It’s the System That’s Racist

What do you get when you mix 17 parts defective welfare system, 23 parts broken justice system, and 2 parts racism?

Answer: Mass incarceration of African Americans, millions of civil liberties violations, and the occasional riot.

The George Floyd murder is but one data point, albeit a particularly egregious one.

Let’s get real on how to fix the problem. You are not going to fix the problem playing Catch the Closet Racist. You could purge every detectably racist cop, judge, and prosecutor from the system. You could make Modern Indignation Studies part of the mandatory high school curriculum. You could demolish every Confederate memorial. And you would only make a temporary dent in the problem.

By far the biggest evils are measures that lock in the effects of past racism. Unless you have a working time machine, you need to pay attention and learn how to fix the ongoing problems.

Our Defective Welfare State

Let’s start with the defective welfare state. Dixiecrats were part of the New Deal Coalition that created the modern welfare state, and FDR did more than dog whistle. Whites got the mortgage assistance and farm bailouts. Blacks got the scraps, the need-based welfare.

Need-based welfare can be mighty handy when you need it, but it can also be a trap. You lose benefits when you work to get out of poverty. The effective marginal tax rate for making the transition from welfare to work is brutal; it’s up there with what the Brits were levying on the Beatles. Maybe worse.

Our welfare system also penalizes marriage. Marriage is a civilizing force – for men of any race. Unmarried young men tend to be rowdy and dangerous. There is an entire film genre based on the phenomenon: Westerns.

Honest work is also civilizing, especially when there is a clear path for advancement for the ambitious. If it is not available, ambitious young men will resort to no-so-legal means for advancement. Ghettos of people locked into need-based welfare will have high concentrations of such dangerous men. Thanks to the magic of past White Privilege, such ghettos are disproportionately black.

This is not a call to eliminate welfare, by the way. It is a call for humane reforms which restore incentives for self improvement. Milton Friedman proposed a solution ages ago: a negative income tax. The idea was given some consideration by Congress back in the 1970s, but was mostly rejected. We have a ghost of a negative income tax in the form of the Earned Income Tax Credit, but it is both too small, and it’s so complicated that tax preparation services get much of the benefit.

I prefer a Citizen Dividend. It’s simpler.

Our welfare system has other defects. The United States offloads much of its welfare burden on employers, health insurance especially. This creates a major barrier to entry level work, especially for those with a bad resume.

Jail time really stinks up a resume.

And we pay for our welfare state primarily by taxing domestic labor! We tax domestic employment more than we tax imports and capital gains. We have a system of subsidized outsourcing and automation.

It’s as if malevolent space aliens took over our government in order to create crime for their amusement. And then they broke our justice system for even more quality sadism.

Our Very Broken Justice System

Back when I was young, I was taught that the United States is a free country, that its citizens are innocent until proven guilty, that everyone is entitled to a fair trial. I read horror stories about the KGB, how they would smash down people’s doors in the middle of the night. I watched TV shows mocking tinpot dictatorships with their overmilitarized police. I read about Stalin and his archipelago of gulags.

And what do we have today? The Bill of Rights has been turned on its head. Guilty until proven innocent is the new norm. Warrantless searches and no-knock late raids are standard police procedure. Few can afford a fair trial. And some of our prisons make Stalin’s gulags look good.

How did this happen?

The Drug War. That’s how.

Let me be precise here. The key term here is “War.” If you want to limit hard drugs to certain Morality Free Zones, like we do for casinos, fine. If you want to arrest heroin addicts sleeping on park benches and leaving needles on the ground, no problem. If you want to make people jump through some hoops to get high, or limit open market sales of certain drugs to dilute forms, you can do that too.

But you cannot eliminate recreational drug use without draconian measures. Shredding the Bill of Rights is just a warmup for what’s necessary.

The reason is this: responsible recreational drug use and discreet drug dealing are victimless crimes. That is, there are no victims to call the authorities. Without a victim to trigger an investigation, the police need to be preemptive: mass surveillance, surprise searches, and sting operations are required tools needed to make any headway.

These tools are unconstitutional. So our legislatures have created a system of bypasses around the Bill of Rights. The law books have been polluted with thousands of piddling crimes so that everyone is guilty of something. This gives police discretion to find probable cause to search without a warrant.

Police discretion.

This, Dear Reader, is a racial bias amplifier cranked up to eleven.

An Evil Feedback Loop

With the amplification cranked up that high, the racial injustice can keep on going without any more input racism whatsoever. It’s all in the feedback. And there are lots of feedback loops.

The Drug War has not eliminated recreational drugs. It has just made them more expensive. That means you have drug dealers walking around with lots of cash. And they cannot rely on police protection (unless the cops are corrupt). So you get armed drug dealers, and you get gangs and organized crime syndicates to provide government-like services to drug dealers.

Gangs, like governments, go to war. And they go to war in poor neighborhoods, since dealers on college campuses and in nice neighborhoods tend to be dealing drugs as a side gig, and can afford to simply eat the loss of a drug deal gone bad.

With gangs going to war in poor neighborhoods, you have probable cause to bring in greater police presence. Even unbiased computer algorithms will effectively racial profile. It’s time for Stop and Frisk, neighborhood cameras, and Civil Asset Forfeiture. Goodbye Second, Fourth and Seventh Amendments.

And what about those the police catch? We have nowhere near the courtroom capacity to handle the caseload. So the system routinely piles on the charges in order to force a plea bargain. Goodbye Fifth Amendment.

And then we have our underfunded prison system. Conditions are brutal. New prisoners are under constant threat of rape and other abuse. Goodbye Eighth Amendment. This provides two more feedback mechanisms.

  1. Prisoners get turned into hardened criminals thanks to this brutal experience.
  2. All the victims of this broken system lose respect for the justice system – because it doesn’t deserve respect. Criminals can become local heroes.

It’s the System that’s Racist

If you think you can fix the nightmare by spouting Social Justice platitudes, you are living in a fairyland.

Even if the government used the Orbital Mind Control Laser to zap all racist thoughts, the problem would remain.

Censoring Bad Thinkers and toppling monuments are even less effective. If anything, they are backfiring, making racism great again.

If you are serious about racial justice, fix the welfare system; clean the law books; outlaw plea bargaining and Civil Asset Forfeiture; dial back the Drug War to those measures that the government can usefully do while obeying the Bill of Rights. Turn down that racism amplifier until the feedback stops.

How to Fix the Toilet Paper Shortage Next Week

toilet paper shortage

The U.S. is morphing into Venezuela.

And no, I’m not writing about the multi trillion dollar bailout, the authoritarian quarantine measures, or our President’s jaw boning the private sector. Many of these measures are warranted in a time of emergency. There will be a price to be paid, but so be it.

No, I’m writing about the shortage of paper goods. This is unpleasant, unsanitary and utterly stupid.

We could fix the problem in short order.

But you are not going to like the solution. Your knee will jerk. Your spleen will squirm. Your sense of rightness will be deeply offended.

We need to tolerate some price gouging.

The Paper is Out There

The paper products we need have already been produced. They are collecting dust in closets all around the country.

The paper is in the closets of the hoarders who correctly anticipated a shortage.

The paper is in the janitorial closets of the schools, stadiums, and restaurants which were forced to close.

LET THEM SELL THEIR SURPLUS!

Yes, this means rewarding the hoarders. Deal with it, or doo doo without.

Compared to myriad other corruptions in our society, this is some seriously low grade naughtiness.

Your government does worse on an hourly basis. Does that mean anarchy is preferable to government?

Let’s have some open air paper goods markets tomorrow.

In Store Prices Need to Rise as Well

If gray market paper goods cost way more than what’s in the local Food Lion, then someone is going to arbitrage. We don’t want that. We want merchandise to be available on the shelves so people make a minimum number of trips to the store. Lives are at stake.

Double the price.

Maybe even triple the price.

The shelves will have product. People will buy just what they need.

There is a danger to merchants. Those squirming spleens cranking out the red bile might cost some big corporations some serious good will.

There is a solution: those annoying discount cards you have to present to get the sale prices. Jack up the regular price for toilet paper to gouging levels, but offer non emergency prices for those with the discount card.

Limit the number per customer at the sale price.

Stores are already rationing, but that rationing is not enforceable! Without requiring the discount card, people can get more than one rationed item by checking out more than once at different lines, or going to multiple stores, etc.

I hate those customer discount cards, but I admit that they could be useful in today’s emergency.

Yes, This is Important

Shortages can last a long time. When the government fought against Evil Oil Millionaires Making Evil Profits, the United States went through years of gasoline shortages.

When the U.S. price controls were lifted, the shortages disappeared, and soon oil prices dropped.

We can have a brief spike in prices and a quick end to shortages. Or we can drag this out.

If we listen to our spleens, we can have plenty of other shortages as well. The Fed is firing up the printing presses to spread the pain of the current crisis. The bill for such generosity is likely to be future inflation. If we fight that inflation with price controls, it’s going to be a sh***y decade.

Literally.

Hacked by Russians

Longtime readers might notice that the theme has changed — and is kind of boring.

The reason? Russians hacked my web sites! I feel Hillary’s pain.

So, I wiped the WordPress directories clean and installed the latest from scratch. Hopefully, this will work.

Maybe I will get a fancier theme in the future, but for now I am working on a big new project on my Quiz2D site. Stay tuned!

Why I Haven’t Posted in a While

I has been a while since I have written a blog post. Even my Facebook feed related to this site has been largely neglected. Here’s why:


The big hurricane this fall brought extra moisture through my leaking asbestos roof, and the leaking window frames in the room upstairs which shares a wall with my office. Notice the mold on the left.

This chunk of my office ceiling was dripping water.
A chunk of plaster removed from my office wall to get at the mold.
Underneath this plastic is my computer table for my Windows machine, where I do most of my writing. A bit inconvenient.
Kind of hard to get to my books as well, what with all the plastic.
Getting roofers is a challenge when there are hundreds of roofs blown off at the beach. And when they did get to work, it was rather noisy. Quite distracting.

Meanwhile, in the room I moved my computers into, there were dank smells. What’s this? The previous owner had heaped dirt against the foundation, covering the vent holes. Landscapers are next on the list…

Well, I am finally back in my office. The ceiling is repaired and painted. Rain stays on the outside of the house. Both of my computer tables are available, etc. (I still need to do something about the landscaping.)

In the meantime, my ISP made updates. I had to change email clients do to encryption. (I miss Pocomail!) If you sent me an email and I never returned it, try again. I lost track of some conversations while moving to Thunderbird.

Also, please let me know of any bugs on the web site proper. My ISP also updated PHP, which broke the political quiz on my other site. (Just fixed it today.)

Now that the weather is getting nice and things are settling down a bit, I might just do some writing. On what, remains to be determined. (I put a poll on the Facebook discussion group, for those who want to have some say in the matter.)

The Free Market Case for Revenue Tariffs

“Free Trade” isn’t.

For those who haven’t noticed: We live in a hugely expensive welfare state. Domestically produced goods are taxed from multiple angles. We have corporate income taxes at the state and federal level for corporate profits, and then tax the profits again when the owners sell shares or collect dividends. Wages are taxed via Medicare taxes, Social Security taxes, the federal income tax, and state income taxes.

Imports without tariffs aren’t free trade; they are subsidized trade.

Once upon a time our leaders knew this, and enacted low tariffs anyway. Much of the world was digging out from the rubble of World War II, and we feared a Communist takeover of the Free World if we didn’t lend a hand. Our low tariffs were an intentional subsidy to preserve democratic capitalism.

Today, the biggest beneficiary of this policy is nominally Communist China.

The People know there is something wrong, that our heartland is being economically gutted. They have been trying to get the Establishment’s attention for decades. Eventually they go so fed up that they elected a blatantly dishonest, foul-mouthed adulterer who has all the charm and manners of a pro wrestling heel to be our President.

It didn’t begin with Trump or the recently resurgent Racist Right. This has been fermenting for a while from both ends of the political spectrum. Remember H. Ross Perot? He might have become President if he hadn’t dropped out of the race for a bit, and then picked a running mate who was laughably unprepared. Remember the WTO protests? Those were Leftists.

The Establishments — both D and R — are losing out to those ignorant of textbook economics. Because the basic textbooks are dangerously wrong.

The Simple Textbook Case Against Tariffs

With the right premises the textbook argument against tariffs is logically impeccable.

Let us consider a simple case: an automobile tariff. Let’s consider a parallel universe where Toyota’s are still imported from Japan, Volkswagons from Germany, etc. Slap a 25% tariff on foreign made automobiles and what happens?

GM stockholders get a windfall. Consumer advocates complain about expensive unreliable gas guzzlers. Conservatives complain about uppity labor unions. Economists lament the resulting inefficiency: those extra workers building Oldsmobiles could be working on higher value goods such as solar panels, video games, or viral websites featuring cute kitten pictures.

Meanwhile, the government gets little revenue from the tax. The tax is easy to dodge: just buy from the Big Three.

In this scenario the tariff is indeed a net bad. It costs consumers while doing little for the Treasury. Score one for the Establishment.

But this scenario is artificial!

Here in the real world domestically produced goods are taxed too. The Big Three pay federal corporate income taxes — now only 21%. The factories in Michigan are subject to 6% state corporate income tax. Shareholders pay income tax on dividends — somewhere between 10% and 37%, which is a total profit tax between 29% and 50%. The workers pay between 10% and 37% marginal income tax rates, depending on their pay rates and deductions. For non executives, the entirety of their wages are subject to payroll and Medicare taxes (15.3% of nominal wages). Michigan auto workers pay a flat 4.25% state income tax on their wages.

That 25% tariff is starting to look a bit low by comparison.

(Astute readers will note that corporations don’t actually pay the full corporate income tax. In part this is because of overly generous depreciation schedules. The other reason is that today multinational corporations can move their profits to tax havens through accounting trickery. If tariffs are set at least as high as the corporate income tax rate, this cheat goes away. Liberals take note!)

A Different simple Scenario

Some readers might be troubled by my comparing tariffs to income and payroll taxes. After all, corporate income taxes are paid by corporations, payroll taxes by a combination of employers and employees, etc.

This is where reading the economic textbooks pays off. An income tax is a tax on the transactions that produce the income. A tariff is a tax on the transaction between purchaser and foreign producer. Exactly who takes the tax hit depends on “elasticity.” (Look it up.)

The picture would be clearer if we used consumption taxes instead of income taxes. Suppose we replaced the income and payroll taxes with a 30% across-the-board national sales tax, as the Fair Tax people advocate. (They cheat by advertising a 23% number. If you have a 30% sales tax, the tax is 23% of the total cost.) That 30% tax would fall on domestically produced consumer goods and Chinese imports equally.

A Fair Tax coupled with complete elimination of tariffs is the same as a 30% across-the-board tariff rate on consumer goods. In 2016, the Libertarian candidate was more protectionist than Donald Trump! (Gary Johnson endorsed the Fair Tax.)

I have a question for Free Traders: would the Fair Tax be unfair mercantilism? If we had such a tax should imports be exempt?

On Producer Externalities

One could answer: “Yes, domestic goods should be taxed more since producers consume government services.” Also, domestic factories are ugly, often smelly, require government infrastructure and protection, and require government regulators to protect us from dangerous chemicals. When we move production to China, we move away the pollution to somewhere out of sight and smelling range.

But domestic production produces positive local externalities as well. That Oldsmobile factory can turn welfare recipients into productive citizens. It can make manual laborers into middle class Americans who can afford to pay for their own health insurance.

I’d rather pay for an overpriced Oldsmobile than pay taxes for welfare and Medicare for All.

Comparative Advantage Nonsense

The advocates of Free Trade point out that when we replace domestic goods with imports we free up labor for higher value items. Just look how well that worked in Allentown, Youngstown, Detroit, Kannapolis…

Sometimes Creative Destruction isn’t all that creative.

Here’s a wakeup call to academia: not everyone is college material. Not everyone is suited to be a symbol manipulator. For millennia, the bulk of humankind has been hunters, fighters, and farmers. Symbol manipulation was for shamans and weirdos. We are short on hunting grounds, the farms have been merged, and job opportunities in the military are limited.

By subsidized outsourcing of manual production, we are freeing up locals to be gang members and spaced out druggies — along with the police and prison guards who take care of them.

I’d rather pay for an overpriced Oldsmobile than for an archipelago of prisons and security forces to protect me from the unemployable who aren’t in prison yet.

The Double Taxation Problem

Note that I am not calling for full on mercantilism, protection of special industries, or anti dumping laws. I am calling for flat, across-the-board, tariffs that are comparable to our domestic taxes. This is a neutral position, if we treat foreign nations as black boxes.

(And as someone who prefers to limit meddling in foreign lands, I think treating foreign economic policies as black boxes is a Good Idea.)

Astute economists will note a problem with my proposal: if nations use a mix of income taxes and comparable tariffs, international trade goods get double taxed. That Japanese Toyota gets taxed by Japanese taxes before it comes here to be taxed with my proposed tariff.

And so the wonks keep calling for a more optimal system: zero tariffs by everyone.

These days, I disagree with the wonks. Two reasons:

1. Free Trade Agreements are Unstable

Suppose two countries (A and B) agree to zero out import duties and only tax domestic labor and profits. This is fair and momentarily efficient.

Then Country A starts running a trade surplus with B for some reason (it matters not what). Country A gets a tax windfall. If a conservative government is running Country A, then producers in Country A get a tax cut — which encourages businesses to move their profit generating activities from Country B to Country A.

Meanwhile Country B loses tax revenue. They can either do without some government services, or raise taxes. The latter could drive away producers reducing the tax base further. (So could the former if the government services are actually useful for producers.)

We have an unpleasant positive feedback effect.

The impulse to cheat becomes enormous. Country B could resort to non tariff barriers. They could increase net revenues in the short run by subsidizing some of the remaining producers (while undermining the rule of law). Or they could switch from income to consumption taxes, and have tariffs under a different name.

To stop such cheating you need an international body with clout: neutral bureaucrats with the power to review a very wide range of domestic tax and regulatory policies. You need to disable democracy.

None of this is hypothetical. It has all happened in the European Union.

I’d rather suffer a bit of economic inefficiency than turn over government to globe trotting bureaucrats.

2. Redundancy is Robust

When the Big Three got fat and sloppy, consumers were rescued by quality auto imports from Japan. International trade was very useful.

But those high quality, high gas mileage, Japanese autos existed in part because Japan had a mercantilist economy which fostered the local auto industry. Had the Big Three been allowed in before the Japanese perfected their own brands, history might have been less pleasant.

Perfect Competition is only efficient in the short run. Perfect Competition creates a Winner-Take-All dynamic that leads towards monopoly and oligopoly.

Imperfect Competition preserves economic diversity. Having economic speed bumps around the nations of the world creates a home court advantage in each nation, nurturing businesses that aren’t currently world class. This makes the world more diverse and interesting. And as long as the speed bumps aren’t too high, we get to sample the diversity in the form of premium luxury brands, exotica, and extreme niche products.

(And where Comparative Advantage is truly compelling, the speed bumps are just another source of tax revenue.)

Tariffs vs. the Fair Tax

If everyone switched from income to consumption taxes, we could have stable trade without international bodies, and the speed bumps would be minimal.

But we would also have a tax system that is regressive. The rich can better afford to save. Wealthy families could accumulate wealth over generations without paying tax.This could be a problem.

Perhaps a combination of wealth and consumption taxes could work.

But I have one other objection: an across-the-board consumption tax would be fair. I don’t want to be completely fair. I actually want to subsidize imports from the truly needy nations of the world.

Sub Saharan Africa is currently experiencing the demographic explosion that just about every other region has experienced when making the transition to the modern world. If they don’t complete their Industrial Revolution at a breakneck speed, humanitarian and environmental catastrophes will happen soon.

I want to actively subsidize trade with these developing nations. So my preference is  flat tariffs for all, save for imports from the poorest nations.