U.S.) raising the minimum wage is likely to cause limited disemployment effects or efficiency losses. Moreover, in cities where mainly rich consumers enjoy the services provided by low wage workers this redistribution will be from rich to poor. The heterogenous responses across industries also underline the advantages of sector-specific minimum wage polices used in some European countries such as Italy or Austria. For instance, setting a higher minimum wage in the non-tradable sector than in the tradable sector can push up wages relatively more where it will generate more modest disemployment effects (pg. 23-24).

Passing the costs on to consumers fits with previous evidence. This also makes evident that the kind of industry (e.g., tradable vs. non-tradable) also matters when it comes to positive/negative effects of the minimum wage.

Is Student Loan Forgiveness for the Marginalized?

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I saw this floating around Facebook recently with the news of Elizabeth Warren’s student loan plan. For those unfamiliar with what Mayfield is referencing, here’s the entry from the HarperCollins Bible Dictionary:

As another Bible dictionary clarifies, “Though Leviticus 25 does not explicitly discuss debt cancellation, the return of an Israelite to his land plus the release of slaves implies the cancellation of debts that led to slavery or the loss of land.”

So does Warren’s plan benefit “the marginalized”?

According to Adam Looney at the Brookings Institution, Warren’s proposal is “regressive, expensive, and full of uncertainties…[T]he top 20 percent of households receive about 27 percent of all annual savings, and the top 40 percent about 66 percent. The bottom 20 percent of borrowers by income get only 4 percent of the savings. Borrowers with advanced degrees represent 27 percent of borrowers, but would claim 37 percent of the annual benefit.”

E Warren Distribution of benefit

He continues,

Debt relief for student loan borrowers, of course, only benefits those who have gone to college, and those who have gone to college generally fare much better in our economy than those who don’t. So any student-loan debt relief proposal needs first to confront a simple question: Why are those who went to college more deserving of aid than those who didn’t? More than 90 percent of children from the highest-income families have attended college by age 22 versus 35 percent from the lowest-income families. Workers with bachelor’s degrees earn about $500,000 more over the course of their careers than individuals with high school diplomas. That’s why about 50 percent of all student debt is owed by borrowers in the top quartile of the income distribution and only 10 percent owed by the bottom 25 percent. Indeed, the majority of all student debt is owed by borrowers with graduate degrees.

Drawing on 2016 data from the Federal Reserve’s Survey of Consumer Finances, Looney’s final analysis

shows that low-income borrowers save about $569 in annual payments under the proposal, compared to $900 in the top 10 percent and $2,653 in the 80th to 90th percentiles. Examining the distribution of benefits, top-quintile households receive about 27 percent of all annual savings, and the top 40 percent about 66 percent. The bottom 20 percent of borrowers by income get 4 percent of the savings…[W]hile households headed by individuals with advanced degrees represent only 27 percent of student borrowers, they would claim 37 percent of the annual savings. White-collar workers claim roughly half of all savings from the proposal. While the Survey of Consumer Finances does not publish detailed occupational classification data, the occupational group receiving the largest average (and total) amount of loan forgiveness is the category that includes lawyers, doctors, engineers, architects, managers, and executives.  Non-working borrowers are, by and large, already insured against having to make payments through income-based repayment or forbearances; most have already suspended their loan payments. While debt relief may improve their future finances or provide peace of mind, it doesn’t offer these borrowers much more relief than that available today.  

The Urban Institute’s analysis has similar findings (though their tone is more optimistic):

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I’m not sure whether or not Warren’s plan is a good one (I’m skeptical, especially given some of the results abroad). But I’m not big on acting like college graduates in a rich country are the marginalized of society.