Pursuit of Truthiness

my gut tells me I know economics

Open Borders and the Welfare State: Must We Choose?

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“You can’t have both open borders and a welfare state” –Milton Friedman

Friedman’s concern is that immigrants are disproportionately poor, and would overwhelm the resources of the welfare state.

Friedman’s dictum has been widely accepted across the political spectrum. Modern liberals might like to have both open borders and a welfare state, but have settled for just a welfare state, partly out of this concern. Conservatives have used the trade-off to argue against both immigration and the welfare state, though neither is a goal many hold dear these days. A few people, mostly libertarians, actually want open borders and see the trade-off as an argument against the welfare state- noting that the welfare state isn’t really pro-poor if it supports the relatively rich first-world poor while keeping others trapped in third-world poverty.

But I haven’t seen many people question Friedman’s welfare/immigration trade-off in principle, except for open borders advocates noting that immigrants can be legally excluded from welfare (in fact to some extent they already are in the US).

But consider the United States- we have open borders within the country, from Maine to Hawaii. US welfare programs are largely administered at the state and local level, and the generosity of these programs varies widely (see Medicaid expansion, for instance). I’ve been all over the US, and I’ve heard many people complain about welfare being too generous, and worry about immigrants coming here just to get on welfare. But I can’t say I’ve ever heard someone complaining about people migrating from other US states to get on welfare in their state, even in a relatively generous state like New York or California.

Am I just living in a bubble, or do people really never worry about this? And if so, what does this imply for the Friedman immigration/welfare trade-off?

Written by James Bailey

November 7, 2015 at 6:45 pm

Regulating Away Competition

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People have long wanted to know (or thought they knew) the extent to which regulation hurts business. Diana Thomas and I tackle this question: the paper is here, or see our US News op-ed for a summary.

An even briefer summary:

New data on the Code of Federal Regulations finally allows us to figure out its impact. It looks like regulation stops potential entrepreneurs from starting new businesses, but doesn’t really drive existing firms out of business- and might actually help the biggest businesses.
Regulation is not so much govt vs business, as govt and big business vs entrepreneurs and job seekers.

Written by James Bailey

September 14, 2015 at 2:23 pm

Emancipating Slaves, Enslaving Free Men

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The title comes from an Abraham Lincoln quote: “Towering genius… thirsts and burns for distinction; and if possible, it will have it, whether at the expense of emancipating slaves or enslaving free men”

I find myself wanting to save quotes every couple pages; I’ve tried to put only the best of the best here. Jeffrey Rogers Hummel presents a lot of interesting facts I never knew, and weaves them into a compelling thesis about slavery and the US Civil war- one that doesn’t really fit with any of the political or historical “sides”.

One part of this thesis is about the causes of the war. Hummel points out that “what caused the civil war” is really two questions: why did the South secede? and why did the North not let them go? The answer to the first is definitely slavery. The answer to the second is less clear, but seems to largely be mystical ideas of union.

Some awesome quotes that surprised me:

Many abolitionists supported secession: “[Abolitionist William Lloyd Garrison] went so far as to denounce the Constitution for its proslavery clauses as ‘a covenant with death and an agreement with Hell.’ During one 4th of July celebration, he publicly burned a copy, proclaiming: ‘so perish all compromises with tyranny!’ He believed that if anything the North should secede. That way it could become a haven for runaway slaves. The slogan ‘No Union with Slave-Holders’ appeared on the masthead of Garrison’s Liberator for years.” (p21)
“The Georgia legislature offered a reward of $5,000 to anyone who would kidnap Garrison and bring him south for trial and punishment.” (p25)

Pro-slavery Communists were a thing: “[George] Fitzhugh defended slavery as a practical form of socialism that provided contented slaves with paternalistic masters, thereby eliminating harsh conflicts between employers and allegedly free workers… ‘A Southern farm is the beau ideal of Communism.’” (p23)

Through the Antebellum era as Northern state governments become more anti slavery, Southern governments supported it ever more strongly, even against the wishes of slaveowners: “Nearly every slaves state reintroduced or tightened restrictions upon whites privately emancipating their chattels… advocating abolition became a felony in Virginia in 1836.” (p25)
“Only in the Southern United States [of all the Americas] did legislators try to bar every route to emancipation and deprive masters of their traditional right to free individual slaves.” (p44)

Runaways are the Achilles heel of slavery.
One response to this is mandatory patrols to catch them: “Loosely connected with the local militia, patrol duty was compulsory for most able-bodied white males.” (p48) Proslavery theorist (and socialist) George Fitzhugh noted these patrols “secure men in possession of a kind of property they could not hold for a day but for the supervision and protection of the poor [who couldn’t pay their way out of patrol duty].” (p48) Stephen Douglas, of Lincoln-Douglas debate fame, echoed this: “slavery cannot exist a day or an hour anywhere unless supported by local police regulations.” (p117)
Yet “The South’s compulsory slave patrols are one of the gaping holes in the scholarly literature.” (p72)

Hummel is quite economically literate, and provides a convincing model of the economics of slavery and the importance of runaways. “Although slaveowners merely earned market returns [because of competition], they had powerful incentives to perpetuate the peculiar institution. The total value of all slaves in the United States as of 1860 is estimated at between $2.7 and $3.7 billion… ‘Were ever any people civilized or savage, persuaded by any argument, human or divine, to surrender voluntarily two thousand million of dollars?’”
“The individual runaway both helped provoke secession- northern resistance to fugitive recapture being a major southern grievance- and ensured that secession would be unable to shield slavery in the end.” (p353)

Most societies ended slavery through voluntary and/or compensated emancipation. The US took its own peculiar path, a civil war among whites with largely uncompensated emancipation. But there is also the Haitian alternative of slave insurrection. “[Frederick Douglass’] influence caused a National Negro Convention meeting in Buffalo to reject by a single vote a resolution calling for slavery’s violent overthrow…. In 1858 [Lysander Spooner] circulated plans for fomenting slave rebellions… Northern conspirators would assist with money, arms, training, and volunteers.” (p59)
“The massive uprising that [John] Brown, Lysander Spooner, and David Walker each hoped for would obviously have resulted in much loss of life, but worth speculation is whether it could even have approached the civil war’s unmatched toll: one dead soldier for every six freed slaves… this who complacently accept this as a necessary sacrifice for eliminating an evil institution inexplicably blanch at the potential carnage of slave revolts.” (p355)

The Antebellum conflict over slavery lead both sides to discard the rule of law: The Fugitive Slave law of 1850 meant that “free blacks had no legal recourse if a Southerner claimed they were escaped slaves. The law consequently spawned an unsavory class of professional slave catchers, who could make huge profits by legally kidnapping free blacks.” (p94) In response, “Northern mobs, which once had directed their fury at abolitionists, now attacked slave catchers, broke into jails, and rescued fugitive slaves… the national government tried vigorously to prosecute the law-breakers responsible for such defiance, but northern juries refused to convict.” (p95)

This lawlessness became much more pronounced once the war began. In fact, we came very close to total banana republic territory: “Lincoln simply ignored [Chief Justice] Taney’s opinion [ruling against Lincoln’s suspension of habeas corpus]. He also wrote out standing orders for the Chief Justice’s arrest, although these were never served… Secretary of State Seward ordered a lightning statewide raid that jailed thirty-one [Maryland] legislators, the mayor of Baltimore, one of the state’s Congressmen, and key anti-Administration publishers and editors. At the state’s next election in the fall of 1861, federal provost marshals stood guard at the polls and arrested any disunionists who attempted to vote.” (p142-3)
Both sides turned to conscription, and in 1864 the Confederates began assigning soldiers to industrial work. “Insofar as these soldiers were conscripts, the Confederacy was running its factories on coerced labor. The internal logic of military conscription had led the nation of black agricultural slavery to the ironic but appropriate institution of white industrial slavery.” (p251)

Lee was not the only high-level confederate who disliked secession: “[Confederate President Jefferson] Davis had been only a reluctant secessionist, while Vice-President Stephens had actually fought against his state’s withdrawal from the union.” (p135)

When Southern states started to secede, it would seem that conflict over federal possessions in the states, like Fort Sumter, was inevitable; but in fact almost all of them passed over peacefully: “Union authority meanwhile evaporated from the deep South. Federal officials resigned in droves. State troops took possession of customhouses, post offices, arsenals, revenue cutters, and military posts… only Fort Sumter in Charleston and three other forts along the Florida coast had garrisons of sufficient size and determination to keep them in Union hands” (p136-7)

Crazy Abraham Lincoln facts: “Among the ‘rules and regulations’ that Lincoln’s militia unit adopted were: ‘no man is to wear more than five pounds of cod-fish for epaulets, or more than thirty yard of bologna sausages for a sash; and no two men are to dress alike.’” (p157) “The highest commander is assumed responsible under most circumstances for operations under his control. American Presidents can sometimes escape the full force of this dictum because they delegate military responsibilities to subordinates and then take a hands-off attitude except for major objectives and policies. Only Lincoln, of all wartime Presidents, interfered in day-to-day military matters… one of the reasons Northern generals in the west usually performed much better is because they were too far away for Lincoln to foul things up.” (p174) “My paramount objective in this struggle is to save the Union, and is not either to save or destroy slavery. If I could save the Union without freeing any slave I would do it” -Lincoln (p207-8)

The Confederates may have made an even bigger military blunder right from the beginning by eschewing guerrilla war: “the Confederate high command never entertained any thoughts of conducting the kind of war for national liberation that Americans had fought during their revolution and that has become commonplace in the modern world… although much of the South would have remained exposed to invasion, Union willpower would have been patiently worn down through insurmountable logistical obstacles, continual hit and run harassment, and the countryside’s implacable hostility.” (p179)

We are usually taught that slavery was ended by Lincoln’s Emancipation Proclamation and the North’s victory in the war. But slavery may have been doomed as soon as the South seceded and the North started encouraging runaways: “’The institution of slavery is already so undermined and demoralized’ wrote Linton Stephens to his brother, the Confederate Vice-President in October of 1863, ‘as never to be of much use to use, even if we had peace and independence today’… Liberation, so often presented as something the Union did for blacks, was as much something they did for themselves.” (p212)

At least by the desperate times of 1865, the Confederates were willing to give up on slavery: “the Davis Administration promised full emancipation to the British and French governments in exchange for recognition.” (p281)

Louisiana makes many appearances, none of them flattering: “In the words of a Carpetbag governor of Louisiana, ‘I don’t pretend to be honest. I only pretend to be as honest as anyone in politics… Why, damn it, everyone is demoralizing down here. Corruption is the fashion.” (p314)

Somehow I had no real idea who Salmon P. Chase was before reading this book. Turns out he was a Governor and Senator from Ohio, US Secretary of the Treasury under Lincoln, Chief Justice of the Supreme Court, and founder of 3 political parties- including the Republicans. “Chief Justice Salmon P. Chase, in one of the most astonishing cases of intellectual honesty on the part of a public official, implicitly branded his own prior actions as Secretary of the Treasury unconstitutional when the court struck down the Greenback’s retroactive legal-tender provision.” (p330)

Either a slave revolt or compensated emancipation might have had much better outcomes than the Civil War: “Rather than revolutionary violence wielded by bondsmen themselves from the bottom up, a violence that at least had the potential to be pinpointed against the South’s guilty minority of slaveowners, the Civil War involved indiscriminate State violence directed from the top down. Nor would an insurgency’s economic devastation likely have reached the war’s $6.6 billion cost (in 1860 prices), about evenly divided between the two sides. The North’s portion alone was enough to buy all slaves and set up each family with forty acres and a mule.” (p355)

Operation Paperclip

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I just finished the great book of the same name by Annie Jacobson. I had heard of the program that brought Nazi scientists to America, but didn’t realize how big it was- several hundred scientists- or just how complicit in the holocaust many of the scientists were- from the slave labor that built Werner von Braun’s rockets, to medical experiments on unconsenting prisoners, to high positions in the SS, to straight up murder.

Nazi science shows the amazing things that can be accomplished with tons of money, no bureaucracy, no morals, and an endless supply of slave labor. Rockets, chemical and biological weapons all went from ideas to mass production in a few years. Most of the medical “experiments”, though, seem more like simple torture than attempts to learn anything.

The Paperclip program is classic example of Crisis and Leviathan- war (WWII) and the threat of war (Cold War) lead to bigger government and more relaxed moral standards. If we don’t do it, the Russians will.

I definitely didn’t realize the interaction between a lot of the craziest shit our military / intelligence / industrial complex was doing at this time. Paperclip scientists were involved in MK-ULTRA, Bluebird and Artichoke, dramatically accelerating the US chemical and biological weapons programs, and in dispersing pathogens in the US.

It was Richard Nixon that unilaterally shut down the US chemical weapons program in 1969- well done. Nerve gas is scarier shit than I realized. Even Hitler never used it, though they had thousands of tons of tabun. This makes Saddam Hussein, and our support of him during the Iran-Iraq war, look even worse.

One big lesson that I take from the book, though the author never mentions it- the importance of institutions. Almost all of the scientists who did the worst things in Nazi Germany ended up being successful, ethical scientists in the US, once they were placed in a system with very different incentives. In fact, the Paperclip scientist who did some of the worst things for the US, Fritz Hoffmann, was one of the only anti-Nazis in the program; but he was working in weapons areas where the US military had the fewest moral qualms at the time.

Annie Jacobson does a great job turning history and original historical research into an informative page-turner. My one disappointment with the book is in its moral dimension. Jacobson claims to dodge the question, saying that the morality of the paperclip program is up for each individual to decide. But she is always implying that it was a bad idea, while avoiding a real discussion. In particular, she never brings up the obvious analogy to the everyday criminal justice system. In one sense, Paperclip was an amazing rehabilitation program; there was almost no ‘recidivism’ among the scientists. But it certainly failed to exact retribution on bad actors, and may have created a deterrence-reducing moral hazard effect (perhaps knowing of such a program will lead others to commit crimes they would otherwise be afraid to). How valid was the argument that ‘if we don’t take them, the Soviets will’? Would the US and the world really be a better place if we had hung Werner von Braun and co as war criminals instead of letting them join NASA and help get humanity to the moon?
Science is power- both for what it allows humanity as a whole to do, and for scientists themselves. When governments realize the power of your ideas and abilities, you can get away with a lot. Nazis, Soviets, Americans, British, French all realized this- more than they do today. You’d think we would at least have standing visa offers to all scientists who aren’t war criminals, after expending so much money and effort to get those who are.

Written by James Bailey

August 5, 2015 at 3:03 pm

Did the Affordable Care Act Reduce Job Lock?

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In a paper just published in Contemporary Economic Policy (ungated here), Anna Chorniy and I find that the answer is no- at least for one piece of the Affordable Care Act. The piece we study is the dependent coverage mandate, which since September 2010 has required family health insurance plans to cover young adults up to their 26th birthday, rather than just their 19th. The ability for young adults to go on their parents health insurance plans gave them a major option for insurance that wasn’t tied to their jobs. I expected this to reduce the “job lock” problem- people staying in a job because switching jobs would mean losing their current employer-based health insurance.

But this effect is just utterly absent from the data. I’ve never seen a result turn out so robustly insignificant in every single way we slice up the data or vary the analysis.

Perhaps the job lock problem is overblown in general, though many papers have found evidence of it; or perhaps 19-25 year olds were simply too young and healthy to really care. Certainly many journal referees thought the result was too obvious to be worth publishing (obvious after reading our paper, at least). Thanks to CEP editor Brad Humphreys for being willing to publish a “negative result”; the fact that so many editors and referees are unwilling to do so is a major source of publication bias and not-so-ethical behavior in response.

Negative results aside, I think we really do have an interesting point to make: that the effect of job lock should differ by age, going from non-existent for young adults to substantial for older adults. This is indeed obvious once we point it out. But it was ignored by a large previous literature on job lock, which has tended to lump all working-age adults together and pronounce what “the” job lock effect is (or to focus on a single age group without pointing out how their age makes them unusual). Always be on the lookout for how people respond differently to the same thing.

Written by James Bailey

July 18, 2015 at 4:44 pm

Win-Win Medicaid Reform

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In my recent post on a way forward after a ruling for the plaintiffs in King vs Burwell, I suggested Republicans use the opportunity to do a sort of Medicaid privatization along the lines that Arkansas has done. While my post was just obsoleted by the fact that the Supreme Court ruled the other way, I now think that the case for states to do their own reforms is even stronger.

In order to make the ACA Medicaid expansion politically palatable for Republicans, Arkansas did a sort of privatization of Medicaid- using Medicaid funds as “premium assistance” to allow recipients to choose a private plan from the ACA exchanges.

While the Obama administration wasn’t crazy about this idea, they (and some progressives) decided it was better than no Medicaid expansion, and so granted a waiver from the usual Medicaid rules to allow this to proceed.

There are some real potential problems with the Arkansas full privatization approach.

First, Arkansas hopes to save money- or at least not lose it- by privatizing.  This is actually a condition of the federal waivers allowing their experiment. This may or may not work out- private plans might operate more efficiently and reduce costs through cost-sharing, but they also make higher payments to providers.

Second, while Medicaid is in some ways bad insurance (because many providers do not accept it), in one way it is better for recipients than just about any private plan- it requires little to no cost-sharing. In many states, Medicaid plans have a $0 deductible and $0 co-pays for all covered services. Federal Medicaid rules prevent deductibles and co-pays from getting anywhere near as high as normal plans, the thought being that Medicaid recipients are too poor to afford them.

These costs, of course, are offset by benefits- especially the greater access to providers through private plans. Do the benefits outweigh the costs? After years of studying what happens in Arkansas, we will get some idea of whether privatization is more or less expensive than traditional Medicaid, and of whether the provider-acceptibility benefits outweigh the poor-people-paying-deductibles costs. But we don’t have to wait to see what the average person thinks- we can just let each individual choose.

Tell each Medicaid recipient that they can either get traditional Medicaid, or choose a plan from the ACA exchange. If you are worried about how much this will cost the state budget, estimate how much traditional Medicaid spends per enrollee and limit the choice of exchange plans to those that cost less than that.

This is a win-win-win: taxpayers save money, Medicaid recipients that value traditional Medicaid’s low cost-sharing can keep their plans, and Medicaid recipients that are willing to put up with some cost-sharing in order to get providers to actually see them can do so.

This should have been bloody obvious. It took me months after hearing about Arkansas to think of it. But apparently people in Iowa are ahead of the curve, and seem to be doing exactly this.

After the King vs Burwell ruling, it is clear that the ACA exchanges are here to stay. It is time to stop trying to fight them and start seeing the incredible pro-poor, pro-market possibilities for reform they create.

Written by James Bailey

June 28, 2015 at 5:35 pm

How should Republicans respond to King v Burwell? The Judo solution for the ACA.

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Any time now the Supreme Court will rule on the legality of Affordable Care Act subsidies through federal health insurance marketplaces.

A ruling for the administration means we keep the status quo (barring some weird saving construction), so there is nothing for Republicans to respond to.

But what should they do if the court rules for the plaintiffs, and 37 states lose their ACA subsidies?


The caving option is to do a straight renewal of the subsidies; some Congressmen are discussing doing this at least temporarily. But this means giving up a great bargaining position.

Kick Over The Stool

The die-hard conservative option is to do nothing, and hope the ensuing chaos reflects worse on the Democrats. As Jon Gruber has said, the key components of the ACA stand together like a three-legged stool. Without the subsidies, the individual mandate becomes a cruel tax on the poor, and without the mandate (or if people choose to ignore it and pay the fine, as many will without the subsidies) guaranteed issue and community rating mean people can game the system (wait to sign up for insurance until you get sick), creating the mother of all adverse selection problems. If Democrats get more of the blame for the wreck that the health insurance system will become with ACA-minus-subsidies, then Republicans might get the votes to repeal the ACA entirely. But I doubt this would be the case.

One-for-One Trade

The more responsible solution is a compromise- reinstate the subsidies legislatively in return for getting rid of a different part of the ACA they find more offensive. But what would this be? Gruber is right that the major parts of the ACA hang together, and removing one major part by itself is worse than either repealing or keeping the whole thing. Removing only the individual mandate, or only guaranteed issue, or only community rating would be very bad ideas.

I think the employer mandate is the best candidate for one big piece that could be safely removed- and it is the one Democrats are unlikely to go to bat to fight (indeed, we’ve seen the absurd spectacle of the Obama administration trying to delay this part of their own health bill while Republicans sue them to implement it). But would this be such a big victory? It would help business and labor markets, but the employer-based system is still by far the largest alternative to government insurance, and politically it may be unwise for Republicans to weaken it- especially if they continue to attack the parts of the ACA that support the market for individual insurance.

One-for-Many Trade

Rather than killing one other big piece of the ACA in return for reinstating subsidies, Republicans could find more success by making many marginal changes to the ACA. Make the subsidies a bit less generous (it is kind of absurd that they currently go up to 400% of the poverty level), cut back a bit on the Medicaid expansion (as most Republicans at the state level have been doing anyway)- reduce Federal contributions a bit, and cut eligibility a bit. Allow a bit more rating in health insurance, especially for health behaviors that are partly in peoples control (like weight).

Add Instead of Subtract

Even better, in the unlikely event that Republicans are willing to spend this chance to do something constructive rather than go after a partial repeal, would be to move forward a new health policy proposal. This could be one of the oldie-but-goodie conservative health reform proposals, like making it easier to sell insurance across state lines, or equalizing the tax treatment of individual and employer insurance. It could be a random new proposal, like getting rid of innovation-hampering Certificate of Need laws. But, if I can be allowed to dream for a moment, they could take this chance to move forward the free-market elements of the ACA.

Judo Flip

The fact that many of the ACA ideas were first advanced by the conservative Heritage Foundation and enacted by Mitt Romney has become a political talking point for the left, but it wasn’t simply a coincidence or a big mistake. Before the ACA, the market for individual insurance was largely broken. It is a tough economic question how to apportion the blame for this across markets vs misguided government regulations- but the judgement of voters was clear, and the flaws of the market for individual insurance were a consistent impetus for left-wing solutions up to and including single-payer.

Despite the ACA’s many flaws, it has succeeded in making the market for individual insurance functional enough. Individual insurance could be more convenient, it could certainly be cheaper, but now it basically works. And this changes everything.

Why should the government operate a Medicaid program directly, providing insurance that many doctors refuse to take and that recipients hardly value, when for a similar cost they could give away vouchers for gold-level private insurance plans that doctors will actually accept? Arkansas realized this early on, and got permission from the feds to let Medicaid recipients choose real private plans, freeing them from a low-quality government monopoly.

Republicans should support this privatizing potential of the ACA, and change federal Medicaid rules to allow all states to do this. Or if they really want to push the envelope- and I’d want to study the Arkansas experience much more before supporting this- they could make vouchers for individual plans the new default for Medicaid, and require states to get waivers to do anything else. This would judo flip the ACA into a tool for a huge reduction in the role of government in health insurance.

Written by James Bailey

June 23, 2015 at 10:49 am


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