Do we really need Free Speech?

James Damore was fired by Google for a memo he posted at work giving his views on why there are so few women at his workplace. Basically, he argued, fewer women are interested in math and science than men and thus Google’s hiring policies designed to attract and hire more women are misguided. In this note I make two points: First, we lose a great deal of first order importance if we counter erroneous or offensive speech by repressing it—FREE SPEECH is protected by the First Amendment for good reason. Second, it is more effective to counter false ideas with correct or better ideas than to repress them.

Damore went further than Larry Summers did twelve years ago. Summers, who was President of Harvard University at the time, noted the fact that there were so few women at Harvard in the hard sciences and asked why that might be so. He explored several possible explanations without endorsing any of them. He was, in fact, raising a serious question for serious discussion. Many of his colleagues found his question so offensive that he was forced to resign his Harvard presidency. This is what I wrote about it at the time: “Science-discrimination-and-Larry-Summers”

One of the possible factors in the underrepresentation of women in the sciences not raised by Summer is the fact that the approach to teaching math and science has been designed by man and best suits the ways men generally learn. Considerable research indicates that men and women tend to learn differently. A pedagogy best suited to men might discourage otherwise potentially interested women from perusing science.

Damore went further by concluding that Google’s hiring practices were discriminatory to men and thus illegal. In a Wall Street Journal oped Damore stated that:  “I committed heresy against the Google creed by stating that not all disparities between men and women that we see in the world are the result of discriminatory treatment…. I suggested that at least some of the male-female disparity in tech could be attributed to biological differences (and, yes, I said that bias against women was a factor too).” “Why-I-was-fired-by-Google” None of us needs to be convinced that there are biological differences between men and women (hopefully), so why not with regard to tastes in employment?

I have not read Damore’s ten page memo and don’t intend to take sides on the points he makes, over than to agree with his statement that Google will have a better Human Resources policy if it is based on fact rather than ideological presumptions of the facts. Open discussion of the issue—of Damore’s biological claims—is one of the best ways to sort out what is scientifically supportable from what is ideological fiction.

Opening public discourse to the views and comments of anyone wishing to say something, i.e., “free speech,” potentially exposes us to some pretty nasty stuff. There is a fundamental and critical difference between addressing rudeness—bad manners—via inculcating cultural values of mutual respect (good manners) and via government suppression. Today’s millennials seem to have been raised to expect protection from anything unpleasant (shame on you helicopter moms). Rather than take responsibility for their own good behavior and the encouragement of the same in others, they seek and demand protection imposed by the “authorities” with “safe zones” and the like. In my view this is on the “Road to Serfdom.” I have shared my views on the emergence of state imposed political correctness on several earlier occasions: “What-is-wrong-with-PC”

To my second point, suppression of speech is also an inefficient way of countering falsehoods or doubtful or “bad” principles. If such views cannot be aired openly and publically, they are very likely to live on and survive within social or ideological bubbles where they are not challenged. The Internet facilitates living within a bubble or reaching beyond it and we need to encourage everyone, and especially each new generation to reach beyond their echo chamber in order to confront their beliefs with other views.

In an interview with Bloomberg on August 10, Damore stated that: “There are simply fewer women that want to get into these fields,” he said. “If you’re a girl and you’re interested in technology, that’s great…. If anyone is interested in technology they should just pursue it,” he added. “It’s a great field.” “Fired-google-engineer-says-company-execs-shamed-and-smeared-him.” This doesn’t sound much like a bigot to me.

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Science, Discrimination, and Larry Summers

It is clear that Harvard President Larry Summers has hit a nerve, yet again. It is far less clear why reactions have been so strong and often so disappointing to those of us who believe in science. Let us know the truth, whatever it is. If women have less “intrinsic aptitude” for science than men, and no one—not even Larry Summers—is arguing that such a fact has been established, then we should know about it. Choices are better made on the basis of facts than ignorance or fiction. To my mind, the key overlooked point is that such a fact would have almost no relevance to the values most of us believe in.

Equal treatment under the law and in public policy has nothing to do with whether the average intelligence or other indicators of aptitude or virtue of women is the same as men, or whether the same is true for blacks, whites, Asians, Jews, Arabs, Christians, Moslems, etc, or for gays or straights. We are each individuals, not averages. Our public policy and the personal beliefs of most of us are based upon the morality and advantage of dealing with individuals rather than classes of one sort or another. Whatever the averages might turn out to be—and why should we be afraid to know?—currently available evidence clearly establishes a very large dispersion of traits within each group and a very large overlap with all other groups.

Such principles are expressed and upheld by governments only when they are broadly believed by the governed (in democracies), or by enlightened rulers, or, as in our case of a constitutional democracy, when enlightened leaders in the contemplative environment of a constitutional convention imbed such principles in a constitution that limits what majorities may do. Fortunately, in free market economies self-interest works in favor of such principles. Profit minded employers want the best employees for the least cost.

It is human nature to economize and conserve in various ways. It is part of being efficient. Economizing on the gathering of information is but one of the many ways we prioritize the use of our time. We often develop impressions of people or groups of people (say Southern Baptists) on the basis of partial information. We often rely on the views of others we trust. It would take more of our time than it is worth to gather ALL of the facts. Biases and prejudices are perpetrated for some time for these reasons even among the good hearted.

If women are being discriminated against in the market place, presumably because of incorrect perceptions of their productivity, they will tend to earn less for the same work. If this is the case, it is economically advantageous for an employer to hire them. Thus there is an economic incentive for firms to look beyond the stereotypes (or averages) for individuals whose talents may not be fully appreciated yet in the market place. Not all employers will bother to do so, but those who do so will profit at the expense of those who discriminate. Over time more profitable firms tend to grow more rapidly than less profitable ones. If employers are forced to pay women the same wages as men when they believe they are less productive, fewer women will be hired until such time as broadly held prejudices are over come.

Open and honest debate about such issues is another way of advancing the truth and overcoming prejudice. In my opinion Larry Summers has contributed to that goal and the sometimes hysterical reactions to his raising legitimate scientific questions have not.

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Finally (?): Healthcare Reform

What are the problems with our universal healthcare system (no one is denied the care they need “Health-care-plan-B”) that Congress is trying to fix? At the broadest level America’s health care costs much more than it should for the results it delivers and the distribution of its financing is neither efficient nor equitable. Six years ago Democrats made the mistake of sneaking through the Affordable Care Act without significant debate. This year Republicans committed the same error but failed to pass a law. This provides congress (thank you Senator McCain) with the opportunity to fashion a healthcare reform law the proper way (open committee hearings, etc.).

A new attempt to reform the system would no longer be restrained by the limitations of a budget law that limited what earlier attempts were able to do. In particular a new law should address the factors that drive up the cost of medical care in the U.S. These include relaxing legal limitations on who can provide what services and how they may be performed, requiring that the cost of services be transparent and requiring stronger incentives for customers (patients) to care about cost when choosing medical treatments. “Heath-care-reform-fatigue

How medical services are paid for influences the incentives of both suppliers of these services as well as the users to seek and provide the most cost effective options. Medical services are paid for by patients (because they are uninsured, or pay deductibles or copays), insurance premiums, or taxpayers. Each provides its own set of incentives for choosing what is delivered. When patients pay for the services they have a financial incentive to choose the option with the highest benefit-cost ratio. When third parties pay for medical services, (insurance companies or government) they must impose choices that patients, in consultation with their doctors, would otherwise make.

Some commentators have complained that third party payers, whether a single payer (government) system or many insurance companies, introduce rationing. However, all scarce goods and services are necessarily rationed. The relevant issue is how they are rationed, whether on the basis of the preferences of patients or the judgment of the third party payer of what is reasonable.

To the extent that medical costs are paid for by taxpayers, the incidence of such financing depends on and is determined by the structure of the government systems of taxation. In the U.S. these are currently unfair and inefficient and in bad need of reform quite independently of the issues of healthcare delivery. Medical insurance financing is complicated by the ill advised post World War II tax incentive for employers to provide and help pay for medical insurance. This practice establishes insurance pools (the firms employees) that generally mix the number of healthy and sick policyholders in a representative way. The very purpose of insurance is for the healthy to share the costs of the sick and thus reduce the financial burden of medical surprises. Most Americans with health insurance buy it through their employers’ plans.

The most serious problem with the existing American health insurance system is for those not receiving insurance from an employer (or those changing employers and needing to establish new insurance policies). These people must use the so-called private market for which the Affordable Care Act established the insurance exchanges. The cost of insurance purchased in this private market depends on the mix of healthy and sick people that sign up. Employer provided plans are essentially mandatory for a firm’s employees (and enjoy a tax subsidy) and thus result in a well mixed (sick and healthy) risk pool. Private market plans were made mandatory by the ACA but with a penalty for remaining uninsured that was so low that large numbers of young healthy people choose not to join. Thus private market plans were increasingly populated by the sick (and those expecting that they were likely to become sick). This undermines the cost sharing the insurance exists to provide and thus drives up the premium cost. The simple cure for this problem is to make healthcare insurance mandatory as originally proposed by the Heritage Foundation.

Mandatory healthcare insurance should cover every health service for which society believes financial assistance should be given. It undermines the purpose of insurance to allow policy holders to pick and choose which services will be covered. Premiums might very with age, lifestyle choices that effect health (such as smoking or obesity) and the choice of the level of deductions and copays but policy holders should not be able to opt out of services society intends to provide and finance one way or another even if they never expect to need them. The issue of preexisting conditions would not arise when insurance is mandatory and policies are not linked to individual employers. “Health-care-in-America”

The individual policyholders’ choices of the level of deductions and copays (but not the scope of services covered) would determine the division of financing between patients and third party payers. In addition, government (the voting public) would choose the extent to which the cost of medical services would be taken over by taxpayers as a result of government financial assistance to the poor. A further policy option is whether the cost of catastrophic health care needs would be lifted from insurance premiums and paid for by taxpayers via a reinsurance plan. But the cost of medical services that must be paid over all (by patients, insurance premiums, or tax payers) can be greatly reduced by taking those measures that will lower the cost of these services in the first place.

Hopefully this time around congress will entertain open public discussion of all of these issues so that the public will understand the purposes and tradeoffs of the policies ultimately adopted.

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The Balance of Trade

President Trump has regularly called for bilateral trade balances with our trading partners. Though he prudently gave up his campaign promise to declare China a currency manipulator on his first day in office because of China’s large trade surpluses with the U.S., he more recently criticized Germany’s even larger surplus. The Trump administration’s objectives in renegotiating the North American Free Trade Agreement (NAFTA) published July 17th also call for reducing U.S. bilateral trade deficits with Mexico and Canada. Economists recognize these objectives as nonsensical, but it might be worthwhile to spell out to the broader public (if not to Trump’s protectionist White House wing) why that is so.

Let’s start with the U.S. trade balance with the rest of the world. As we pay for what we import with what we export, we would generally expect a balance between imports and exports over time, just as we expect a rough balance between our income and expenditures over time. But uniquely in the case of the U.S., we need to have a deficit (imports exceeding exports) paid for with U.S. dollars, because the rest of the world holds and uses our dollars to finance many international transactions. The dollar is the world’s primary international reserve currency and our trade deficit is the primary means by which we supply them to the rest of the world.

This is an over simplification, however, because dollars are also supplied to the rest of the world via our capital account, i.e. Americans investing abroad. At the end of 2016 Americans had invested about $24 trillion USD equivalent. However, the rest of the world had invested over $32 trillion USD in the U.S. Roughly $5 trillion of this net investment in the U.S. of $8 trillion represented official foreign exchange reserves held by foreign governments in U.S. dollars out of total foreign exchange reserves of about $8 trillion.

Something also needs to be said about the relationship between foreign holdings of dollars and changes in those holdings. Any increase in the demand for foreign exchange reserves by foreign governments, something that tends to happen naturally as economies grow, must be met by the balance of payments deficits of the countries supplying those reserves. Thus the U.S. trade deficit last year (2016) of about $500 billion USD more or less reflects the addition to the dollar reserves of foreign governments.

So the use of the U.S. dollar in foreign exchange reserves implies that the U.S. will have, and need to have, a balance of trade deficit of a similar amount. But let’s simplify and assume that U.S. trade with the rest of the world is balanced (zero trade balance as well as zero current and capital account balances), perhaps because the U.S. dollar is replaced in international reserves by the SDR as I have long recommended. See my: Real SDR Currency Board What about the trade balance with Mexico and Canada? Should we want and expect each bilateral trade relationship to be balanced?

The error of such thinking can be easily illustrated with a simple, hypothetical example. Assume that within NAFTA the U.S.’s comparative advantage is in manufacturing all the pieces that make up an automobile and growing wheat, Mexico’s comparative advantage is using its “cheap” labor to assemble those pieces into cars, and Canada’s is growing and milling lumber. Assume that that is all they do that crosses their borders. The U.S. sells its car parts to Mexico, which puts them together and sells the cars to the U.S. and Canada. The value of the parts sold to Mexico is less than the value of the cars (which incorporates the parts from the U.S.) Mexico sells to the U.S. so that on net the U.S. has a trade deficit with Mexico. The U.S. sells wheat to Canadians buying a lesser value of lumber in return and Canada sells its lumber to the U.S. and to Mexico buying a few cars but of less value. Looking at bilateral trade balances, Mexico has a surplus vs. the U.S. and a deficit vs. Canada. Canada has a surplus vs. Mexico just sufficient to cover its deficit vs. the U.S. These bilateral deficits and surpluses are not a problem because the U.S. has a trade balance vs. Mexico and Canada combined and indeed with all of the rest of the world. The same is true for Mexico and Canada. What really matters is whether the value of a country’s exports to the rest of the world match and thus pay for the value of its imports from the rest of the world. As someone noted, no one worries that you have a large trade deficit with the grocery store as long as your total spending everywhere is covered by your income (the sale of your labor to your employer).

Being the eternal optimist, I trust that there are enough people in the Trump administration that understand that seeking bilateral trade balances with each and every country would be a terrible mistake to keep him from trying to do so.

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Paid Family Leave

The view that if something is good or beneficial the government should provide or mandate it is one of the attitudes dividing those who favor limited government from those favoring a more expansive and generous government. The following provides one example.

Ivanka Trump and others make a convincing case for generous paid family leave, Paid-family-leave-is-a-good-national-policy. Stephen A. Schwarzman, Founder, Chairman and CEO Blackstone, explained that Blackstone extended its paid maternity leave from 12 weeks to 16 weeks because it improved Blackstone’s bottom line – Paid-maternity-leave-is-worth-every-penny. But for all of the many reasons that big government should be resisted in general (inappropriate incentives for government bureaucrats and the public, special interest capture of policy—i.e. crony capitalism and other forms of corruption, limitations of individual freedom, inefficiency, etc.), there is not a good case for the government to get involve in mandating or subsidizing paid family leave.

Generous paid family leave programs provided by employers are smart business. Companies that offer them will have a competitive edge and thus free market firms will increasingly adopt them. Employers will be free experiment with what works best (for employees’ and companies’ bottom lines), which may well evolve over time as markets and technology change. Governments’ rarely enjoy such flexibility and are often captured by voters best able to influence government to protect their special interests, and that is never the poor. Those who are unemployed don’t need paid leave as they are already receiving unemployment compensation or welfare support for staying at home.

Maternity or family leave has facilitated bringing women into the labor force and thus increased family and national incomes. Given the importance of education to worker productivity and thus individual and national incomes, the state has also undertaken to finance (and unfortunately in most cases also to supply) education for all children from Kindergarten to 12th grade. While upper income families can easily afford to pay for this education for their children, lower income families generally cannot. Thus public financing of such education helps give all children a more equal start in live and also facilitates two worker families. A gap in such assistance exists for preschool children (age 0-5). Financial assistance should also be considered for day care or nursery schools for such children.

In most cases where a policy or practice is good for the general public, it will be adopted by free market participants and better fulfill its purpose than is possible or likely by government.

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Heath Care Reform Fatigue

On average, Americans spend about twice as much on medical care as do Europeans and with poorer results. About half of that cost is paid for by government. If we could get the cost of medical care down to European levels either the government (i.e., tax payers) could stop paying for any of it with no change in the cost to patients, or patients could stop paying anything with no change in the cost to government. Of course it wouldn’t work like that and is much more complicated but it does focus the mind about the issues concerned.

Both the Affordable Care Act of Obama and the current drafts of its replacement by the Republicans are limited to what can be considered budget authorizations so that they can be passed with simple majorities. In June 2015, when the Supreme Court rejected challenges to the constitutionality of parts of the ACA (the insurance mandate), Chief Justice Roberts complained that: “Congress wrote key parts of the Act behind closed doors. . . . Congress passed much of the Act using a complicated budgetary procedure known as ‘reconciliation,’ which limited opportunities for debate and amendment, and bypassed the Senate’s normal 60-vote filibuster requirement. . . . As a result, the Act does not reflect the type of care and deliberation that one might expect of such significant legislation.” Now the Republicans are doing the same thing. Once again George Will is right on target: Why-repeal-and-replace-will-become-tweak-and-move-on/2017/06/27/

This means that the most important elements of health care reform in America—reducing supply side costs—must await other legislation. However, limited market forces are already eating away slowly at the American Medical Association’s (the doctors’ union) self protective strangle hold on the delivery of medical services. The information technology now exists to dramatically improve the quality of service while lowering its cost. Nurse practitioners have already taken over some routine functions previously preserved for MDs. With a growing shortage of doctors, more restrictive practices are likely to be relaxed such as phone consultations, etc.

The focus of the ACA and the current Republic efforts to “repeal and replace” it, has been how best to finance these costs for those financially unable to pay them. The two overriding challenges for this effort should be to adequately target those who need such assistance and in the process to avoid undermining to the extent possible the incentives for both doctors and their patients to provide and to seek the most cost effective care.

There are many small and large details in ACA and proposed Republican replacements that could be changed to improve targeting of financial assistance and the incentives for seeking and delivery cost effective care. See my earlier discussion: A-mistitled-tax-proposal. The largest issues are how best to remove the unfair tax treatment of employer provided health insurance vs. the “private” market and how to insure that the risk pools in the private insurance market include both healthy and sick premium payers.

The point of insurance is to pool the cost of the risk of bad things happening, like breaking a leg or getting sick. Thus the lucky (healthy) share the costs of the unlucky (sick or injured). The group as a whole must pay the total medical costs of all members of the group. It follows that health insurance should be mandatory for every one in a properly defined group. The risk pool of employer provided health insurance consists of the company’s employees, and premiums are set on the basis of the average medical costs of that group. There is no such predefined risk pool for those who buy insurance in the “private” market. The logic of insurance suggests that everyone within each age group should be required to buy insurance at a cost to each that reflects the total medical costs of the full group. The-individual-health-insurance-mandate.

The simplest, cleanest, and most comprehensive way to insure that those unable to pay for whatever medical care they need can do so is to require that all people in their group buy insurance so that those who later don’t need it finance those who do. I have earlier advocated that this approach be integrated as part of a guaranteed minimum income (GMI). A GMI would provide the basis for eliminating most government welfare programs from Social Security and food stamps, to disability and unemployment insurance. But first a brief word about minimum wage laws.

Charles Lane has proposed a sensible approach to balancing the political attraction for legal minimum wages with the economic case against them. He proposes that the issue be removed from the political arena by legislating an automatically adjusting formula for a legal minimum wage that closely matches actual historical wage experience so as to minimize the harm to low skilled and inexperienced (teenagers) workers that would be hurt by higher minimum wages. Forget the $15 minimum wage–here’s what a sensible compromise would look like/2017/06/28

A legal minimum wage does not help the unemployed. A Guaranteed Minimum Income would. It should be paid to every man, woman, and child but the amount might vary with age (but not with income). It could be administered by the Social Security Administration, which it would replace. Saving-social-security. Fixed shares of the GMI would be placed in an individual health insurance account, a pension account, and an education account (school tuition or college fund). The amount deposited to the health savings account would be required to be used to purchase general health insurance and would be sufficient to do so.

The GMI would be paid for from general tax revenue. Clearly our existing, hole riddled income tax laws (both personal and business) are a mess and need to be cleaned up. As I have argued earlier the fairest, least distorting and easiest to administer tax is a consumption tax. I should replace all income taxes, wage taxes and existing sales taxes with one uniform Value Added Tax (VAT). My-political-platform-for-the-nation-2017.

Let’s try for better health care that costs less for both patients and tax payers.

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A mistitled tax proposal

The Wall Street Journal used the following headline to an article exploring a healthcare reform issue: “GOP Senators Weigh Taxing Employer-Health Plans”. The article itself is a well-balanced presentation of the issue but the article headline gives a very different impression.  WSJ article

The issue is that employment benefits that are part of a worker’s remuneration, such as health insurance, are excluded from a worker’s taxable income while a self-employed worker who buys their own health insurance (the private market) cannot deduct it’s cost from their taxable income. Both Democrats and Republicans recognize that this is unfair to those who do not receive employer provided health insurance. They differ over how to eliminate this unfair treatment—whether to include the value of health insurance in taxable income for both or to exclude it, as is done with employer provided coverage, for both. No one is proposing taxing health insurance as the article’s title suggests. The following headlines would give a rather different impression for the same proposal: “GOP Senators weigh equal treatment of health plans between employer and self-employed provided plans” or even, “GOP Senators weigh including value of health insurance in taxable income for everyone.”

As I have noted before we must find ways to reduce the cost of health care in America (it costs twice as much as care in Europe with poorer results) while insuring that everyone has reasonable access to it. But how we allocate its cost and structure the payments of those costs determine the incentives faced by the medical care industry that have played a major role in inflating those costs. https://wcoats.wordpress.com/2017/03/15/health-care-in-america/

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