Scott Sumner  

The new left

False Externalities... The Federal Funds Target...

If you have been paying attention to the debate over public policy, you may have noticed that the GOP has moved even further to the right in recent decades, and the (formerly more moderate) Democrats have moved even more dramatically to the left. For example, in a recent Slate post, Jordan Weissmann discusses a fascinating new paper on Obamacare:

In a working paper released earlier this month, economists Gregory Colman and Dhaval Dave conclude that thanks to Obamacare's coverage rules, young adults are now less likely to work but a bit more personally content, as they spend more time with friends, in school, and searching for (presumably) fulfilling employment. They might be a little lazier. But that's not necessarily such a bad thing.
So we supply-siders are right. In the past, progressives used to vehemently deny that social programs made people lazy. How do progressives like Weissmann react to this new study confirming supply-side claims?
Which is more important? The answer is going to hinge on what you think the point of public policy is. If you believe the government's one and only goal should be to encourage GDP growth for the sake of GDP growth, then any change that encourages fewer people to work is probably going to rub you the wrong way. But if you think the most important aim of government is to help people lead happy, healthy, satisfied lives, then giving them the option to laze around or figure out their lives without having to worry about a devastating hospital bill is probably the way to go.
Oh, so that's what's at stake. Which do you support, more GDP or happier people? Yes, it's possible that the policy may be beneficial; almost anything is possible. But what market failure is causing young people to want to work too hard? What market failure requires taxes or subsidies to reduce work effort? I imagine that the beneficiaries of government largess are made better off by the program, but is that now the criterion for success? Nothing about secondary effects on taxpayers?

I can think of many market failures that currently encourage young people to work too little, such as taxes on labor. There are also huge subsidies to college education, which leads to lots of individually beneficial but socially wasteful schooling. My daughter had to give up a part time job she enjoyed because of the absurd amount of homework in obscure trivia that was given to her by her (public) high school. In contrast, I can't think of many market failures causing people to want to work too much, although the tax bias favoring employer-provided health care might be one.

And does Weissmann plan to be consistent in this market failure argument? If people work too hard, and would be happier to have more time in non-market activities, does that count against programs like government funded child-care, which will promote work among young mothers, leaving them less time to spend with their children? How about the Earned Income Tax Credit? Or do progressives now support any and all programs that benefit sympathetic groups, regardless of whether they reduce or exacerbate hypothetical market failures?

In one sense the new "liberalism" is an improvement. The old argument that social programs didn't make people lazier really insulted our intelligence. So I salute the intellectual honesty of researchers like Colman and Dave.

Full disclosure: Dhaval Dave is my colleague, and probably the smartest professor at Bentley University. I hope it goes without saying that this post is criticizing the second quoted paragraph of Weissmann, not the Colman/Dave paper. I agree with their claim that recipients of subsidies are probably better off.

Happy Thanksgiving

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COMMENTS (20 to date)
foosion writes:

Receiving large inheritances makes people lazier. Should we increase the estate tax on large estates? There doesn't seem to be any good evidence an increase would cause the creator of the large estate to work less.

If memory serves, early CBO reports on Obamacare included that it would cause some people to work less, e.g., older people who could retire because they wouldn't need employment for health insurance.

There's more to life than GDP.

R Richard Schweitzer writes:


Receiving large inheritances makes people lazier

What is your empirical evidence?

Jose Romeu Robazzi writes:

Public policies should encourage and incentivize productivity growth and liberty. There is nothing wrong with someone that is very productive but chooses to work less hours in order to do something more pleasant than work with the extra leisure time..

Steve Fritzinger writes:

"I can think of many market failures that currently encourage young people to work too little, such as taxes on labor."

Taxes on labor are not a market failure. Neither are college subsidies and public high school homework burdens.

With the way people use "market failure" to call for ever increasing regulations and market intervention, we should be careful how we use that term. We should reserve it for those very rare times when the market, not the government, actually does fail.

Anonymous writes:

I think if your view is that the world is very sharply divided into haves and have-nots, then taking from the haves to give to the have-nots can to some extent be justified, even if some of what you take goes missing along the way.

The problem I have with this is that, as far as I can tell, the world is not so sharply divided - almost everyone has some advantages and some disadvantages, so by looking at each axis of advantage and taking from the haves, giving some of it to the have-nots, and losing the rest, what you actually end up doing is not creating equality between the powerful and the weak, but making almost nobody better off and almost everybody worse off.

Lorenzo from Oz writes:

My daughter had to give up a part time job she enjoyed because of the absurd amount of homework in obscure trivia that was given to her by her (public) high school.

The pedagogical value of which is minimal. It is about signalling to parents that the teachers are making students work.

Scott Sumner writes:

foosion, You said:

"There's more to life than GDP."

People say that a lot, but I've never heard anyone claim the reverse. It makes me a bit wary when people attack a straw man.

Jose, How about maximize utility?

Steve, Yes, that's my mistake, I meant "market distortion". Sloppy wording on my part. In this case caused by government policy.

Anonymous, You said:

"I think if your view is that the world is very sharply divided into haves and have-nots, then taking from the haves to give to the have-nots can to some extent be justified, even if some of what you take goes missing along the way."

I don't consider it sharply divided, but still favor moderate redistribution. But not income taxes. Rather I prefer progressive consumption taxes, so that people are not discouraged from saving and investing.

Lorenzo, I never expected to have that reaction. A decade ago I was under the impression that schools were getting soft, in fact the students now have to do twice as much work as I did in high school. And I see little value in much of the work. There needs to be a better balance between work and play for younger people. What's the point of being a rich country if we make our teenagers work like Koreans?
(OK, a bit of hyperbole there.)

Khodge writes:

I've read several things lately that fall in line with "government should..." One such example was: If it could be shown that guns increase the number of deaths would gun supporters accept gun control [the implication being that the reason for objecting to gun control is that the only reason for having guns is self-defense]. In this post the premise is presented that government has a responsibility to create jobs and raise GDP.

Those who define the terms are the ones who win the argument. I consider these to be especially onerous because they lead to micromanaging the marketplace. (Save that for Venezuela.)

Anonymous writes:

@Scott Sumner

You questioned whether progressives really do just support whatever benefits sympathetic groups, damned be the consequences. My response is: yes, I think so, and under certain assumptions it makes sense to do so. If those sympathetic groups are all clustered together, such that most people are either a member of almost all sympathetic groups or a member of almost none, then the costs imposed by redistribution will fall almost entirely on people who aren't members of sympathetic groups. If those sympathetic groups are not very clustered, such that most people are a member of some sympathetic groups but not others, then the costs of redistribution will fall on people who in other matters are worthy of sympathy.

I don't mean to imply that someone would only support redistribution if their worldview is of one group of oppressors and one group of the oppressed, but just that someone whose view does look like this will, reasonably enough, be less concerned about the costs of their preferred redistributive policies, as they can be expected to harm only powerful people and not the weaker people they wish to help.

Dan W. writes:


It used to be that college was sufficiently affordable that students could work to pay for a high percentage of the cost. Student loans were modest and only became substantial for those studying medicine or law. The social acceptance of large student loans, coupled with the high cost of college education, may be encouraging students to shrug off part-time work as a means to pay for the experience, as such work will scarcely make a dent in the total bill. Did the researchers address the question of debt? Students may be happier but are they simply delaying payment for their enjoyment?

As an aside, maybe it was a throwaway line, but I challenge the assertion that “the GOP has moved even further to the right in recent decades.” In my opinion, peak social Conservatism was in the 1990s and it resulted in actual welfare reform and in DOMA (The Defense of Marriage Act) both of which a Democratic President Clinton signed! Since then we had the “Compassionate Conservatism” of George W. Bush which dramatically increased domestic government spending followed by GOP leadership that has given lip service to curtailing President Obama’s domestic policies.

I agree that the Democratic Party has shifted leftward. The GOP leadership has actually shifted slightly to the left to capture what it perceives to be the middle. This has created a vacuum on the right which has been filled by the “Tea Party” who in fact encapsulate the Jacksonioan / Jeffersonian political view.

Jose Romeu Robazzi writes:

@Prof. Sumner, yes, but i am with the Austrians on utility, that is, utility is subjective and ordinal. If one takes this definition seriously, there is very little that governments can do except promote more liberty, allowing workers to engage in whatever contract they wish.

Hazel Meade writes:

I don't see these two things as conflicting goals. One produces wealth in order that one may lead a happier and more fulfilling life - in the future.

The tradoff is really between future consumption and present consumption, with the supply siders favoring future consumption and the demand siders favoring present consumption.

Should we give people money to buy cans of tunafish (present cunsumption) or invest in machines that make more cans of tunafish (future consumption) ?

Joseph Calhoun writes:


I think what you meant to say is that a large inheritance would make you more lazy. That doesn't make it true for everyone.

Dain writes:

"The old argument that social programs didn't make people lazier really insulted our intelligence. So I salute the intellectual honesty of researchers like Colman and Dave."

I've been seeing this kind of refreshing honesty around too. Jacobin Mag e.g. has come out in support of "food stamps for hipsters" and the right of bratty artsy types to live in NYC.

ThomasH writes:

The way I read the study, the additional time spend socializing came mainly from less time obtaining health care.

There is also the case that some people who in the past could only obtain health insurance by being employed by a firm that bought it for them with their own money and can now obtain it on an exchange could chose not to work for that kind of firm and possibly less. That would be a case of a distortion causing people to work "too much."

As for labor taxes, would the right or left be more likely to support a shift from wage taxes to consumption taxes (even if it were a VAT, much less the kind of progressive consumption taxes you and I support.)

Scott Sumner writes:

Dan, Jeb Bush and Marco Rubio are now viewed as "moderates." What does that tell you?

Thomas. A wage tax is a consumption tax. They have identical effects in the long run.

Zach writes:

I'm not sure how the issue of large inheritance and the propensity to create (or not create) laziness is relevant. Laziness is something that is frowned upon for obvious reasons, but something should be said about outcomes that result from the exercise of liberties vs outcomes from wide sweeping public policy.

I may be thinking about this in the wrong way, but if someone can be "lazy" because of their own choices, or the choices of their parents to work hard and leave their wealth to them, this shouldn't matter because it doesn't affect anyone. Large public policy expenditures that hamper growth in one area and in turn create laziness in another are a different story.

Zach writes:

@Hazel Meade I think the key is to let people do what they wish with their own means. I don't think either is the right answer, especially if it is enacted in the form of public policy.

Justin D writes:


It's a tough thing to measure, but I think Jeb can be described as a moderate.

Per fivethrityeight's analysis, Jeb is somewhat to the right of his father, Gerald Ford and the average Republican in the 96th Congress, but left of his brother, John McCain, Ronald Reagan, and the average congressional Republican today.

I'd also side with Dan in that I don't think the GOP has moved that far to the right, rather the center has shifted leftward. In the 1980s, the US had a top marginal tax rate of 28%, military spending around 6% of GDP, and gays weren't even allowed in the military. That wasn't what Republicans were just advocating, it was policy. The mainstream right position on universal health care wasn't repeal and replace, it was simple opposition. A candidate with those four things as part of their platform in 2015 would be considered extremist.

maxk writes:

Scott says, "What market failure requires taxes or subsidies to reduce work effort?"

I'm not sure I understand Scott's point about taxes and subsidies. The study refers to the effects of ACA through 2013, *before* the provision of insurance through the subsidized exchanges took effect. Looks like the study is only about the effects of the dependent care provision, which (I think) says that I can keep covering my 23 year-old with my family insurance plan, which I have through my job and of course pay for. Previously, he'd have been booted off at 21. No subsidies in any of this. Presumably family insurance got a bit more expensive to cover the additional risk. Presumably also I can switch to a (cheaper) plan that only covers myself and my wife, if my son acquires some other source of insurance.

The law made it easier for parents (not the government) to pay for health insurance for their young adult children.

I'm certain there are government-funded social programs that reduce labor. If we didn't have Medicare, for example, we'd surely have more 70 year-olds in the work force. But if Scott wants to make this argument he should base it on a different study.

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