Friday, January 31, 2014

Why does America have potholed roads, low taxes, and high inequality?




Compared to Japan, Germany, Korea, the UK, and France, America is not very good at providing public goods. Why? One reason might be geographic diversity. We're just so big and spread out that a LOT of bargaining is needed in order to get stuff done at the federal level, or even the state level. That bargaining is going to result in inefficiency even when we do agree to spend money.

But here's another reason: ethnic diversity. William Easterly, Alberto Alesina, and Jenina Matuszeski have found that in African countries, more ethnic diversity is correlated with governments that provide fewer public goods. This is consistent with the stories we hear out of Africa - post-colonial fantasy countries filled with feuding tribes, where the tribe in power focuses on raiding the coffers instead of improving the nation. But in case you think it's specific to Africa, realize that Easterly and Alesina have found something similar in U.S. cities.

No one knows for sure why this effect happens. I could speculate, but I'm not going to.

Regardless of the reason, though, it seems like we can see the Easterly-Alesina effect at work in America. I'm mainly talking about one ethnic division: the black-white divide. At least since the 1970s, the Republican party has successfully raised opposition to government spending among large numbers of white people, especially in the South and in rural areas, by convincing them that government spending is mostly racial redistribution from whites to blacks. Talk to a Republican voter about government spending, and this idea will come out pretty quickly. If you don't believe me, just do a Google search for "racial redistribution".

It's not really true, of course; white people receive about the same number of dollars in benefits that they pay in taxes. But the meme persists, and it looks uncomfortably like the kind of thing that Easterly and Alesina document. Interestingly, many Republicans also seem to think that government shifts money from whites to Hispanics, when actually the reverse is probably true. The negative attitude that America's right-wing minority has toward blacks has partially spilled over into their attitude toward Hispanics. That's bad news.

Of course, libertarians and other small-government enthusiasts will note that America doesn't just have less public good provision than other rich countries - we also have lower taxation and less wealth redistribution. Since taxes and means-tested transfers probably reduce economic efficiency to some degree, lovers of small government might celebrate America's black-white division as the only thing that saves us from being Sweden. Of course, our relative lack of redistribution also means we have greater inequality than other rich countries.

So the next question is: What about immigration? Actually, immigration seems very different. First of all, immigrants by definition choose their country of residence, as opposed to the hapless African tribes stuck together by careless imperial map-makers. Second, America is very welcoming to immigrants; by about a 2 to 1 margin, Americans think immigration is a good thing (we are much less positive about illegal immigration, though that too may be changing now that the big Mexican illegal immigration boom is over). So it seems likely that immigration will not impair the functioning of government nearly as much as ethnic divisions among the native-born.

And in fact, evidence backs this up. A new Cato study finds that immigration doesn't increase the size of the welfare state. That means that it probably also doesn't cause very much of the Easterly-Alesina effect.

And actually, if you think about it, America is a whole nation of immigrants. We have much more ancestral ethnic diversity than most of those basket-case African countries, but we have much better public good provision. That shows that America is actually very good at mixing diverse ethnicities into one large national identity. Tribal divisions don't usually survive our cultural melting pot.

So we should not worry about ethnic divisions resulting from immigration. Of course, we should still do everything we can to encourage the rapid acceptance of new immigrant groups.

But that leaves the big problem of America's black-white division - especially the black-Southern white division that is rooted in the history of the old Confederacy. The shibboleth of "racial redistribution" will continue to motivate many Southern and rural whites to vote for strongly anti-government politicians who will be able to use "veto points" like the filibuster to reduce the effectiveness of American government.

29 comments:

  1. Hi Noah, long time reader, first time commenter. I find it really interesting how you raise Japan, Germany, the U.K. and France as comparisons yet when immigration and ethnic diversity are the central questions, I think Canada and Australia would be better examples. While obviously both have much small populations and are much more urban-centric than the U.S, ethnic diversity is substantially higher than the U.S. (>20 per cent compared to ~13 per cent of the population. Australia in particular, due to large immigration programs over the past decade, is now pushing towards 30 per cent of the total population born overseas (currently 27.1 in last Census). I find this fascinating because its so unique in western democracies.

    However, Australia is quite good at providing public goods (full coverage public health, government subsidised education, high recent spend on infrastructure). Again, large centralised population centres probably have a lot to do with this, but to be honest, I've never thought ethnic diversity has hampered the provision of public goods. Fiscally, migrants are pumping money into the Australian budget at rates well above what they take out. This is trending up as well given the changes to the migration program to encourage skilled migration in the 1990s.

    Its incredible to watch the U.S. immigration debate play out from a country like Australia where public attitudes to immigration are probably pretty similar (large support for overall immigration, strong opposition to illegal immigration). Yet the Australian political system gives prioritises the executive, especially for immigration where the annual program numbers are set in the Budget by the executive, not in the parliament. I guess there are benefits and drawbacks from all governance systems, yet on immigration where bitterness can cause serious public opinion issues (see the U.K. at the moment), a nice streamlined system doesn't leave much scope for radical division.

    Cheers for writing and maintaining such a quality blog. Henry

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  2. Thanks, Henry!

    I think the difference is the Confederacy.

    Like I said, America is good at assimilating immigrants. It's the black-Southern white divide we haven't been able to erase.

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    1. As someone who grew up in a relatively Southern household, with Southern relatives, and Southern friends, anecdotally, I can confirm your suspicions. Race is still big in the South, and I'm pretty well convinced that most conservatives are closet-racists. They just mask their racism with more careful language.

      That said, I think their form of racism is an accident of being completely uneducated in basic logic and statistical inference. Imho, more education on these subjects at the high-school level would help eliminate such biases.

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    2. And where do black immigrants from places like Haiti fit in your analysis?

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    3. Anonymous11:12 PM

      I think that it is inaccurate to identify racism (and its political consequences) as wholly a Southern thing. I grew up in the North, and I can tell you from personal experience that the North is very segregated and that many Northern whites are quite racist. Indeed, as someone who reads Ta-Nehisi Coates, you should have some knowledge about how whites in the North have used violence to keep Chicago segregated and to expropriate wealth from African-Americans.I believe that even in the Northeast, the Republican party gets 50% of the white vote. Stop and frisk also comes to mind as an example of the enlightened attitudes of Northern whites. Which is not to say that the South isn't worse, just to point out that Southern culture doesn't explain or excuse the very persistent phenomena of segregation and racism in the North.
      -Paul

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    4. I think this is right. But I think that black distrust of whites still stems from the Confederacy, even in the North. And I think that it will be easier for blacks and whites to learn to coexist in the North...though not easy in an absolute sense.

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    5. Firstly: Noah, this is a great post.

      Secondly, to address the issue of racism in the North...it's there! It's real! It's a problem! But here's some data:

      http://www.dailykos.com/story/2012/11/10/1159759/-Percent-of-White-vote-won-by-Obama-2012-by-state#

      The states in which the largest share of whites voted for Obama? Vermont, Rhode Island, Mass., Maine, Hawai'i, New Yawk, Connecticut, New Hampshire. Obama won more than half the white vote in all of them. Illinois, home to Chicago and its long history of institutionalized racism, gave 45% of its white vote to Obama. So did California, which BTW has a lot of white people.

      The states with the smallest share Obama-supporting whites? Mississippi, Louisiana, Alabama, Georgia, Oklahoma, Utah, South Carolina, none of which gave gave 20% support among whites to Obama.

      In general, in the United States, white people as a whole are inclined to vote Republican; even working-class white voters are evenly split outside the south. Within the South, though, white people of all classes are tremendously disinclined to vote for the Democratic Party. The Democratic Party is the party that represents over 90% of black Americans. The South is the part of the county whose economy was fueled by black slavery from inception, and instituted vigorous brutal apartheid for another century after fighting and losing a terrible bloody rebellion in order to preserve their "right" to enslave. These are states that until very recently were represented by the likes of Strom Thurmond and Jesse Helms, not just racist individuals but individuals whose political platforms fundamentally centered on racism as a bedrock principle.

      Lastly, regarding Absalon's point about black immigrants, they are a curious case. Essentially, they tend to be similar to other immigrants in that they are self-selected and therefore exceptionally capable, entrepreneurial, and determined, but also face substantially higher barriers upon arrival because racist white people don't differentiate very well between different kinds of black people. This leads to the result you'd expect - black immigrants do substantially better than black natives, but not as well as other immigrants, and subsequent generations are more likely to show declining achievement than non-black immigrants are. Neither surprising nor overly complicated.

      I am curious as to whether there are studies that compare black immigrants to the US to similarly-situated black immigrants to Canada, Australia, western Europe, etc.

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  3. While I also the difference is the Confederacy, I do wonder at some of your sources.

    Your first source about infrastructure does not make international comparisons.

    And why might you trust a CATO report before it has gotten reviewed for methodology by skeptics?

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    1. Your first source about infrastructure does not make international comparisons.

      A new article I'm writing with Miles Kimball will include all the sources you could want, including international comparisons.

      And why might you trust a CATO report before it has gotten reviewed for methodology by skeptics?

      It might turn out to be wrong, but I also included the data point that fewer Hispanics than whites receive government benefits, so the Cato result is hardly surprising.

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    2. Huben: "And why might you trust a CATO report before it has gotten reviewed for methodology by skeptics?"

      Noah: "It might turn out to be wrong, but I also included the data point that fewer Hispanics than whites receive government benefits, so the Cato result is hardly surprising."

      That's not a good answer; *anything* *might* turn out to be wrong, but some sources are more reliable than others.

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    3. Anonymous11:11 PM

      The problem ain't the Confederacy, the problem is slavery.

      People who had a grandparent who heard first-hand slave stories are going to believe the stories. And most are true: people who can abuse others, will. Slaves were perfect for abuse on every level.

      A recurring theme in the black community is "If the Man don't pay for it, don't do it." This runs counter to the Anglo-Saxon work ethic of "Do more, and they'll pay you more." Now put both those work ethics up against the economy of 2014, and tell me which one is more likely to be chronically unemployed.

      In a hundred years or so we will be sufficiently intermixed racially that everybody except Yale and Harvard grads will have ancestors who were slaves. Then we shall have a closer to equal society. Except for those damned Ivy League people....

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  4. Anonymous8:07 PM

    Re: Delong
    "http://equitablegrowth.org/2014/01/30/1852/the-united-states-economy-today-in-the-transpacific-mirror-thursday-focus-january-30-2014"

    Did Delong check with you on this?

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  5. Anecdotically, the model fits the Scandinavian countries, all very ethnically homogenous countries. It's fascinating with this clear distinction between blacks (and Hispanics) vs. immigrants in the US, it could also be at work in Canada and Australia.
    In Denmark, we don't have the distinction, immigrants who came to work here in the 60es are often lumped together with refugees in the public debate. And, a common theme in the public debate is that immigrants/refugees are benefitting too much from the redistribution schemes.

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    1. It's a mistake for Denmark (or any other Northern European country) to take Muslim refugees. You have refugees whose cultural preferences have made their home countries unpleasant failures and they come and bring those cultural attitudes with them.

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  6. Normally, i'm a fan. But you take Easterly et al stuff and supposed findings much too easily and imbibe too much on clichés about Africa. If divisions are the issue on public goods, the critical question that needs to be answered is why "ethnic/racial." Societies are divided in many ways that could account for why groups might not want to redistribute - clan, tribe, class, sub-regional.

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  7. Are you sure your assumptions are correct? America has potholed roads? Where? In northeast? Definitely, but roads in southeast, Florida or Texas are by and large excellent and the system is better than, say in Germany ( I drove extensively through both). Roads are horrible in NYC but that clearly nothing to do with low taxes.

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    1. Anonymous2:40 PM

      Agreed. I'm from and live in the northeast and I find by and large the roads are good, whether state highways or interstate. Even in NYC, there is of course plenty of traffic but the roads themselves are fine. I would say the real problematic transportation infrastructure in the northeast is rail- and airport-related, but that is more about poor management of existing infrastructure than failure to spend money per se.

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    2. I agree with Krzys about German roads. They are surprisingly bad, as are the road signs, which are often either nonexistent or seriously misleading, in sharp contrast with the French road system. This may be a matter of funding for German roads being decentralized to the Lander compared to the highly centralized system in France, where roads are in good shape and road signs everywhere are very clear. The mixed outcome in the US probably reflects our mixed financing system, with local funding support for roads varying a lot across states and local governments.

      Barkley Rosser

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    3. Anonymous4:38 AM

      Hey, keep in mind that we Germans are fully into austerity since 15+ years... If you don't like the roads, wait till you see our schools...
      That said, we still have a much better public transport system than any US city I ever visited, maybe except NY, not to talk about inter-city trains. And fewer (as in nearly 0) blackouts. So I don't think this contradicts Noah's point.

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    4. Anonymous6:20 AM

      That's a myth. Germany has not been during the last fifteen year near to the kind of austerity the US or Southern Europe are now immersed in. Besides, the ECB helped with low interests the German transformation - which fuelled bubbles in the South, at the same time -.

      I dare to say that the German Welfare system is one of the most chubby ones in Europe (which is saying a lot, comparing it with countries like Sweeden, France, etc.). And that's a good thing, if you can afford it. From an infraestructure point of view, Germany, despite the not-so-tough-as-thought reforms pursued under Schroeder, has very decent and admirable roads, bridges, etc.

      In fact, all this explains why Germany is a «rich» country and why Greece, for instance, it is not. Apart, if Germany could do a bit of fiscal stimulus to boost demans, that no doubt that would help very much Europe. So if you think you lack roads, tell Merkel!

      Regards from «austerion» Spain

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    5. Anonymous9:49 AM

      You are certainly right that we had it much easier 10 years ago, than the countries that are now all forced into austerity.
      But spending (and the chubby welfare system) has been cut quite a lot. There was no single election since the 90ies where debt and excessive spending was not a major talking point. The level may still be high, but it is lower than it once was. And we could definitely use some deficit spending, I'm all for it. But it's not on the agenda, there is no way this will happen. We even put the "debt break" into our constitution - stupid as hell if PK (and Noah) are only 10% correct.
      German politicians are still firmly on the austerity path. They have been for so long that it will be hard to change. The narrative that the public believes (not me) is "we did fine with the Agenda 2010, so the PIIGS can do to". It will be very hard to convince them otherwise, and nobody currently is even trying.

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    6. Anonymous1:55 PM

      If you're german (or you live in Germany), you deserve an applause for this comment. I've not heard a single - balanced and fair - opinion like yours coming from Germany since, at least, the crisis began. I thought your answer would rather be - in fact, this is the average level I've found in many conversations, either with literate germans or with not-so-literate germans - «poor wasteful southerners, they still don't know what means working hard. Don't live beyond your means!».

      Even so, I have to say four things: 1) Southern Europe - at least, Spain - absolutely needs structural reforms, but with the ECB (the bank of ALL europeans) doing the rightful paper during a very tough recession. 2) Austerity has sense, but only if a central bank can, at least, offset its worst effects and only if it pursued under a balanced and fair «spirit» (exactly the opposite happening along the South). 3) The «german model» seems to have worked and seems to be working. This doesn't mean that it ALWAYS and EVERYWHERE has to work. Personally, I appreciate fiscal conservatism - though being intelligent, and that's not an oxymoron, I hope -. 4) The euro has to change a lot if Europe wants to be a «nice» place to live. The situation in Spain (too big to fail) is untenable in the long-run. I doubt France or Italy have a better position either. The ECB, of course, and by extent the intellectual framework upon which the EZ was built is to blame. Many things have to change.

      It's good seeing that still exists some rays of «keynesianism» (well, what you're saying is actually common sense, period) in Germany; I thought it was already an extinct specie, like euroskepticism in Spain (many europeans are masochists, aren't we?). If you ever visit us, we will reserve a very nice beach for you and we will cook a wonderful paella (not sure if there will be money for it, but we will try).

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  9. Actually, this is a long running argument that has existed at least since the 19th century in American history and political science. Again, that economists are "discovering" it only shows their silly contempt for the other "social sciences" (a term I have come to abhor). For example, in "Dominion of Memories" http://www.amazon.com/Dominion-Memories-Jefferson-Madison-Virginia/dp/0465003567, the historian Susan Dunn recounts the economic decline of Virginia in the 19th and first half of the 20th century as its elite first fought internal improvements and policies that would raise their taxes to d provide public services, first services and projects that would help middling and poorer white citizens, and then projects and policies that would provide benefits and services the emancipated black population. This continued to be the dominant interest of the ruling elite, even as it led to their loss of power and influence in the nation as whole. Similarly, in the early Civil Rights period of the 1950s and 60s, the white elite, personified by Senator Harry Byrd, would have preferred the destruction of the public schools then provide a quality education to the Commonwealth's Black citizens. See http://www.amazon.com/Race-Reason-Massive-Resistance-Twentieth-Century/dp/0820330256/ref=pd_sim_b_4

    Finally, Brad DeLong has a long quote from Keynes that you might find interesting and related to the this post: http://delong.typepad.com/sdj/2014/01/econ-2-further-reading-john-maynard-keyness-definition-of-what-economics-should-be.html. A pertnient quote: "It seems to me that economics is a branch of logic, a way of thinking; and that you do not repel sufficiently firmly attempts à la Schultz to turn it into a pseudo-natural-science.

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    1. "personified by Senator Harry Byrd"

      Note - Robert Byrd.

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  10. " One reason might be geographic diversity. We're just so big and spread out that a LOT of bargaining is needed in order to get stuff done at the federal level, or even the state level."

    Seems to me a big part of the problem here is our history of Federalism-fights over states rights etc. Without the 50 rival 50 state govts, I suspect the federal govt would be better at providing pubic goods.

    We see this with Obamacare too where some states simply choose not to do the Medicaid expansion. The states right history correlates pretty clearly with the 'racial redistribution' issue you raise as well.

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  11. Noah: " Since taxes and means-tested transfers probably reduce economic efficiency to some degree,..."

    Evidence?

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  12. The US doesn't actually seem to have low taxes to me. In Chile I have lower taxes, I think. For about ~20% of my income I get good healthcare, a small pension, and pay the taxes that Chile needs to have decent roads/etc. Some infrastructure is bad, but I think that is cultural and not due to lacking money.

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  13. Sprawl. No space is more privatized than the inside of a car. Also, low-density means you have too much infrastructure spread too thin.

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