Politics is an American industry

American industries — the ones that sit at the new commanding heights of the economy — look nothing like the collections of the atomized, competitive firms described in an introductory Economics textbook. Industries like technology, finance, health care, higher education, and media dominate our collective lives, and yet they are not regulated by anything recognizable as open competition for the custom of decentralized consumers. These industries share some things in common.

I. American industries do great things

Health care is really important. Doctors and nurses and hospitals and drugs do great things. Finance is essential. Without a payments system, credit, and investment a prosperous economy would be impossible. “Big tech” and the ecosystem of startups that serves as its farm team really do put much of the world’s knowledge at our fingertips and make it possible, even through the isolation of this pandemic, for us to communicate and collaborate, to escape and to love despite our bodies’ imprisonment. Higher education, regardless of whether employers value it for skills or for signalling, is powerfully transformative for many of us who experience it. Etc.

II. The means by which they finance themselves are problematic

Yeoman capitalism tells a very simple story about how firms and industries get financed. It is supposed to be end consumers who, en masse, finance or fail to finance firms by virtue of well-informed, voluntary choices about whom to pay in exchange for delivered value. This is an apt description of how none of these industries get paid. Health care, finance, education, technology, and media are not for the most part financed by independent bilateral transactions between well-informed parties. These goods are sometime purchased in bundles, sometimes financed by third parties or the state, sometimes financed by contractual contingencies imperfectly understood by their payers (“tricks and traps”, as Elizabeth Warren used to call them), often arranged under circumstances of asymmetric information or simply absent information. Rather than vying against one another for customers, “competitors” in these industries often work cooperatively to secure the shared bases of their cash flow. Citibank and JP Morgan, Berkeley and Stanford, the Mayo Clinic and Johns Hopkins, Google and Apple, they all do genuinely compete for “customers”, but their fates are much more determined jointly, by the terms on which the state structures finance, offers research grants and student loans, by third-party health insurers (public and private), by how antitrust law is interpreted and enforced.

Often the financing of these industries is perceived (accurately) as predatory or plutocratic or both. Outside of informed, competitive markets, payments become less than voluntary. Late fees and overdraft fees, usurious interest on credit you never intended to revolve, incomprehensible medical bills for services not meaningfully chosen at outrageous prices never meaningfully agreed, tuition affordable only by virtue of taking on arbitrary debt, in a context where opting out means foregoing any chance of a comfortable middle class life: All of these financing arrangements are predatory. If you get into Harvard, maybe tuition is paid, thanks to an endowment based on flattering plutocrats. Print media increasingly depends upon supplemental “support” from the wealthy, which conditions the character of the national conversation. Google and Facebook are far from free. Every user and every nonuser of the services pays exorbitantly for their services, and not just in “data”. Their profit margins are embedded in the costs of every good and service that advertises on those platforms. We finance them, but we don’t have any choice or control over the product like we would as customers in a competitive market.

III. The people who work for them are nice

As human beings, at an interpersonal level, people who work in technology, higher education, heath care, technology, or even finance are good people. Not all of them, of course. Perhaps there is some accuracy in a statistical sense to bankers being bastards or Silicon Valley tech bros or whatever. But even within those industries, as among nearly every occupational category, most people are good people, doing the best they can, trying to do the right thing although no doubt accepting some tradeoffs. Nurses are notoriously caring, and yet their salary derives from a predatory, kafka-esque pricing system. My college professors were amazing people. In terms of dimensions like civility or politeness, the workforces of these predatory, problematic industries are probably nicer than the general population, because they are disproportionately educated and the norms we define as polite are to some degree the cultural mores of the educated. And because of affluence. Certain kinds of patience, civility, and generosity are “normal goods” in economics-speak, things the comfortable can afford but the less comfortable must do with less of. However you want to cut it, the people who work for these industries are not “bad people” in any natural sense. You can define them as bad by construction, if you like, by virtue of their complicity in their industries’ sins. But they’d do fine in any Turing test for niceness and decency in which occupational status was blinded.

IV. American industries evolve to insulate most of their workforces from aspects of their industry’s finance

They have to, in order to reconcile points II and III above.

If you ask ER doctors about the “chargemaster” — the hidden skein of prices that vary by procedure, party, and phase of the moon that determines how much you are billed — they will not be great fans! In my experience, most doctors agree that it’s a shitty system, incomprehensible and unjust, and they sincerely wish that it were different. If you ask whether that system affects the care they provide, the answer is usually no. Doctors mostly say they provide the best care they can in medical terms, and don’t think very much about what happens on the financial side. You can argue that this is good thing (best care possible!), or a bad thing (maybe second-best would have been more than good enough and would have helped the patient financially). But it is a thing.

Most people who traded the bonds that in 2006 were stuffed with predatory and fraudulent mortgages never themselves sold home-buyers from minority communities on adjustable-rate mortgages with prepayment penalties that would become unaffordable once the teaser rate expired. They were professionals at big banks, selling to institutional counterparties, all wearing similar suits. A lot of what amounted to fraud in aggregate was straightforwardly justifiable by the people most directly involved in perpetrating it. Real-estate can be valued by capitalizing the rents properties would generate, or in terms of “comparables”, what similar properties are selling for. When market prices started to decouple from capitalization-derived estimates, was it wrong for appraisers to increasingly emphasize valuation by comparables as more “empirically accurate”? Especially since banks, eager to lend, would preferentially hire appraisers “in tune with the actual market”?

In aggregate the industry perpetrated tremendous fraud, but much of it was organized like the translation of Monty Python’s “Funniest Joke In The World“, with each participant never exposed to more than a tiny part of an ugly, lucrative bigger picture, deniable especially to themselves. American industries, which work simultaneously to maximize revenue and keep the loyalty of highly sought professionals, naturally arrange themselves this way.

V. Workforces cannot be completely insulated from disagreeable aspects of their industry’s finance

Somewhere in some office at every hospital chain, there are the people whose job it is to maximize revenue by imposing or negotiating a multiplicity of nose-bleed prices for each medical procedure, none of which will be routinely published or disclosed to patients except at the time of billing. They know it isn’t nice. At every health insurer there are the people whose jobs it is to deny coverage whenever coverage can be denied. All of these people have rationales by which they can justify their work. The hospitals are struggling! (Often the rents in our healthcare system get paid out of hospitals to overpriced providers, drug companies, device manufacturers, administrators, etc rather than accruing as juicy profits in hospitals.) Fighting insurance fraud and limiting coverage to contracted care keeps premiums “low”!

During the housing boom, eager mortgage originators would themselves fudge or (much safer) advise borrowers to lie on loan applications. They understood they were committing or suborning fraud. (But this housing boom has legs! Sure it was lucrative, but they were also democratizing the American Dream, helping new homebuyers succeed despite little blemishes.) Bankers who purchased mortgages to bundle into securities overlooked deficiencies they knew existed in the pools that they purchased. The people they were selling them to (but not people on behalf of whom those people were buying) were “consenting adults”, caveat emptor. Workers at rating agencies would famously take on securities “structured by cows” as part of a focus on “maximizing revenues”. (But they scrupulously applied the formal models that were then the industry standard! Though they knew the model “def does not capture half the risk.” Still, they adhered to procedural norms!)

In these examples from health care and finance, basically a segregated minority of the workforce is exposed sharply to the ickiness of the business model, helping preserve the innocence of the rest. But of course, in all of these industries, there are aspects that cannot be so well shut away. When engineers at Facebook are optimizing for “engagement”, they know what they are doing. The surveillance is not occluded from Googlers by its sexier names, “analytics”, “machine learning”. Until a few years ago, it seemed (at least to me) common for college professors to point to the average “college premium” and argue that the student loans on which their institutions relied were basically a good deal (nevermind the tremendous variation hidden in that premium and that its increase over the decades derived more from falling noncollege wages than rising college wages). Current affairs writers like to think of themselves as proudly independent, but the pieces they pitch, that they expect editors might accept, are conditioned by the perspectives of donors and the red lines of advertisers, as well as by any inherent public or audience interest.

These industries do their best — really! — to carve out zones of independence, within which the incentives that derive from how they are financed are blunted, so that other values can express themselves, and so their professional, decent, often idealistic workers can sleep at night. But they cannot insulate their workforces completely, nor can their workers be absolved entirely for their remunerative complicity with the cash-flow-generating aspects of their industries, however much they may dislike or wish to reform them. And workers overestimate their independence. They internalize the constraints. They make up good reasons for coloring within the lines rather than admit that the gravy train requires they do so. They reflect upon their work proudly. It is only coincidence that their independently defensible choices happen not to conflict irreconcilably with the interests that finance them.

Politics in the United States is another American industry. It runs the gamut from elected officials and their campaigns, to the consultants, think-tanks, lobbyists, staffers etc. Even civil servants and military officers, with secure jobs and government paychecks, are part of the industry, and face the same complicated incentives, as long as the opportunity to rotate into private-sector parapolitics is of value to them.

Like other American industries, politics does great things. A government must be staffed and run, decisions must be made, expertise must be brought to bear in crafting legislation, public policy research must be done. Political parties must contend if representative democracy is to function, and that contest must be staffed and funded. Like its peer industries, politics’ financing model is indirect, predatory, and plutocratic. Obviously the “donor class” that funds PACs and think-tanks is a plutocratic revenue source. Government contracting, revolving doors into which condition civil servants’ real-time decisions, constitute a predatory source of revenue. Politics, like finance, includes certain niches of workers who are explicitly, ostentatiously assholes. But for the most part the politics industry is staffed by well-spoken, idealistic, decent people. Nice people. To outsiders, politics appears horrible: ugly, predatory, oppressive, corrupt. But insiders “know” that while there is some truth to that, it is mostly a caricature. Most people are not selling out or doing horrible things. Most people are working sincerely to advance agendas they believe in. Even many lobbyists, the plainest sort of hired gun, are idealists who choose the causes they work for based on prior attachments and commitments, rather than bending to some plutocrat’s will. (Of course, the likelihood that people working to advance prior commitments succeed at making a career of it is not independent of plutocratic interests. But that is outside the control of the sincerely motivated lobbyist!) Lobbyists are justifiably proud of the resources they bring to bear to support legislative and rule-making processes, resources that far surpass what our intentionally atrophied government makes available to itself for these purposes. Still, it is true that workers in politics cannot completely insulate themselves from the predatory and plutocratic incentives that come with how the money works. Compromises must be made. Just as an aspiring politician can do no good if she cannot get elected (and then re-elected), a research institute can do no good if it has no funding. The people in the industry know this, concede it. For those (not all!) whose political attachments are in conflict with the financial incentives, they lament it. But they also “know” that outsiders underestimate the degree to which their choices are right on the merits, even though they are tarred as betrayals or corrupt concessions. If we were in their shoes, we would understand and feel the same way.

Politics is an American industry, just like all the others. It is awful in some ways, but it is also essential. I think we should wish to reform it, dramatically, but it won’t be reformed alone. It is of a piece with peer industries. It won’t be repaired without also repairing the political economy that surrounds it.

Note: I want to thank all of the people who participated in last month’s “seminar”. I enjoyed it, and hope you did too. I hope to try some other experiment (that involves me talking less) sometime very soon.

Update History:

  • 17-Sep-2020, 2:05 p.m. EDT: “II. The means by which they are financed is are problematic“
  • 17-Sep-2020, 5:35 p.m. EDT: “II. The means by which they are financed finance themselves are problematic“
  • 22-Sep-2020, 12:45 p.m. EDT: “V. Workforces cannot be completely insulated from disagreeable aspect’s aspects of their industry’s finance” (Thanks commenter Jeff!)

5 Responses to “Politics is an American industry”

  1. Detroit Dan writes:

    I love this! Thank you. I will return to do a more thorough review later.

    Also, I’d love to participate in the next “seminar”. I so the notice for the last one too late.

  2. Detroit Dan writes:

    This brings to mind David Graeber’s Bullshit Jobs.

    Graeber contends that over half of societal work is pointless, and that this becomes psychologically destructive when paired with an ethic that associates work with self-worth.

    Covid has highlighted the distinction between relatively cushy non-essential jobs where people can work from home, and the essential jobs performed by the working class.

    In the wake of Trump’s demagogic presidency, we live in a political vacuum. Identity politics vies with Trumpian smoke and mirrors in a great distraction from the elephant in the room — bullshit jobs.

  3. Jeff writes:

    “V. Workforces cannot be completely insulated from disagreeable aspect’s of their industry’s finance”

    …that would be “aspects”

  4. Brilliant. The explosion of administrators, marketers, and other non-medical personnel in hospitals is well described in this essay. Also,as Detroit Dan notes, these positions are the classic example of bullshit jobs, as described by the late David Graber.

  5. Detroit Dan writes:

    The “socialism” red scare continues, even though the Cold War is long gone. Now we’re supposed to fear policies successfully adopted throughout the prosperous portions of the world. When push came to shove in the Democratic primaries, the candidates were unanimous in belittling Bernie Sanders because he once said something complementary about Cuba, in addition to his supposedly unaffordable single payer health care proposal.

    I think it’s going to take a strong man like Putin to force desirable political economic changes. Democracy is a core value for me, but sometimes force is required to implement a better system.