How the Democrats Can Win

 Posted by  2008 Election, Poverty, U.S. Politics  No Responses »
Jan 262005
 

The Democratic Party is pretty down in the dumps lately. George Bush and the Republican Party have routinely beat them, despite fighting a war no one was really crazy about, fumbling an economic recession, and insisting on a fiscal policy that any right-minded economist in the country will tell you is a long-term recipe for disaster. So, I figured I would brainstorm a few ideas for how to get the party back on track, and I would encourage anyone who might be reading this out there to feel free to jump in with your own ideas and/or tell me why mine are dumb.

1) Democrats need to find their identity. President Bush has hijacked the “compassionate” terminology, without actually having policies to back it up. Democrats need to win it back, and that means staying on message about helping the less fortunate, and not letting yourself get sidetracked.

2) It also means encouraging members to stay on message. I am not exactly sure how the Democratic Party operates, but once the party picks a message they need to get the word out to all of their members and loyalists to stick by that message. The Republican party is brilliant at maintaining a drum-beat in the press on a particular issue until something gets done; witness it now with Social Security and Iran. When was the last time that the Democrats were able to create their own issue like that?

3) Democrats need to reach out to the religious right, in two ways. First, they need to agree to disagree on a number of issues, such as homosexuality and abortion. And that means not getting so bogged down in symbolic issues that have no relevant outcomes. For a perfect example of what I mean, read Hiren’s take on Abortion and License Plates. Second, it means sitting down with prominent religious leaders and having open discussions about what it takes to really confront important social issues such as poverty, racism, and education. The Tax Cut Mantra of the Republican Party makes them poor allies with socially active, progressive organizations, like many churches. That creates a natural opening for Democrats to exploit.

So, that’s just three off of the top of my head, and notice none of them include a call for the democrats to “move towards the center” or any such thing. If the democrats really do face an identity crisis, as I believe, then moving towards the center is the exact wrong thing to do, because it causes you to try to be all things to all people. The Republicans are winning, not by moving towards the center, but by demonstrating good leadership (even if, as I would argue, they are leading the country down the wrong roads). In both of the last two Presidential elections, polling showed that many people liked the Democrats’ stances on the important policy issues better, but that they voted for Bush anyway. So, that’s my ideas–what do you think?

Even Robin Hood Died at Some Point

 Posted by  Education, Fiscal Issues, Healthcare, Issues, Poverty, U.S. Politics  No Responses »
Jan 262005
 

I still believe the key here is social mobility – making sure that those who start on the bottom can rise if they so deserve. Take India. Income disparity there is, by all accounts, abysmal. But the real problem is that for a variety of cultural (caste system) and economic (poverty) reasons, social mobility is almost non-existent. Yes, the two concepts are related, but income disparity is not necessarily a bad thing even if it is rising, while a lack of social mobility is a bad thing. And taxing the rich to provide for strong social mobility mechanisms makes sense.

But taxing the rich can reach a point where it does more harm than good because it reduces the incentive to rise on the social ladder. “Why should I work 70 hours a week and have 45% of my paycheck taken away” is a common complaint among professionals. But they still get paid enough after taxes to do their jobs. But what if we raised the tax to 60% or more, like some European countries? Well then, we start having a culture where people take 6-8 weeks off for vacation each year and rarely work more than 40 hours per week. The reason? Because the marginal utility of work is less than the marginal utility of leisure. While everyone – including me – would love to have 6-8 weeks off a year and only have to work 40 hours per week, there are noteworthy societal implications. Fewer tasks get accomplished, meaning: fewer life improving technology innovations; fewer medicinal advances; etc.

Now. There are certain things a government can do to improve social mobility without letting taxes get out of hand. A government can institute a scholarship program similar to the Hope Scholarship started in Georgia in the early 1990s that has since been copied by other states. Under Hope, any student who is admitted to a state college or university and who maintains a “B” average, pays no tuition. A government can help maintain the quality of educational resources across the board. A government can provide training programs for out of work individuals. These are not new challenges, but they are significant and each deserves a separate discussion.

What a government cannot do, however, is force social mobility. First, social mobility depends on ability. Not everyone is created equal. Some are smarter than others, some are more musically gifted, some are better athletes, etc. You could say that mentally handicapped individuals have no social mobility. There is little the government can do about this, so trying to make sure mentally handicapped people have the same chance to succeed as the Walton children would be a waste of time, money and effort.

Second, moving up the ladder is a choice. At the end of the day, an individual or a class of individuals must choose to take advantage of the opportunities available.

Third, the choice to move up the ladder is affected by much more than whether the government provides the mechanism to move up the ladder. Take culture, for example. During the immigration boom in the US in the early 20th century, several different groups of people made their way through Ellis Island. Certain groups, however, were better able to move up the social ladder. Jewish immigrants, supported by a culture focusing on education and development of professional skills, prospered quickly, even though they most likely faced a substantial amount of discrimination. Italian immigrants, supported by a culture focusing more on family and less on education, did not prosper as quickly.

So when we say that social mobility is declining among African Americans and Hispanics, should we really look to the government for answers? And is looking at social mobility based on race or culture the best way? Why not on the factors that the government can control: money, resources, quality of schools?

Clarification

 Posted by  Education, Fiscal Issues, Healthcare, Issues, Poverty, U.S. Politics  No Responses »
Jan 262005
 

First off, some folks are always going to be richer than other folks, and I really have no problem with that, for many of the reasons Hiren states. But, capitalist systems have their flaws and I believe that one of the main jobs of government is to overcome flaws in the market place (i.e. overcoming collective action problems, regulating monopolies, etc.).

The real problem I see right now are the rates of change in social mobility and income disparity, and I do see those as connected. At this time, income disparity is on the rise, by some measures hitting levels not seen since before the Great Depression. Simultaneously, social mobility is on the decline, especially among African Americans and Hispanics. I believe that they are related basically because they are driven by the same economic phenomenon. Social mobility requires that money from the upper-classes be reinvested into the lower classes. If instead, the rich take that money and reinvest it in themselves, they will reap the reward and grow even more rich as a result. Take education for instance; everyone wants the money to go to Harvard for their children. As long as government is taxing the rich guy to subsidize the poor guy’s education, the taxes prevent income disparity from getting out of hand, the education helps social mobility, and four years later the poor kid has a better education from the rich kid, making him likely to rise and the rich kid likely to fall. Take the government out of the equation, the rich kid goes to Harvard, gets even more rich as a result of the great education, and the poor guy gets screwed.

So, I think these things are huge problems, and this is why I believe we ought to be reinstating the Progressive policies that have been stripped away in the last four years, and not adding onto them. The Estate Tax, for instance, is actually a necessity if we really want a meritocracy economy: it says essentially that the rich will get judged on their own merits, and not the merits of their father, or their father’s father. A progressive income tax assists with both social mobility and preventing income disparity from getting out of hand, besides the more philosophical point that the rich are getting more benefits from society, and therefore they should pay more of the costs of maintaining it. As far as the racial and ethnic disparities… I really don’t know how to deal with those outside of affirmative action programs, which are out of political favor right now.

So, no, I don’t think we ought to eliminate income disparity, but we ought to be concerned when it starts to rise. And we should especially be concerned with declines in social mobility rates. And both are happening right now, so what are we going to do about it?

The Big Lie

 Posted by  Debt and Deficit, Fiscal Issues, U.S. Politics  No Responses »
Jan 252005
 

The White House released its new budget numbers today, projecting a $400 billion deficit for next year. Nevertheless, the Bush Administration insists that it will be able to fulfill its campaign pledge to cut the budget deficit in half over the next five years. To quote from the New York Times: “The White House defended its fiscal record, and the presidential spokesman, Scott McClellan, said at a news briefing today that the president’s deficit-reduction plan was ‘based on strong economic growth and spending restraint.’” We can all hope for strong economic growth, although it is by no means a sure thing. Also, there is the little issue that high deficits could cause a jump in interest rates and a continually weakening dollar, both of which might have a detrimental impact on economic growth. Still, economic growth is only part of it: if we want to cut a deficit this large, we either have to raise taxes (which the Bush Administration has pledged not to do) or cut spending.

So, lets do the math on spending cuts. The discretionary budget for the United States federal budget in 2004 totals about $788.1 billion dollars. This does not include Social Security, or any other program which receives its own funding from its own tax. These numbers also don’t really measure money budgeted in one year and spent in another, for instance on large, multi-year defense contracts. Finally, these numbers don’t include large special outlays, for emergencies, wars, etc. Still, if the government is going to cut back on spending, chances are it will come from one of these budgets. So, in order, the top five agency budgets for the 2004 fiscal year are projected to be:

Defense: $375.3 billion
Health and Human Services: $69.3 billion
Education: $55.7 billion
Housing and Urban Development: $31.0 billion
Veteran’s Affairs: $29.1 billion

Presumably neither the Bush Administration nor Congress will want to restrain defense department spending during the middle of the war in Iraq, much less the greater war on terror. So, our cuts won’t come from there, and that is half of the discretionary budget. Medicaid is responsible for most of the Health and Human Services, and health costs certainly are not going to fall. We could cut back on eligibility rules, curtail services, etc. And maybe save a couple billion. As I’ve said before, the poor don’t vote, and certainly don’t vote Republican, so they don’t mind too much, but you still can’t get much from there. You can’t really cut education; after all, Bush championed the No Child Left Behind Act and has already gotten criticism for underfunding the program. HUD could be cut back some; again, it mostly hits the poor, although Bush has championed the whole “ownership society” thing, and presumably that includes owning homes too. Veteran’s Affairs is way to political to cut; the last thing the Republican Party wants is the VFW demonstrating on the capitol steps. From there we go to Agriculture (can’t upset the farmers), Energy (maybe could cut a little, but they do some important things, like protecting nuclear plants and waste), State, Justice and Homeland Security (the big three in terms of the war on terror), and NASA (Bush has already announced a broad, ambitious space goal, so can’t cut there). We’ve now spent most of the federal budget, we are down to departments that make under $15 billion dollars, and so far, I cannot imagine President Bush or Congress making any significant cuts.

In other words, to say that President Bush will cut the deficit by cutting spending is an outright lie; you can’t do it without cutting defense spending, which will not happen.

But this logic does leave one remaining truth: in order to cut the deficit we have to raise taxes.

The Bigger the Pie, the Better It Tastes

 Posted by  Education, Fiscal Issues, Healthcare, Issues, Poverty, U.S. Politics  No Responses »
Jan 252005
 

Income disparity and social mobility are two separate issues, which in no circumstances should be lumped together as if they are truly parallel concepts. Income disparity pertains to the relative distribution of wealth across the population in a given society. Social mobility relates to the ability of a lower income (I will use “income” for the rest of this post, but income is not a perfect proxy of utility) individual to attain higher income relative to others. Look at it this way. A liberal income disparity utopia would ensure every individual obtains the same level income. This means that no individual has social mobility because in such a utopia, no one can attain a higher income relative others. Therefore, one cannot say, try as one might, that advocating mechanisms to promote social mobility equates to an affirmation that eliminating income disparity is a desirable goal.

My position is two-fold. First, income disparity is essential to a functioning society. Second, a society that provides for social mobility at the expense of equal incomes provides greater benefit for all in the long run.

The first point rests on the benefit of income disparity through its incentive generating power. Let’s assume a society of 10 individuals that has, at present, $100 / year in economic income. A tax and redistribution process results in $10 / person / year regardless of the person’s contribution to the society. Herein lies the classic prisoner’s dilemma. It is perfectly rational for each individual to do as little as possible, which ensures the eventual destruction of the society. On the other hand, a reward system materially affects the decision making calculus of each individual. Do nothing, and you get nothing. Possess minimal ability and act on it, and you will get minimal compensation. Possess greater ability and act on it, and you will get greater compensation. Out of the original $100, one person may even end up with $70 / year in income, with the other nine sharing from the remainder. Yet this avoids the eventual destruction of society because each individual has an incentive to continue to contribute – be it $70 / year or $2 / year.

The second point rests on the value generating power of a simultaneous embrace of social mobility and income disparity. Let’s take our 10 person society with each person possessing $10 for a total of $100. Would this society be better or worse off is we randomly picked one person and gave that person an additional $50. So one person would have $60 and the other nine would have $10 each for a total of $150. If you think equality has independent value, then yes, this society could be worse off and should reject the additional $50.

Now. What if we did not choose the person at random? What if, instead, we held a contest wherein we would give the one person who discovers the cure for a common disease the right to sell that cure to others in the 10 person society and to other neighboring societies? If such a discovery is made, then the winning individual would have more money than the other nine, and the society as a whole would have more once this individual sells to neighboring societies. But the society has much more than the additional revenue. It also has the cure for a common disease, which has a corollary benefit for all 10 people. A $10 person can now spend $2 and get cured instead of just dying.

The $50 “find a cure” contest contains the essence of a combination of social mobility and income disparity. As long as a society can insure that those who end up earning more are not chosen at random, but rather make positive contributions creating additional value and earn their increase in wealth and status, then additional value will be created for everyone. That is why social mobility is essential. It allows the best to rise. Some may rise more than others based on where they started, but if the proper mechanisms exist, the best will rise to the top no matter where they started. And with the guarantee of greater riches, the best will choose to rise, and in the process, make improvements for everyone.

It’s like baking a bigger pie. If some people can expand the size of the pie for everyone, but demand a disproportionate share of the increase, then why should we deny them? If we do, then we’re all just stuck with a smaller pie.

Obviously, the challenge for the world is to provide for the most fluid social mobility possible. But the problem to focus on, then, is not income disparity – which is the foundation of a positive incentive system – but rather on providing the threshold level of resources (the five necessities + education are a start) to all to ensure that those deserving are able to rise among the ranks.

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