The grandfather clause*

I saw a reference to (US Representative) Paul Ryan’s plan to kill Social Security and Medicare, but only for people currently under 55 (he doesn’t say “kill” of course, but if it was going to make things better he wouldn’t need to exempt everyone likely to care directly about the issue) and it reminded me to post this.

A policy like this has what economists like to call a time-inconsistency problem. To get the policy approved, Ryan needs the votes of people currently over 55 (hence the exemption) and in the current US situation, any Republican majority has to rely heavily on older voters. Say the plan passes. Sooner or later, the combination of demographics and the electoral pendulum means that the Repubs will be out, and the new primarily majority will face three choices (a) Repeal the whole thing if they can do so before it comes into force (b) Keep on paying high taxes to fund benefits they will never receive for the benefit of the selfish old so-and-so’s who voted to cut the rope once they had reached the top; or (c) extend the same cuts to the (as of 2011) over 55’s, and claw back some money for themselves.

If I were an over-55 Republican, I don’t think I would want to count on (b)


* The original grandfather clause was a Jim Crow rule limiting the franchise to people whose grandparents had held it before the Civil War. The UK adopted something similar in relation to immigration in the 1970s. These examples give some good reasons why grandfather clauses (exempting existing participants in a system from unfavorable rule changes)  are bad policy in general, though there may sometimes be exceptions 

Posted via email from John’s posterous

East Africa Famine Appeal

I’m in the US at present, visiting Johns Hopkins University. This kind of visit usually involves plenty of opportunities for eating and drinking, not so many for exercise. To push myself into activity, I’ve signed up for a half-marathon to be run in Philadelphia on 19 November.

That seems like a good occasion for a fundraiser. I know it’s not long since the last one, but I’ve picked a really good cause, namely relief efforts for the East Africa Famine. I’ve set up a fundraising page on Everyday Hero, with a convenient link to the left. The money goes to CARE, and I’ll write to them to ask them to put it towards their East Africa Appeal. But if you prefer to give to another charity engaged in the same effort, or even some other cause altogether.

I’ve put some thoughts about the famine over the fold. However, I’d prefer to keep the comments thread for posts regarding contributions to the appeal, other ways to help and so on. Negative comments will be deleted with prejudice. I’ll open a sandpit soon for people who want to argue about the issues hopefully as well as, and not instead of, contributing to the appeal.

Update As pointed out by commenter Peter Rickwood, the Australian government will match our contributions dollar for dollar. And all Australian donations are tax deductible. So, for someone lucky enough to be in the top tax bracket, you can give $4 worth of help for every $1 of post-tax income you forgo. A dollar a day is all it takes to feed a hungry child, so $100 of consumption forgone is enough to feed a child for a year. You don’t get an offer like that every day! It’s such a good deal, I’ve put some money in to start the ball rolling. End update

Read More »

My adventures on Intrade

For those who don’t follow the economics and politics literature obsessively, Intrade is a market in bets on various kinds of predictions, set up to follow the conventions of a share market. As I’ve discussed quite a few times in the past, the efficient financial markets hypothesis in its strong forms, implies that markets like this should give a better (more precisely, at least as good a) prediction of things like election outcomes than could be obtained from studying polls, pundit predictions and so on. I’ve been sceptical of this, on the basis of casual empiricism and some concerns about whether the empirical tests I’ve seen are biased in favor of the claim being tested.

One thing I haven’t done until now is to enter the actual market to see how it works. I finally signed up, and discovered a few items of interest. First, thanks (I assume) to US laws against online gambling, it’s quite difficult for Americans to participate in the market, which is, at least for legal purposes, based in Ireland. You can’t use a US credit or debit card, and my attempts at a wire transfer from my US bank account failed. Australia has no such restrictions.

Second, and relatedly, the market is quite thin. If the managers of Presidential campaigns cared what Intrade said, they could shift the markets a long way for a very modest outlay. For example, shares in Ron Paul, with a $10.00 payoff if we wins the Repub nomination, are currently trading at 0.27, implying a 2.7 per cent chance. But a Paul fan who wanted to raise his estimated chances could push them up to 0.40 for an outlay of $1000 (there are about 3000 shares for sale at prices between 0.27 and 0.40).

Third, there’s no margin trading, which means in particular, that you need a lot of collateral to go short on a long-odds candidate (at least if I have worked out the system right). Selling short costs $10 a share, less the current price, so if I wanted to sell short $100 worth of Paul shares at the current price (that is about 400 shares), I’d have to put up nearly $4000. I had an elegant Dutch book worked out, betting against Paul and Huntsman (zero chance, in my view) to finance a bet against my preferred dark horse whose odds were equal to the sum of the first two. But that didn’t it work, so I had to just put down my money.  Over the fold, my trackside tip ….

Read More »

Occupied interview

A week or so ago I did an interview by Skype videolink with Taryn Hart of Occupied Media, talking about the issues raised by Occupy Wall Street. It’s now available online. I never watch myself on video, but I did listen to the whole thing and, allowing for a fair number of ums, ahs, and circumlocutions, I think the questions gave me the chance to state my ideas, and in some cases to work out on the spot what I thought about various issues.