Beyond crypto I: Gray technologies

Increasingly I think that “crypto” — meaning blockchains like Bitcoin and Ethereum, their imitators and would-be successors — is a transitional technology. I don’t think that blockchains of this style, whether “proof of work” or “proof of stake”, are going to endure and dominate in the way that their proponents imagine and hope. At the same time, I think crypto detractors are and have always been wrong to imagine there’s no there there, “anything you can do with a blockchain you can do better with a regular database”. This kind of critique has always missed the point. Blockchains are social institutions, a means of constituting authority around data that would otherwise be widely contested, given powerful and opposed economic interests in the contents. Permissionless, inexpensive, authoritative computation does indeed make possible a tremendous range of new applications and institutions that we are only just beginning to explore. But once we collectively acknowledge that, we’ll find that there are ways of arranging it that are more straightforward and powerful than Satoshi-style open blockchains, and that in practice are as reliable and effective.

In the end, I think crypto will be one of many examples of what I’ll call a “gray technology”. A gray technology starts out, often self-consciously, as a revolution and an underdog, an antagonist to an existing industry and regulatory regime. Via some combination of stealth, pretension of technological ungovernability, and aggressive self-righteousness, early proponents launch projects that demonstrate the value of practices that the existing regulatory regime would discourage or forbid. However, the result is not overthrow or irrelevance of the regulatory state, but a process of conflict and negotiation between the upstarts, incumbents organized around the status quo regime, and regulators. Eventually a new equilibrium emerges that either embraces some of the once discouraged practices, or enables alternative means of producing the newly demonstrated value without the troublesome practices.

There have been lots and lots of examples of this. Firms like Uber and AirBnB got their start by very plainly and aggressively flouting (or by encouraging others to flout) prior taxi and hotel regimes. These firms did not then secede into cyberspace or render themselves untouchable in Cook Island trusts. They skirted laws they loudly argued were bad (remember when Uber would go on about “Big Taxi”), they proved that in skirting such laws they could enable interactions that consumers and providers really valued, they used those constituencies as sources of political bargaining power by which they negotiated (and continue to negotiate) new regulatory regimes within which their once oppositional practices become blessed. Napster began as a self-righteous, self-consciously oppositional project to make all the world’s music conveniently and inexpensively available to all. It clearly demonstrated value. But, alas, in this case, the effect was not to normalize regulation around once transgressive practices, but to spur the incumbent industry to provide alternative means of offering much of that value under the existing regulatory regime, which powerful interests valued very strongly. Uber “won” and Napster “lost”, but in both cases gray technology served a similar role, demonstrating value propositions incompatible with an existing set of industry and regulatory arrangements, then spurring a reorganization of those arrangements to enable much of the demonstrated value under a new, administratively blessed regime. We begin with a status quo thesis, upstarts emerge as antithesis, until finally we settle into a new synthesis.

Although it is easy to mock, “DeFi” has demonstrated real value. Automated market makers and the near perfect arbitrage finance of “flash loans” represent real technical innovations within the plumbing of finance. Permissionless stablecoins enable experimentation with institutional forms that involve funds flows more complicated than simple payments, experimentation that previously was restricted to firms capable of partnering with conservative and often predatory banks. (Suppose a small startup wanted to build the platform for writers I proposed a few months ago, with variable refunds to subscribers. You can’t use off-the-shelf credit card payments for that.) DAOs (“decentralized autonomous organizations”) represent really interesting experiments in democracy and civil society that currently regulate billions of dollars of funds through various grant providers, token exchanges, and collateralized lending protociols. All of this has emerged under a very gray technological environment, whose main economic driver has been simple speculation (or, if you prefer, gambling) in very unstable coins like BTC, ETH, and thousands of their peers.

But owing precisely to that success, DeFi and stablecoins are now far too big and prominent for regulators to meet only with benign neglect. The DAO that governs Uniswap has already allocated about $19 million dollars for a “DeFi Education Fund”, which will function as a lobbying organization on behalf of an industry with identifiable interests, despite “decentralization”.

More fundamentally, regulation is not just a threat to DeFi, it is also the key missing element if the fascinating tools and practices of the industry are to ever finance real-world goods, services, and businesses. The NFT that now represents a kind of postmodern nonclaim on a digital collectible could as easily represent an ownership claim on a home. If that were to happen, then with the help of valuation or appraisal “oracles“, home mortgages could be financed in the same way that people’s speculalative crypto positions currently are, via automated collateralized lending platforms like Aave, Compound, or dYdX. Whether that would be dystopian or socially valuable competition for (dumb, corrupt, predatory) financial incumbents would, well, depend very much on how these practices come to be regulated. But it is only with regulation, and the concomitant ability to have “on-chain” outcomes enforced “off-chain” by the legal system, that DeFi can escape its current predicament as a sophisticated panoply of financial techniques financing nothing but an incorporeal casino.

Tech types often think of regulation as a mere inhibition or friction, a thing that gets in the way of innovation. That’s foolish. Regulation is an integral part of applied technology. Airplanes would fly in libertopia, but civil aviation, the technology that keeps a city of humans in the air 24 hours a day and lets us travel anywhere, could not exist if regulations had not evolved along with fuselage materials. Modern monetary systems, in which the obligations of thousands of banks all trade at par and settle obligations with customers of any other bank, represent an extraordinary technological achievement crafted primarily from the stuff of regulation. DeFi needs regulation not defensively, so entrepreneurs can do what they want without going to jail, but constructively, so entrepreneurs can do things that, without regulation, they simply could not do.

But Satoshi-style open blockchains were designed to resist an adversarial regulatory state whose assistance would be dispensed with and whose edicts, um, defied. If that requirement is relaxed, there are simpler and more powerful ways of structuring the kind of permissionless, authoritative computing that contemporary blockchain platforms offer. Most emerging applications do not seek to permanently resist regulation by a hostile state. Rather, like other gray technologies, they seek eventual accommodation with the regulatory and legal system. As applications find that accommodation, I suspect they will migrate from complex, expensive open blockchains to an ecosystem that begins as permissioned “sidechains” (see Polygon, xDAI, Ronin, etc.) but evolves into more convenient and capacious platforms for robust, permissionless, high-integrity computing. These will be run by communities of identified operators that accept regulatory obligations to compute correctly, to behave as common carriers, and to respond to legal orders. Crypto will neither “win” like Uber, nor lose to incumbents like Napster, but transform into an industry that preserves the new playing field that upstarts have created, in a way that addresses the concerns and recruits the capabilities of regulators.

Microcities

Michael Eliason has a great piece (hosted at David Roberts’ substack) describing the kind of experiments with the urban built environment that are common in parts of Europe but unheard of the in United States. Eliason writes:

It should be noted that these developments are largely the result of urban planning competitions. This is in stark contrast to the US, where we incorporate little to no urban planning and essentially let the market drive development, with no forethought to livability, open space, schools, walkability, and so forth.

Citizen participation is also a major component of these projects. Unlike in the US, this participation isn’t a wasteful exercise whereby local homeowners get to block new homes and preserve the status quo. Rather, these processes allow residents to have a say in what their new district can look like, where things should be located, and what kinds of open space or car-free areas it will have. It is true democratic planning, facilitated by spatial planning policies that are both top-down and bottom-up. We should probably take note.

Eliason describes the development of whole districts, while in the United States we are caught in trench warfare over piecemeal infill, waging a conflict that has foolishly polarized into “YIMBYs vs NIMBYs”. It’s great that progress has been made towards legalizing ADUs and polyplexes among the single-family homes. Not everything has been futility. But ultimately activism framed in terms of righteous conflict against greedy homeowners is a political mistake. The characterization is not accurate, and even if it were, car and parking dependent homeowners in the contemporary United States are too large and well enfranchised an interest to be simply defeated. They have to be coopted. Their support, or at least acquiescence, has to be won somehow.

Otherwise, the pace of any progress will remain dangerously detached from the urgency of the problems that derive from insufficient housing. With abundant housing in quality communities, we would have much less homelessness, despair, madness, and crime. Even if the politics were better, creating infill housing quickly is hard, physically and in terms of social equities. Infill is retrofit, limiting the scope of “forethought to livability, open space, schools, walkability, and so forth”. To address housing scarcity deliberately and at scale, the unit of work should not be individual buildings, but neighborhoods, districts, quarters, “new towns“.

But in the United States, don’t new towns just become Levittown or Columbia, Maryland — car-centric, shopping-mall centered, suburban sprawl? By default, yes they do. If you let the market do its thing, the national homebuilders will build out tracts of cul-de-sacs and detached homes in their sleep, hardly even noticing what they’ve done. The “market” is a local optimizer, a risk-averse creature of habit. Even under the best of circumstances the market would build too little, given the asymmetry of social costs of housing scarcity versus overabundance. We want more experimentation than the market would provide, and as Eliason points out, we want planning during which future residents exercise a meaningful franchise. The United States used to be a site of utopian experiments. It ought to be again. We’ll need activist government, some form of social housing, in order to make that happen. But what form should that take?

“Social housing” codes left, and trading NIMBY/YIMBY gridlock for left-right culture-war gridlock sounds unhelpful. Would it be possible to design some form of social housing that would accommodate concerns of the cultural right while providing bulk, credibly non-dystopian housing in the form of walkable, transit-connected, mixed-use development? Yes, I think so.

The basic idea would be this: What if the government committed to financing “microcities”. These would be high density exurban developments, subject to constraints including a minimum population size and, importantly, a requirement that the entire city be built within walking distance of a central transit station. There would be just a single glorified bus stop, for an area roughly one and a half square miles, housing between thirty and eighty thousand people.

In the United States, microcities would be located where the good lord intended us to live: along interstate highways. However, there would be almost no automative access within the microcity (with exceptions for commercial deliveries and disabled service). The microcity itself would be pedestrianized. Frequent express bus service would connect each microcity to traditional cities nearby, key employers, and to other microcities. An interface to private automobiles would sit only at the edge (or perhaps beneath) the microcity. Residents who wish to own cars could, but at a walk away. However, given the sociable convenience of pedestrian commerce and the existence of online discount stores, residents would not need private cars for everyday living. For nearish outings, transit and ridesharing would suffice. For infrequent longer trips, car rental could replace car ownership.

If the microcities are designed well, parking would be used less by residents than by neighboring exurbanites, for whom new microcities would be an amenity. It is already the case that developers build “main streets” or “town centers” with restaurants, retail, and entertainment in America’s exurbs. What if instead of faking it, we built what actually are main streets, designed to support fine-grained street-level urbanism, with a residential clientele large enough to support that? Microcities transform exurbs into near suburbs of new, thoughtfully designed urban centers, without upsetting the character of the exurbs themselves or threatening existing residents.

Microcities complement, rather than seeking to alter, displace, or shame, the approach to comfortable living that has predominated in the United States since the muscle car and the GI bill. They also compete with that approach, not by damning segregated suburbanites and forcing them to change, but by offering as options ways of living that are more appealing and at least as affordable, but also more integrated and sustainable. Microcities don’t ask anyone to eat their vegetables. They don’t demand existing neighborhoods acquiesce to changes to which residents don’t consent in the name of a greater good. Microcities are things that we can just build, at will, a bit more thoughtfully, a bit more carefully, but as ultimately as readily as another tract of cul-de-sacs. We should build them like we built shopping malls in the 1980s.

Microcities also compete with “superstar cities”, whose price and exclusiveness have soared for lack of elastically supplied alternate suppliers of employer-proximal urban amenity. San Francisco’s homeowners — which is to say, San Francisco’s political class — won’t consent to disruptive change in the name of undercutting their own home values. They’ll resist risking the stability of neighborhoods they love in order to make room outsiders clamoring to live there. [*] What might drive greater tolerance of development in superstar cities is not higher home values (current values are way more than high enough to entice developers, absent regulatory barriers), but the threat of lower home values, if living there came to seem not so special any more. A San Francisco whose high home values depended on quality rather than scarcity of urban amenities would build more rather than less. That San Francisco’s Pacific beachfront is developed with nothing more appealing than a four-lane highway is a reflection of the same forces Lily Tomlin mocked about the phone company in 1976. “We don’t care, we don’t have to.”

But would microcities work? I mean, in the United States, “social housing” is a nice name for “public housing” whose other name is “the projects” whose other name is hell. Traditional public housing in the US had two characteristics. One is it was extremely dense, as an economic efficiency. The other is it was reserved almost entirely for the poor. That was and would still be a toxic combination. However much or little it is the fault of the poor themselves, social pathology often correlates with poverty in liberal, unequal societies. Urban density can be a force magnifier. It can turn what might otherwise have been nice neighborhoods into vibrant, creative centers, or what might otherwise have been stagnant neighborhoods into sites of crime and violence. Microcities should be mixed income housing, and include attractive upscale options as well as inexpensive apartments. In order for microcities to do any good for anyone, they must first and foremost succeed as urban communities that deliver desirable housing at scale and so reduce pressure on home prices throughout their region. Building de novo cities is a capital-intensive risky business, which is why the private sector on its own won’t deliver them. A wise public sector will use the tools at its disposal to rig outcomes, to skew the landscape towards Red Vienna, away from Cabrini-Green.

But the state’s reputation for wisdom is pretty spotty. It’s one thing to talk about artful urban planning, top-down design of prerequisites for what, in its details, must succeed or fail via chaotic bottom-up processes. It’s hard to imagine the self-dealing to-and-fro of state and Federal legislative processes actually delivering smart urbanism.

However, among things government can do are set goals, define constraints, and write checks. Microcities should be a Federal initiative, balancing funds availability across the states as necessary to win political support. It should then rely upon local formations of people who commit to become long-term residents to manage the process through milestones from conception through construction. The model would be urban cohousing or baugruppen, but at a larger scale. Each microcity would begin as a nonprofit development company whose employees include professionals with competences relevant to city building, whose compensation would consist of cash salaries augmented with free, perpetual tenancy or outright ownership (depending on the economic model adopted) of an apartment in the finished city, conditioned on completing a multiyear residency. Besides employed professionals, the development company would also convene a larger group of future residents willing to pay a bond and participate in the planning process, who would also earn discounted ownership or rent conditional on residency for a period of years. Planning processes should favor diversity, experimentation, innovation. Construction quality in the United States is abysmal, compared to the state-of-the-art in Europe and Asia. As Eliason suggests, microcity founders should solicit competitive visions from urban architects and dreamers globally. They should import best practices, and push boundaries of passive, carbon-absorbing, sustainable habitation. Each microcity should be an aspiration, a dream made imperfectly real, a cathedral to the possible improbable, a sketch of that shining city on the hill that we’ve lost in recent times to some tsunami of cynicism.

What about the NIMBYs? Every plot of earth has some stakeholder who demands it stays exactly the way it is, whether due to fear of parking competition or real concern for the local ecosystem. But the square miles adjacent to our interstates are not unspoiled wilderness, NIMBY concerns decay with each mile and highway interchange, and the county-level balance between “homevoters” and the “growth machine” when the scale of growth proposed goes from several million dollars to several billion dollars. Microcity entrepreneurs would have to find sites whose local and state governments would welcome them and help. I don’t think that will be so hard.

But if you build it, would they come? Who would live in these new microcities? The founders, the people who participated in the city’s design and committed to live there, would. But they would be only a fraction of the city’s desired population. Leaving things to the market, potential residents might fear failure, vacancy and blight, and that fear could become self-fulfilling.

So, don’t leave things to the market. In addition to founders, once the city is built the state should offer heavily subsidized ownership or tenure in the new city until a critical degree of occupancy is achieved. This might take the form of Singapore-style housing assistance for younger people on the cusp of household formation, or regional lotteries to encourage a more representative and age-diverse population for the new city. The subsidies should be sufficiently generous that, in combination with the amenities of the appealingly designed new cities and proximity by transit to important elsewheres, many people find the offer difficult to refuse.

Would microcities be affordable? Yes, despite the sticker shock of billions of Federal expenditure, which, after subsidies, would be only partially or very slowly recouped from sales or rents of residences and commercial space. Microcities look very expensive as standalone initiatives. But consider the social costs of housing scarcity, from delayed household formation to mass homelessness, crime, overdose, and incarceration. The financial costs associated with failing to address these problems, for government at every level, are not small. Now compare the cost of adding housing for 30,000 people as a microcity versus the cost of doing so via infill housing in prosperous urban cores, taking into account the resources that will inevitably be lost to permitting squabbles and lawsuits, and the need for expensive retrofits of existing infrastructure. Greenfield development is a cheaper, faster, surer way of adding housing to metro areas than building new housing where market actors would on their own strive to place it.

To be sure, this lower overall price tag would hit the public purse, while the higher price tag of grinding infill through the opposition of neighborhoods falls upon developers and the residents that they battle. In a narrow way, the state saves money by letting private parties engage in their war of attrition. But the state’s interest should be in accomplishing the task at the lowest real resource cost, not in avoiding visible expenditures on public balance sheets. And the state’s interest very definitely lies in actually accomplishing the task of housing humans in a (much better than) functional built environment, quickly and surely.

Microcities are also arguably better urbanism for the age of the automobile than traditional contiguous cities. A great city is a collection of great neighborhoods, and neighborhood greatness emerges at pedestrian scale. But one cannot pedestrianize a whole metropolis. Everything about automotive convenience, from expressways to parking, is destructive of urban quality of life. The typical American city includes a few lovely “microcities” isolated in a sea of ugly car-centered quasicity, bound by a mix of expressways and commercial “arteries” cluttered with parking lots and strip malls.

With microcities, we reimagine the contemporary city as an archipelago of almost arcologies in an exurban sea, with point-to-point transit connections between. Like The City & The City, the urban core and traditional exurb coexist in the same space, with well-defined interfaces between. Mixed-use pedestrian density and leafy, car-centered suburbs each have their appeal, but the neither/nor compromise that now constitutes much of the American cityscape satisfies no one.

Macro-level pathologies — economic precarity, housing scarcity regionally and nationally, pervasive availability of opiates and methamphetamine, pervasive availability of firearms — push local government towards negative-sum, tacitly brutal, competition to establish and sustain themselves as islands of segregation from the prevailing dystopia. Small communities usually fail but sometimes succeed. Large cities cannot simply insulate themselves from macro-level pathology. Citizens demand “solutions” to problems that a municipality simply cannot solve on its own. The predictable result is within-city segregation (sustained by authoritarian policing) that renders life materially tolerable for the affluent and well enfranchised, combined with a performative politics whose function is to render the affluent and well enfranchised tolerable to themselves. Housing issues in this kind of city are existential, as the affluent threaten to displace (“gentrify”) communities tacitly ghettoized, or ghettoized communities threaten to break the segregation and strip the affluent of their insulation. Urban politics becomes neurotic in the strict psychoanalytic sense. The id knows what it needs, the superego insists this is wrong, politicians’ role as ego is to repress and paper over the conflict.

Microcities would face the same macro pathologies as other cities, but a Federally coordinated, actually effective, initiative to make housing abundant nationwide is our only hope of remedying those pathologies. By virtue of compact geographies, within-city segregation would be off the table for microcities, demanding an actually functional politics, rather than the mere performance of virtue, to protect the material interests of even affluent residents. Microcities would enfranchise citizens into manageable units for which the trade-offs faced by municipal government might be less cacophonous and more tractable than those plaguing larger cities.

Individually, each microcity might be utopian, but in aggregate networked microcities constitute a pragmatic counter to contemporary dystopia, a solution tailored to augment and improve rather than rage against the existing built environment, with the constraints, political as well as physical, that our past choices do impose.


[*] The current best hope for more dynamism in San Francisco’s built environment are the human catastrophes of homelessness, drug abuse, and crime. Finally the city faces problems that code to incumbent homeowners as, well, problems. But if incumbent homeowners can “resolve” those problems by replacing Chesa Boudin with Robocop, they’ll very cheerfully revert to rainbow-flag-inclusive eco-NIMBYism.

Name the solution

There is this notion, proclaimed on all sides of the political spectrum, that if you want to solve a problem, the first step is to name it, center it, because only then can you properly address it. It sounds very rational, very modern. To address a problem, list it on the clipboard. Then we can get together and devise the 19-step plan that will remedy it.

This is often counterproductive for social problems, where the names that we demand be given have connotations that are far from neutral.

From 9/11 through the Obama era, Republican constituencies were scolding us we had to publicly name and call out “radical Islamic terrorism” as a problem, the enemy. Beginning in 2016, Democratic-aligned constituencies demanded that we center and call out “racism” and “white supremacy”. That continues, with a litany that includes “patriarchy” and “transphobia”, wrapped in a bowtie under the unobjectionably objectionable name “hate”. Now Republican-aligned constituencies demand that we publicly call out illiberal “wokism” and activist/academic movements like “critical race theory”.

I’ll try to put this gently, so as not to commit the same error I am criticizing. This approach to politics is unhelpful. The things partisans demand we call out can in fact be bad. All terrorisms, defined as violence or threat of violence against innocents to compel political change, are bad. Nearly all of us agree that racism, white supremacy, and “hate” are horrible. Even the “wokest” people will cop to existence of excesses in social justice activism, though they may argue that cynical overstatement of those excesses is a bigger problem than the excesses themselves.

We are asked to name, and then to publicly call out, problems not because there is some insight gained in the naming. What, we didn’t realize that racism was appalling before contemporary anti-racisms put it front and center? Was the Obama administration unaware of the existence of Islamic terrorism while it was drone assassinating weddings in the Middle East?

We are asked to name and denounce because some coalitions are better immunized, while other coalitions are put on the defensive, when public debate is structured around certain names. The Democratic Party’s coalition includes religious minorities, including Muslims, who are not terrorists but whose social networks and religious traditions are more proximate to groups that prosecuted atrocities in the name of Islam than the white Christians who overwhelmingly define the Republican Party. When we are naming white supremacy, the shoe is on the other foot. The point of this politics is to polarize in a way that gives one coalition the high ground, and sows division in the other while portraying them as apologists for evil.

There may be some electoral value to this, in the sense of persuading a sliver of swing voters or drawing habitual nonvoters into your great moral struggle. The polarization it provokes “usefully” helps stabilize partisan gerrymanders. It is emotionally delicious, as we grunt in our tribes, to hold up mirrors through which we are awesome and they are not. While naming problems and demanding denunciations may move some people to vote your way, it may entrench others and undermine your purported cause. A virtue weaponized ceases to be a virtue at all, and those who might be tarnished by association often perceive demands to denounce even things that they concede are bad as attacks. Because defiance of unjust coercion is itself a virtue, insistent calls to denounce may instead rally sympathy or support. When Republicans call out “critical race theory”, does that render progressives more or less supportive of social justice activism, whatever its excesses?

However things actually shake out at election time, whether demanding denunciations helps or hurts either party, the tactic reliably delivers revenue to media and political institutions. You can’t fundraise off quietly persuading a reasonable but mistaken public. When there are monsters to battle, partisans shower champions with cash.

If you are actually interested in constructive social change, this is a terrible politics. Durable change does not in fact come from crushing a near-equally-matched social enemy. It comes from cooptation until the rump social enemy is small, and can then be cleanly defeated. Gay marriage is no longer controversial in the United States, because the broad public was pretty quietly won over before the Supreme Court delivered a final victory. If the political parties had remained actively polarized around the issue, if nonsupporters strongly identified as objectors, there would have been no victory. An (unlikely) Supreme Court win would have become a new Roe vs Wade, a battle cry rather than a final outcome. The campaign for gay marriage was waged in favor of a solution, rather than as a fight against homophobia, which might have polarized the public into factions more or less implicated by the charge. It was a campaign for something that like most things, most people had never taken a strong position on, and could be content to accommodate what seemed kind without ever having to admit defeat or prior error.

You can’t coopt people while you are calling them out. You can’t achieve durable victories — win the peace rather than a continuing war — without bringing people into what becomes a broad consensus. When it’s the 99% against the 1%, you can crush the opposition. When it’s the 52% against the 48%, you can’t. If you try you get civil war, hot or cold. Both sides in every civil war are sure they have God and justice on their side while they destroy first the prerequisites of civilized life, then lives directly. At home as abroad, the real struggle is always for hearts and minds. The rest is just carnage.

Naming problems and demanding denunciations hardens the battle lines, digs trenches. Making everybody confess the people’s enemy is not a rational path to positive change. On the contrary, what reason demands is a politics that welcomes and improves the imperfect but well-intentioned creatures that we nearly all of us are, a politics that is generous with redemption rather than fierce with judgment of our fellows. By all means, hold policymakers (and pundits!) to account. But never publics. That’s a fool’s errand. Offer solutions and be grateful towards people who sign on, rather than name problems and condemn people for insufficient zeal in demanding their extirpation.

Update History:

  • 9-Jun-2020, 1:15 p.m. EDT: “sews sows division” (Thanks Steve Roth!)

Taxes vs subsidies, flows net and gross

A straightforward objection to the style of policy I proposed as “market dirigisme” in the previous post is that it’s too expensive for the central government to pay to subsidize all the behavior it wants from the public. As Peter Dorman writes in the comments

With so many objectives to pursue, if policy mainly took the form of bribery — excuse me, incentives — the state would be overwhelmed. It’s necessary to have negative incentives, taxes, as well as positive ones, feebate systems for instance.

The taxation-based complement of my market dirigisme is just Pigouvian taxation. Instead of purchasing from the citizenry the behavior the central government desires, the central government can penalize citizens who fail to behave as the central government prefers. That seems “cheaper”, but also meaner and more contentious. People generally don’t mind being offered an opportunity — “Hey! I’ll pay you if you do this thing. You don’t have to, but if it’s worth the money to you you can!” People object vociferously to, and organize politically against, state coercion that takes the form of “You should do this thing, and if you don’t we will punish and fine you.”

So it’s usually politically wise, I think, to prefer the former. Subsidize the behavior you want.

Revenue-motivated taxation should be broad-based and imposed gently on things mostly coded as good (like income). Pigouvian taxes, to be politically sustainable I think, require a strong consensus among the influence-weighted citizenry that the thing to be taxed is “bad”, that people, at an individual level, deserve to be punished or at least to compensate society for the behavior. Matt Yglesias has been talking up alcohol taxes, and that’s probably fine as a Pigouvian tax, because most of us have been persuaded at some level that drinking is a vice and even if we ourselves enjoy it responsibly, it’s fair that we should make some compensation to society for indulging. Gas taxes or carbon taxes are not fine. It is not a vice, at an individual level, for a person to drive to the grocery store or commute to work, even if they live far away. It’s not a vice for a person to live in an exurban or rural place where ordinary life requires long drives. On the contrary, many of us consider rural living an outright virtue. Yes, these choices have social costs, “externalities” in the language of Pigouish economists. But unless those social costs have been pervasively internalized as sin by the broad public (no, your own politically engaged friend group isn’t enough), Pigouvian taxation is “partial equilibrium“. A polity won’t allow large, enfranchised publics to be selectively penalized for behavior they think is fine. Michael Bloomberg can get a soda tax passed maybe in snobby elitist towns whose enfranchised publics look down paternalistically on frequent pop drinkers. But that’s pushing the limits. I’m all for a (refunded!) carbon tax, higher gas taxes, etc. I, um, voted for the proposed soda tax in San Francisco. But, realistically, it’s not a smart approach. You’re not going to save the planet by punishing large, influential blocks of citizens for behavior intrinsic to what they see as legitimate ways of living.

So, what about the expense? Are subsidies to encourage desirable changes by the citizenry affordable? Yes, absolutely. There are two broad points to make here. First, the real cost of such subsidies is lower than it appears. As always, we should be wary of a dollar-for-dollar accounting frame when considering the costs of public policy. Public expenditures are not alike in their effect on price stability, distribution, and other social desiderata. Secondly, to the degree that we are forced to ration net outlays, balancing conditional subsidies with broad-based taxes can be made equivalent to Pigouvian taxes fiscally, while retaining the benefits of relying on subsidy politically.

Subsides of citizen behavior are cheaper than they look for a bunch of reasons. Very narrowly, subsidies are not expenses at all, they are only transfers. They do not directly recruit or put pressure on real resources. To the degree the state is conditioning subsidies in order to “purchase” something from the public, that isn’t quite right, but usually the behavior that will be purchased displaces minimal alternative uses of real resources, or even increases the availability of such resources, making them negative expenditures in a sense.

Let’s unpack that. If the state hires people to build dense housing, that imposes a direct real-resource cost. People who otherwise would do different work are diverted to building these homes. Brick and timber and steel that otherwise would go elsewhere go here. In a broad sense, we can argue that the dense housing net-frees resources, because the people who move in might otherwise have lived in resource-costly exurbs. But that’s a complicated, very contestable, calculation. However, if the state subsidizes people who live in densifying neighborhoods, and the voters in some communities encourage construction they otherwise would have forbidden, very little of the recruitment of real resources should be attributed to the state. The people the state pays with its subsidy are not hired away from their old jobs or withdrawn from the labor market. The choices about which real resources will be recruited and deployed to the now popular densification will remain with the local governments, communities, and developers, displacing their own alternative uses. Mostly what will have happened is we’ll have (i) gotten the policy outcome we might have wanted but failed to achieve if we tried to induce local governments to change their laws despite the resistance of their citizenry; and (ii) made a very-broad based, rather than targeted, transfer to citizens of that community.

In distributional terms, broad based-transfers are often scored as “expensive” relative to counterfactual programs targeting the needy (although when the cost of attrition is taken into account, they shouldn’t be). But relative to ordinary expenditures, broad-based transfers are desirably progressive. When the government hires a contractor to do something, some of the funds may go to modest wage workers, but lots also go to well-paid professionals or flow through as capital income to business owners. None go to people who are neither investors or workers. Business revenue from government expenditures is distributed like market income generally. To the degree a more egalitarian distribution is desirable, broad-based subsidies are “cheaper” than ordinary expenditure in the sense that they incur less of the social cost that comes with making the rich richer.

Finally, on a per capita basis, broad-based subsidies intended to alter citizen preferences with respect to local governance can be cheap even in accounting terms. Most voters are not rich, a little bit of money can make a big difference relative to the costs and benefits they perceive from local policy and the convenience costs of voting. Often when you want to get something done, you have to purchase things from rich people who control access to scarce resources or capabilities, for whom it takes a lot of money to move the needle. But when the state wants to purchase changes in behavior or political preference from the citizenry, most people are very far from rich, and small amounts of money can go a long way. (The current vaccine lotteries are a great example. The per-person cost of the lotteries is pretty tiny, yet they have seem to be effective.)

However inexpensive subsidies are in the senses I’ve described, in some contexts and for some purposes, fiscal limits in an accounting sense will sometimes bind, politically or institutionally. These cases should be infrequent. Well-arranged governments don’t face purely financial constraints on socially valuable investments, just like firms in a well-arranged financial system can always issue securities to fund high NPV investments. But sometimes, pathologically, firms are subject to hard capital rationing, and sometimes governments may have to tax in order to subsidize. In these cases, you use the ordinary tax system to ensure you have the revenue you will need to purchase changes of behavior from the public, just like any other public expenditure. We have property taxes, income taxes, sales taxes. If we want to pay citizens of neighborhoods that tolerate densification and our expenditures are revenue constrained, we can raise those other taxes. The tax increases should not take the form of matched “pay-fors”. That’s a very bad style of public policy. But financially constrained governments should use the tax system to ensure the revenue they require for public purposes, including purchasing behavior from the general public.

A certain kind of wonk will object and say that this is really dumb. Why tax everybody and pay some people a subsidy when you could more “efficiently” impose the same net financial flows by levying a tax on the people who don’t do what you want?

This is a point I’ve made before and I suspect I will make again. There is social meaning, and political effect, in gross financial flows. An income-tax-financed UBI is not the same thing as a negative income tax even when the net financial effect of the two would be the same. Besides the stuff wonks will deign to recognize (like that paying first and taxing back later ensures more certain and prompt payment to those who will ultimately be entitled), different program forms create different social facts. A UBI informs the public in the straightforward language of cash that we are all together receiving a benefit, for which we are paying according to our means. A negative income tax shouts that the poor get a benefit for being poor that the rich must pay for. How the public understands a policy is part of the policy, inseparable from its effects on behavior, its political sustainability, and its ultimate effectiveness. Gross flows condition the meaning of a policy to the public, in addition to net outcomes.

Sure, increasing general taxes in part to pay for conditional subsidies to the public can be equivalent in net terms to just imposing a conditional tax. But imposing a conditional tax has the social meaning that the payer is being punished or asked to compensate for doing wrong, and is politically unsupportable when influential publics think the taxed behavior is legitimate or virtuous. Offering a subsidy communicates no such judgment. I don’t feel judged by the state for not driving a Tesla, even though had I purchased one, I’d probably have been eligible for some government cash. An offer of a subsidy is a market bid, an opportunity. You can take it or leave it, but the option is no injury. The general schedules of taxes on property, income, and sales are… schedules of taxes that apply broadly to everyone and carry no judgment about the lifestyles or choices of segments of the public. Combining those two elements, a general tax schedule and a lucrative offer, yields an entirely different social animal than a tax targeted and conditioned on behavior, even when from a high level you could argue the net financial flows would be similar.

Market dirigisme

Market dirigisme is the name I give to a style of public policy I think we ought to use more. The idea is pretty simple. Governments form preferences over how the polity ought to be but currently is not. Often, what governments should do is to explicitly purchase the changes in behavior they desire from the general public.

Put this way, it sounds a bit weird. But it’s not weird. As I write, Ohio is enrolling people who accept a COVID-19 vaccination in million dollar lotteries. Ohio is paying people a few dollars each, in expected value terms, to get vaccinated. Among people who see declining birth rates as a problem — “natalists” is sometimes the word — welfare state proposals like child allowances are often evaluated on an axis of whether and how much they might encourage childbearing. One can support child-attached benefits for other reasons (like reducing child poverty) even if one is “antinatalist”. But part of the coalition that supports these benefits is openly interested in using the public purse to purchase a higher birth rate from the citizenry.

I have views about vaccination and natalism, but this piece is not about those. This piece is about the style of policy. It is a good style of policy, we should use it more, and we should use it in place of, or at least to augment, another style of policy that is common but I think very fragile.

Often when a central government wishes to change the polity, it tries to induce changes at the level of subsidiary governments, rather than via citizens and households. The Federal government incentivizes states to expand Medicaid, for example. Elizabeth Warren proposes encouraging less restrictive land use policies by offering grants to local governments that adopt them.

There are deep problems with this style of center-to-subsidiary governance. It’s intuitively attractive, I think, due to a mistaken analogy between government subsidiarity to bureaucratic hierarchy. It feels “rational” or “logical” to work through the “chain of command” rather than have the center try to mess directly with with hundreds of millions of citizens about whose particular circumstances it knows little.

But subsidiary governments are not bureaus of the central state. They are separately chartered, separately elected, sovereigns. In the United States we often discuss this tension in terms of law. The Supreme Court decides whether some proposed inducement from the center is acceptable or an unconstitutional abridgment of powers reserved to the states. Policy entrepreneurs come up with clever arguments to persuade the Court.

But whatever the law decides of itself, the problem runs deeper. The central government is accountable to some weighting of the broad national public, and forms its goals and preferences accordingly. Subsidary governments are accountable to different weightings of different populations, and form very different preferences and priorities. When the center imposes inducements upon subsidiary governments, elected officials face often radically conflicting incentives. Perhaps their supporters desire the effect of single-family zoning, but the central government is incentivizing its abolition. How would, or should, local electeds behave? In practice, they will likely game the incentives. Local officials will seek ways they can both win the grants and deliver for their supporters, perhaps by eliminating the zoning but creating procedural pretexts for blocking multiunit development. We are left at best with a cat-and-mouse game, with the central government imposing ever more elaborate requirements, while local electeds invent ever more clever ways to have their cake and eat it. In practice, the center usually loses this game, or at best makes very slow progress, sewing cynicism about government capacity to deliver anything more than expressive victories.

A better approach is for the central government to alter the circumstances, and so the preferences, of the broad public. If we’d like denser communities, the central government can simply pay a subsidy to residents of communities growing denser. Elected officials of subsidiary governments no longer face conflicting incentives. If the subsidy is large enough to shift the preferences of the voters to whom local politicians are accountable, politicians will enact real change. If their supporters’ dispreference for density overwhelms the money, they won’t. The size of the subsidy can be set large enough to meet the central government’s objectives while still permitting some communities to opt out. While the aggregate effect is as political an outcome as any other form of state action, it would result from decentralized choices of citizens (either to support local government action to harvest the subsidy, or to eschew the subsidy in favor of the status quo) rather than direct compulsion by the central state. In the way that market outcomes do, either outcome will feel “natural”.

In general, the flow of incentives should be from the center to the edges, rather than from the center through subsidiary governments. Subsidiary governments are not subordinate governments, but distinct entities. They are accountable to citizens, not to a hierarchical superior. It is citizens that ought be the nexus between central and subsidiary governments.

A point in favor of this style of policy, I think, is that it works through finance. Money is abstract, fungible, bloodless. Land is birthright, race and increasingly party are tribe. These are things to fight and die for. But taxes and subsidies are arcane. They can be applied in increments, leaving scope for individual and local choice in ways that explicit command does not. It has become fashionable for people with my politics to lament “financialization”, and I do lament financialization, defined as the increase in rents to the financial sector and the decrease in the degree to which financial flows in our economy are tethered to what I perceive as meaningful production. But the last few years of tribalized politics, of self-righteousness and conflict largely detached (in my view) from meaningful progress, has reminded me of the virtues of financial materialism. The tax system might be racist, but as Dorothy Brown puts it, she had to become a “detective” even to perceive that. What if we could the mechanisms that have so quietly riven us apart be retooled to quietly bring us together? Money isn’t everything, but our conflicts over values would be less existential I think if our material circumstances weren’t so divergent, if our material interests were better aligned. I want just outcomes, but I don’t want people fighting and dying for them. I’d rather we just set the taxes and subsidies right.

If neoliberalism counseled leaving everything to markets, market dirigisme would put democratic publics in command of markets, while retaining markets’ extraordinary capacity to naturalize outcomes, and so diffuse and diminish conflict. Purchases of changes in behavior by the government would be overt and accountably debated, not hidden in technocratic “nudges”. Just as you know McDonald’s is trying to get you to eat hamburgers, you’d know the government is trying to pay you to have kids, or to get vaccinated, or to accept new housing nearby, or to diversify your neighborhood. But it would still be your choice whether to participate or to abstain. You might agree or disagree with the national policy. But retention of local agency means you can protest by opting out, rather than by blowing shit up. Even people who think McDonald’s is kind of a conspiracy to give us all heart attacks rarely resort to that.

Update History:

  • 28-Apr-2020, 11:40 p.m. EDT: “Once One can support child-attached benefits for other reasons”

Our governance problem in a nutshell

Will Wilkinson writes:

But “my way or the highway” cannot be the basis of any form of genuinely liberal politics. All durable liberal societies have evolved complex democratic institutions because it’s impossible to manage foundational disagreement in a liberal way — with peaceful toleration and mutual forbearance — without them. If a minority faction manages to arrogate to itself authority over the majority on grounds that it can justify only to itself — i.e., on grounds that the majority rejects — much if not most of the population will regard this authority as illegitimate. The confidence of the minority in its righteousness is irrelevant. If the minority gets high on its own supply and chooses to exercise its power in a way that tramples on our basic rights and interests, as the majority understands them, the system can rapidly destabilize.

This is right as far as it goes, but it would be more persuasive if every time Wilkinson wrote majority, he could write supermajority instead. It’s clearly right that if we have two factions with divergent interests and worldviews, but only one faction will govern, imposition of will by a small minority faction will be more corrosive of legitimacy than rule by the large majority. That’s true by arithmetic, regardless of how deeply either faction embraces or eschews a norm of “majority rules”. A much larger group will consider the rule illegitimate.

But it’s not clear how much force this argument has when the factions are roughly equally divided. In this case, one faction will still impose its will in ways that bind the other, but the losing faction is apt to consider the imposition unjust, and will be roughly as large as the faction endowed with formal authority. Democracy is most legitimate, and works best, when governance is by clear supermajorities. That’s why “bipartisanship” is — still! — coded in the American collective psyche as a virtue to be sought. Governance in the United States has never been remotely unanimous. There have always been seriously embittered losers in our many political conflicts. But when governance was bipartisan, outcomes often reflected consent of supermajorities rather than bare majorities.

However, under the United States’ competitive first-past-the-post electoral system, a 50:50 split in electoral power between parties is the attractor. As American politics have nationalized and the parties have come to represent distinct and divergent factions, neither faction can command a sizable electoral majority, so neither party can govern with much legitimacy. Both parties work the institutions as best they can and accuse the other of violating norms. Legitimacy of outcomes is fully conceded by neither. One party — let’s be clear, it’s the Republican Party — is electorally minoritarian. But the two are not so far from numerical parity that functional or naturalistic arguments (“the system can rapidly destabilize”) create a mutual interest in accepting the legitimacy of electoral outcomes. When there is a supermajority, even losing factions have an interest in conceding elections, because the alternative to legitimate governance is negative-sum civil conflict that they would likely lose. When there is not a clear supermajority — so they might win — civil unrest or worse becomes a tenable strategy.

The only way to durably restore legitimate government is to restructure our political system so that it ceases to do at least one of two bad things:

  1. Sort us into legible, divergent, cohesive factions (which we now aptly describe as “tribes”).
  2. Divide the country roughly 50:50.

The overlapping, heterogeneous political coalitions of America’s past, its two “big-tent” parties, did not survive — it seems unlikely that they ever would survive — modern telecommunications and the nationalization of just about everything. If this is right, if our political factions will necessarily be strongly sorted, our only hope to restore legitimate governance is to adopt an electoral system supportive of multiparty competition, which eliminates the 50:50 contested-legitimacy equilibrium and enables more fluid, potentially supermajority, coalitions to form.

It really is kind of QED. To remain a functional state, the United States requires legitimate government. In the current sociotechnical environment, we cannot sustain the supermajority support required for legitimate government under a competitive two-party system.

All it would take is an act of Congress to make the United States a multiparty democracy. I like to recommend Lee Drutman’s book.


Note: I’ve been doing Zoom “office hours” Friday afternoons 3pm EDT / 12pm PDT. It’s drop-in, informal, talk about whatever time. If you’d like the Zoom coordinates, let me know in the comments or DM me on Twitter.

The corporate income tax is a jobs program

The Biden Administration’s “American Jobs Plan” is aptly named. Obviously, spending on infrastructure and other things will provoke activity that contributes to employment. But less widely understood is that the “pay for” part is also employment supportive, perhaps more importantly and durably than the expenditure side. The proposal would increase the corporate tax rate from 21% to 28%. That’s good, but not enough. It would be better for employment if the corporate tax rate would be reset to the pre-Obama 35% rate, and better yet if it were set to the 50%-ish rates that prevailed during the worker-friendly 1950s. In addition to the top-line rate increase, the plan includes provisions to counter jurisdiction shopping and close loopholes in the corporate tax system. To the degree these reforms increase effective corporate tax rates, they too are employment supportive.

The reason is obvious. Wages and benefits (including employer-side payroll taxes) are tax-deductible expenses. When the corporate tax rate is just 21%, the opportunity cost to shareholders of every dollar spent on all-in compensation is 79¢. Only 21¢ gets covered by the tax writeoff. When the corporate tax rate is 50%, 50¢ out of every dollar spent on worker compensation comes out of Uncle Sam’s pockets, rather than out of shareholders’. Hiring workers is a much better deal for firms when the corporate tax rate is high than it is when corporate tax rates are low. For the same reason raising income tax rates would be a boon for tax-exempt nonprofits, increasing corporate tax rates is a boon for labor.

The counters to this are rote, and wrong. “High corporate tax rates reduce job creators’ incentive to build and grow businesses, swamping any benefit from reduced wage costs.” That might be plausible in a world that is not this one. In this world, there is little evidence that variations in the corporate tax rate much affect aggregate economic activity one way or another. In the US postwar experience, the higher corporate tax decades were the highest growth decades. And that might be causal, given the lower opportunity cost, and so effective stimulus, of wages and other business expenditures. It might also just be coincidence. But the supply-side claim that low corporate and income taxes would turbocharge investment and entrepreneurship has been tested over decades, and only really motivated squinting can scry the merest hint of it. There is little evidence for even the more plausible claim that jurisdictional differences between tax rates shape the location of real activity (as opposed to the location where profits are incorporeally booked).

This shouldn’t be surprising. The rewards to active entrepreneurship can be immunized from the effect of high corporate tax rates, because entrepreneurs earn salaries, which are deducted from profits. It is passive shareholding that is inescapably penalized by a higher profits tax, but given the concentration of shareholding among the very wealthiest, and the fact that these shares are now worth a greater fraction of the economy than ever before, balancing the distribution of wealth away from this group would be a good rather than bad thing. Smaller businesses are often “pass-thrus” — S corporations or LLCs in the United States — limiting any impact of the corporate tax on startups and local entrepreneurs.

From a neoclassical corporate finance perspective, every investment that is profitable at a low corporate tax rate is profitable at a higher corporate tax rates. Under certainty, a profits tax shouldn’t affect business investment decisions at all. Under uncertainty, the IRR of projects declines with a higher rate, but the riskiness of projects (and so the hurdle rates imposed) decline as well, since the state absorbs the impact of losses as well taxing gains. Any effect is likely to be ambiguous and small, and overwhelmed by the effect of macro policy on risk appetites and hurdle rates.

But once we pierce the veil of abstraction that surrounds the neoclassical firm, we see very clearly that a high profits tax creates incentives among firm stakeholders to distribute the pretax surplus in ways that don’t flow through to accounting profits. In the United States, research and development is treated as an expense even though it creates valuable intangible assets. Under a high corporate profits tax that can’t be circumvented, firms are more likely to behave as Amazon has, laundering its profits into R&D projects to avoid the squeeze. Research and development contributes to hiring and growth, much more than the same dollars distributed into the pockets of wealth shareholders ever would.

Similarly, a content, well-organized, loyal workforce is an asset to a firm. For any given corporate tax rate, a rational firm will “overpay” workers (relative to the lowest wages that would fill their vacancies) as long as the value captured from an additional dollar in “efficiency wages” is greater than (1-t), where t is the tax rate. It’s the same math as before. With a 21% tax rate, the firm will pay efficiency wages until it captures back less than 79¢ of value it sends to workers. With a 50% tax rate, the firm will be rationally more generous, paying workers until it captures back less than 50¢ of each dollar as “organizational capital“. Firms’ selfish generosity can take the form of higher payments to its existing workforce, amenities or upgrades to working conditions that engender employee loyalty and morale, or new hiring to lighten the load and improve output quality.

Incentives to expand R&D or pay workers are prosocial “distortions” of the corporate tax. But there are less lovely ways firm stakeholders might try to prevent the pretax surplus from flowing into profits. Most garishly, the corporate income tax already encourages firms finance themselves with debt, rather than equity. Interest payments are deductible, so debt investors get paid like workers, from pretax income rather than taxed profits. That’s terrible, and a destructive subsidy to the banking industry. Leveraged capital structures create financial fragility, exposing firm stakeholders and the rest of us to risks of unpredictable losses and financial crisis. It has always been time to end the tax deductibility of interest payments. Raising the level of the corporate income tax would be a great occasion to close the very antisocial tax loophole created by deductible interest payments.

The American Jobs Plan proposes

to fix the corporate tax code so that it incentivizes job creation and investment here in the United States, stops unfair and wasteful profit shifting to tax havens, and ensures that large corporations are paying their fair share… these corporate tax changes will raise over $2 trillion over the next 15 years and more than pay for the mostly one-time investments in the American Jobs Plan and then reduce deficits on a permanent basis

I don’t know whether that revenue number will materialize, whether it accounts for the fact that accounting profits are likely to decline even as activity expands if the plan succeeds at raising effective tax rates. Raising and tightening enforcement of the corporate tax is a good idea regardless. It will redirect wealth, away from shareholders, to some mix of the state and other firm stakeholders including customers and suppliers and especially workers. CEOs are better people when the tax system constructs firm dollars not as shareholder dollars, but as resources of a range of competing claimants. We don’t tax because it is a bad thing that we have to endure in order to pay for stuff. We tax because it is a good thing that promotes a broad prosperity and helps reconcile generous provision of public goods with stable prices. (I like the @jdcmedlock term “tax positivity“.) Raising the corporate income tax, ideally back to 50%, and ensuring the rate is actually effective with respect to earnings attributable to shareholders, would support all of these goals. It’s a great tax.

Writing as a public good

The newsletter platform Substack has grown controversial. For an overview of the controversy, see Ben Smith. To get in the trenches, read Nathan Tankus’ impassioned letter about why he’s leaving the platform.

I am mostly aloof to the Substack wars. I love trans people. I also love, read, and learn from people that some trans advocates accuse of being hateful. The humans are complicated. Love them. I have little sympathy for the big names who’ve made careers of being “canceled”. But I worry that the growth of media that blur personal and political spheres is reshaping offline norms in ways more likely to impoverish our private lives than enact useful change. These media include Twitter feeds and old-school blogs. But Substack newsletters, because of the incentives and ultimately influence that come with monetization, raise the stakes. This is most clear in the authors whom the platform woos with advances under “Substack Pro“. Substack may ostentatiously recruit trans activists to “balance” complaints that they’ve become a refuge for bigots, but arguably their and their authors’ pecuniary interest is in a lively culture war, hot on both sides, rather than in forms of deliberation that might be more constructive but less exhilarating.

As a person who likes to write but who thinks professionalization corrupts public affairs writing, these are issues I give some thought to. Jeet Heer makes a good point when he tweets “Writing is either a career or it’s an aristocratic hobby. If it’s an aristocratic hobby, it’s closed to most people.” At the same time, when writing becomes a career, the institutions and incentives beneath that career cannot help but shape the writing.

It would be good if we could finance careers in public affairs writing while largely insulating authors from financial and career incentives. Substack’s subscription model may (or may not) prove an improvement on the listicle-inspiring ad model. But the direct pecuniary stake in subscribership it provides (and gamifies) will color what authors write. People are willing to fund their clique’s warriors, so offering political “red meat” is an obvious strategy to win subscribers. As Glenn Greenwald puts it, “They’re not paying because they’re getting something in return; they’re paying because they want to support journalism that they think…needs to be heard.” Functionally Substack shares a perhaps uncomfortable kinship with ActBlue or WinRed. A subscription-based model is going to encourage writers to to flatter the interests of especially more affluent readers. Substack subscriptions are expensive compared to paywalled conventional journalism, on almost any quantitative measure of writing unlocked. Finally, in my view, public affairs writing ought to be a public good, where authors contribute to a universally accessible, intertextual commons, rather than marketing paywalled silos. It’s not writers’ responsibility to bear the weight of this ought. We need to find ways to finance the people who cultivate the commons. But it is a commons that we want, rather than a labyrinth of paywalls or (worse) a few dominant publications everyone has to subscribe to.

In writing as in many other domains, I think “high-powered incentives” — extrinsic money rather than intrinsic goods like pride in virtue or quality — are essential at low levels but destructive at high levels. We expect and want baristas and warehouse workers to be primarily in it for the money, although of course they take pride in the quality of their work too. The tax and shareholder-value revolutions of the 1960s through 1980s destroyed American society by turning the people near the top of our social hierarchies into rapacious maximizers, and we should undo that, quickly. In writing and in general, external incentivizers can easily distinguish outright incompetence from a basic capacity to do the work. Above a certain level, however, quality is difficult to observe. Incentivizing putative correlates of quality encourages gaming, with a net effect that is ambiguous at best. At high levels, people’s “skin in the game” should increasingly become attached to broad, cooperative outcomes rather than narrow measures of behavior.

In light of all this, one way the Substack model might be improved is with caps and refunds. As with Substack now, there would be paywalled content, but the paywall would be stochastic. When a browser hits a piece, if it’s an identifiable subscriber it’s allowed through. If not, a quiet lottery decides yay or nay. The odds of denial would go down as the number of subscribers go up. At very low subscriberships, this would effectively be the current model, a hard paywall. At very high subscriberships, all content would effectively be open.

On its own, this would be a prescription for free-riding and death spirals. Why pay expensively to “subscribe” when other people have already unlocked the writing for you? However, what if the net cost of subscribing declines with readership, so that if many people subscribe, the contribution requested is very small?

A simple way to do this would to impose a compensation cap. Suppose an author requests $5 per month or $60 per year with a $150K cap. If she accumulates 2500 subscribers, she’s hit the cap. Thereafter, revenue from additional subscriptions gets distributed pro rata as a refund to subscribers. If she has 5000 subscribers, each subscriber would get $30 back, making the net cost of supporting the author only $30 per year. If she has 50,000 subscribers, the cost drops to $3 per year, literally spare change, just a quarter per month, and the writing becomes part of a wide-open commons. Once an author has hit her cap, she still ought to (and I think still would) promote her work and try to get people to contribute. But her incentives would become egotistical and altruistic: Egotistical because public affairs writers want their work to be influential and widely available (as long as they are also paid). Altruistic because encouraging new subscribers would decrease the burden on writers’ already loyal subscriber base, and because more exposure really might contribute to the process by which ideas and insights make the world a better place.

A gentler approach might replace a simple cap with an asymptotic limit. Each dollar contributed would go to one of two pools, author payment or pro rata refunds. The first subscribers’ funds would go almost entirely to author payments, but as cumulative revenue increases, the share going to the author would decline, and the share going to refunds would increase, so that the author’s payment as a function of total revenue approaches a horizontal asymptote. Under this scheme, the transition from extrinsic peddle-subscriptions-to-pay-my-rent incentives to more intrinsic and altruistic incentives would occur very gradually. If one wanted to maintain some degree of financial incentive for authors to expand their contributor base and reduce subscriber burdens, the asymptotic limit could be by an upward sloping line, but with a slope much less than one, so that at the limit say 10¢ out of every new subscriber dollar would go towards the author, and 90¢ to the refund pool.

If you’ve got better ideas than these, please contribute them to the commons! We want to fund a lot of writing, of high quality and from a wide variety of points of view. But we want those voices to be independent, not just of particular institutions but also of the incentives imposed by variable remuneration. The humans are clever. Surely we can figure this out.


The “cap and refund” idea owes inspiration to buylibre.org and Clark Evans, ht Sigfried Gold. It bears some similarity in mechanics and in spirit to a suggestion by Ryan Cooper that a nationalized music streaming service pay out artists “progressively” — i.e. at gradually decreasing rates per-play, in order to encourage a musical commons conducive to a broad creative class rather than the winner-take-all status quo. The Glenn Greenwald quote is via Jemima Kelly‘s reporting, but the paragraph where I embed the quote is too wordy to include a hat-tip.

I want to add that this piece is not intended as an anti-Substack diatribe. I read and subscribe to a bunch of Substack newsletters, including some of the controversial ones. Overall, I think Substack has inspired a welcome renaissance in less institutional writing. I hope the current renaissance is a step on a journey to better things, that its concentration on a single platform decreases and that it evolves in a less winner-take-all direction. But overall I am grateful for Substack, and competitors like Ghost. If I were a better writer, I’d consider trying to make a living on these platforms myself.

Convenient, compulsory, compensated

Voting should be convenient, compulsory, and compensated.

We should all want everyone to vote. If this is a partisan issue at all, it’s partisan for like five minutes. It’s not actually clear which party would be hurt if everybody voted, but if one party were disproportionately harmed, it would just realign a bit. The US political system converges to a 50/50 electoral power divide, which under universal voting would move a bit closer to a 50/50 voter support divide than obtains now. You might argue that makes universal voting anti-Republican for the moment, since Republican power relies more strongly on disproportionalities in our electoral system. But that’s not right. The representation skew caused by the Senate, or by the vote-wasting overrepresentation of Democrats in dense places, would not be affected by universal voting. Unless the we reform redistricting, universal voting does not prevent gerrymandering. Given the 50/50 rule, so long as there remain disproportionalities of electoral power, one party or the other is going to continue to rely upon them.

If universal voting does have a near-term partisan effect, it will be by virtue of how current non-voters would vote, which absolutely nobody knows. Researchers and political professionals have no idea, because there is by definition no solid data. Opinion polling is notoriously bad even at predicting the behavior of “likely voters”, who are more reachable and easily characterized than nonvoters. Democratic partisans sometimes presume on the basis of crude stereotypes that voting expansion will always be good for them. Why are you sure Puerto Rico would be a blue state? (It should be a state if its public wants that regardless.) Any inferences you draw based on observed correlations between demography and voting behavior are confounded by a motherfucker of a selection effect. People’s choice of whether or not to vote is not random, and nonrandom in ways unlikely to be orthogonal to partisanship.

My guess is that under universal voting, both parties would abandon the fetishes of the weirdest, least popular elements of their coalitions. Our existing system gives tremendously disproportionate weight to motivated voters. Some people argue this is good thing. Why shouldn’t a democracy take into account the intensity as well as the prevalence of citizen preferences? Probably it should! But we already have way way way way too much of that good thing. In soliciting support before elections, and with every call they take after winning an election, politicians are overwhelmed by the tyranny of concentrated benefits versus diffuse costs. Our problem in politics is not underrepresentation of small, extremely motivated interests, whether industry lobbyists or righteous activists. Our problem is that the preferences and interests of the very broad public get overridden by those groups, and our polity is therefore so badly misgoverned it is in danger of collapse.

Under nonuniversal voting, turnout and suppression are inevitably dimensions of competition. But they are invidious dimensions of competition. I won’t waste words persuading you that competing to suppress the vote of your electoral adversaries is morally wrong and bad for democracy. Even avid practitioners concede the point, and mostly pretend suppression is not what they are doing. But conventional turnout competition is bad too. Uncompensated voting is a regressive tax. At best voting is a fixed cost, more burdensome to the less resourced. Affluent people with stable schedules, ready transportation, and spare attention have a built-in advantage. In practice, voting is more expensive, in terms of time and hassle, for poorer people, rendering it even more regressive. The goal of motivating turnout encourages drama and outrage rather than deliberation over tradeoffs. If the margin I am trying to overcome is “check this box, not that one”, we can talk about the benefits of the program and how the taxes will work. If the margin I am trying to overcome is “lose work hours you desperately need to stand in line, arrange childcare for that, pay for gas”, well, I’d better talk about how you are our last bulwark against authoritarianism, about how the other guy is Satan himself so failing to show up for our lone, beleaguered warrior would be a betrayal, even a sin. The recent Presidential election featured very high turnout, but I’m not sure you’d describe the foremath as a period of exemplary democratic deliberation.

Some of the biases of voluntary, uncompensated voting can be reduced by making voting more convenient. But, in a system where turnout and suppression are in fact dimensions of electoral competition, convenience reforms are non-neutral. They are likely to be supported by the side that sees electoral advantage in them and opposed by the side that thinks it stands to lose. Partisans may often be overconfident in their theories of how these reforms will (un)tilt the field, but nevertheless. You end up where we are, with one side emphasizing “voter access” (convenience reforms) and the other emphasizing “voter integrity”, which provides a not-facially-evil pretext for opposing convenience reforms.

This is not a great place to be! Because electoral integrity actually is a real concern. The integrity of the US electoral system is and has been in bipartisan doubt for some time. Before there were Trump operatives making stuff up about Dominion Voting Systems, there were people like Jenny Cohn and, well, me, worried about unaccountable touchscreens and “ballot marking devices” produced by ES&S and Diebold. In 2016, I think it’s fair to say that many Democrats were not 100% sure that Trump’s slim electoral margin might not have owed something to Russian incursions that went beyond publicly reported exfiltrations of information from state electoral systems. There is no credible evidence for what Democratic-leaning media have dubbed “The Big Lie” (or what diehard Trumpists call “The Steal”), and Trumpists’ attempts to circumvent the electoral authorities and courts whose role it is to adjudicate such evidence were despicable. But absence of evidence is not evidence of absence. If, however mistakenly, your priors were very strong that Donald Trump had it in the bag, it’s not ridiculous that with margins as slim as they were and the US electoral system as “loose” as it is, you might not have been persuaded of his loss. Again, this is no excuse for failing to accept the result — Democrats who felt the 2016 election was illegitimate didn’t invade the Capitol. To the very limited degree they promoted circumventing the outcome with electoral college machinations, that too was discreditable. We go into each election with the electoral system we have, not the one we might wish to have.

It is between elections that we get to improve the system, and improve it we should. We do want an electoral system the legitimacy of whose results are more sure, which produce more and more certain evidence in forms accessible to the public. It’s not ridiculous to be concerned about voting machines. With in-person voting, it is a bit ridiculous to be concerned about voter fraud, because the costs and risks of going to a polling place and lying about your identity are (or can be made) very high relative to the marginal effect an individual might have even on very close elections. However, with remote voting, voter fraud becomes a more serious issue, as the possibility of mass rather than one-at-a-time identity theft increases the potential effect, and the ability to perpetrate the fraud without physically turning up at a polling place reduces costs and risks. If this sounds like a Republican talking point, it’s also precisely why we don’t have internet or smartphone balloting, and shouldn’t any time soon. It’s hard to “hack” thousands of bodies showing up at polling places. It might not be so hard to steal the internet credentials of thousands of people and vote on their behalf from some perch beyond US law. Mail-in voting sits between easily securable in-person voting and clearly not-securable internet balloting. It might or might not be right to universalize it, and the raging of a deadly pandemic might legitimately affect the balance of costs and benefits. But we’re not having a meaningful conversation about those tradeoffs while what we’re really arguing about is access versus suppression.

In other words, we won’t do a good job of balancing security and convenience, we won’t even be able to discuss that balance, as long as election technique is subsumed in partisan competition over turnout and suppression. Compulsory, compensated voting would eliminate those dimensions of competition, and render electoral integrity a technical dispute within which both parties’ interests would be broadly aligned. This would make safe convenience a reachable goal. Convenient, compulsory, generously compensated voting would eliminate the structural bias towards the affluent, as the compensation would be more meaningful to the poor than to the rich. Convenient, compulsory, compensated voting would improve American governance, which is too much in thrall to very motivated parties and attends too little to the more diffuse interests of ordinary voters. Convenient, compulsory, compensated voting would quiet the crosswinds that make it impossible for the United States to competently administer elections because administrative choices and election-rigging are too difficult to distinguish.

Alex Kovner has a post I really like, “Start with the State“:

Most democratic discussions start with the people, and attempt to build structures from them on the principle of representation. This has resulted in some real gains for democracy, most notably the creation of the U.S. Constitution and the democratization of Europe, with changes such as the reform bill of 1832 in Great Britain. Nevertheless, it’s hard to point to any meaningful improvement in democratic structures since the 19th century. All the improvement has been directly tied to representation through the franchise, namely including women and minorities.

Instead, why don’t we start with the state, and ask what it needs to properly perform its broad social role of service to the people?

The reason to want universal voting isn’t (just) because all the people “deserve” representation. To be clear, I think they do. But maybe you don’t. You may think that layabouts who don’t value the franchise enough to endure its inconveniences deserve whatever government they get.

But if it is to govern effectively, the state needs to know and give weight in practice to its whole public’s values and interests. To do that, it requires some form of deliberate, secure, widely-agreed polling that enfranchises its whole public. The state has a strong interest in criteria for enfranchisement not becoming a dimension of political competition, as that is not conducive of deliberative excellence and undermines integrity of the polling.

Universal, secure, legitimate polling is a necessity of practical statecraft, and the quality of practical statecraft is the hinge upon which all of our fortunes in fact rise or fall together. Voting should be convenient, compulsory, and compensated.

A heathen’s Easter

I have always been a devoutly irreligious person. I’m not an atheist. I think that creed assumes we know far more about our circumstances than we actually do. But I found very little appealing about the religious tradition within which I was raised, and I’ve not been drawn to others. However, in recent years, I have developed some reverence for a certain aspect of Christianity’s founding tale.

“Love your murderer” is, I think, an ethical aspiration. That one ought to love in some fashion every human being does not mean that people shouldn’t be held accountable. Murderers and other doers of foul deeds should be punished to deter others, should be tasked with restorative work where such work can be done, should be segregated from society and deprived of some freedoms as long as they remain a danger to others. Failing as a society to insist on those things would be failing to love the humans more broadly. (I hope it goes without saying that we should love our murderer because they are human, not because they are our murderer.) But when we punish, deter, or restrain our fellow humans, that ought to be an occasion of sad necessity, not joy or righteous vengeance. We should be very humble in any suggestion that pain we impose constitutes “justice”. Taking pleasure in the harm or punishment of someone who has hurt us is understandable and effusively forgivable, at a personal level. At a social or political level, however, it is noxious. It deforms us. It provokes us to terrible acts, sometimes in the name of, rather than in opposition to, the law. Individually, it is understandable when we sometimes take self-righteous pleasure in other people’s harm. I do, far too often. But it is the opposite of an aspiration. It is a lapse.

Obviously, the Christian story is an example of a person loving his murderers. And for that alone, it draws from me a certain respect. But a few years ago my wife and I had a child, and the part of the Catholic Holy Trinity I identify with shifted, perhaps egoistically. It occurred to me that there is so much focus on the son, who forgave his own murderers. But what about the father, who is called upon to forgive the murderers of his child? “Love your murderer” is an ideal I can at least conceive of aspiring to. But “love your child’s murderer”? Intellectually, the case is the same. We owe love to the humans, unconditionally and universally. That is the foundation of human virtue. But, as the kids say: I. Can’t. Even. I can’t let my mind go there. It is too great a betrayal, at an emotion level, of the star around which I orbit.

My theological sophistication is about candy-wrapper level. But for whatever it’s worth, I consider this aspect of Christianity’s founding myth or event remarkable, and underemphasized. “Forgive them, Father, they know not what they do,” represents a profound plea from the lips of a man being painfully murdered. That a parent, one with fire and brimstone readily at hand and a notorious history of smiting, would forgive is perhaps even more astonishing, even more wonderful.

The history of Christianity, especially at the social and political level, imperfectly evinces this ethos which I draw from, or project onto, the tale. Nevertheless, I think the ethos offers crucial lessons for us now. All of our political factions, even the ones who coined the pejorative term, slip frequently into “othering” one another. I take that to mean a withdrawal of the love, or even the aspiration of love, from some group or class of humans, often because “they” are purported to be vicious or guilty or dangerous, to have harmed us or our values or people we hold dear. There is a lot in our social affairs that needs changing, and there will be losers as well as winners from those changes. In a broad sense, I think if we act well and wisely, there will be many fewer losers than we fear, because our misarranged society exacts terrible costs even upon most of its “winners”. We reform society out of love for humans, to create scope for greater flourishing. But when people are harmed, whether transiently or durably, that counts as a cost, regardless of how wicked we persuade ourselves are the losers. That there will be losers is no excuse for inaction, in the same way that our love for a murderer mustn’t inhibit us from sober punishment. We owe a duty to all the humans. However difficult it may be to quantify human welfare, as best we can we must find ways of improving it. But the eggs we must break are losses to be minimized, not righteous smiting of the vicious. To whomever you are shouting at, owning, canceling, legislating against, you owe a duty of love. Aspire to love even your murderer. If you are better than me (and I assure you, you are), aspire to love even your child’s.

Happy Easter, to all those who celebrate it. And to all of those who don’t.

Update History:

  • 04-Apr-2020, 4:25 p.m. EDT: “there will be losers as well as winners, from those changes”; ” But to the degree when people are harmed, whether transiently or durably, that…”; “…the eggs we must break are costs losses to be minimized…”