Segregation is a normal good

There’s a view that, since much of American inequality can be explained by the dynamics of housing wealth (as famously argued by Matthew Rognlie), then we could remedy inequality, or at least prevent its increase, if we took a battering ram to the gated city by eliminating height limits and exclusionary zoning and other restrictions that make it difficult for developers to add housing supply as prices increase in desirable cities and neighborhoods. I think this view is mistaken. It gets causality backwards.

It is not hard to find explanations for the increase in inequality in the US. There has been an evisceration of labor unions; selective globalization that puts the working class but not the professional class in competition with labor in developing countries; skill-biased technical change and automation that substitutes labor for capital or threatens to. All of these reduce the power of labor to bargain for their share of the economic pie. Market power increasingly concentrates income and wealth, via Facebook or Google with their unassailable platforms, via Pharma and Hollywood thanks to the expansion of narrowly conceived patents and copyrights into amorphous “intellectual property”. Deregulation of finance and various forms of “financial innovation” made it possible for skilled financiers to lay claim to gains while offloading risks, creating a class of people who won big until they didn’t but never lost very much. The professional class, thanks to the general bailout of creditors when things came apart, hitched a ride on the coattails of the gamesters of finance and came through the great financial crisis largely unscathed, while the middle and working class lost their homes and marriages and self-esteem to a margin call on housing, which has since recovered in other people’s hands.

You can certainly add having bought the right properties in the right cities in the 1970s and 1980s to the list of drivers of inequality, but I don’t think it is a big piece of the puzzle. Instead, I think it is more accurate to point out that one of the first and most valuable amenities people purchase when they become wealthier is wealthier neighbors. Wealthy people self-segregate, and the places to which they self-segregate become valuable, because the way you get a place limited to wealthy people is by bidding up the price of being in that place. The community, or the city, is gated for a reason.

Now this sounds like a story of dastardly rich people. It is not. It is a story of humans, and how humans naturally and understandably behave in the society that we have built. To be successful in our society, to be a good person, is to be a successful capitalist. One should accumulate educational and financial resources, steward them responsibly, and invest them in labor and capital markets or business entrepreneurship to yield decent returns. Failing to do this is waste. Consideration of the welfare of others is mostly delegated to the state, or else to arms-length charities to which one budgets as one sees fit. The misfortune of your neighbor, or of your cousin, is not your misfortune directly. One could never be a successful microcapitalist, and therefore a good person, if one took it upon oneself to indemnify the mishaps and misfortunes of ones neighborhood and extended family. To do too much of that is a kind of squandering, a kind of waste. If it puts the welfare of your own family at risk, especially if it reduces your child’s quality of life or education, it segues from failure to sin.

This ethos is very difficult to maintain, for human beings most of whom do strive to be good, do try to be virtuous, if we live directly among misfortune. We strive to find ways of reconciling being good and doing well, and to consider ourselves good we want to feel and be viewed as generous within our own, directly experienced communities. But we cannot simultaneously be successful microcapitalists and generous people according to the norms of less fortunate communities. Because while in theory, under mixed-economy capitalism, the state provides the less fortunate with the insurance they require to live decent lives in a topsy-turvy economy, in practice, in the United States, it does a pathetically inadequate job of it. In poorer communities, people manage their risks by pooling them directly, helping a neighbor with a rent check to prevent an eviction, or else letting her crash at their place for a while. Poorer people insure one another by forming lasting human relationships under which they make directly available, or directly draw upon, one another’s real and financial resources. Wealthier people “self-insure”, but of course that is an oxymoron. What insurance means is to create claims upon others’ resources that we can draw upon if we suffer misfortune. The “self-insurance” of the wealthy replaces the interpersonal claims of informal insurance with financial claims exercised via arms-length markets. Wealthier people save money they can draw upon in times of trouble. They purchase formal insurance contracts. Most of us try very hard not to trouble our neighbors with our misfortunes, but wealthier people are much more likely to succeed. Which makes wealthier people desirable neighbors, especially for wealthier people upon whose disproportionate resources the misfortunes of poorer people might make strong emotional and moral claims.

The wealthy huff a lot about efficiency, but what fundamentally distinguishes the insurance behavior of the wealthy and the poor is that the poor insure one another with much greater capital efficiency than the rich. The wealthy prefund their insurance individually, each household accumulating cushions of financial savings and contingent assets, the majority of which are rarely drawn upon. The poor never hold much in the way of assets they do not require, but draw upon the resources of their community and family on an as-needed basis. Wealthy communities hold financial assets multiples in value of what members of the community will ever actually use, but each household within a wealthy community may genuinely have no resources to spare, in the sense of having endowed themselves sufficiently to buffer their family’s customary lifestyle against potential shocks. At a social level, the capital inefficiency of financial “self-insurance” need not be a problem. Financial resources aren’t inherently scarce like real resources, and one can imagine a policy regime in which some sort of financial claim was made so broadly available that all households could “self-insure” in this way without increasing any burden on real resources. But in the world as it is, wisely or not, only the wealthy can afford the luxury of dormant, underutilized financial claims. The not-so-wealthy must find ways of managing their risks without the intermediation of money and markets. They call upon on another for help, and when disputes arise, as they often do with respect to need-based claims, rather than hire a lawyer to fight the insurer as a wealthy household might, neighbors and families must argue it out, in discussions that may become painful and personal and destructive of valuable relationships. Like most efficiencies, capital-efficient mutual insurance has costs invisible to the outputs-over-inputs computation. As we become wealthier, we trade less intensive use of the financial claims at our disposal for the peace of not having to field or make claims upon our neighbors.

This would all be true even if it were not the case — but of course it is the case — that various sorts of crime and discomfiting behavior correlate geographically with poverty. That correlation is itself, I think, a function of reconciling inequality with a liberal society, an effect much more than a cause of that inequality. You can agree with that or not, but the correlation still stands, and people want to move to nice neighborhoods, where “nice” is defined by the behavior of your neighbors, and wealthier people are more likely to be “nice” in the sense of troubling you less than poorer people.

Segregation is a normal good, for individuals and families. As people become wealthier, they want to insulate themselves from the chaos of other people’s lives. In a relatively equal society, there is no community of people more or less capable of substituting formal, maket-intermediated forms of mutual insurance for interpersonal and relationship-based mutual insurance. As a society that celebrates personal accumulation and self-reliance becomes unequal, then unless the state itself provides sufficient formal insurance, those capable of “self-insurance” will migrate away from those who survive by sometimes tugging on their neighbors heart strings and purse strings. Some will move explicitly into gated communities. For the more liberal and cosmopolitan among the wealthy, the quiet gate of high market prices — which they themselves must work and sacrifice to pay! — is more spiritually congenial. Individually we take prices as just a fact of nature, so the control prices exercise seems natural and legitimate, even if, from some idealistic perspective, lamentable.

In the US, segregation is overdetermined. If by the path-dependence of horrible history, we find that wealth and race become correlated, this tendency of the wealthy to segregate themselves from the poor would be sufficient to engender racial segregation. Add, gently, a modest preference for same-race neighbors or, less gently, outright racial animus, and it’s unsurprising that in the US we see the sharpest segregation across racial lines that are also economic lines. And of course, while segregation may be an outcome of yesterday’s economic tournaments, it also shapes the outcomes of tomorrow’s tournaments. The children of parents who could afford to withdraw themselves to gated communities with great schools are much more likely to be able to do so themselves, as they inherit both social capital and much of the financial capital their parents held as insurance. Race and racism very obviously shape and harden segregation in America. But we would and will have it in some shape or form regardless, as long as we are so unequal in our capacities to insure ourselves by impersonal means, and liberal enough to accommodate the preference of the wealthy to withdraw from the very personal claims of the less well insured. And just as race shapes segregation, segregation shapes race. Segregated communities don’t remain just groups of different individuals for very long. Across the lines, the different communities give one another names, turn anecdote and experience into stereotypes, attribute differences in circumstance to differences of character, behave in ways that presume and reinforce group differences. Over a generational time horizon, the phrase “racial segregation” is a tautology.

Update History:

  • 27-Jan-2018, 10:20 p.m. PST: “…Matthew Rognlie), that then we could remedy inequality, or at least prevent its increase, if…”

Quick thoughts about airline economics

  • If you’ve not already read this piece by Matt Stoller challenging the conventional wisdom that airline deregulation in the 1970s has been a great success, you should. See also this 2012 piece by Phillip Longman and Lina Khan, and this 2015 piece by Longman. Thanks to Matt Ygesias and Marshall Steinbaum for pointers.

  • You should also read Yglesias’ not-so-much-challenging-the-conventional-wisdom piece on why air travel sucks so much these days. Pieces like this have a long pedigree. Here is Megan McArdle in 2015, for example.

  • Conversations about airline regulation are often framed in terms of neoliberalism and its discontents. That’s dumb. On purely neoliberal terms, airlines were never a good candidate for “the magic of competition” to do its work. Neoliberals should support some form of regulation of air travel for precisely the same reason they support the limited, regulated monopolies provided by patent and copyright protection. Just like inventing stuff or writing novels, air travel is a high fixed cost, low marginal cost business. The prediction of the Economics 101 reasoning that animates neoliberal thinking is that, if competition is let to do its work, price will fall to marginal cost, and all the airlines will go out of business. And that’s right. That basically was the result of airline deregulation. It was, of course, nice for consumers during the period when competition drove price towards marginal cost. But that was a classic Stein’s Law moment, and it is silly to imagine it can be indefinitely repeated. Airline investors may be dumb, but even they eventually learn. Plus, the subsidy provided to airline consumers by loss-making airlines was not provided only by foolish investors. Ex post, airline creditors, employees, retirees contributed to the subsidy by having their debts, pensions, and benefits written down. Taxpayers contributed to the subsidy by bailing out the airlines. If we mean to keep air travel cheap via some form of socialized subsidy, we can do a better job of designing it.

  • Unsurprisingly, absent state protection from forms of price competition incompatible with their continued operation, the airlines tried and eventually succeeded to gain some protection via consolidation and monopolization of scarce slotting at airports. So, instead of state-managed pricing power, we have industry-managed pricing power. (This is one of Stoller’s main points.) By its nature, a sustainable air travel business is going to be regulated by something other than straightforward price competition. The question isn’t whether the industry will be regulated, but how and by whom, whether the state or a tacit cartel is more likely to do a better job.

  • None of this is to hold up the 1970s Civil Aviation Board as a model of virtue. I don’t know the history or the industry well enough to make claims about the details of that regulatory regime. I suspect it had flaws. But so long as the issue is framed as a debate about “deregulation”, we will make no progress. Whether we craft it legislatively or let it evolve from strategic behavior within the industry, some regime will emerge that prevents competition from driving price to marginal cost.

  • One aspect of the ancien régime that I think we do want to resuscitate is frequent and inexpensive service to smaller and mid-tier markets. Yglesias writes, in a tweetstorm, which I have edited into text:

    [Phil Longman and Lina Khan] note that deregulation robbed many smaller cities of the covert subsidies that were funneled there way by the Civil Aeronautics Board. This was a downside of deregulation and the goal is to conclude that deregulation is bad, one concludes that the loss of subsidy was bad. But separate from the question of deregulation, it’s worth actually asking the question of whether or not this is a worthy policy goal. If subsidized airfare generates large community benefits, presumably communities themselves could provide the subsidy. And if the overall policy objective is to ensure that poor places receive economic resources, you could do that by giving them money. So that the people of St. Louis or Cleveland or wherever could decide if subsidizing airline service is what their community best needs. But it seems to me that air travel is associated with lots of negative pollution externalities and we should tax it, not subsidize it.

    I think that this view is mistaken. If there is one reason why “neoliberalism” most deserves the pejorative connotation it has taken, I’d argue it is the tendency to look through the forest ecosystem of human communities and see only a bunch of individual trees. Yglesias makes this error here with a twist, he looks through the national community to metropolitan communities, and treats these as independent actors whose choices or wealth are all that matter. The case for supporting a rich transportation infrastructure to and from St. Louis or Cleveland isn’t (just) that we wish those communities well like some distant acquaintance. It is because we wish to build and support a vibrant and cohesive nation. The fate of American places is not a private concern of other people. Their struggles are our struggles. Their catastrophes are a cancer on our body politic. It is desperately urgent, the most urgent problem we face in my view, to mend some of the many ways that we find ourselves fraying as a nation. Yglesias appreciates this in other contexts. For example, he has proposed spreading the Federal government around, which would among other things help blur and heal the divide between “Washington” (an idea more than a place) and the increasing fraction of the country which feels alienated from it. There is a burgeoning industry among pundits for proposals like this, break up the liberal city, spread out the universities, pay a UBI, etc. And that is unironically great. Hopefully we will do some of these things.

    But the case for transportation infrastructure, meaning not just the physical facilities, but the institutions required to ensure rapid, convenient movement between places, is doubly strong. Like those other ideas, building transportation infrastructure provides and encourages economic development within far-flung communities, reducing the geographic disparities that now threaten the viability of the United States as an integrated polity. But transportation infrastructure also very directly binds distant parts of the polity together, and reduces the likelihood that dangerous disparity will develop or endure. If Cincinnati has abundant and cheap air transportation capacity that will remain whether it is fully utilized or not, firms in New York and DC and San Francisco will start thinking about how they can take advantage of the lower costs of those regions in a context of virtual geographic proximity. When decisions about transportation capacity are left to private markets, a winner-take-all dynamic takes hold that is understandable and reasonable from a business perspective, but is contrary to the national interest. Private entrepreneurs cannot overcome this. Even if an airline were to “adopt” an underserved city, providing transportation at a loss in hopes that a business renaissance later justifies it, firms will be discouraged from moving in by the ever present risk that the service will disappear or the terms will worsen. Only a commitment at a policy level to abundant and inexpensive transportation can eliminate this risk.

    It’s a cliché that the government builds “bridges to nowhere” that the private sector never would build. That’s true. And it’s a credit to the public sector. Bridges to nowhere are what turn nowheres into somewheres. We need many, many more bridges to nowhere.

  • Finally, I want to express my annoyance at a trope in punditry about air travel that is as common as it is mistaken. Here is Kevin Drum:

    So flying sucks because we, the customers, have made it clear that we don’t care. We love to gripe, but we just flatly aren’t willing to pay more for a better experience. Certain individuals (i.e., the 10 percent of the population over six feet tall) are willing to pay for legroom. Some are willing to pay more for extra baggage. Some are willing to pay more for a window seat. But most of us aren’t. If the ticket price on We Care Airlines is $10 more, we click the link for Suck It Up Airlines. We did the same thing before the web too. As usual, the fault lies not in the stars, but in ourselves.

    Here is Megan McArdle, in a piece titled (by somebody) “Hate Flying? It’s Your Fault”:

    Ultimately, the reason airlines cram us into tiny seats and upcharge for everything is that we’re out there on Expedia and Kayak, shopping on exactly one dimension: the price of the flight. To win business, airlines have to deliver the absolute lowest fare. And the way to do that is . . . to cram us into tiny seats and upcharge for everything. If American consumers were willing to pay more for a better experience, they’d deliver it. We’re not, and they don’t.

    There are two things wrong with this line that air travel is awful because consumers’ true revealed preference is that it should be awful and cheap. First, there is the fact that air travel managed by the main domestic carriers in the United States is uniquely awful, and there is no evidence that US travelers are any more price conscious than consumers in other countries. No frills, discount air travel is popular in Europe as well, and it is sometimes awful, but it is on the whole much cheaper than “discount” air travel within the US. Mainstream carriers almost everywhere else in the developed world are notably less awful than the big American carriers, and often just as cheap.

    Second, this line of reasoning reflects a very basic misinterpretation of economics. Aggregate outcomes are not in general or even usually interpretable as an aggregation of individual preferences. When we learn about the Prisoners’ Dilemma, we don’t interpret the fact that both players rat as evidence that, really, they both just wanted to go to jail for a long time. After all, that is their revealed preference, right? No. We understand that the arrangement that would obtain if they could cooperatively regulate one another’s behavior is in fact the outcome that they would prefer. As isolated individuals, they simply have no capacity to express this preference.

    The same may well be true of air travel. As individuals, we face some degree of choice between price and quality when we purchase plane tickets, and maybe it’s true that under present circumstances, most of us don’t reveal a preference for paying much for quality. [1] But as individuals we face a very different trade-off than we do collectively, in aggregate. In particular, as individuals the amenity value of a flight is highly uncertain, whether we mean to pay up for quality or not. No matter how much we pay for extra leg room, we may end up next to the screaming kid. Our “media center” may be malfuctioning even while our neighbors watch an endless series of bad action films, and ultimately there is nothing we can do but nag the flight attendant about it. The wifi may be decent, or it may be crap, however much we pay for it.

    On an individual level, it is perfectly rational to discount a highly uncertain return in amenity value relative to what one would pay for a reliably enjoyable flight. [2] But because customers choose what to pay as individuals, airlines’ incentive to invest in quality reflects the tiny uncertainty-discounted value of amenities, not the value that travelers would place on those amenities if they were far more reliably provided. Reflecting this, airlines don’t invest much in quality, so quality differential between US airlines tends to be small relative to the uncertainty surrounding the experience. And so customers shop based almost exclusively on price, because they rationally discount small, extremely uncertain quality differentials to near zero. But that creates incentives for airlines to compete by continually downgrading quality to optimize on price. When you or I buy a plane ticket, we are not expressing a preference between the standards of service that obtained in 1976 and the price that would be required to support that vs the indignities and somewhat lower prices of today. With each budget airline ticket purchase, we are expressing a preference only over a very tiny and uncertain quality differential. It is quite possible (I would say quite probable) that the behavior in aggregate that results from those individual choices reflects quite the opposite of our true preferences. If that is the case, as in the Prisoners’ Dilemma, the solution to the problem would be to cooperate to regulate the circumstance in which our isolated, individual choices yield bad outcomes.

    Competitive races to places you don’t want to go are in fact a very common phenomenon. Most of us don’t, for example, claim that if workers who compete for jobs find they must accept unsafe workplaces, that merely reflects individuals’ preferences about trade-offs between pay and safety. We understand that there is a competitive dynamic that can leave workers with little choice but to accept crappy jobs, and employers with little choice but to scrimp on safety (however personally virtuous an individual business owner may mean to be). The solution to this problem isn’t to talk about how we are all terrible people and we bring this on ourselves. Instead, we invent OSHA, which is a means by which business owners coordinate to ensure that behaving decently is consistent with business survival in the context of continuing competitive dynamics.

[1] That is contestable, given how much the airlines now make in fees for things one might describe as disaggregated dimensions of quality — extra leg room, priority boarding, food, any baggage at all.

[2] It makes sense that people who purchase “diversified portfolios of air travel amenities” — very frequent fliers — would more rather than less likely to pay up for amenities than infrequent travelers, despite the multiplication of costs. And I think that is the case. Am I right?

Update History:

  • 14-Apr-2017, 10:50 a.m. PDT: “…makes this error here with a twist, he looks through the natural national community to metropolitan…”
  • 16-Apr-2017, 10:35 p.m. PDT: “…days. Piece Pieces like this have a long pedigree. Here…”; “building transportation infrastructure provides and encourage encourages economic development”

A tao of politics

Most uses of language can be understood in both referential and functional terms. If I tell the policeman “He ran the red light”, in referential terms I am claiming that, in some world external to my language, there was a car driven by a person I refer to as “he” which crossed an intersection while a red lightbulb was lit. But my words have functions as well, quite apart from what they refer to. A person might be fined or go to jail as a consequence of what I say. I might be conveniently exonerated of responsibility for an accident. Those consequences might be independent of the referential accuracy of the remark. Or they might not be. Perhaps there will be other corroborations, and inconvenient penalties if I am deemed to have lied. Regardless, it is simultaneously true that words refer to things and utterances have consequences. Both as speakers and as listeners (or as writers and as readers) we need to consider the “meaning” of a use of language on both levels if we are to communicate effectively.

Often there are tensions between referential accuracy and functional utility. Referential accuracy does not necessarily imply virtue. Whether we agree with the practice or not, we all understand what is meant by a “white lie”. Statements with identical referential meaning can yield profoundly different social consequences depending on how they are said. To “speak diplomatically” does not mean to lie, but rather to pay especial attention to the likely effects of an utterance while trying to retain referential accuracy. To “spin” has a similar meaning but a different connotation, it suggests subordinating referential clarity to functional aspects of speech in a crassly self-interested way. But paying attention to the functional role of language is not in itself self-interested or crass. We all pay attention to how we speak as well as what we say. If we did not, we would needlessly harm people. Even if we are scrupulously truthful, we all make choices about what to say and what to omit, when to speak and when to remain silent. When we discuss our inner lives, often the consequences of our utterances are more clear (even to ourselves) than their referential accuracy, and perhaps we let the desirability of the consequences define what we take to be the truth. Perhaps that is not, or not always, without virtue.

This bifurcation of language into referential and functional strikes me as illuminating of the stereotyped left-right axis in politics. In broad, almost cartoonish, terms, one might describe a “left” view that humans as individuals have limited power over their own lives, so the work of politics is to organize collectively to create circumstances and institutions that yield desirable social outcomes. The “right” view is that, absent interference by collectivities that are inevitably blind to fine-grained circumstances (and that usually are corrupt), individuals have a great deal of power over their own lives, so that differences in outcome mostly amount to “just desserts”. It’s obvious why there might be some conflict between people who hold these different views.

On the key, core, question of whether individuals have a great deal of power or very limited power to control outcomes in their own lives, the stereotyped left view is, in referential terms, more accurate. If you are born in poverty in a war-torn country and fail to achieve a comfortable American-style upper-middle-class life style, it’s hard to say that’s on you, even if some very tiny sliver of your countrymen do manage to survive to adulthood, emigrate, and prosper. In narrower contexts, the question becomes less clear. For those lucky enough to be born in a developed country, are differences in outcome mostly a result of individual agency? For Americans born white, raised in middle-class comfort, and provided an education? For people born with identical genes? The case that differences in outcome result from choices under the control of individuals, for which they might be held responsible, grows stronger as we restrict the sample to people facing more similar circumstances. But even among the most narrow of cohorts, shit happens. People get sick, debilitated even, through no fault of their own. As a general proposition, individual human action is overwhelmed by circumstance and entropy. Policies designed with grit and bootstraps for their engine and individual choice for their steering wheel usually fail to achieve good social outcomes. This is the sense in which it’s true that “the facts have a well-known liberal bias“.

But, before the left-ish side of the world takes a self-satisfied gloat, it should face an uncomfortable hitch. In functional terms, widespread acceptance of the false-ish right-ish claim — that people have a great deal of power over their own lives, and so should be held responsible as individuals for differences in outcome — may be important to the success of the forms of collective organization that people with more accurate, left-ish views strive to implement. This isn’t a hard case to make. A good society, qua left-ish intuitions, might provide a lot of insurance to citizens against vicissitudes of circumstance. A generous welfare state might cushion the experience of joblessness, housing and medical care might be provided as a right, a basic cash income might be provided to all. But a prosperous society with a generous welfare state requires a lot of people to be doing hard work, including lots of work people might prefer not to do. If people are inclined to see their own and others’ affairs as products of circumstance, they might easily forgive themselves accepting the benefits of a welfare state while working little to support it, and even lobbying for more. They might find it difficult to criticize or stigmatize others who do the same. That would lead to welfare-state collapse, the standard right-wing prediction. But if an ethos of agency and personal responsibility prevails, if differences in outcome are attributed to individual choices even in ways that are not descriptively accurate, if as a social matter people discriminate between justifiable and unjustifiable uses of public benefits and stigmatize the latter, the very prevalence of a right-wing view of human affairs might falsify the right-wing prediction and help to sustain the left-wing welfare state. Conversely, the existence of a left-wing social democratic welfare state renders the right-wing view less wrong, because it diminishes disparity of circumstance, increasing the degree to which differences in outcome actually can be attributed to individuals’ choices. Irreconcilable views reinforce one another.

God is an ironist. If left-ish views are referentially accurate while right-ish views are functionally useful, then a wise polity will require an awkward superposition of left-ish perspectives to inform policy design and right-ish perspectives as public ethos. Singapore is ostentatiously capitalist, is widely perceived as a kind of protolibertarian paradise, yet it builds a rich welfare state out of mandatory, government-controlled “savings” and extensive intervention in health care and housing markets. The Scandinavian countries are left-wing social democracies, built on a politics of trade union solidarity, yet the right-wing Heritage Foundation ranks them about as “economically free” as the United States despite governments that spend much larger shares of GDP. Nordic politicians bristle at being called “socialist”, and they maintain higher levels of labor-force participation than the welfare-stingy US.

Like Yin and Yang, black and white, right and left might stand perpetually in opposition even as they require one another to form a coherently incoherent whole.

You tell me it’s the institution

“The idea of Social Security, which some reactionaries used to label as alien to the American tradition, has become so firmly rooted here in America that business, labor, finance, and all political parties now accept it as a permanent system.”
FDR (1938)

Lyman Stone is a wonderful writer I have only recently discovered. (Thanks Will Wilkinson!) You should read everything he writes. This, unfortunately, is not his best work. But it presents a useful occasion to say some things about “institutions”.

“Institution” is one of those words much more frequently used than understood. It has multiple, quite different meanings, both in common usage and as a term-of-art in social affairs. Let’s go through a few of them. (I’m sure there are more. The word itself is an institution.)

In its most common usage, “institution” most just means formal organization. We might say “Bluegrass Community and Technical College is an educational institution”. The pompous president of a corporation might regale assembled shareholders with an account of how things are proceeding “in this institution”.

A second meaning in common usage is simply something unusually prominent or important to some community. “That crazy hot-dog vendor is an institution in this town.” Or, um, “The word itself is an institution.”

In discussions of social affairs, the word “institution” does not mean either of those things, exactly. Because language, even technical language, is beautiful, and because language, in order to form itself, feeds upon associations and connections in the minds of those who affect to wield it, you will find echoes and overlaps between the word’s common-use meanings and its meanings in social theory. But they are not the same.

A narrow definition of “institution” in social theory is something like “a pattern of social behavior in which participants occupy stereotyped roles which are independent of the identities of the individuals who perform them”. Motherhood is an institution, while your habit of babysitting your friend’s nephew is not. The former is a general social pattern independent of the people who, multiply and at different times, perform the roles of mother and child. The latter is just something you happen to do. If you become famous and “friendnephewsitting” becomes a widely adopted practice then, yes, then it would become an institution. But, for now, no. On the bright side, babysitting itself is most certainly an institution. You’ll always have that.

Finally, there is a broader use of “institution” in social affairs. Economists, God help us, frequently refer to things like “the quality of a nation’s institutions” in spinning just-so stories about why some countries thrive and other falter. They don’t mean to say that one country does patterns-of-social-behavior-with-stereotyped-roles better than any other. All human agglomerations form institutions in that sense just fine. Motherhood, for example, is close to universal. Bribery is most certainly an institution, prominent to various degrees in many polities. Most economists (but not always or all, this is interestingly contested) would deem prominence of bribery as an institution in society to be reflective of “low quality institutions”, however fervently and frequently the practice is enacted. All societies have “strong institutions”, in the sense of having entrenched patterns of social behavior. However, different societies enact different institutions. When an economist makes comparisons between the quality of a country’s institutions, she is not referring to their resilience or ubiquity. She is making judgments about the adaptiveness of the bundle of patterns-of-social-behavior-with-stereotyped-roles prominent in one country relative to the mix of institutions found elsewhere.

This agglomerative usage of institutions is the most common one in policy discussions. When we talk about some entity’s “institutions”, we are using that as a shorthand for the patterns of social behavior we observe within it. I have quietly dropped the qualification -with-stereotyped-roles, which we so emphasized in the first, technical definition. That is on purpose. In practice, outside of specific technical contexts, the word institution has come to mean simply any pattern of social behavior that might form part of a portfolio of such patterns which together constitute the je ne sais quoi of a group. Institutions become the stuff that gives different collections of humans distinct character even under identical circumstances. You might think of them as atoms of “culture”, another vague and grandly abused term. But then you might object — you should object! — that purely individual propensities, when aggregated, also contribute to “culture”. True, true! Fortunately, the agglomerative usage of “institutions” is so teleological and imprecise that it amoebically comes to encompass even purely individual propensities, to the degree that they are claimed to affect the quality of the aggregated whole. Individual thrift, for example, becomes an “institution”, because people claim that such thriftiness is material to the character and adaptedness of the whole. This usage creep can be misleading, sometimes dangerously so. For example, it’s not particularly plausible to suggest that elaborate patterns-of-social-behavior-with-stereotyped-roles, like representative democracy, are heritable genetic traits. But it may be plausible that individual propensities are heritable. Once we let individual propensities sneak into our definition of “institution”, then it becomes plausible that at least some institutions are genetic. But if “institutions” can be genetic, so can representative democracy, right? Things go downhill very quickly from there.

This usage of “institutions” becomes infuriatingly vague, but that may be why it is so prevalent. We need labels for all the things that we can’t quite pin down, because we know there are things we can’t pin down that are important in their effects. Social scientists frequently try to identify or operationalize “institutions”, to come up with comparative datasets of institutional character or quality. But these empirical exercises necessarily impose very contestable models of which particular institutions are relevant to the outcomes they measure — “An independent judiciary!”, “Fast business formation!”. Measurement is a huge problem. Societies may have the formal trappings of institutions (reminiscent of our first common usage) without the behavioral substance researchers intend to measure. The formal constitution of an autocracy might be idealistic and democratic, for example, but that obscures rather than reveals the actual institutions of the state. Characterizing institutions is hard. Casual attempts often reveal more about the prejudices of the attempter than they do about the society ostensibly described.

The way I like to think of “institutions” is this: Institutions are to groups what habits are to individuals. Attributing social differences to institutions is similar to attributing individual differences to varations of habit. It’s not wrong or entirely meaningless, but it’s also unsatisfying, incomplete, a bit tautological. How and why did the different habits, individual or collective, emerge? What sustains or might undo them? Changing social institutions is a process similar and similarly fraught to changing habits. Just as it is not enough to simply resolve to stop smoking, if you mean to break the habit of smoking, the mere passage of a law or enactment of a policy may not succeed at changing social conditions embedded in our collective habits. But that does not mean we are helpless, that (in Stone’s mistaken assertion) “the point of institutions is that they are not usually malleable to directed change”. If we wish to stop smoking, we do resolve to stop smoking, but we also work to change our circumstances and incentives in ways that support the desired change. We might avoid smoky bars (or we might have, back when there were still smoky bars). We might wear a nicotine patch, or take drugs that block the effect of inhaled nicotine. That is, to change habits, we do not merely resolve, but we act strategically upon ourselves as though we were an object as well as a subject. We change institutions all the time, and in precisely the same way. There is nothing magical or mysterious or necessarily even hard about creating, modifying, or undoing social institutions. In my other life, I do a lot of work related to blockchains, which interest me precisely because they are a technology for reifying the kinds of circumstances and incentives that contribute to institution formation, and they are amenable to intentional construction and directed change.

It is a trick of conservatives — who, when they live up to their name, wish by definition to prevent some kind of change — to claim that the status quo is immutable, change is impossible, unnatural. Attempts would be destructive. Conservatives try to ground the way things are in mysteries of culture, in ancient hatreds or deep currents of history, in arcana of genetics or race, or, now that they are vague and fashionable, in “institutions”[*]. But institutional change happens every day, all the time, at a micro level within families and businesses, at a political level sometimes quite abruptly, often though not always in directions that were explicitly conceived and intended. As individuals we sometimes find we have fallen into unintended habits. At a social level we sometimes find ourselves in institutions that are harmful or dysfunctional. In either case, we try to change. If we are serious and strategic, sometimes we can.

Meaningful social change occurs at three different levels, at a policy level, an ideological level, and an institutional level. The art of politics is to engender resonance between all three, between the technocratic formalities of policy, and the worldview we take for granted, and the interactions we find ourselves performing. No one says that it is easy. When you think about all the moving parts involved, it is a miracle that any one of us even breathes. But we do breathe. And societies do change, frequently, often as a result of intentional work on the part of people within them.

[*] “Conservative” doesn’t mean good or bad. We are all sometimes “conservatives”. I suspect many readers of this blog are conservative with respect to some changes that we fear a Trump administration might make. We speak frequently of hopes that “American institutions” will resist those changes. By “American institutions” we mean both formal organizations like the court system, but also the habits and tendencies of Americans. It’s not ridiculous to hope that changing longstanding expectations and behaviors will prove difficult. But it would be a mistake to imagine our institutions so mysterious and refractory that they could not be altered, so we are surely safe. If our circumstances and incentives change, we will change. Preventing that, or shaping it, is a live challenge.


A lot of arguments which ought to be about politics become arguments about principles or morality. We can have interesting arguments over competing values, like weighing the concrete harms that might be done by publicly outing undocumented students against support for free expression and nonviolence. Even when we share similar values, people will weigh tradeoffs between them differently to arrive at very different conclusions. And that’s great.

But it isn’t politics. Among the communities that I am a part of, within the well-appointed ghetto I live in, there is an unusual degree of consensus that we are living through a dangerous time, that the current governing coalition of our country represents a mix of malignity and incompetence so hazardous that our absolute priority must be to check and constrain it. That is much less a moral or ethical problem than it is a practical one. Within the political system we have inherited, with its quirks and virtues and flaws, how can we ensure that we have and can sustain the capacity to block the most terrible things?

There are, thank goodness, the courts. They sabotaged the ACA Medicaid expansion, stranding millions of low-income people in Red states without healthcare. They prevented implementation of President Obama’s humane expansion of DACA and implementation of DAPA. But now they have also prevented implementation of President Trump’s ugly executive order on immigration, which is terrible in its content but absolutely terrifying in light of the manner in which it was initially (and intentionally, I think) implemented. So, yay courts.

The courts are important, but not enough. The main and most durable check on the powers of the executive in our system is the legislative branch, the Congress. Like a lot of people, I’ve been very impressed with the Indivisible Guide. I certainly recommend that people read it and join into the sort of groups and coalitions that it recommends. The Indivisible Guide quite self-consciously takes a page from the Tea Party’s playbook, and notes that “If a small minority in the Tea Party could stop President Obama, then we the majority can stop a petty tyrant named Trump.” It advises people on effective ways to put the fear of God into their own Members of Congress to ensure that they do the right thing.

I want to be clear that I encourage readers to download and read the Indivisible Guide, and to absolutely to engage in the manner that it prescribes. But I think that won’t be enough. The Tea Party, for all of its grassroots energy and astroturf money, might not have had much success if Republicans had not commanded legislative majorities. The Tea Party was effective because its activists were direct constituents to members of the dominant party in Congress, direct not just in the geographic sense of being citizens of their states or districts, but in the concrete sense of being the very same people who voted them into office. The threat of defection by Tea Partiers had real teeth, because it jeopardized members’ electoral coalitions, and their safest and most effective strategy for reelection is to hold their coalitions rather than gamble on alienating old voters to win new ones. However activated the anti-Trump base becomes, even in Republican districts of Red states, members of Congress have little reason to care if they believe that the suddenly engaged members of their constituency are people who didn’t vote for them the last time and who, under current conditions of party polarization, are unlikely to vote for them the next time. This fact is in-your-face visible right now, with members of Congress literally hanging up the phones on passionate voters. When Jason Chaffetz accuses citizens of his district of being part of some “paid attempt to bully and intimidate”, it’s not because he is so foolish as to actually believe that. It reflects a calculation on his part that he can afford to neglect and alienate the people he heard from, because they were people who hadn’t voted for him and never would.

In my opinion, there is no substitute for actually persuading people who might not already be on our side. Could any claim be more banal than to say that politics is about persuading people? However, for a variety of reasons, I think at this political moment, it’s a claim that needs defending. There is a temptation among the most committed activists to be fatalistic about the possibility of persuasion, to imagine that all of those who are not already with us are irredeemable, or that our actions will be so misrepresented by a hostile media bubble that the substance of what we actually do or don’t do makes no difference at all in the court of public opinion. These views are seductive, because they carry with them a whiff of liberation. If persuasion is impossible, then we need not placate, propitiate, conciliate, mollify. We need worry no longer about “optics”. We are free to act, to #resist, to #disrupt. As Mad Dog Mattis put it, when the enemy deserves it, “it’s a hell of a lot of fun to shoot them.” I suspect that applies pretty well to punching Nazis too. If you tell me, as a moral proposition, that punching Nazis is virtuous, I can’t say that you are necessarily wrong. Moreover, Carl Beijer writes, “If you are seriously willing to entertain sympathy for a Nazi for any reason, it was probably just a matter of time until you found an excuse [to support a fascist crackdown]” If that is true, no political harm can possibly have been done by the violence and there is no reason to worry about politics or “think globally”. You are free to fight locally, by any means necessary and with no apology.

But Beijer’s claim is not, actually, a supportable view of human affairs. Lots of people who under almost no circumstance would support a fascist crackdown oppose freelance political violence even against people whose views they actively abhor. Mock them as liberals, if you like, but as Jedediah Purdy reminds us

[C]riticism of liberals [does not mean] jettisoning or demoting the core liberal commitments to personal freedom, especially free speech and other civil liberties. The point of the left’s criticism of liberals is that these sorts of rights are not enough to secure dignified lives or meaningful self-rule under capitalism, inherited racial inequality, and an ever-deepening surveillance state. Liberal values are not enough; but they are essential. A broader left program would work to deepen people’s lived experience of liberty, equality, and democracy—values to which liberals and the left share a commitment.

The people who gave the ACLU 24.1 million dollars over a weekend (including me) did so despite knowing the organization has a long history of defending the speech of Nazis and Klansmen. That is not to say that the ACLU was necessarily right in any of these cases. It is not to say, as an ethical or a political matter, that Milo Yiannapolis’ claim to a right to speak at Berkeley outweighs the harms he might have done by identifying undocumented students. It is simply to say that ideas like “free speech” and “nonviolence” are in fact important political commitments that shape people’s allegiances and voting decisions, and that a political movement that wishes to be effective would weigh the costs of contravening those commitments against the benefits of actions that might seem to violate them. Even if you think these commitments are shams, because “free speech” in practice is refracted through far-from-neutral corporate media, because unaccountable political violence is tolerated or perpetrated by the state all the time, it doesn’t alter the fact that most Americans don’t share your view, and will perceive violations of even of what may be Potemkin norms as discrediting. That may not be right or fair, or it may be, but we are not talking about that. We are talking about politics.

If you think this stuff doesn’t matter, that, after all, broken windows and burnt limousines, a punched Nazi and a silenced provocateur will be forgotten by the next news cycle, I don’t think you paid very close attention to the Presidential election. Donald Trump, an authoritarian protofascist, ran and won to a significant degree by exploiting a wedge that has opened up between commitments to civil liberties and civil rights. The question of who are the authoritarians, who are the bullies, is actively contested in American politics, and not just by Rush-Limbaugh-types shouting “Feminazi!” When Trump supporters complain about “political correctness”, they are claiming that contemporary liberal norms have rendered it socially costly for them to speak freely and candidly even when they mean no harm. They may be wrong to complain. Perhaps stigmatizing all but the most careful forms of expression around matters of race and sexuality and gender is in fact the best way to prevent severe harms to vulnerable people, and is a development that should be celebrated. Regardless, many Americans, whether they are right or wrong and even if they are mostly white, perceive a cost in personal freedom to these norms. They have not been convinced that those costs are just or necessary, especially in light of their own increasing vulnerability and grievance. Whether or not their discontent is legitimate, whether or not they are right to assert an ethical problem, their perception constitutes a political problem. Much of the work of Breitbart and Yiannapolis is explicitly devoted to widening the perceived incompatibility of civil rights and their supporters’ civil liberties. You can have one or the other, they suggest, a state in which men with arms protect your ordered freedoms, or one in which “those people” — liberals and Muslims and Black people and Berkeley students — are free and run roughshod over your liberties with tools ranging from accusations of racism to Molotov cocktails. Our work should be the opposite, to demonstrate that despite some tensions, commitments to civil rights and civil liberties can in fact be reconciled. A cosmopolitan, multiethnic America need not be a place where protection of everyone’s rights leave anyone unfree. It shouldn’t be so hard to persuade people that antifascism is profreedom. But this is where we are.

The greatest mistake we can make, in my view, is to not try to persuade. Persuasion is not about elegant logic or Oxford-style debates. It is about interacting, with good will and in good faith, with people who look at things differently, and working to understand how they see things so that you can help them understand how you see things. Persuasion involves a meeting of minds, and very frequently alterations of circumstance and behavior by all involved. An argument can be persuasive, but so can a touch, an ongoing friendship, membership in a club, or a new set of coworkers. Persuasion is not academic. It comes not from dispassionate observation of objects, but the interaction and interplay of subjects. Persuasion is personal. Laughter helps. If your response to all this is to scoff, to call forth images of thugs or buffoons from Trump rallies or Gas-Chamber Twitter and mock the possibility of a “meeting of minds”, perhaps I can appeal to our shared identity as reasonable people and remind you that it is an error to conflate vivid with representative. I might also remind you how frequently that same word “thug” is used precisely to supplant the representative with the lurid in order to deceive people about members of other political communities. I might finally remind you that even if I am too optimistic, and the really awful are more representative of the other side than I think, we need only persuade the best 10% of them to put the fear of a much better God into Red-state legislators and to completely flip the arithmetic of political dominance in our country, despite its gerrymandered districts and quirky Electoral College.

Ours is a political coalition that considers itself rational and open-minded, tolerant and cosmopolitan, and in many respects I think that is right. Multiculturalism means not fearing what is ugly in other cultures (and let’s not be so chauvinistic as to imagine we have a monopoly on ugly), but instead embracing what is wonderful. It means placing faith in the capacity of all of our better angels to guide us towards mutually enriching coexistence rather than mutually destructive conflict. We take pride in embracing and respecting people who look and act very differently than we do, who follow strange creeds the substance of which we might disagree with, who follow customs that may render us uncomfortable and require an unusual degree of diplomacy when we are called to interact in any intimacy. These habits and skills, of which I think we are justly proud, are precisely what are required of us now. If we can be as open and charitable and welcoming and diplomatic across the fault lines which have snuck up within our politics as we are towards those we more easily recognize as outsiders, we have a real shot, not only to reconfigure the electoral numbers game, but also to forge a shared understanding that would transform what must begin as a pragmatic exercise in politics into an ethical enterprise after all.

Update History:

  • 14-Feb-2017, 10:20 p.m. PST: “I suspect that applies pretty well to punching Nazis as well too“; “reflects a calculation on his part that he can afford to neglect and alienate the people he heard from, because they were people who hadn’t voted for him the last time and weren’t going to vote for him the next time anyway and never would
  • 16-Feb-2017, 11:50 p.m. PST: Added link behind “authoritarian protofascist” to the event that perhaps most immediately called forth that characterization.

Party polarization is endogenous

Centrist wonks lament party polarization, but rarely point out that it’s not something that just happened. In the context of heterogeneous political geography and malleable district boundaries, a two-party system doesn’t yield the centrism it is often credited with, but a superficial and artificial polarization that demands an eventual populist response. Party polarization is the endogenous and predictable result of incentives created by a first-past-the-post voting system susceptible to gerrymandering.

For gerrymandering to work, the voting behavior of citizens must be identifiable and stable. The way gerrymandering works is to decrease the number of votes that are “wasted” in safe localities by redistricting a party’s voters into less safe or marginally unfavorable localities where they might tilt the balance. The expected outcome is more, closer, wins for the gerrymandering party. However, those closer wins are necessarily more fragile. Even small shifts in party identification or voting behavior, any deviation from the roles assigned to each of us by the gerrymanderers, can undo all their good work. Worse still, deviations are rarely idiosyncratic to a single district. Gerrymandering leaves a party more vulnerable to systematic deviations, which make “wave elections”. Thus gerrymandering creates incentives for incumbents and party operatives to try to cement party identification in stone. Candidates in both parties emphasize issues on which their members are unusually unified and the other party’s members are unusually opposed over issues that might be more important to their constituents, but less clearly drawn across party lines. They then work very hard to make positions on these issues, and only these issues, tribal markers, essential to voters’ identities. We end up in a world with extreme polarization of party platform and identification, despite not so much actual polarization among voters when a broader spectrum of issues than those emphasized by the parties is considered.

A puzzle in this account is why the party disadvantaged on net by gerrymandering should play along. The answer to this is simple. Both parties gerrymander when they get to draw the lines, although the Republicans gerrymandered unusually aggressively and with unusual success in 2010. Further, even absent gerrymandering, both parties “naturally” have districts where they have some advantage, but where elections remain close and competitive. The safest strategy for an incumbent member of Congress in a closely divided district is to cement in place the coalition that brung her the last time, rather than roll the dice on poaching her opponent’s voters (which may open up her own voters to poaching). Incumbent members of Congress in both parties tend to prefer a stably polarized electorate to one in which common ground increases the uncertainty surrounding voter behavior. Even when this disadvantages the national party, in the social science cliché, it’s a case of concentrated benefits and widely dispersed costs. Post 2010, nationally, the Democrats might have been better off de-emphasizing party-polarized issues and embracing causes with cross-party popular appeal. But neither members of Congress individually, nor party activists who’ve made their careers and raised their funds as fighters across well-worn political battle lines, would assent to that strategy. Further, issues with broad popular appeal that have been neglected by both political parties are often issues to which both parties’ “donor classes” are allergic.

The economic geography of a universal basic income

Adam Ozimek has been doing some great work lately on the importance of helping the smaller, struggling places left behind as America’s economic center of gravity has shifted toward a few prosperous metropolises.

This is extremely refreshing. For years, the economic conversation has been dominated by the “moving to productivity” story, the intriguing but flawed idea that the way to a better and more prosperous country was simply to encourage migration into the cities where, by the numbers, people seem to be unusually productive. The most widely discussed problem with “moving to productivity” is the rigidity of urban housing supply. Evacuating the hinterlands into existing, built-up cities would require more housing supply dynamism than stable, prosperous communities seem likely ever to tolerate. We are left with a continuing war between immigration enthusiasts and urban “incumbents” who see themselves as working to preserve their homes and communities. (I’ve weighed in on this controversy, here, here, and here.)

But there are many other problems as well. Measured production per hour worked is higher in leading cities for sure, but how much of that is a selection effect? Baumol’s cost disease ensures that, for an individual, immigration to high productivity cities will lead to higher wages even for lower productivity workers. But it’s a fallacy of composition to imagine that can scale. At an aggregate level, the productivity edge of prosperous metropolises may be caused by a “creaming” of those who might be productive elsewhere but are drawn by urban amenities and can afford the prices. Or perhaps cities do indeed enhance the productivity of their populations, but only because the residents who self-select and then pay up to live in them are unusually suited to take advantage of often industry-specific opportunities. In either case, less selective immigration would blunt cities’ productivity edge. Or, suppose that it is not selection, that the higher measured productivity of large, dense cities arises because dense copresence makes new forms of collaboration, specialization, and trade practical (“agglomeration effects”, in the lingo). Then how much of the apparent productivity effect is due to improved collaboration in production, and how much of it is due to improved collaboration in contesting for economic rents? High-powered cities include concentrations of highly paid lawyers, financiers, and other professionals who collaborate intensively at least in part to maximize on behalf of themselves and their clients the share of production they capture, rather than to increase the overall level of production. Businesspeople in cities may be unusually capable of coordinating to exercise monopoly power and restrict production. The dollar value of expensive professional services and artificially overpriced products then gets incorporated into “gross metropolitan product” and productivity statistics. If big, dense cities confer advantages in a zero- or negative-sum game to capture economic rents, by the numbers they would look like the most productive places in the country when in fact they might be among the least.

To be very clear, I don’t think cities are in fact “a zero- or negative-sum game”. I think cities excel at encouraging both good and bad sorts of collaboration, but their virtues far outweigh their costs. Even if you buy the rent extraction story, there is little reason to think there would be less rent extraction overall under a different geographic reality. Rents might just be distributed differently. In the zero-sum game of baseball standings, a city like New York can put together an unusually dominant team like the Yankees. But without New York, the game would still be played and there would still be winners and losers every year. Rents can be and long have been extracted by monopsony employers in smaller towns, for example. Regardless, the geographic distribution of rents may not match the geographic distribution of production, and empirically the two are difficult to disentangle.

Also, if part of the apparent productivity advantage of larger, denser cities is due to creaming, then we have to consider the flip side: a brain and talent drain out of smaller, less dense places. If certain kinds of talented people exhibit positive spillovers, that is, if they inspire and organize activity that creates value for other members of their communities that they cannot themselves capture, it may be individually rational for them to leave smaller communities for the big city, but socially very costly. The marginal contribution of one unusually talented person to the productivity a big city already chock full of talented people may be much smaller than the marginal cost to a community with many fewer talented people of losing that person.

Cities are great, but I think the claim that everybody moving to the very largest cities would yield a massive, otherwise unachievable, productivity boost is as implausible as it is impractical. Historically, economic activity was far less concentrated during the decades when America enjoyed its strongest growth. Perhaps technology has changed everything. But perhaps much of the apparent productivity advantage enjoyed by large, powerhouse cities over medium-sized cities is due to creaming, sorting, and particularly high-powered coalitions of rent-extractors, rather than hypothesized quadratic-returns-to-scale human connectivity effects.

Then, of course, there is all the stuff that economic analysis tends to overlook: Community, history, attachment to family, attachment to the land itself, the perhaps quaintly aesthetic notion that a civilized country should not be composed of gleaming islands in a sea of decay and poverty. And politics. Politics seems to be a thing now. Rightly or wrongly (and I think the question is more complicated than many of us acknowledge), the United States’ political system enfranchises geography as well population. (This is not unique to the United States and the compromises made over slavery in the drafting of our Constitution. In the EU, for example, many actions require unanimity among member states, giving citizens of tiny Malta rather disproportionate influence.) In the American system, piling people into a few, dense cities is a sure recipe for disenfranchising most of the humans. A nation of mid-sized cities distributed throughout the country would both spread the wealth geographically and yield a more balanced politics than the dream of hyperproductive megacities.

An underdiscussed virtue of a universal basic income is that it would counter geographic inequality even more powerfully than it blunts conventional income inequality. By a “universal basic income”, I mean the simple policy of having the Federal government cut periodic checks of identical dollar amounts to every adult citizen, wherever they may live. Importantly, a universal basic income would not be calibrated to the local cost of living. Residents of Manhattan would receive the same dollar amount as residents of Cleveland. But a dollar in Cleveland stretches much farther than the same dollar in Manhattan. The value of labor income covaries with place. Moving from Cleveland to Manhattan requires paying higher rent, but it may also yield higher pay. Real labor income may rise or to fall from such a move, depending on the individual. There is no such ambiguity with UBI checks. Migrants to high-cost of living cities would take a cut in real terms on the UBI portion of their income. Emigrants from high-cost-of-living cities would get a raise that might partially compensate for lower payscales. At the margin, for those willing to let economics guide their choice of home, UBI would shift demand from expensive capitals to cheaper mid-sized cities, and take some of the pressure off of powerhouse city housing markets. A UBI would tilt the residential playing field towards a country with lots of vibrant, geographically dispersed cities rather than a few “closed-access” capitals. (See also Conor Sen.)

Of course, not everyone is willing or able to treat their choice of home as an income maximization problem. Many people will remain, for better or for worse, in the communities where they were raised, rooted by place or family or church, by love, fear, stewardship, or poverty. For these people, a UBI would bring some measure of prosperity to where they are, rather than requiring them to succumb to the discipline of a dynamic national labor market. In a fascinating post, John Michael Greer writes:

What’s more, the working class people who point to a lack of jobs as the cause of middle America’s economic collapse are dead right. The reason why those tens of thousands of American communities are economically devastated is that too few people have enough income to support the small businesses and local economies that used to thrive there. The money that used to keep main streets bustling across the United States, the wages that used to be handed out on Friday afternoons to millions of Americans who’d spent the previous week putting in an honest day’s work for an honest day’s pay, have been siphoned off to inflate the profits of a handful of huge corporations to absurd levels and cater to the kleptocratic feeding frenzy that’s made multimillion-dollar bonuses a matter of course at the top of the corporate food chain. It really is as simple as that. The Trump voters in the neighborhood south of my home may not have a handle on all the details, but they know that their survival depends on getting some of that money flowing back into paychecks to be spent in their community.

Often people (foolishly, ridiculously) think of a universal basic income as a substitute for work, and imagine that UBI would lead to a world in which most people would sit around collecting government checks and masturbating all day. The same people often emphasize the importance of work to living a meaningful life, and argue that we ought not deprive people of this virtue by giving them money. But giving people money does not eliminate the social and spiritual benefits that come with being active, valued, and productive. In affluent communities, capital income seems to coexist just fine with a strong work ethic and perhaps too much ambition. Wealthier people sometimes do take advantage of their liberty to be productive in ways that don’t yield low-risk labor income, such as starting up uncertain businesses. In poorer communities, starting up businesses that aim to cater to a local clientele is particularly dicey, since many customers lack sufficient income to pay for all but the most basic goods and services. We can argue at a national level about fiscal policy and monetary offsets, but at a local level, in underemployed communities, crude Keynesian multipliers obviously obtain. Income begets economic activity and economic activity begets income. A UBI, unlike means-tested welfare programs, does not discourage work or create poverty traps. If financed with a progressive income tax, a UBI would not increase effective marginal tax rates until relatively high levels of income. A UBI does affect labor supply by increasing peoples’ reservation wage. People with no other income sources accept shitty work at low pay. People with a UBI might not. But since humans do in fact value productive activity, UBI recipients in poor communities are likely to accept decent work at modest pay, or go back to school, or care for children and aging parents, or try starting businesses. Income is the difference between communities that are slovenly and decaying and communities that are ordered and active. Income is precisely what a UBI provides, to communities, via individuals.

We are all learning, I think, just how dangerous to a national community, and to any hoped-for transnational community, inequality between localities can become. National community depends on the idea that “we”, all citizens, are in it together. Inequality at an individual level renders that not-necessarily-true, a rising tide may leave some boats sunk. But as long as those who are drowning are scattered and atomized, perhaps a polity can muddle through just ignoring them. Unfortunately (or fortunately), wealth and poverty are not uniformly distributed. They coalesce into geographies, and then into communities segregated by place and often by race, which organize and act politically. Sometimes prosperous communities can simply disrupt and suppress less fortunate communities — c.f. colonialism or Jim Crow or slavery. Hopefully readers will not find those attractive models for managing the political fault lines emerging within the United States and Europe. A better approach is to reduce the disparities between communities, to marry our fortunes together. We’ve all come to look for America. A UBI is one tool that might help us to find it.

Let us be lovers.

Acknowledgments: I first encountered the “moving to productivity” story in a talk Ryan Avent gave at an Kauffman Foundation economic bloggers’ conference. Avent has become a delightfully textured thinker on these issues, see e.g. here. You can also read his new book, which is excellent. (He sent me a free copy. If you think that’s why I’m recommending it, well, that’s what you think!) Much of my thinking about urban housing and our increasingly painful geographic stratification was inspired by Matt Yglesias’ work as well. The best excellences are the ones you disagree with, that inspire you to mull, then argue, then hopefully to talk.

Election angst

Domestic politics in the United States are worse at this moment than they have ever been in my sad 46 years of life. And if your response is “they did it”, whoever they are, you are, I think missing the point, missing the problem. We are in this together. Once we’ve made a civil war of it we have already lost, however just the side you choose to fight on. Often moral errors feel like moral imperatives at the time.

One of the many ways contemporary social science is a poor mode for understanding human affairs is its fetish for individual-centered explanations, “methodological individualism” in the lingo. The most robust fact of social affairs is that communal characteristics trump individual characteristics in explaining almost any phenomenon of interest. All of the things we idiot idolize — educational attainment, future earnings, likelihood of poverty, likelihood of imprisonment, whatever — are much better explained by communal factors than by individual factors to the degree that we can orthogonalize the two. [1] Political phenomena are social phenomena. All social facts, characteristics that we too easily essentialize like race, characteristics we perceive as facts of nature like the unity and continuity of our identities, are socially constructed. It is much more accurate to say that communities create individuals than to say that individuals create communities, although of course both statements are true in their ways.

Politics is not about individuals. It is about communities and communal identities. Osama Bin Laden was a wealthy man, the men who brought down the twin towers were educated people who would have been able to live and prosper in Western countries. Surely, then, such acts of terrorism have nothing to do with the poverty and pathologies and resentments of Middle Eastern countries, since the individuals who perpetrate terrorism are not primarily the poor or those most directly affected by those pathologies? Terrorists must just be motivated by terrorism, that is the only explanation. I hope that the shallowness of this argument is self-evident, dear reader.

Dylan Matthews at Vox writes:

There is absolutely no evidence that Trump’s supporters, either in the primary or the general election, are disproportionately poor or working class. Exit polling from the primaries found that Trump voters made about as much as Ted Cruz voters, and significantly more than supporters of either Hillary Clinton or Bernie Sanders. Trump voters, FiveThirtyEight’s Nate Silver found, had a median household income of $72,000, a fair bit higher than the $62,000 median household income for non-Hispanic whites in America.

Vox is a wonderful publication along many dimensions. One of its virtues is that it provides constant exercises in how a few statistics or credentialed quotes combined with ones own authoritative voice can mislead bright writers into thinking they know the one scientific truth of things. Matthews and several of his peers at Vox have invested themselves in a narrative that says the sophisticated, carefully evidenced take on the Trump phenomenon is that it’s all racism, nothing else matters. Now, it is obvious that racism and nativism and neofascism are an important and particularly disturbing aspect of the Trump phenomenon, that people who overtly identify as racist or neo-Nazi have found a home in a tent that Donald Trump has made comfortable for them. But it is also obvious that, within the Republican Party, Trump’s support comes disproportionately from troubled communities, from places that have been left behind economically, that struggle with unusual rates of opiate addiction, low educational achievement, and other social vices. If you insist on focusing on individuals, you may miss the connection, because the worst off within communities — actual chronic discouraged workers, addicts — are likely to express no opinion to the degree they can be polled at all. Trump primary voters are white Republicans who vote, automatically a more affluent baseline than the white voters generally. At the community level, patterns are clear. (See this too.) Of course, it could still all be racism, because within white communities, measures of social and economic dysfunction are likely correlated with measures you could associate with racism. Social affairs are complicated and the real world does not hand us unique well-identified models. We always have to choose our explanations, and we should think carefully about how and why we do so. Explanations have consequences, not just for the people we are imposing them upon, but for our polity as a whole. I don’t get involved in these arguments to express some high-minded empathy for Trump voters, but because I think that monocausally attributing a broad political movement to racism when it has other plausible antecedents does real harm. (See also Carl Beijer on the same Vox piece.)

A nation-state is a relatively new form of human community. Its singular problem is scale. Among nation-states, there is a strong inverse correlation between nation-state “success” (however we want to measure that) and “socioethnic fragmentation”. Nation-states “work” when their members are most powerfully attached to a common, broadly shared, communal identity. When members attach themselves primarily to more local or parochial identities, destructive politics of intercommunal struggle often plague the polity. Unfortunately, many people understand this relationship in a very simple, static way. The Nordic countries are famously “homogeneous”, and so are unusually successful as nation-states. Lebanon is a hodgepodge of sects and ethnicities, and has a hard time thriving.

But causal arrows in social affairs usually go both ways. It is equally accurate to say that the Nordic countries have succeeded as nation-states, and so have become “homogeneous”, while Lebanon has not thrived as a nation, and so finds itself ethnically fragmented. Shared communal identities across millions of geographically dispersed people simply do not arise without political organization. Nations create their own publics, or else they fail to do so and then they fail. The United States’ main claim to fame, its main claim to virtue in my view, is E pluribus unum. The United States, during some periods of its history, has been very good at integrating disparate groups of people into a strong national community. Communal identities are never static. Nation-states experience centripetal forces that tend towards integration and centrifugal forces that pull towards fragmentation. Open commerce, frequent geographic mixing, universal education, broadcast communication networks, rich transportation networks, a national civic religion, political consensus, a widely-shared popular culture, shared lifestyles across a broad middle class, and perceived general prosperity are all sources of integration. Physical segregation, widely divergent education, commercial segmentation or exclusion, self-organizing point-to-point communication networks, the absence or decay of civic religion, political polarization, absence of a broad popular culture, economic dispersion that stratifies lifestyles, perceived unfairness in patterns of prosperity, and immigration from external communities can be sources of fragmentation. Some of these “sources of fragmentation” are very good things! Self-organizing point-to-point communication and physical segregation derive from freedom of association. They potentially help enable a diversity of subnational communities and a rich civic society. Tolerance of immigration confers an incredibly valuable option upon potential immigrants, and can support the growth and economic strength of the nation-state. But a successful nation-state must budget the centrifugal forces it can tolerate against the centripetal forces it can generate.

Nations are either integrating or they are fragmenting. The United States spent much of the 20th Century integrating. It is currently fragmenting. We currently discuss and perceive this in very racialized terms (a fact which in my view is itself a symptom of the fragmentation). Through about the 1990s, more and more groups of people integrated into a community it is now offensive to describe as “American”. We now refer to this community as “white”, in order to emphasize by contrast the unfairness and horror of the United States’ greatest shame, our failure to fully integrate descendants of the immigrants we involuntarily imported and then brutally enslaved. Since around 2000, in my view, the “white” United States has been fragmenting. Integration has been replaced by ethnogenesis. The communities from which Trump enthusiasts disproportionately arise may be increasingly white supremicist, but they are no longer unproblematically “white” in its meaning as “default American”. They compete for national identity with ascendant “people of color”, sure, but before you go on about racial last-place aversion, note that they compete more directly and much more bitterly with a cosmopolitan but disproportionately “white” urban professional class, whose whiteness has itself been problematized, as underlined by a resurgent anti-Semitism where Jews stand-in for this class broadly.

And before we get caught up categorizing and imposing moral rankings on the various new ethnicities we are inventing, we should pause to emphasize that these are accidents, not essences. Our polity was going to fray, because we have allowed centrifugal forces to grow much stronger than the forces that might tend towards integration. Regular readers will be unsurprised that I think economic stratification and differential stagnation are the deepest sources of fragmentation and the first that we should address. We may also need to consider ideas like universal national service, or Singapore-style residential integration incentives. I hope we won’t consider rolling back our chaotic, open communication networks in favor of a more “curated” shared information environment. I hope we will find ways to define a more multidimensional space for our politics to play out, rather than limiting ourselves to an increasingly polarized line between two camps neither of which adequately represent us. Whatever we do, we will have to reconcile sometimes conflicting goals of national integration, economic success, and respect for liberal values.

For the moment, we have to get through the catastrophe that this election has become. A fault line was always going to appear between the economically dominant class and much of the rest of the country which has been left behind. In my view, it is a very great tragedy that Bernie Sanders did not win his primary campaign to represent the left-behind in a positive and inclusive way. All humans are racists in some ways and to some degrees, but it was not at all inevitable, I think, that we end up in a “battle between cosmopolitan finance capitalism and ethno-nationalist backlash”, as Chris Hayes put it. Donald Trump offered a particularly comfortable home to the most ethno-nationalist fraction of the left-behind, and no home at all to people of color. But many not-unusually-racist “white” people who, fairly or not, perceive Clinton as an icon of a corruption, now see Trump as the only game in town. It is tempting, among those of us who would be appalled by a Trump victory, to try to sway undecided voters by equating voting for Trump with racism full-stop. That’s a bad idea. If it becomes the mainstream view that Trump voters are simply racists, it leaves those who are already committed, those who are unwilling to abandon Trump or to stomach Clinton, little choice but to own what they’ve been accused of. Racist is the new queer. The same daring, transgressional psychology that, for gay people, converted an insult into a durable token of identity may persuade a mass of people who otherwise would not have challenged the social taboo surrounding racism to accept the epithet with defiant equanimity or even to embrace it. The assertion that Trump’s supporters are all racists has, I think, become partially self-fulfilling. In and of itself, that will make America’s already deeply ugly racial politics uglier. It will help justify the further pathologization of the emerging white underclass while doing nothing at all to help communities of color except, conveniently for some, to set the groups at one another’s throats so they cannot make common cause. It will become yet another excuse for beneficiaries of economic stratification to blame its victims. Things were bad before this election. They are worse now, and we should be very careful about how we carry this experience forward. These are frightening times.

P.S. I will be voting for Hillary Clinton. Not happily. Perhaps there is room for optimism. Perhaps I’ll be pleasantly surprised. I very much hope that the Democrats win the House and Senate as well. If I’m to be disappointed, I’d rather have clear lines of accountability rather than have blame diffused by claims of gridlock. I don’t think Donald Trump should be President. I think he’s unfit, and a statue of an upraised middle finger would be a better choice for all concerned. Regardless of my views, I respect your vote however you choose to cast it, because that is the first courtesy we owe one another in a democracy.

Update: James Kwak offers a much better and more careful discussion of the Vox piece I didn’t like so much.

[1] What does that mean? For example, if you tell me an individuals’ parental incomes, that’s very informative about, say, likely educational achievement. But you are giving me information both about the individual and about her community, since incomes aren’t uniformly distributed across communities. If you offer me just one of (a) the decile of parental income within a person’s community (under almost any reasonable definition of community, but without identifying the community) or (b) the identity of the community from which which she hails without the specific income information, (b), the identity of the community, will be more informative.

Update History:

  • 17-Oct-2016, 10:10 p.m. PDT: Add bold update with link to James Kwak’s piece.
  • 7-Nov-2016, 1:30 p.m. PST: “…most powerfully attached to a common, broadly shared…”; “The United States main claim to fame…”; “But And before we get caught up categorizing…”

Attributions of causality

Like a lot of people, I think, I’m a bit dazed by the fact that apparently, really, the British public has voted to leave the EU. I’d prefer we lived in a world that was coming together rather than fraying apart. Other than that I’ll refrain from comment and just wish everybody the best.

I do want to remark on a piece by Kevin Drum, written perhaps too quickly in reaction to the results. Drum writes:

I am sick and tired of watching folks like Boris Johnson, Marine Le Pen, Donald Trump and others appeal to the worst racial instincts of our species, only to be shushed by folks telling me that it’s not really racism driving their popularity. It’s economic angst. It’s regular folks tired of being spurned by out-of-touch elites. It’s a natural anxiety over rapid cultural change.

Maybe it’s all those things. But at its core, it’s the last stand of old people who have been frightened to death by cynical right-wing media empires and the demagogues who enable them—all of whom have based their appeals on racism as overt as anything we’ve seen in decades. It’s loathsome beyond belief, and not something I thought I’d ever see in my lifetime. But that’s where we are.

I would never want to shush Kevin Drum. I’m extraordinarily fond of him. But I think he is making a mistake here, empirically and morally.

It is not in fact broadly true that emerging racially-tinged right-wing movements are a “last stand of old people”. Marine Le Pen’s Front National, for example

is strongest among younger voters. It took the votes of 30% of those aged under 35, 27% of those aged 35 to 59 and 21% (noticeably less than its average vote) among the over 60s.

Greece’s overtly fascist Golden Dawn movement

are mainly men with low incomes…43 percent of the voters are between 25 and 39 years, followed by 24 percent being 40 to 50 years old and 15 percent aged 55 to 64 years.

In Great Britain, Leave supporters skew old, as do Trump supporters in the US. But if you wish to look for commonalities between right-wing nationalist movements, I think you’d be better off looking at gender, or profession, or the economic status of the localities from which people hail, more than age.

Drum is certainly right to characterize the explicitly racist appeals of these movements as loathsome. But it isn’t enough to say “that’s where we are”. His interlocutors are right to point to economic anxiety and other disruptive changes rather than leave it there. We have to share the same world with every other human. Drum and I have to share the same country with Trump voters. We try to understand the world in order to better live in it. Explanations or assertions that don’t contribute to that are not worth very much.

How we attribute causality is a social choice, and it is a choice much less constrained than people who clothe themselves in the authority of “social science” or “the data” often pretend. Quantitative methods like instrumental variable analysis at their best indicate that some element is a factor in causing a measured phenomenon. For anything complex, they are rarely strong enough to even suggest either the necessity or the sufficiency of a factor. Social outcomes like susceptibility to racist appeals are affected by lots of things, and are probably overdetermined, so that one could generate equally strong results implicating a wide variety of different factors depending upon what is excluded from or included in ones model.

In political life, there are nearly always multiple reasonable models to choose from. Our choice of models is itself a moral and political act. For example, conservatives prefer cultural explanations for communities with high rates of young single motherhood, while liberals prefer economic explanations. These explanations are not mutually exclusive, both can be simultaneously true, but cultural explanations serve mostly to justify the social stratification that correlates with single motherhood, while economic explanations invite remedies. It might be true, and demonstrable in the usual statistical ways, that a certain neurological state “causes” the verbally expressed sensation of hunger. It might also be true and demonstrable that a prolonged absence of food causes the same expressed sensation. Both of these models may be true, but one of them suggests a more useful remedy than the other. And a more moral remedy. Prescribing a drug to blunt the hunger may yield a different long-term outcome than feeding food, in ways that are morally salient.

It may or may not be accurate to attribute the political behavior of large groups of people to racism, but it is not very useful. Those people got to be that way somehow. Presumably they, or eventually their progeny, can be un-got from being that way somehow. It is, I think, a political and moral error to content oneself with explanations that suggest no remedy at all, or that suggest prima facie problematic responses like ridiculing, ignoring, disenfranchising, or going to war with large groups of fellow citizens, unless no other explanations are colorable. It turns out that there are lots of explanations consistent with increased susceptibility to racist appeals that also suggest remedies less vague and more constructive than, say, “fighting racism” or censoring the right-wing press. With respect to Britain’s trauma, for example, Dan Davies points to Great Britain’s geographically concentrated prosperity, and the effect that has had on the distribution of native versus immigrant young people. I can’t evaluate the merits of that explanation, but it might at least be useful. It does suggest means by which the British polity might alter its arrangements to reintegrate its divided public.

I don’t mean to pick on Kevin Drum, whom I’ve read for more than a decade, and whom I really like a great deal. But it seems to me that the alleged “good guys” — the liberal, cosmopolitan class of which I myself am a part — have fallen into habits of ridiculing, demonizing, writing off, or, in our best moments, merely patronizing huge swathes of the polities to which we belong. They may do the same to us, but we are not toddlers, that is no excuse. In the United States, in Europe, we are allowing ourselves to disintegrate and arguing about who is to blame. Let’s all be better than that.

p.s. Read more Chris Arnade [and more].

Update History:

  • 25-Jun-2016, 2:30 a.m. PDT: “writing off, or, in its our best moments, merely patronizing”
  • 25-Jun-2016, 3:15 a.m. PDT: Added extra “[and more]” Chris Arnade link.

A parliament without a parliamentarian

I mean to write a bit about the “DAO hack“, which provides a fascinating true-crime introduction to the fascinating (virtual) world of blockchains and cryptocurrency if you don’t already follow this stuff. But before saying what I think about that DAO-stardly DAO-eed, I think it might be useful to explain what I think “blockchains” are, in social rather than technical terms.

A blockchain is just a parliament without a parliamentarian.

Like a parliament, a blockchain is a means by which a group of people collaborates to produce an ordered list of accepted “resolutions” that is deemed authoritative and legitimate by some community it represents. That list of resolutions may cause the construction of alteration of some side-product. Laws passed by Congress create or alter the United States’ legal code. “Blocks” accepted by Bitcoin “miners” change account balances in an implicit ledger of who owns what Bitcoins. But the authoritative source is always an ordered list of accepted resolutions, from which the state of the side products may mechanically be derived.

A traditional parliament requires a lot of work and organization, and it doesn’t scale very well. It’s hard to coordinate getting even a few hundred legislators into a room to vote on a resolution. Keeping an orderly chamber requires organization and hierarchy. Typically there is some kind of leadership, there is a hierarchical structure and “rules of order”, whose purpose is to orchestrate the consideration of resolutions. A “parliamentarian” acts as a keeper and adjudicator of those rules, which are often obscure even to the membership of the parliament. The parliamentarian and the hierarchy her rules enshrine may not be neutral. Most obviously, the leadership of a deliberative assembly may be capable of preventing consideration of resolutions that the membership would pass if required to vote on the question. Anyone who follows real-world politics understands that it matters very much who “controls” a legislative house.

A blockchain represents a deliberative assembly that may be very large (thousands or millions of participants bound by computer networks), and that may be very open (anyone may participate, “legislators” may come and go at will). Traditional rules of order are not up to the task of managing this sort of assembly. Further, the inventors of blockchains did not approve of the traditional prerogatives of a parliament’s “leadership”. Among blockchain enthusiasts, preventing the consideration of a potentially acceptable resolution is usually referred to as a “censorship attack”.

So, instead of a “leadership” that orchestrates the consideration of resolutions, blockchains hold a kind of lottery among its legislators, who are called “miners”. Every few minutes, or even seconds, the winner of a new lottery is announced. The winner gets to submit resolutions for consideration by the parliament, and is financially rewarded if her “block” of resolutions is accepted by the majority. The proposal of resolutions is not restricted to miners. They may be submitted by, well, anyone at all. Miners check the resolutions and decide if they are likely to pass. They combine the ones that do seem likely to pass into a “block”, and hope to win the lottery. A miner may try to exclude resolutions that are likely to pass but that she herself disagrees with, but that sort of censorship is unlikely to have any effect, since she is unlikely to win the lottery in any particular round. Once a block of resolutions pass, each participant updates its own personal copy of the list of passed resolutions to include the new ones. Only participants with a fully up-to-date copy of the list may participate in the next lottery. Since winning the lottery and proposing a successful block is financially rewarded, while censoring proposals or ignoring blocks that the majority would accept is ineffectual, participants usually propose anything that they think would pass and go along with anything that has already passed. Blockchains reward consensus: It is lucrative to go along with most others would go along with. Understanding the will of the majority of their colleagues and bending to it is the job of each and every legislator.

In the most prominent, current blockchains, the norms about what sort of resolution is likely to pass are simple and widely shared. On the bitcoin blockchain, most resolutions amount to something like, “Unspent money belonging to User A in an amount of 3 BTC should be assigned to User B.” A miner checks that User A does in fact have 3 BTC unspent, and that the resolution is properly signed by User A. If so, this transaction is very likely to pass, as the core shared norm of the community of BTC miners is that people should be able to spend their own unspent money however they choose. Note, though, that this in only a norm. If more than half of the participants in the Bitcoin blockchain suddenly decided that User A was evil and should not, in fact, be permitted to spend her money, then lottery-winners would quickly learn to exclude her resolutions, and that would become a new, communally enforced norm. People in the Bitcoin community who consider a norm like this illegitimate would refer to it as “censorship” or a “51% attack”. But “51% attack” is just another way of describing “majority rules” when you don’t like the decision of the majority.

But majority of whom? Open blockchains, like Bitcoin and Ethereum, permit anyone who wishes to participate as a miner, without any kind of vetting or “voter ID”. That’s obviously a problem, because over the internet it is easy to pretend to be a hundred or a thousand or a million people if you want to (a tactic evocatively referred to as a “Sybil Attack” in the blockchain community). To prevent that, instead of “one person, one vote”, blockchains are something like “one GHz, one vote”. Ones weight in the parliament is determined by how much computing power one can bring to bear, and, it turns out, sometimes by the form of the computing power, as Bitcoin for example is best run by very specialized chips. The legitimacy of blockchains, as of more traditional parliaments, derives in part from notions of participation or at least representation, and also from expectations that they will honor and reinforce communal norms. The power of blockchains, as of more traditional parliaments, may depend to a certain degree on their continued legitimacy, but might also survive a loss of legitimacy by virtue of network effects. Congress itself produces nothing but a set of official minutes, but those minutes create important social facts because we each expect other people to take them seriously, so we ourselves take them seriously, so the contents of those minutes create important social consequences. The Bitcoin blockchain produces lists of who spent what to whom of an imaginary, artificial, funny money. But Bitcoin users have become willing to surrender objects of real value for appearing on lists of Bitcoin recipients, and as long as we expect that to be true, we must take the blockchain’s adjudication of who owns what seriously. A blockchain, like a parliament, is much more a social institution than a technological one, although very clever technology was necessary to design blockchain systems that could become socially credible. Like political systems, some mix of continued legitimacy and path-dependent coordination equilibria (“network effects”) determine how durably and powerfully blockchains will be able to shape social facts into the future. Continued legitimacy may depend on continued adherence to widely shared norms, on perceptions of fairness and representation, and on how effectively the blockchain’s decisions serve the actual interests of the community that relies upon it. Ethereum‘s is the most interesting and ambitious widely deployed open blockchain, a parliament whose job is to enforce the behavior of social institutions and financial contracts inscribed as directly consequential computer programs rather than in human habit or legal text. That was never going to be straightforward, and the DAO hack has beautifully surfaced some the difficulties and contradictions inherent to the enterprise. More on that soon, I hope.

FD: I am a critic, but also an enthusiastic participant in the blockchain hyposphere. I am financially and professionally invested in the Ethereum project in particular. I am also a DAO token holder, directly injured by the DAO hack. I’m more intrigued than angry about it, though. Nothing that has already been perfected is very interesting.

Update History:

  • 19-Jun-2016, 5:05 a.m. PDT: “to explain what I think ‘blockchains’ are”
  • 20-Jun-2016, 4:50 a.m. PDT: “some mix of continued legitimacy and path-dependent coordination equilibria (“network effects”) determines how”