Thursday, October 29, 2009

Macro versus Micro, Personal vs. Public

There's something I've noticed lately, both in media stories and online threads. It seems to me that there's a lot of confusion about the difference between what makes good public policy versus what makes good private practice. And when speaking about economics I do think that the conservatives make this mistake more ofter, but I don't think it's entirely a conservative problem. To start, I'll use an example that (I THINK) will be non-partisan, and use it to illustrate my concern. Then I'll move onto economics. ;) LOL

CIRCUMCISION and AIDS in AFRICA

I recently read an article about two clinical studies being done in Africa, one with 5000 men and one with around 2800. Roughly half of each group volunteered to undergo medical circumcision as part of the study. After two years, the circumcised group was found to be 48% less likely to be infected with HIV. It was such an effective reduction in transmission that the doctors felt it would be unethical to continue the study, opting instead to allow the reminder to get circumcised right away instead. (Just as an aside, the study went on to say that this reduction was only effective in heterosexual intercourse, and was not effective in homosexual sex. But that's peripheral to what I'm addressing here.)

Now, I'll say it right up front: I've always been against circumcision. IMHO, it's just an unnecessary procedure (mutilation, really) driven by societal pressure and motivated by religious nonsense. There is simply no reason to do it. Period. Do I still feel this way? Well, I have to admit that with something on the order of 1 in 4 or 1 in 3 Africans infected with HIV in certain areas, as a matter of PUBLIC HEALTH POLICY, it makes a hell of a lot of sense. And in that context I can't say that I'm justified in opposing it. Clearly, in that circumstance, there is a overding benefit.

But here is where public policy ends and good private practice begins. It accounted for a 48% reduction. Well, sure, if I'm setting public health policy, a 48% reduction in new cases would be a godsend. But what about ME, the individual? Well, we KNOW there's only ONE WAY to not get HIV via sex: Don't have sex. We also know as a matter of PUBLIC POLICY that this just doesn't work. Condom use is also basically 100% effective. (Or what? 99.9%?) I don't know, but it's a helluva lot higher than 48%. So for ME, I can choose to abstain, or to consistently use condoms, and then there's just no reason for me, the individual, to get circumcised. What's more, if I DID... but did nothing else, does that really help me?

Let's say I sleep around, with a different girl every week. In Africa. And of those ~51 different girls 17 are HIV positive. Now... lets say that there's a 30% chance of me getting HIV from one of them. My chances are about 10% that I'll have HIV within any given year. Now... if you cut my chance in HALF (the ~48% reduction that circumcision gives), then I'm ~5% likely in any given year. Big deal. In the first scenario, I'll be at about a 50% chance after about 7 years. (Buy the time I'm 25, if I become sexually active when I 18.) In the second scenario I'll last about 13-14 years, or until I'm about 31-32. Well, if the average life expectancy (without HIV) is ~72, I'm still losing 40 years or more - over half my life! On the other hand, with a 99% reduction (condoms), I'd have only a 0.3% within any given year, and I would only be about 15% likely to contract it by the time I turned 72! (ANd that assumes I'm still having sex once a week, with a different girl, every week! Not bad for such an old fart, huh?) So clearly condoms are the better PRIVATE PRACTICE, and abstinence the BEST, but we know from experience that neither of these work on a large scale, because none are consistently PRACTICE on a large scale, hence we have a PUBLIC POLICY that, while it would be disastrous as a personal practice, makes far more effective prevention strategy.

See the distinction? (OK, I'll admit that I really have no idea what the transmission rate of HIV is, nor how effective Condoms are. I'm guessing. But the actual numbers aren't really that important. The POINT is that something that can be a very good idea for individual people to do, can be a disaster as a matter of public policy. And YES, I think abstinence-only sex education is the single stupidest idea that our previous president and his merry band of funny-mentalist puppeteers ever came up with. But I wanted to first demonstrate the point with something a little less partisan before I got into...

ECONOMICS

Right off the bat I want to tell you what caused the GREAT DEPRESSION. And believe it or not, it was NOT all (Republican) Herbert Hoover's fault! (How's about that? That surprise anyone?) It WAS the fault of his policies though. After Black Tuesday and the resulting recession he did two things which are TERRIBLE things to do in a recession. He RAISED taxes, AND (and the AND is important here!) he CUT spending. Either one by itself is bad to do in hard times, but the double whammy took us (and the world) over a decade to recover from. You see... GOVERNMENT SPENDING supports people's incomes. Whether you think it SHOULD or not is irrelevant, it DOES. SO CUTTING it cuts people's income, which cuts their consumption, which cuts OTHER people's incomes, etc, etc... Vicious cycle. The same thing goes for raising taxes. In much the same way.

Now, without turning this into a treatise on Keynes (which I promised you awhile back, but still haven't delivered!) You can raise taxes, and raise spending by the same amount and everyone's collective income will go UP by that same amount. (Keynes' models demonstrate this.) Likewise if you cut taxes and cut spending by the same amount everyone's collective income will go DOWN by that same amount. This is because the effect, both positive and negative, of spending is slightly greater than the effect of taxes, AND: the BALANCED BUDGET multiplier is "1." That's an economic fact in every school, even Friedman's. But, as you can imagine, raising taxes and cutting spending would have a DOUBLY NEGATIVE effect. And Hoover did this at the worst possible time! So why is it not his fault? And why did he do this in the first place?

First things last...

He did this because he was committing the very error that I've described above. He assumed that good private practice would make good pubic policy. After all... When a FAMILY hits hard times, they try to do odd jobs to take in more money when the can, and they tighten their budget, so they don't go broke and lose everything. That's common sense. And what's surprising - and a little bit depressing, because it shows how good a job Fox News has done mis-educating people about economics - is that so many Conservatives still think this way! If you listen to them talk about Obama's huge deficits (only about 30% bigger than Bush's really, because Bush never budgeted for the two WARS, so his deficit figures were consistently understated... damned liberal media... Obama IS putting the Wars into his regular budget, and that makes his deficit look so much bigger.) ANYWAY, when you hear them complain about Obama's budget, they all say something to the effect of, "What do YOU do when you get laid off? SPEND MORE?!" No. Of course not. But that's just it: Good private practice does not necessarily make make for good public policy! If the gov't did what individual families do in hard times, tens of millions more would be out of work, consumption (which means, INCOME for the rest of us!) would be even less, etc, etc... Vicious cycle.... Great Depression II. Even the most hard-core supply siders understand this... Why do you think Reagan and Bush never cut overall spending even ONE SINGLE TIME in the sixteen years of their presidencies?!

Now... Contrary to what the Conservative may believe I, and many liberals, ARE concerned about the NATIONAL DEBT. But Deficit reduction is something that's better left when the economy is on better footing. For now? President Obama is doing EVERYTHING RIGHT economically. And the markets have borne that out.

I'll give you another example. Personal Savings. Now, I save. I hope you save. We ALL need to save as much as we can. Max out the 401-K's and IRA's; have six months worth of expenses stashed away in relatively liquid form... We all should do this... And THANK GOD we DON'T! Because if everyone starts pinching every pennies, WE'LL NEVER GET OUT OF THIS ECONOMIC MESS! The fact is, that for ANY of us to get PAID, someone else needs to consume! If everyone cuts consumption, because their worried about their jobs, then companies will loose money, and get what happens next? YOU LOSE YOUR JOB!!! This is why I HATE HATE HATE it when the media report on "consumer confidence."

Most people don't even know what tha term really means. But they hear it's LOW, and suddenly they worry about their job.. so they cut back... and so does everyone else... and POW! Now we have a recession. So companies shed workers. Less income, less 'confidence' about the remaining jobs, less consumption... BOOM! Another bad quarter! It's a wonder we ever get out of these things!

And THAT's where stimulus comes in. People say, "yeah but stimulus money's just temporary." It doesn't matter. Get some income out there, stop the bleeding... companies meet some of their numbers and targets, and stop cutting jobs... people feel a little better about their own job, so THEY spend a little more money... more companies start having higher revenues coming in again... they hire a few more people to help meet the new damand... POW... more income, more consumption, more revenue, more jobs, repeat, repeat, repeat...

Good private practice can often make disastrous public policy and good public policy can be disastrous private practice. We need to get beyond the idea that what's good for US is necessarily good for EVERYONE.

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Oh yeah... and WHY wasn't it all Hoover's fault? Well much as I'd like to lay it all on him, the fact is that he got some bad advice... from FRANKLIN ROOSEVELT! That's right! You see, after Black Tuesday, Hoover was kicking around some of the ideas that Keynes had proposed. He basically had a 'new deal' proposal of his own. ROOSEVELT actually talked him out of it! And later, when Roosevelt became president himself, he saw how badly the conventional wisdom had failed (IOW - he learned the very lesson I'm talking about here!) and he reversed his position and put into place many of the very programs he talked Hoover out of! (The New Deal.) (Yeah - it was HOOVER'S idea!)

Now Roosevelt came around, and the New Deal made life better for millions, put many to work, and there were really only two things he did wrong: 1) He tried to balance the budget too soon. We weren't out of it yet, and I've already explained why raising taxes and/or cutting spending is BAD when doen in bad times. 2) He didn't go nearly far enough. That's obvious when you consider that it really took WWII to end the great depression. Why? REALLY MASSIVE GOVERNMENT SPENDING! Totally dwarfed the New Deal. And yet it was still paid for within a decade and a half of the war ending, recostruction and all. (Because when times are going good, you can have a 95% top marginal tax bracket and still grow! But we'll save taxation, spending and Keynes for another time. I'm still trying to make a decent, accurate, simple explanation of Keynes. It's not THAT hard, but I've been lazy about it. I'll work on it! I promise!) ;)

1 comment:

  1. Good work, Eddie. Clear and cogent. A little credit to NY Governor Al Smith, who instituted some initiatives that Roosevelt copied or expanded upon, would have been nice, but who's complaining?

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