A Food Stamps System for India

Vikas Bajaj has an excellent report, on India's public distribution system (PDS) for staple foods, in today's New York Times (As Grain Piles Up, India’s Poor Still Go Hungry). It's a stupid and criminally wasteful system that defies reform even though most economics undergraduates would know how to fix it.

As the article makes clear, the national government buys foodgrains from farmers -- at prices high enough to keep the farmers' lobby happy -- and stores the food in warehouses. Each state government collects its share -- which is based on the number of poor people in the state -- and distributes the food at subsidized prices through what are called "ration shops". A great deal of the food rots or is eaten by vermin in the government's warehouses. Many poor people do not get acccess to the subsidized food because of administrative inefficiencies.

In Bajaj's article, Ashok Gulati, a highly-regarded agricultural economist, identifies the obvious solution to the system's problems: just adopt an American-style food stamps system. Give cash to the poor and let them buy food in the open market. This would directly meet the goal of helping the poor. Moreover, the increased purchases of food by the poor would raise food prices, thereby meeting the government's other goal of helping farmers get a good price for their crops. (Of course, farmers could be given direct subsidies too, if necessary.) In this system a lot of the waste that comes with the government's lackadaisical approach to food storage would come to an end.

It's all ridiculously simple. And it is not just a theory. Many countries -- rich and poor -- have effectively used the food stamps solution. And yet, how can one explain the fact that "most officials [including K.V. Thomas, the food minister!] say they are worried that if India switched to food stamps, men would trade them for liquor or tobacco, depriving their families of enough to eat"?

My hunch is that it is futile to argue supply-and-demand with a bureaucrat; there is no way to convince him/her that a big and sprawling government fiefdom needs to be dismantled and replaced by the market mechanism. This is basically the Upton Sinclair syndrome: "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"

But to take the specific argument about liquor and tobacco, men could just as well grab the foodgrains handed out by the government under the current PDS, sell it for cash, and then buy liquor or tobacco with the cash. Moreover, it is a bit disappointing that Bajaj does not go into the factual basis, if any, of this offensive and misandrist generalization, especially given that important public policy is being justified on the assumption that it is true. Finally, the question is not whether the food stamps solution is perfect. The question is whether it is superior to the current system.

Trailer for Tarantino's "Django Unchained"

When I first found out that Quentin Tarantino was making a revenge film with slaveowners in the American Deep South as his villains, my reaction oscillated between relief ("Finally! Yesss!") and indignation ("What took you so long? What took Hollywood so long to see those homegrown plantation creeps as worthy villains?"). I had long felt that there needed to be a temporary moratorium on Nazis, Russians, etc., as Hollywood movie villains and that Hollywood's attention needed to turn to homegrown baddies. I had felt that there was a need for some effective, pulpy, trashy movies that brought down cathartic fictional vengeance on slaveowners and, even more urgently, on those who were responsible for the genocide of the Native Americans of North America. I had half hoped that some German or French filmmaker would deliver even if Hollywood didn't. But those foreign filmmakers turned out to be far too serious and sophisticated to cater to my base expectations. Anyway, I am psyched to see Tarantino's Django Unchained when it comes out this Christmas.

Plutocracy: Scott Walker Edition

The campaign leading up to yesterday's election on the recall of Republican Governor Scott Walker of Wisconsin -- which Walker won -- was marked by an unusually large disparity in campaign spending by the contenders. According to this chart in today's New York Times, Scott Walker spent $29.3 m or ten times the $2.9 m spent by Tom Barrett, his Democratic opponent. (If you count spending on behalf of the candidates by groups other than the campaigns themselves, the disparity is smaller: $45.6 m for Walker and $17.9 m for Barrett. However, it is not clear to me why, in the New York Times's chart, the $4.5 m spent by "Wisconsin for Falk," a group that supported Kathleen Falk, Barrett's primary challenger, is counted as spending on behalf of Barrett.) As E.J. Dionne argues in today's Washington Post, Walker's huge advantage in early spending was critical as "nearly 9 in 10 people said they had made up their minds before May, according to exit poll interviews." Barrett closed the spending gap somewhat towards the end, but by then it was too late.

The point of plutocracy is to drown out opposing views by buying up as much as possible of the finite windows into voters' minds. Voters aren't dummies, but they are busy, they have lots of stuff to do and to think about; so it is understandable that they may let others do their thinking for them. If a candidate can't make a clear case and can't remind the voter of her counter-argument every time an opponent makes a pitch, then the opponent gets a free pass into the voter's heart. (There may be limits to this line of reasoning, however. Some day we may find out what today's North Koreans, who have little or no access to opinions other than those of the state, really think and believe.)

Therefore, in today's America, with its high and growing inequality of income and wealth, one can expect the left to get ever more insistent on the need for Robin Hood policies, thereby inviting an ever greater financial disadvantage -- and, therefore, continued lack of success -- in election campaigns. At some point, the left may simply give up, seeing no way to influence the voter. At that point, America's political system will have all the moral majesty of Saudi Arabia's.

Right now, the role of spending disparities is somewhat dampened by the fact that money for a candidate tends to follow the electorate's enthusiasm for the candidate. This is why Barack Obama managed to raise a huge amount of money, mostly in small contributions, to fight his 2008 campaign. This rough parity between the distribution of genuine political support across candidates -- by which I mean the notional political support that candidates would receive in a hypothetical world in which all candidates spent equally -- and the distribution of campaign spending across candidates, means that the latter can't prevail over the former: money can only amplify what would have happened anyway. But this situation is likely to end as economic inequality increases in America.

When economic inequality rises beyond some threshold -- a threshold that I am unable to pinpoint, sorry! -- the distribution of campaign spending across candidates will cease to reflect the distribution of genuine political support. When that happens, money will do all the talking, and candidates with views not held by the plutocrats will simply give up and withdraw. And, as I said earlier, at that time we'll feel as free as the people of Saudi Arabia.

The rise of Scott Walker in Wisconsin also heralds the death throes of labor unions and collective bargaining in America. But, in truth, the time to fight for union rights has long passed. Unionization rates have been falling for decades. At this point, something like 6 percent of private-sector workers belong to unions. Naturally, most people see unionized public-sector workers going on strike to extract concessions and say, I don't have collective bargaining rights. Why should these public-sector workers have rights that I don't have? And why should they be able to use those rights to extort juicy pay packets, gold-plated pensions, and easy working conditions, all at my (that is, the tax payer's) expense? (By the way, when John and Jane Doe expresses these sentiments, don't expect Fox News or the people on the right to decry their thinking as the "politics of envy.")

If the American left wanted to preserve collective bargaining rights, the time to act was long, long ago, before the slide in unionization rates began. Now, the battle is over and public sector unions may as well just pack it in.

Et tu, Hindu!

The screenshots below were downloaded shortly before 5:00 pm New York time today from the web site from The Hindu, a prominent Indian daily with an occasional interest in American residents of Indian origin. When I clicked on the link highlighted by the red arrow in the first screenshot I got the article in the second screenshot.

They clearly need to teach their bots about context.

(Click on screenshots to enlarge.)

Plutocracy: Newt Gingrich Edition

Here's more evidence that the US is now a full-fledged plutocracy. The only puzzle is whether Newt is catering to the plutocrat or whether the plutocrat is merely buying an amplifier for things that Newt truly, madly, deeply believes in. But, whatever the truth of the matter, this whole thing blows. Warning: By the end of the video you may throw up on the device you are watching it on.

Pamela Adlon on "Fresh Air"

In today's episode of National Public Radio's Fresh Air, Terry Gross, the host, interviews actress Pamela Adlon. Adlon is a pretty good actress in TV comedies, and she is a supremely talented mimic with a virulently infectious sense of fun. I found the interview hugely entertaining till literally the final second. Highly recommended!

New Year Six Pack

Today's New York Times has an article in which six prominent economists, who are also regular columnists for the paper, make policy suggestions for the new year. It's a tolerable enough list of proposals, but I can't imagine them dominating the policy debate in 2012.

In an effort to reduce the sense of economic uncertainty in the minds of people, the Fed has said that it will keep the Fed Funds Rate close to zero until at least mid-2013. Gregory Mankiw wants the Fed to do more. He wants the Fed to clearly state under what economic conditions it would eventually start raising the FFR. This, he thinks, will give people a clearer view of the future, and, thereby, help the economy because people do not spend when they are uncertain about the future. (But, conceding the weakness of current macroeconomics, he also admits that it would be hard for the Fed to satisfy his wish.)

Christina Romer makes the important point that short-run fiscal stimulus -- payroll tax cuts and an increase in infrastructure spending, paid for with money borrowed by the government -- will be more effective in bringing unemployment down quickly if it is combined with a long-run plan to do the opposite (raise taxes, cut spending, pay back the government's debts). Although she does not spell it out, I suppose her reasoning is like this: Money borrowed today will have to be paid back. So, in the future, taxes will have to go up and spending will have to be cut (barring the fairy tale scenario of blistering economic growth enabling debt repayment without the need for tough choices). If a long-run debt repayment plan passes Congress, people will have a clear idea about how things will unfold. Without such a plan, people will fear that the government will go through a great deal of chaos before the inevitable debt repayment takes place. And people will be more likely to spend their money freely today under the former scenario rather than the latter. That is why, to keep the people spending their money today, it is important to keep them calm about the future. And that is why, a plan to borrow trillions for stimulus spending today will work best if it combined with a plan to do the opposite in the future. (Note that although Mankiw is talking about the monetary policy of the Fed and Romer is talking about the fiscal policy of the government, they are both emphasizing the need to keep people's expectations calm and relaxed.)

Tyler Cowen argues that although the European Central Bank's newfound willingness to print euros and lend those euros freely to Euro zone banks has solved the euro zone's short-run problem, the 2011 crisis will eventually return if economic growth does not pick up. The argument is obvious and unsurprising.

Robert Frank rehashes an argument he has been making for quite a while, most recently in his new book "The Darwin Economy." As more money ends up with the top one percent, they spend the bulk of that money on fancier homes. As the happiness of people depend not on what they have but on how what they have measures up to what others have, the bottom 99 percent also end up running after fancier homes in fancier school districts. We all end up with more expensive homes, but we feel no happier: if some people at a football match stand up to get a better view, eventually so will everybody else, and instead of better views all that people will get in the end are achy feet. Frank's argument is persuasive, but he has been flogging this theme for a long time, perhaps out of frustration that policy makers have not followed his presciption (of a progressive consumption tax) to attack the problem that he has identified.

Robert Shiller proposes changes in the tax deduction for mortgage interest payments so that poorer people would be better placed to benefit from it. That's fine: who could argue against making the tax system more helpful for the poor? But he spoils it for me by saying unpersuasive things to glorify government efforts to encourage home ownership: "Homeownership fosters citizenship, builds stronger families and communities, encourages active participation in the economy and, ultimately, bolsters economic confidence." Where's the evidence for these big claims? How do you measure citizenship, the strength of families and communities, etc.? And how do you know that these alleged benefits outweigh the costs of having people's incentives distorted by this particular tax break? The argument in favor of ending the tax deduction for mortgage interest, once and for all, is pretty clear.

I am a big fan of Richard Thaler and I have used "Nudge" by Thaler and Sunstein as a textbook in my behavioral economics course. Here he goes over a few well worn ideas to encourage -- but not compel -- people to make healthier choices in their daily lives.

Update (January 3, 2012): Greg Mankiw's wish for the new year seems to be coming true:

Now the Fed will include projections about the “expected target federal funds rate in the fourth quarter of the current year and the next few calendar years, and over the longer run,” according to notes from its Dec 13. meeting released by the Federal Open Market Committee on Tuesday. It will also include projections about “the likely timing of the first increase in the target rate given their projections of future economic conditions.”

It remains to be seen whether the annotations accompanying these interest rate forecasts will provide some clarity on what it is that the Fed tries to stabilize: Is it inflation? Unemployment? Growth rate of nominal GDP?