Tag Archives: economics

Reply to Bryan Caplan on abortion nudges

UPDATE: Caplan has responded, and makes an interesting point: it looks like the turnaway study shows reduced depression and anxiety for women who are turned away from abortions, relative to women with similar physical health and financial situations. There may be problems with drawing that inference from the study design – I can’t make a clear determination on that because it looks like the most relevant publications from the study are still in press. Based on the NYT writeup, it looks like the Turnaway researchers were trying to show that mental health outcomes in people who had abortions were no worse than in people who carried the pregnancy to term – I don’t know if there are problems with using non-inferiority studies to show actual equivalence, so it seems possible that the women who had abortions actually did have better mental health and the study just wasn’t constructed/powered to detect an improvement. (If that line of reasoning is nonsense, please let me know!)
All that said, it sounds like a relevant pro-natalist point, and one that ought to be included in the shared decision making that would ideally exist around pregnancy/termination decisions. Maybe in the idealized environment I described below, it would be sufficient to tip the balance in favor of nudging women away from abortion, but it’s certainly not a strong enough independent finding to have substantial policy implications yet.

Bryan Caplan had an interesting query for Richard Thaler yesterday, which started on Twitter and then Caplan expanded in his blog post on Nudges and Abortion. In it, Caplan – who, it’s worth noting, is a strong natalist with good arguments for having kids – proposes several policies that would, in a vaguely non-coercive way, reduce access to abortions, and so (perhaps) make people better off.

The post amounts to a challenge primarily because it at least appears to be the case that most would-be “nudgers” are pro-choice, so the issue has at least the potential to test whether nudgers are serious about making people better off, or are simply using nudges as a stealth tool to push their preferred policies.

Obviously, the current legal regime around abortion complicates the discussion. I would bet that, encountering them in a modern context, most pro-choice would-be nudgers find Caplan’s suggested anti-abortion nudges revolting and even infuriating. That’s not because of anything inherent in the suggestions – they are, at least in principle, well-motivated and fair-minded. But since the modern abortion debate boils down to transparently disingenuous claims that we need to make abortion “safer for women,” and proposals for doing so that serve only to limit or eliminate abortion access so society can use pregnancy to punish women for having sex, nobody who seriously proposed the changes Caplan suggests “to make women better off” would (or should) be taken at his word.

That in itself illustrates the first problem: nudges are often best directed at decisions people make casually, and that are driven by unnoticed cognitive errors. That risk is already low when we as a society have made it deliberately difficult to pursue a particular decision. It would hardly be reasonable to support nudges to reduce chocolate consumption if you had to drive across three states and wait 24 hours to buy a Snickers bar; it’s when you’re faced with a half-dozen candy displays on an average Tuesday that slightly reducing access looks reasonable.

But imagine, for the duration of this argument, that abortion was accessed as if it was any other aspect of the medical system, with no onerous regulations beyond those deemed generally appropriate for regulating procedures with a commensurate level of risk. In such a system, it would not be inherently repugnant to suggest that decisions about abortion are subject to some of the same cognitive biases that plague decisions about saving for retirement, becoming an organ donor, or eating more fruits & vegetables.

Even in such a world, I think Caplan’s basic assumptions are misguided. From the post:

“Parents very rarely regret having children – even initially “unwanted” children.  This is not mere status quo bias: Most childless adultseventually regret not having children.  As I’ve said about parenthood before, ‘Buyer’s remorse is rare; non-buyer’s remorse is common.’  Implication: Most women who want to terminate their pregnancies would probably change their minds after their babies are born.  Most won’t go through the next eighteen years thinking, ‘I wish I’d gotten that abortion.'”

Even if all of that is accurate, it’s not especially relevant to this specific discussion. In most cases, choosing to have an abortion now is not the same as choosing never to have kids, so the comparison to childless adults is nearly irrelevant. Rather, the relevant choice is generally between “kid now” and “kid later,” bearing in mind that there’s at least some (probably predictable) chance that whatever conditions make having kids now unappealing (unstable family circumstances, poverty, being in high school/college/grad school/&c.) will later be alleviated.*

Second, the data saying that women are generally happy with their children, even after unplanned pregnancies, are unlikely to be representative of the population we’re trying to nudge. More relevant evidence comes from the recent study of women who were just barely denied abortions (vs. women who just barely got them) presents a far less rosy picture of life outcomes and mothers’ relationships with their children.

Finally, most of Caplan’s proposed “nudges” aren’t very good examples of the concept. Here they are:

1. Waiting periods: Abortions must be scheduled at least a week in advance.  This gives women time to reconsider their decision, so they don’t abort rashly.

This one is hard, because waiting periods are already part of the policy space, and so are steeped in existing messaging that women can’t be trusted to make the right decision. Moving away from that, though, this still strikes me as more coercive than a nudge ought to be. The nudge version of this would be for the default scheduling to be a week after the first appointment – patients should still be able to choose an earlier appointment if they want one. Also, it’s worth noting that abortions (particularly safe ones) can be time-sensitive, especially for people who find out they’re pregnant close to fetal viability.

2. An opt-out rule for counseling.  The libertarian paternalist could schedule all women who want an abortion for a pre-procedure session with a psychologist – or maybe just volunteer mothers who previously considered abortion.  Women who don’t want counseling would have to explicitly refuse to participate.

This one actually qualifies as a nudge, and well-implemented, could be really good policy: it’s low-cost to opt out, and offers a service that some substantial number of women would be happy to use. The tripping point is, of course, the content of the counseling (I’m skeptical of specifically involving mothers who previously considered abortion without the other side), but I’ll assume that it’s aimed at offering emotional support during a difficult decision and helping women understand and consider all of the available options, not at shaming women into not having abortions. Shared decision making about pregnancy and abortion is a great idea, and I wish it was more commonly available. Props to Caplan for suggesting it.

3. Inconvenient locations: Abortions have to be performed in remote rural hospitals.  Women who definitely want abortions will make the extra effort, but more ambivalent women will decide to keep their babies.

This illustrates another general principle about nudges: they have to be well-targeted. Restricting abortions to facilities in rural areas will obviously limit abortion access for the urban poor more than for other groups – so why is the policy targeting them? Are the urban poor more susceptible than the rural poor or suburban middle class to abortion-related cognitive biases? If not, it doesn’t make sense. (Never mind that this would be a substantial infringement on the rights of OB/GYNs to practice where they wish, and place an unconscionable burden on women whose wanted children are inviable, and who would have to schlep out to the middle of nowhere, away from their emotional support systems, to have medically necessary abortions.)

4. Deny government funding for abortion.  If the government thinks that a procedure is generally ill-advised, the first step is to refrain from encouraging it.  If people want to pay for it out of their own pocket, they’re still free to do so.

Another general principle: a good nudge is not a financial incentive (or barrier). Again, financial barriers inherently pose targeting problems, but perhaps more important is the violation of the “low-cost avoidance” rule. Limiting public funding for abortions, or soda, or coal-burning power plants is perfectly reasonable public policy, but it doesn’t really qualify as minimally invasive.

Finally, here are a few anti-abortion (or at least pro-natalist) nudges that might be closer to what Caplan was looking for:

  1. Posters at clinics with messages along the lines of: “Most couples keep their unexpected pregnancies,” “Kids can be a lot of fun,” or “You’re more ready for a baby than you think.”
  2. PSA campaign for young people considering delaying childbearing: “Your baby may be healthier if you have her now.”
  3. Condom wrappers with baby faces on them and slogans like “Don’t you want your own?” (I can imagine this doing double-duty, encouraging some young men to complain less about using condoms, and perhaps encouraging some couples to decide not to.)
  4. Placing condoms right in the front of the drugstore, where you can’t hide when looking at them, and limiting their sale to between 8 AM and 6 PM.

*You can argue that in some cases, conditions are unlikely to improve, but in that case, using Karl’s model, the abortion isn’t the rational decision in the first place. Under those circumstances, we’d more likely be talking about nudges to encourage abortion – or, preferably, nudges to reduce unwanted pregnancy.

A simple fix(?) for the carried interest question

Dylan Matthews explains carried interest.

Here’s a simple criterion to determine whether managers are earning income or investment returns: If you own an asset (and are eligible to pay cap gains taxes on it), you must have symmetrical exposure to the downside and the upside. If hedge fundies want to take that risk they can do so–they are, in that circumstance, providing the socially valuable service of risk-taking and investment, and we encourage that with a lower tax rate. If your management contract only says you get X% of investment gains, though, that’s ordinary income and you get to pay the full tax rate on it.

It seems like the issue should be more complicated than this. Am I missing something, or is this a reasonable framework?

Note: If you insure against losses, I’m inclined to think that insurance payment ought to be taxed as ordinary income. That might end up being incredibly hard to do in practice, though, and I’m really not certain how to deal with risk mitigation in general.

Mitt Romney really stepped in it this time.

I have previously defended some of Mitt Romney’s seemingly absurd statements on this blog. I will not do the same for “I’m not concerned about the very poor.” Yes, he clarified that they have a safety net and that’s why he’s not concerned, but it’s impossible to take seriously his promise to “fix it” if it needs repair, while he campaigns on eviscerating the safety net and a massively regressive change in the tax structure. That’s just lying (which, as we have established, he does.)

The US is not Greece.

Nor are we on track to become Greece. We could make fiscal and monetary policy with a d20 for a decade, and still not be on track to become Greece.

This is not to say that we don’t have problems–we do. But they are very different from Greece’s problems, and they have a very different endgame.

First, for those who have been living under a rock for the last couple of years: Greece is in the middle of a sovereign debt crisis: the government has borrowed more money than it’s willing to repay. Greece was hit particularly hard by the 2008 recession, and its tax revenues aren’t sufficient to repay the debt without making drastic cuts to services and government salaries, increasing taxes, etc. As you may recall, Greece has had periodic riots over a series of austerity plans in the last few years. Meanwhile, as creditors began to worry more and more about whether the Greek government would continue paying its debts, their interest rates have climbed higher and higher–further increasing the problem.

At this point, it’s clear that all of Greece’s remaining creditors will take a haircut on the value of their bonds. That’s created some growing worries about banking systems in other countries–and by extension, those countries’ governments. I’m not going to go into the rest of the Euromess or the efforts to save it, though.

There are a couple of important points to note about how Greece reached its current state. Point 1: when the Euro became the sole Eurozone currency in 2002, markets started assuming that all Eurozone governments were pretty much equally creditworthy. Interest rates on all of their debt converged–not at the middle of the pack, but clustered around the previously-low rates afforded to Germany and France (the largest, richest Euro countries). For Greeks, both private citizens and the government, that meant borrowing got very cheap, very rapidly. That’s the first important piece of why Greece got in trouble.

Point 1.5: Obviously, those investors were very wrong about Greece’s creditworthiness. Part of the reason is that the Greek government (with help from Goldman Sachs, if I’m not mistaken,) essentially cooked the books to get into the Eurozone in the first place. There were some fiscal rules that all EZ countries were supposed to follow, and Greece flouted them. Let’s call that a big, collective “oops!” Moreover, the Greek government is not institutionally comparable to a major developed-world government like France or Germany–it just doesn’t work that well. Rather, the Greek government is a large political patronage machine. That means a huge number of workers are dependent on the government for their (unsustainably high) incomes. It also means that tax collectors are paid primarily not  to collect taxes. That strategy that works really well when you want to employ tax collectors without pissing off people who would theoretically be taxpayers, but it works rather badly when you suddenly need an effective taxation infrastructure to collect money so your government can make bond payments. In short, even if Greece had been following the EZ fiscal rules, it would have been stupid to lend to them at the same rate as you’d lend to Germany.

Point 2: We haven’t yet considered the effects of the common currency. it only gets nastier from here, for a couple reasons. First, if a country with an independent currency has too much debt denominated in their own independent currency, they can just inflate it away. Inflation sucks for bondholders and anyone in the country with savings; it raises future interest rates that the country will be charged to borrow; and it poses a risk of hyperinflation if the central bank does its job badly (or is too responsive to political pressure). But those risks can be less bad than the pain of tax increases or spending cuts necessary to pay down a large government debt. Greece doesn’t have that option: it doesn’t control the supply of Euros, and it can’t just start printing drachmas to pay off Euro-denominated debt. That’s been good for investors so far, since some of them have been able to get out before their bonds lost value, but it’s crappy for Greece.

Greece is also getting slammed by the shared currency because it’s holding the Greek economy back from recovering. If Greece had its own currency, devaluation would be a huge boon to the export sectors–many of which (e.g. tourism) are extremely important to the Greek economy, and have been hammered by the recession. If the Greek government could devalue the currency, vacations in Greece and other Greek exports would become super-cheap, and French people would start flocking to Greece. That would kick-start those sectors of the economy and help raise tax revenue, which would make it easier for Greece to keep interest rates manageable. (Admittedly, that debt stability would come at the expense of Greek workers, whose purchasing power would drop with the devaluation, but  it would be better in the long run for wages to adjust to competitive levels. Since wages and prices are sticky, that hasn’t happened much and Greece’s export sector hasn’t recovered as much as it could have otherwise.)

SO: What does all of this say about the US? Well, in short, we have none of those problems. Greece has skyrocketing interest rates, leading to an immediate-term inability to roll over its debt. The US is paying negative real interest rates to borrow for the next ten years. The Greek government has a first-world debt burden and an advanced third-world level of organization. The US, whatever the current state of our political branches, has an effective, professional executive branch with a power to actually collect taxes. Greece can’t inflate its way out of Euro-denominated debt. So long as we borrow in dollars (a practice that seems unlikely to change in the near future), we will always have that option. Greece can’t devalue its currency to kick-start exports. Again, since we control the supply of dollars, we can.

You will notice that I have not argued that the US doesn’t face any problems. As I’ve said before, we do–some of them are even related to long-term levels of government debt. If you look at those problems, though, they are almost 100% driven by increases in health care spending. (I consider fixing Social Security an uninteresting blip in our long-term fiscal picture. Compared to Medicare & Medicaid growth, it’s peanuts.) That spending will be a problem whether it’s in the public sector or the private. Beyond health care, we have serious challenges to face in improving education and remaking our energy infrastructure. None of those problems, though, has the basic structure of the Greek debt crisis–such a crisis is definitionally and practically impossible for the US. So if you’re going to make grand pronouncements predicting the fall of the American state, please choose a comparison that makes a small amount of sense.

(This post inspired by one of several Facebook conversations in which people have grossly misrepresented the Greek problem, usually by just using “we’ll turn into Greece!” as a placeholder for coherent thought about what problems the US faces.)

Sentences worth reiterating ad nauseam

The Economist’s Free Exchange blog:

Having lots of well-paid manufacturing workers isn’t the way one grows rich; replacing lots of those workers with massively productivity enhancing machines is.

Good sentences: Tyler Cowen on mobitilty

Tyler Cowen:

“How much of immobility is due to “inherited talent plus diminishing role for random circumstance”? Is not this cause of immobility very different — both practically and morally — from such factors as discrimination, bad schools, occupational licensing, etc.? What are you supposed to get when you combine genetics with meritocracy? I do not know how much of current American (or other) immobility is due to this factor, but I find it discomforting that complaints about mobility are so infrequently accompanied by an analysis of this topic.”

This sentence gets at something I’ve wanted to address for a while: is income mobility important, in that it’s a social goal worth pursuing, beyond the notion that we should allow people to rise to their potential? Is high income mobility required for a “just” society?

Imagine a society where 1) high-ability people tend to create useful things, and are rewarded for doing so, 2) people tend to sort themselves into relationships (and thus have children) based, in part, on being of similar intelligence and motivation, and 3) intelligence and other components of ability are inherited (although imperfectly). Inter-generational mobility (in relative income) in that society might be extremely low. People would be largely sorted into their relative income position at birth, because their parents were similarly productive and occupied a similar position in the income distribution.*

Such a distribution could persist even in a perfectly non-discriminatory society, where kids from wealthy families have no socially-conferred advantages (connections, better access to education, &c.) over kids from lower-income families. Would that society be unjust, because it has low mobility?

*Absolute income would hopefully increase across the board; I’m making no assumptions about the pattern or justice of how that growth is distributed.

Ron Paul doesn’t deserve the label “Austrian”

Matt Yglesias: What Is Austrian Economics, and Why Is Ron Paul Obsessed With It?

I don’t think Paul even deserves the label “Austrian.” Austrian economics, as Yglesias notes, had some useful & important insights. Instead, I would call Paul a Misesian–that is, an rabid know-nothing; the economic equivalent of the young-earth creationists who pass themselves off as biologists.

That, or we could just call him wrong. That would be accurate, too.