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Universalism and means-testing

Meagan Day points out, correctly, that the pandemic experience has buttressed the case for universalism over means-tested programs:

When eligibility for benefits is conditional, all kinds of bad things happen, ranging from the intentional exclusion of whole (usually maligned and disempowered) demographics to huge numbers of otherwise-eligible people tripping over red tape and falling through the cracks. Another major problem with means testing is political: so long as there’s an income threshold, austerity-minded politicians will always try to lower it, leaving more people out as time goes on. In other words, targeted social programs make easy targets.

Part of the architecture of capitalism is that truly wealthy people are a tiny minority of the population, and the focus on whether this minority gets a minor boost out of a universal program that would bring stability, security, and prosperity to the vast majority (and would be paid for by progressive taxes) has always been a distraction.

Max Sawicky (with whom this blog has tangled on universalism before) responds. In my view Sawicky is far from persuasive:

Means-tested benefits are said to limit eligibility and leave many needy behind, unlike ‘universal benefits.’ Unfortunately, there is no really existing universal benefit that remedies this problem, so we are committing the basic fallacy of criticizing an existing program by comparison to an idealized alternative. There is no reason a benefit founded on a means-testing formula could not be provided to anyone you might like.

The real rationale for means-testing is not that it deprives the unworthy of assistance. That is a straw man often deployed by the less progressive among us. It is that for any sub-group of the population, a means-tested program will be cheaper, or for any given amount of money, it can provide more assistance than a universal one. Advocates for universal benefits must compete with equally righteous left advocates for other types of spending. In practice, public funds are limited. (Also true in an MMT world, by the way.)

It is Sawicky, I think, who is guilty of straw-manning here. That the stated purpose of means-testing is to maximize the benefit-per-unit-dollar to the targeted group is not disputed by anyone. No one suggests that means-testing is imposed explicitly to create bureaucratic hoops in order to deny benefits to the eligible. Universalists suggest that in practice, means-testing of individual programs often has that effect, sometimes unintended, some tacitly intended by public officials who, whether out of ideological pique or in response to fiscal pressures, engineer eligibility criteria to limit disbursals. We had a spectacular example of that when Florida’s Republican governor Ron DeSantis had to acknowledge that his predecessor had deliberately made filing for unemployment benefits difficult, in order to forestall pressure on the insurance fund that might have required raising business taxes. (Unemployment insurance is not a means-tested program, but like means-tested programs it is gated by an application bureaucracy which always has the effect, whether intended or not, of limiting benefits to a subset of the eligible.)

It’s a particularly odd time for Sawicky to write “there is no really existing universal benefit that remedies this problem, so we are committing the basic fallacy of criticizing an existing program by comparison to an idealized alternative.” In the CARES Act, we just had an (almost) universal $1200 cash payment, and despite the fact that the United States lacks the infrastructure for benefits deposits that are a matter of course in more civilized countries, those payments were almost universally received. Someday a comparison will be done of the fraction of the eligible who received their $1200 payments, versus the fraction of eligible people and small businesses that received Federally enhanced unemployment insurance and forgivable PPP loans. Does Sawicky believe the comparison will reflect well upon the latter?

A fundamental misunderstanding undergirds this whole debate, that it’s an argument of “means-testing” versus “universalism”. Universalists don’t dispute the necessity of means-testing, they dispute how and where means should be tested. Partisans of “means-testing” are really arguing for within-program means-testing — that each benefits program should have its own means-based eligibility infrastructure. “Universalists” are also very devoted to means-testing. We just think all programs should share a single, efficiently managed and enforced, means-testing infrastructure rather than jerry-rigging one for each individual benefit. Means-testing is inherently intrusive of privacy. It is costly in time, money, and sometimes dignity, for applicants and for validators. It imposes, in the language of economists, large deadweight costs, from the cost of the exercise itself, and from the social cost of benefits deterred by the exercise and so undelivered. It is simply more efficient to have a single and, um, universal means-test, and use that for all programs.

And we do have a universal means-test. It is called the income tax. Universalists argue that rather than means-testing program by program, we should just provide the benefits unconditionally, but “take them back”, in different degrees, financially, via the income tax. In accounting terms, gross outlays (whether they be cash benefits or “in-kind”) are to be divorced from means-testing and, to the maximum extent possible, any other sort of eligibility bureaucracy that imposes deadweight costs. But net outlays — benefits extended minus taxes paid — are absolutely means tested.

This is just more efficient than multiplying eligibility bureaucracies for every program. But its advantages go beyond eliminating redundancies. Providing benefits up-front and then charging on a sliding scale as income is realized supports the insurance function of social spending. People’s incomes are uncertain and only verifiable after some delay. Requiring demonstration of inadequate means up-front, rather than on the back-end, creates at best a delay between when a shock is experienced and when it can be ameliorated. “Delay” can mean your kid skips meals, you start rationing your insulin, or your family is evicted from its home. It’s a big deal.

Further, from the perspective of recipients, benefit withdrawal is itself a kind of income tax, often imposing very high effective marginal rates at low levels of income. We make programs “cheap” by making people just richer than beneficiaries pay their way, rather than let the burden fall higher on the income distribution. Within-program means testing may be “progressive” relative to no program at all, but it’ll be regressive relative to a universal program funded from the general budget. Bouncy tax rates and cliffs are bad policy that affect human incentives in real, socially costly ways. Restricting means-testing to the tax system allows us to structure incentives rationally and burdens ethically.

Less materially, but perhaps more importantly, universal programs unite and ennoble us while within-program means testing divides and diminishes us. Humans perceive flows of funds and services in gross terms rather than in net terms. We all have the use of the roads “equally”. In net terms, you can argue that poorer people get full use of the roads without much funding them in taxes, so they are lucky duckies. Or you can argue that the rich use the roads much more than even the home-owning, property-tax-paying middle class, so the flow of net benefits is severely regressive. Argue this shit all you want, as a wonk or whatever. Most of us just perceive the roads to be fair and free to all, and the taxes as something else entirely. Roads are common infrastructure, an interest we share, a good reason to support solidaristic government. Given the high salience of gross flows rather than net, it’s a free-lunch in terms of social cohesion to provide services and support to all, rather than make very explicit that some are getting “free stuff” that others are not.

But what about the inflows? If universal outflows to the public are supportive of social cohesion, aren’t the radically varying inflows we require as taxes corrosive of the same? Yes, of course they are. Have you seen how rich people talk about the income tax?

However, these aren’t equal and opposite effects. More affluent Americans still enjoy and support the roads and national parks, despite “overpaying” for them. Many of them would be grateful for the option to send their kids to college less stressfully. Further, developed countries have tremendous flexibility in how we finance universal benefits. There is no one-to-one correspondence between a new dollar spent to support a universal benefit and an increase of divisive dispersion in the tax system. Social democracies support universal benefits with a wide mix of income and payroll taxes that render the benefit system more net-means-tested (when they are not capped) and other taxes (e.g. VATs) that render them less so. Choices about the progressivity of income taxes affect the degree to which the benefits state is net-means-tested, and have potentially complicated effects on social solidarity. (Very progressive taxes leave high-income people disgruntled over the short term, but over the long-term, very progressive of taxation can contribute to a “predistribution” more conducive of solidarity.) Developed countries that control their own currencies have wide latitude to finance benefits with “debt” instruments that are more like preferred equity. If they are careful, they can wisely distribute the inflation risk public expenditure may occasion, rather than let expenditure merely magnify it. A wide variety of regulatory policies (e.g. discouragement of predatory consumer credit arrangements) can reduce the degree to which benefits put pressure on prices and so must be offset with potentially divisive taxes.

Finally, means-testing obligations rather than benefits better aligns social provision with human dignity. When a person applies for means-tested benefits, they are asked to prove their poverty, which in our society shades towards inadequacy, in order to get something that they need. They must make themselves charity cases. When we means-test obligations, no one is humiliated. Detached from “getting a handout”, there’s not much indignity filing a tax return, regardless of ones income. When ones tax bill is high, some people feel pride (“taxes are the price of civilization”) and some people feel ripped off. But no one is diminished in the eyes of their community, or in their own eyes. If you think taxes are theft and the state is predatory, that is a reason to be angry at others. But your high tax bill is not a personal failing. On the contrary. Whether you are content to pay your taxes or outraged that you have to, the cause of your predicament is a source of pride rather than of shame.

From the market or from other sources, the benefits we receive from others without having to beg tell us what we are worth to others in our society. The taxes we have to pay may be irksome, but they are not deducted from that social expression of value, as long as they are levied on nondiscriminatory terms. There is a free lunch in human welfare embedded in these propositions. We are idiots not to take maximal advantage of it.

Note: While I was writing, Matt Bruenig published a response to Sawicky and Day. I suspect I’ll agree with it, though I haven’t read it carefully yet.

Update History:

  • 28-Sep-2020, 3:55 p.m. EDT: “It is costly in time, money, and sometimes dignity, for applicants and for validators.”


It has become a cliché to say that this election is not about electing a President, but preserving democracy in America. That’s much less because of Donald Trump than because of the “doom loops” (in Lee Drutman’s term) between the two political parties. It’s bad enough that we have only two parties that leave most of us poorly represented. But as the parties increasingly differentiate themselves across issues of identity and culture, the “winner-take-all” nature of our electoral and political institutions can no longer tempered by the horsetrading and difference-splitting. Our conflicts can no longer be resolved by compromises that leave us all feeling represented, albeit imperfectly, and fighting over matters of degree. Instead the parties have manufactured two distinct superidentities, and rehistoricized them as ancient hatreds. Both parties, and the partisans they’ve made us all, agree that we face a battle of good versus evil, sanity versus chaos, for the very soul of the American republic. Only one slight difference remains to be resolved: Which is which, who is who.

Framed this way, I am not neutral, I have a view, my own allegiances. But it is a catastrophe that we have framed things this way. Democracy is a sham, in practice and in theory, if half of the people are simply evil. And they are not, in any objective sense. Our horrible party system, a politics industry that caters to plutocrats, and insiders’ incentives to secure incumbency, have caused us to reconstruct ourselves in this way, yin to one another’s miserable yang.

One source of our discord is majoritarianism, which drives destructive competition between our political factions to win just a tiny margin over the other one. “Majority rules” is a deeply flawed basis for democratic institutions. It conflicts with a more functional virtue, representation, the idea that everybody should have a voice, no one’s interests should fall beneath consideration. Under strict majoritarianism, minorities have effectively no voice if a majority organizes to wield power. In liberal democracies, the most catastrophic harms of majoritarianism are (supposed to be) mitigated by minority rights, basic protections and liberties that even organized majorities are not permitted to violate. But even when those are respected, majoritarianism leaves minorities boxed out of any agency in the national project. When organized factions are nearly evenly matched (as our abysmal political institutions encourage), unsubverted majoritarianism would have 50% of the electorate plus 1 rule entirely, no matter how strenuous the objections of the other 50% – 1. This is not a functional or legitimate way to rule. (Our abysmal political institutions are not so straightforwardly majoritarian, so they don’t have that flaw, exactly.)

Opposing majoritarianism is not a defense of minoritarianism. The idea that some benighted minority should rule is obviously worse. But Republicans’ anti-majoritarian turn is itself a function of the structural majoritorianism of the institutions they contest. Majoritarian institutions invite the question “majority of whom?”, and the winner-take-all character of “majority rules” means the whole ballgame can turn on small changes in the always contested boundaries of the enfranchised. Under institutions where power is proportionate rather than binary, temptations to nibble at the edges of electoral eligibility or convenience disappear. Questions of suffrage become the fundamental questions about the nature of the polity that they ought to be, rather than playthings for party operatives looking to shave a few points from their opponents.

Representation is the ideal to which our political institutions should aspire, not “majority rules”. But representation must not be merely formal. Having “representatives” in a legislative body where they are always outvoted is not really representation at all. A democratic polity requires institutions that ensure the entire public is represented in outcomes, not merely in deliberations that become perfunctory or, even worse, performative, so the routinely outvoted become recklessly extreme, as compensation for impotence and in competition for press. Obviously, contending factions sometimes have mutually exclusive preferences, so that one faction must win and others must lose. But then you should win some and lose some, in proportion to your support among the general public. When possible, compromises should be crafted that attend in degrees to all of the public’s interests, and then passed with a high degree of legislative consensus. And such compromises usually are possible, when politics properly orients itself around conflicts in the material world, where differences can be split and priorities traded, rather than around questions of identity, morality, and status, questions on which contending factions must win or lose with nothing in between. Where compromises are not possible, we should have to take turns. Turn-taking should occur much more frequently than multiyear election cycles. Even within a single legislature, the majority should win only sometimes, and lose sometimes, in rough proportion to its dominance. There should be no possibility, none at all, of any faction dominating eternally, winning so big they need never fear reprisal for whatever they do to others. The golden rule must be a norm upheld and always enforceable between political factions. Our politics creates its public much more than the public creates our politics. We should seek a politics that constructs a public respectful of difference, that wields persuasion as its core implement of change.

Representation in the way I’ve described it can conflict with other virtues. There are tensions between turn-taking and the strategic coherence required to run an effective state. When everyone seems represented, it becomes harder to know whom to hold accountable, and how, for policy failures. It must be possible to take actions, sometimes to make big, contentious changes, and commit to them in ways that won’t immediately be reversed in stupid oscillations when the next turn is taken. American institutions already suffer from terrible status quo bias, and richer representation should not exacerbate that.

These are real issues, but they are (imperfectly) resolvable issues. Representation is the heart of democracy. Forms of majoritarianism that circumvent rather than support it should be abandoned. In the short term, for the United States, this means eliminating abominations like the “Hastert Rule” (which both parties and both chambers have now effectively adopted) in favor of legislative procedures designed to maximize enfranchisement, of the minority party and of diverse factions within the parties. In the medium term, it implies changing our electoral system to one that yields proportionate representation, rather than reshape the public into two bitterly contending factions. In the longer term, it implies innovations within the institutions of democracy that ensure turns are always taken except when strong consensus can be reached.

Note: I’ve just read Drutman’s book Breaking the Two-Party Doom Loop, which has helped color my thinking. I’d take issue with some aspects of the political history it tells, but it does a great job of explaining why our politics is such a mess, and casting a light forward towards the kinds of ideas that might remedy it. I heartily recommend it. We’d have a better world if it were more widely read.

Update History:

  • 22-Sep-2020, 12:40 p.m. EDT: “…would have 50% of the electorate plus 1 rule entirely, no matter how strenuous the objections of the other 50% – 1.”; “I’ve recently just read Drutman’s book Breaking the Two-Party Doom Loop, which has helped color my recent thinking.”

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!)

[Meta] An experiment, you’re invited…

On-line writing is less social than it used to be. I have long rants about why, and what that even means. Maybe I’ll blog them someday.

Anyway, until we remedy that (I think we should remedy that!), assholes like me will just have to cope. There’s Twitter, which is like the junk-food version of on-line intellectual sociability. I have to confess I draw most of my nourishment, and most of my poison, from there. But I am not happy about it.

In this moment when teleconferencing has replaced almost every other form of human sociability, I wondered, why not this too? So, on Thursday, I’ll host a Zoom “seminar” using the previous post, “Weakness is provocative“, as its launch pad. I’ll make a short presentation of the ideas in that post (I’ll try to keep it interesting even for those who’ve read it), then we’ll segue from a Q&A session and then to free-form chat. Of course, whatever people say about the best-laid plans would never apply to what I arrange, my plans are uncommonly shoddy. So, we’ll see!

The time will be 3pm EDT / 12pm PDT / 7pm UTC, this Thursday August 27th. If you’re interested, I’ll need your e-mail to send an invite. Please add a dummy comment to this post with a real e-mail (the e-mail you provide when you comment is not published), or DM me with your e-mail at @interfluidity on Twitter if you are interested in attending. I’ll send back a Zoom link / invite by Thursday morning.

Thanks, always, for reading!

Update: The slides I presented are available here.

Weakness is provocative

I don’t think it’s an exaggeration to say that our electoral system is destroying our society.

The United States uses single-winner, “first-past-the-post”, plurality voting for almost everything. When we elect someone, we define an eligible electorate, create some procedure by which candidates can get their name on the ballot, and the position goes to whomever gets the most votes, regardless of whether that’s a majority. It’s a simple, intuitive, form of democracy. It’s also terrible.

The most commonly discussed flaw, sometimes recast as a virtue, is “Duverger’s Law“, which points out this system herds people into two-parties. Plurality voting renders a multiplicity of political parties unsustainable, as distinct but somewhat aligned parties that fail to join together split one other’s vote, handing victory to groups the somewhat-aligned parties detest even more than one another. I endorse this critique. I think we’d have a much healthier democracy if citizens could make homes in political political parties that genuinely reflect each of our values and interests, rather than melting into two permanent, bitterly contested, coalitions. The Americanist apology that the broad coalitions forced by a two-party system yield moderation, stability, and compromise has, I think, been discredited by events. Instead, incumbency incentives within the United States’ two party system demand entrenched polarization, however dysfunctional that is for the polity as a whole.

Less frequently discussed than all of that is how weak first-past-the-post voting is, with respect to resisting corruption. And weakness, Republican politicians eternally remind us, is provocative. Single-winner, first-past-the-post elections are often described as “winner-takes-all”. That means that in a close election, the leverage, the “ROI”, associated with stealing a small edge can be huge. If the ultimate margin of victory of an election is likely to be within 2%, you only have to manipulate, suppress, or steal 2% of the vote to win 100% of the power. Then we are “shocked, shocked” that political entrepreneurs with an interest in the outcome (not necessarily of the parties themselves, it could be Russia!) do play for such edges.

But that’s only true for close elections, right? Yes, that’s right.

But because single-winner, first-past-the-post voting yields a two-party system, we should expect that the most consequential elections will frequently be evenly matched.

The two parties are strategic actors, and they want to win a struggle for power. [1] When either party’s strategy leaves it losing that struggle by a clear margin, that strategy will change, one way or another, even by poaching aspects of the other party’s identity if necessary. (Consider the realignment of the Democrats when 12 years out of power in 1992, or Republicans’ adoption of Dixiecrats.) With party institutions more eager to contend for power than they are devoted to any fixed ideology or constituency, a 50/50 divide is the equilibrium, the attractor.

So, to sum up, the United States’ electoral system yields:

  • Elections that, when closely matched, yield a tremendous return to just a little bit of manipulation, corruption, or voter suppression

  • A near certainty that the most consequential elections will often be closely matched.

That’s pretty bad, right?

It’s worse than that. Parties will try all of the above, manipulation, corruption, and voter suppression. But manipulation is the safest — because it’s often legal, “legitimate” — so it is done most loudly, most aggressively. If you can do something, any little thing, that fucks with the news cycle immediately preceding the election, you can win everything for almost nothing. But one pundit’s manipulation is another statesman’s persuasion, right? What’s wrong with trying to persuade voters to come to your guy’s side (or stay home rather than voting for the other guy)?

The thing is, a two party system imposes by construction its own political spectrum, expressible as the probability a given voter will vote for Party A over Party B. Given the broad, unruly coalitions forced by the two-party system, party alignments and realignments are tectonic. They happen slowly, except whey happen quickly in rare, unpredictable events we describe as “earthquakes”, like Donald Trump’s insurgency within the Republican Party (which up-ended some, but not most, of the Party’s prior commitments, and forced some reorientation within the Democratic Party as well). During the run-up to a given general election, however wildly platforms or promises veer left or right, the deep structure of the parties, defined by particular humans and their relationships and commitments, is essentially fixed. Given these fixed coalitions, Party A and Party B, there are the “hard-A-ists”, who would never think of voting B, and the “hard B-ists” for whom voting A would be treason. These groups are connected by a gradient, from the hard A-ists, through the soft A-ists, who are 80% likely to vote A but might sometimes consider the other guy, to the genuine independent, the swing voter, who might really vote either way. [2]

The swing voter is, by construction, the voter most indifferent to the core commitments of the competing coalitions. The swing voter is the motherfucker for whom the A-ists and B-ists really are alike, because her concerns are simply orthogonal to the conflict embedded in the structure of commitments that, by a given election, the two parties have already competed and collaborated to develop in order to divide the influence-weighted electorate (not one person one vote!) into a roughly 50/50 split. (The two parties compete to form and/or poach commitments that would render their side popular. They collaborate by agreeing to leave off the table commitments that might be popular among voters, but that would be antithetical to interests that both parties share, like privileging incumbency or appeasing rich donors.)

The commitments of the parties evolve slowly. They accrete over time in personnel decisions and private relationships. They are made credible by the formation of institutions that reward those who uphold them and punish those who do not. But the outcome of elections turns on precisely the voters at the margin who are most indifferent to the divergences between the entrenched commitments of the two parties. It’s not that these voters don’t care, don’t have strong interests, values, and views that they’d like to see represented politically. It’s that, in a given election, the actual contest between the two actual parties is confined to a narrow subset of potential disputes, and there will always be some group of voters who are more-or-less indifferent to that subset of disputes. And precisely those people are the margin of victory, the ones who decide our elections, much though not all of the time. [3]

Harry Frankfurt famously defined bullshit as expression that is indifferent to its truth or falsehood, communication whose purpose is instrumental, rather than to inform or to mislead. If over the timescale of an election campaign, party commitments are largely fixed in ways that usually divide the (influence-weighted) electorate about evenly, but that leave a subset of the electorate genuinely indifferent to which of those two sets of commitments prevail, there is nothing true or false to say that might persuade people. The most political of political speech, the speech we hallow with special Constitutional concern and deference, direct advocacy with respect to general elections, becomes, necessarily, almost always bullshit. We do not learn, at the political conventions now ongoing, which individuals, relationships, and institutions durably guide the parties, what agendas will quietly guide the patronage and grants of power or prestige within each party, should it come to rule. That’s not because there is some nefarious conspiracy to hide party commitments, but rather because the politically engaged public already knows and understands them. Most of us have embraced or made our peace or shunned the parties already, because the two parties’ commitments — both where they diverge and where they don’t — are actually pretty transparent. For those not moved to join a team by these pretty stable, pretty transparent commitments (that have little to do with formal platforms or campaign promises), all that’s left is bullshit (which sometimes takes the form of formal platforms and campaign promises, or uplifting personal stories expressing our team’s virtue and decency, or infuriating anecdotes revealing how craven and vicious prominent members of the other team are).

Our sacred political seasons are not where the great and weighty principles and compromises that guide our republic get worked out. That happens quietly, in hiring decisions and donor calls, in board and committee appointments, in the consultants and fellows who are hired, versus those who are effusively admired but passed over. Our two political parties are in a constant dance, forming and reforming in reaction to one another, in response to the electorate as they perceive it and the institutions (whose shape is also a battleground) through which that electorate expresses itself.

In the American system, most politics happens within the parties. The role of the public is indirect: To constrain the coevolution of party politics, because the parties must stay locked in 50/50 embrace. And then to flip a coin, to decide which coevolver wins. The public meaningfully decides only during elections (maybe including this one) where the 50/50 embrace has failed, where events have outpaced the parties’ capacity for realignment and left one party so far behind the midpoint attractor that the cloud of noxious randomness generated by inexhaustible bullshit and competitive manipulation and suppression just is not enough to give it a serious shot.

But many elections are close enough that it is not the party that decides, but the bullshit. And bullshit is too anodyne a term. The competition to sway a few points of the most indifferent fraction of the electorate during the run-up to our elections encourages parties to manipulatively incite passions, to inflame divisions, whose relevance to what will actually be decided is minimal. But the wounds to social peace endure, to be inflamed again and even further next time around. Bullshit is endogenous to our electoral system. But not just any bullshit. Painful bullshit, “toxic”, destructive of the mutual goodwill that institutions of a virtuous nation should seek to cultivate, while not delivering much in the way of meaningful enfranchisement to justify the pain.

This is not how I’d design a democracy. I’d like to change it. But, in the words of a prominent if not great statesman, it is what it is. I do think it a bit rich to complain when all kinds of actors — foreign and domestic, inside the parties and out — join the fray and try to bias the coin as it flips. It’s what we should expect, when we’ve crafted a system that very often gives all the marbles to whoever can put together an edge of just a few percentage points, in a few key races, among the portion of the electorate that cares least about what is actually at issue, who are forced to choose among parties whose commitments they have little role in shaping.

[1] More cynically, each party’s consulting classes require they always be perceived to be in close contention, or their gravy train would cease.

[2] I’m omitting discussion of maybe-nonvoters, but I don’t think they change the story very much. Like the marginal “swing” voter between parties, the eligible voter who might or might not show up sits at a point of indifference, where whatever the two parties are offering, the perceived advantage of one over the other is not great enough to overwhelm the cost or inconvenience of voting. Like the other category of swing voters, these voters are in practice absolutely crucial, should absolutely not be ignored by political campaigns. Get-out-the-vote is a big deal. But that is precisely because these citizens comprise part of the population of near-indifferent voters who often in practice decide our elections.

[3] Much, not all, of the time, because sometimes (like now, this election, I hope!), events outrun the slow competition and coordination of the parties to embody commitments that about equally divide the electorate, so that one party has a temporary but propitiously timed clear advantage over the other. When this happens we escape the pull of the 50/50 election, and the marginal, nearly indifferent, voters become less relevant. But it’s rare that a predicted victory margin is so wide and certain in real time that campaigns can afford principled restraint in favor of less principled attempts to manipulate the marginal voters. The cost of a small mistake in polling would be the whole game.

Dispersion causes discohesion

Dispersion causes discohesion. It is hard to have a cohesive, high-functioning, society when dispersion of individual outcomes — “inequality” — is high.

Some people argue that mobility is an answer to dispersion, that it’s okay, great even, to have extremely unequal outcomes as long as it is possible for people who begin poor to end up rich (and vice versa). I’ve argued against that before. This post will further explain why I think celebrating the combination of inequality and social mobility is a particularly dumb idea.

We’ll start with a simple, tragic fact. In a society where there is both a high dispersion of outcomes (income, wealth, status, whatever people aspire to) and a high degree of mobility, from most individuals’ perspective, it’s more profitable to engage in distributional conflict to advance within the distribution than to cooperate to help shift the distribution, without competing to improve ones own rank.

Let’s illustrate this with a some pictures.

The grey bell curve represents the distribution (of wealth, income, status, whatever) in a society with a high dispersion of outcomes. The cyan bell curve represents how that full distribution might advance over the course of one lifetime, if most members of the society worked cooperatively to increase the general Welfare. The trouble is, if there is social mobility in this society, individuals have an alternative strategy. Rather than cooperating to shift the bell curve, they can compete with one another for slots within the existing bell curve. I’ve illustrated the situation of a hypothetical modal person.

Competing for rank in the distribution is a zero-sum game, so a “representative agent” that formed its expectations by averaging all outcomes, or an individual agent whose “rational expectation” was formed by assuming its odds are as good or bad as anyone else’s, might conclude that the expected value of this strategy is zero. However, that strikes me as unrealistic. In societies that celebrate social mobility, individuals are encouraged to have optimistic expectations, to believe that with our hard work we can exploit our own talents to “get ahead”. Let’s imagine that’s so, and a substantial fraction of agents believes that by competing for a better position, they can advance by one standard deviation within the distribution (the red arrow labeled “Conflict“). Now suppose that the plausible rate of aggregate progress, holding ranks constant, even if we organized effectively and cooperatively, is smaller than a one-standard deviation shift (the green arrow labeled “Cooperate“). Then basically it will be individually rational for all “optimistic” agents to devote themselves to contesting their rank within the distribution, rather than cooperating to work in ways that would contribute to aggregate prosperity but might not improve their own rank. The more optimistic the society is, in the sense that people believe that individuals can get ahead through their own efforts, the smaller the share of people who will eschew contesting social rank in favor of cooperating to advance aggregate prosperity.

Now let’s run the same thought experiment for a less unequal society.

Nothing has changed except the standard deviation of the bell curves I have drawn, representing the dispersion or inequality of the population. Again, “optimistic” individuals believe that by contesting their ranks, they can advance one standard deviation in the distribution. However, because this distribution is narrower, that degree of advancement is less than the progress they could plausibly expect if they held their rank within the distribution, but they organized cooperatively to achieve aggregate gains. Contesting ones place in the distribution, rising up by pushing others down, is a dumb strategy relative to cooperating to achieve aggregate gains.

To riff on Eugene Debs, whether it makes sense to try to rise from the ranks or to rise with the ranks is endogenous to both the level of inequality in a society, and the perceived social mobility available to optimistic agents. In a very unequal society with a high degree of rags-to-riches optimism (whether objectively defensible or not), lots of people will choose zero-sum conflict over rank rather than positive-sum cooperation towards progress. You can resolve this problem in a couple of ways. If you want a society that is both functional and unequal, you can choose illiberalism. Once mobility is off the table, if people understand that contesting their social rank will be fruitless, perhaps even punished, then the only strategy with any payoff is to cooperate to advance aggregate welfare. Unequal, illiberal societies can be very functional, so long as they credibly promise that gains will be widely shared, rather than hoarded only by high ranks. Perhaps contemporary China is a rough approximation of this kind of society, though I don’t have much handle on perceptions of social mobility there.

My own strong values are liberal, so I’d prefer we retain a high degree of openness to social mobility, but diminish pathological inducement towards zero-sum conflict by limiting the dispersion of the distribution, by reducing inequality. I believe we really do have to choose. We can have inequality without liberalism (the path offered by Donald Trump’s Republican Party). We can have liberal, less unequal societies (the path highlighted by Scandinavian societies). Or we can try to sustain a liberal, very unequal society, and find ourselves beset by continual conflict over rank and position, relying on social pathology at the bottom of the distribution to justify outsize fortunes of the top. I don’t think this last choice, our current choice, can last very long. I don’t think it is intellectually coherent to be liberal but not egalitarian, at least relative to current levels of dispersion.

But, the “classical liberal” will remind us, there is an obvious rejoinder to all of this. I have treated competing to advance ones place within the distribution and cooperating to shift the full distribution forward as distinct, mutually exclusive strategies. Isn’t the whole point of capitalism, its core virtue, that an invisible hand transmutes competitive individualism into cooperative gain? Yes! Absolutely! But that doesn’t happen by magic, automatically.

Not all competition takes the form of competitive supply into open and contestable markets that economics textbooks tell us maximize output and eliminate markups. I think it’s particularly important to distinguish this kind of economic competition from tournament competition, whereunder people compete for a relatively fixed numbers of slots with high payouts. Too often in the United States we use “competition” as a broad, bland term to legitimate almost any sort of outcome. That is dumb. When warlords pummel one another’s villages until, finally, one of them gains supremacy, I think we’d all agree that is a hypercompetitive process. But, as the smoking wreckage attests, it is a negative-sum game, it is bad not good. Similarly, the tournament that selects admission into Harvard is certainly competitive, but when you add all the resources expended by the losers as well as winners into activities they would not have undertaken for personal development, that tournament is probably also negative-sum. If you have achieved a lucrative partnership at a top law firm, you have brutally competed for your entire career. But if you didn’t win that partnership, someone else would have. Your gain was someone else’s losses. The costs of these usually negative-sum tournaments may be somewhat offset by the virtue of putting the most talented people in places where they can do outsized good. But that depends on very particular circumstances. In a society where economic competition is far from perfect, where firms with outsize market power dominate to harvest outsize markups, individual prospects are largely determined by tournaments for positions within those dominant firms. A world like this is certainly “competitive”, but in a way that should lend it no legitimacy at all. The tournaments for lucrative slots are negative-sum internally, and the external effect of this form of organization is to curtail the textbook economic competition that might otherwise contribute to aggregate well-being.

The classical liberal isn’t wrong when she argues that the virtues of economic competition can undermine the case I’ve made above, can reconcile aggregate progress with an unequal distribution in a liberal society. But that it can do so doesn’t mean that it does, or is likely to, in practice. When we say markets civilize greed, we are acknowledging that greed needs to be civilized, that if it is not caged and channeled by certain kinds of institutions, it does harm. To reconcile competitive inequality and collective progress, we’d need markets that are perpetually contested, in which victory is always transient because anyone’s profit is everyone’s wide open opportunity. The world that we actually inhabit looks less and less like that. The more competitive behavior in an economy is characterized by tournaments, the less persuasive classical liberalism’s answer to reconciling competition with cooperation becomes. We revert to the world of our thought experiment. If we adopted some muscular version of antitrust, if we replaced patent monopolies with less destructive approaches to rewarding high-fixed-cost innovation, if we developed means of countering the market power engendered by technological network effects, maybe we could reconcile social mobility, high levels of inequality, and brisk improvement of aggregate welfare. But that would require designing and performing unusually excellent institutions. It would require sustaining those institutions over long periods of time, against continuing, earnest efforts by incumbents to undermine them.

Which again suggests we must limit inequality. Because when incumbents have very, very far to fall, it means they have a lot of power today, and extraordinary incentives to rig the game.

Breakup sex

Today I see people whose politics I largely share getting upset about things. Here are Briahna Joy Gray and David Sirota, upset that John Kasich may play a role in the Democratic National Convention. Here is Anand Giridharadas grappling with how to welcome the energy and support of the “Lincoln Project” without ceding power to the very same people who brought us the Iraq War, torture, and predatory mortgages and financial fraud.

The metaphor for how I think that “we” (for a suitably nebulous we) should deal with the 2020 election is “breakup sex”.

Our current relationship with the Democratic Party is intolerable. The people who run the institution do not share our values, at least not in any way that matches the urgency of the catastrophe our world has become. We’ve tried for two Presidential election cycles to reform the party from the inside, using the primary process, and not succeeded, both for reasons fair and foul. Yet the pathology of our first-past-the-post electoral system and the logic of Duverger’s tendency means it would harmful to do the natural thing and form our own political party. Under electoral systems like ours (which it should be among our highest priorities to change) splitting a broad coalition disempowers the entire coalition, handing elections and power to people whose interests and values are so far from our own we would never have been anywhere near a coalition with them. Within the Democratic Party our values are undermined, coopted, sacrificed on the alter of a cynical realism that the well-remunerated realists quietly prefer. If we split from the Democratic Party, we hand power to a coalition that is, at the moment, an unabashedly fascist death cult. Things are tough all over. This is intolerable. We have to find a way out.

I think there is a way out. A fair number of us, described sometimes as “Bernie or bust”, argue that we should withhold our support from the Democratic Party, despite electoral realities, unless they earn our support with candidates and platforms that represent us. Sometimes this is taken a principled stand, to be taken regardless of consequence. But often it is justified in game-theoretical terms: If institutional Democrats know that we are trapped, that we will always hold our noses and vote with them, then we will have no leverage in the party. We have to demonstrate a willingness to accept the short-term risk of spoiling elections in order, over the longer term, to gain bargaining power within the Democratic coalition so that our values and interests actually get represented.

There is a lot to be said for this view, but it is kneecapped when it is put into practice on individualized, atomized terms. Most of us, compelled by the logic of negative partisanship, hold our noses and vote for the “corporate Democrat” who we expect will betray us, but who will probably not murder us like the other guy might. Others vote for Jill Stein or Howie Hawkins, or don’t show up at the polls. The inconsistency dilutes the potential effectiveness of the strategy. If the goal is actually to wield power, our withholding or supplying votes must be a matter of coordinated, collective action rather than individualized expressive choice. We need a union that can credibly threaten to strike, not individuals some of whom rage quit.

So, breakup sex. I think, in this year of our lord 2020, we should actively, enthusiastically, passionately support the Democratic Party and the prototype institutional Democrat who leads its ticket. They always try to convince us that letting the other team win would be the end of the world, but this year the horde of rabid predators is pretty visible while they are crying wolf. As soon as the election has passed, I think we should form a distinct organization that would not be a political party in the sense of participating in our country’s deeply flawed public primary process, but that would, like a political party, sometimes moot its own candidates for public office and help get them placed on ballots (whether as organization representatives or notional independents). Sometimes is an important word in that description. Most of the time, it hopefully would not. The organization would simply endorse the Democratic party candidate, keeping whole the not-Republican coalition. But, if a high (supermajority) threshold of the membership decides that the Democrat would not represent our values effectively, that the risk of spoiling the election is acceptable given whoever the Republican would be and is outweighed by the possibility our better candidate might win, then we would run that candidate and organize on their behalf with energy and unconflicted enthusiasm. Defecting from the Democratic Party, when it makes sense, makes much more sense as a collective rather than individual choice.

This organization might only rarely run candidates but still have a salutary effect on our politics. A credible threat that the social democratic wing of the party might defect would change the kind of candidates the party would nominate under its everpresent “electability” fetish. The existence of such an organization would also incentivize Republicans not to nominate, say, pathological narcissists with inchoate tendencies towards authoritarianism and racial hierarchy. Republicans will understand that, if they nominate someone sufficiently mild and tweedle-dee-ish next to what might be portrayed as a corporate-Democrat tweedle-dum, the social democratic wing of the Democratic coalition might risk a split and hand them an advantage. The existence of a union of social democratic voters would create incentives for the Democratic Party to become more social-democratic, and for the Republican party to become saner. It’s win-win-win.

This is, of course, a second-best solution. Replacing our terrible first-past-the-post electoral system with sane alternatives would enable a diversity of proper political parties to contest elections on equal terms. But this is something we can just do, long before an uphill struggle can be won to get incumbent politicians to reform the system that exalts them.

We should start to build this organization, just after the election. In the meantime, until then, I think we should passionately support Joe Biden and whatever motherfucker has a D next to their name on November’s ballot. My view is that it’s not worth the trouble to be coy, to withhold support conditional on platform commitments or John Kasich not marring the Democrats’ stage. During a Biden administration, there will be a huge battle over who must be betrayed — corporations and donors, or us. For now, the best way to wage that fight is to be an indispensable part of this election’s coalition. Beginning in November 4th, we organize to credibly threaten to take our indispensable selves elsewhere if it is us who is betrayed.

We’re at the point in the relationship where I think we do have to leave, sort of. We can no longer remain an informal, disorganized “wing” of the Democratic Party contesting bizarrely constituted primaries under institutions whose leaders oppose and outmaneuver us. But we need to decamp smartly, in a way that strengthens the influence of our values rather than uselessly spoiling elections. And before we go, this election cycle, the sex should be unreserved and hot. Biden 2020, baby.

Social democracy and freedom

In 1962, Milton Friedman famously argued that liberal capitalism and political freedom go together, they are mutually reinforcing. Nowadays, for a lot of us Milton Friedman has become a kind of bogeyman, the false prophet of a catastrophic social experiment that has, after decades, left us immiserated and divided. But I have some sympathy. The basic structure of the argument is that however democratic a powerful central government might purport to be, it is a danger to freedom. Decentralized power plus change enacted via mutually beneficial exchange are more likely to produce positive progress and — perhaps more importantly — are less likely to feature some powerful class that, through error or malevolence, harms or abridges the rights and liberties of disfavored groups. Friedman writes:

Viewed as a means to the end of political freedom, economic arrangements are important because of their effect on the concentration or dispersion of power. The kind of economic organization that provides economic freedom directly, namely, competitive capitalism, also promotes political freedom because it separates economic power from political power and in this way enables the one to offset the other.

Capitalism and Freedom was written in the heyday of the Kuznets curve, which posited that extreme inequality was self-correcting and had largely already self-corrected in modern economies. Friedman celebrated moderate inequality, on the theory that a world with many captains of industry would have many and diverse philanthropists to whom partisans of unpopular causes could make their case and find sponsorship. The logic of the argument rests on the notion that capitalism preserves political diversity that cuts across the structure of wealth and power, so that any partisan, regardless of her politics, could find communities willing and able to celebrate or at least tolerate her, within which she could secure some livelihood and position.

There is an obvious critique of this from the left. Political diversity won’t cut across structures of wealth and power evenly. Humans, including fabulously wealthy humans, are quirky, so sure, there’ll be some Friedrich Engelses and Nick Hanauers. But the winners of an economic game by and large will promote views that celebrate and entrench the game they continually win. Quantities (of money) matter, and there’s lots more scope to make a living at Mercatus than at People’s Policy Project, for partisans willing to adjust their politics accordingly. Capitalism, then, buys the appearance of political diversity (every voice is in the room!), but puts a fat thumb on the scale for the interests of the wealthy and powerful.

Interestingly, though, despite (really because of) decades of Friedman-justified nonintervention into the operation of capitalist markets, the most strident complaints of nonfreedom now come from not from the economic left but the social right. Is “cancel culture” tyranny or itself free speech? Bret Stephens is a fun figure in this debate, because he has a history both of trying to get people disciplined for their speech and of complaining that conformism to the doctrines of “woke” social liberalism are grave threats to freedom of expression. Here’s Stephens today:

The more serious problem today comes from the left: from liberal elites who, when tested, lack the courage of their liberal convictions; from so-called progressives whose core convictions were never liberal to begin with; from administrative types at nonprofits and corporations who, with only vague convictions of their own, don’t want to be on the wrong side of a P.R. headache.

This has been the great cultural story of the last few years. It is typified by incidents such as The New Yorker’s David Remnick thinking it would be a good idea to interview Steve Bannon for the magazine’s annual festival — until a Twitter mob and some members of his own staff decided otherwise. Or by The Washington Post devoting 3,000 words to destroying the life of a private person of no particular note because in 2018 she wore blackface, with ironic intent, at a Halloween party. Or by big corporations pulling ads from Facebook while demanding the company do more to censor forms of speech they deem impermissible.

These stories matter because an idea is at risk. That’s the idea that people who cannot speak freely will not be able to think clearly, and that no society can long flourish when contrarians are treated as heretics.

That idea, old as Socrates, formerly had powerful institutional defenders, especially in the form of universities, news media, book publishers, free-speech groups and major philanthropies.

But those defenders are, on account of one excuse or another, capitulating to people who claim free speech for themselves (but not for others), who believe all the old patriarchal hierarchies must go (so that new “intersectional” hierarchies may arise), who are in a perpetual fervor to rewrite the past (all the better to control the future), and who demand cringing public apologies from those who have sinned against an ever-more radical ideological standard (while those apologies won’t save them from being fired).

David Karpf (whom Stephens tried to have disciplined for a mean joke) responds on Twitter:

This is a vision of free speech that collapses under minimal Socratic scrutiny. It’s a Freedom of speech that demands a safe space from all counterspeech — free speech for me but not for thee.

FedEx telling Dan Snyder to change the damn name [of the Washington Redskins] IS speech.

People pressuring FedEx to tell Snyder this are engaging in speech as well.

Protest actions are acts of speech, even if those protest actions are aimed at people who Bret Stephens identifies with.

That’s the rotten core of every “campus cancel culture” controversy.

You have the right to speak. You don’t have a right to a (paid) platform. And if people think your speech is bad, offensive, harmful, or dangerous, then THEY have just as much right to say speak as well.

This is an insight so mundane that it barely deserves mentioning. Free speech applies to everyone, even people who criticize Bret.

So who is right here? I say Milton Friedman is. “Free speech” stops being real, stops being a practicable ideal, once the consequences of unpopular expression are so great you’ll be banished from the communities you value and unable to earn a decent living. Both the woke and their discontents should be able to speak their piece, both a controversial talk and the angry protest it accumulates are important components of free speech. We want a society where — in practice, not just as a formal, legalistic matter — the public sphere can accommodate a wide range of expression, some of which each of us will find abhorrent.

But Friedman’s conjecture that capitalism plus a light-touch state would be an effective way to ensure this state of affairs was wrong. Because it was never really “capitalism”, in his argument, that protected political freedom. It was decentralization, a broad distribution of wealth and power largely uncorrelated with political commitments. And what we’ve discovered (as any Marxist would have predicted) is that laissez-faire-ish capitalism doesn’t deliver that at all. Instead it delivers accumulation and scarcity, both at individual and institutional levels. At an individual level, the Kuznet’s curve that was fashionable when Friedman wrote, that suggested inequality was a problem of the past under industrial capitalism, has completely broken down. We are back in the Gilded Age, or worse, in terms of inequality. If the consequence of unpopular speech is that a person falls from the upper-middle to something below the middle of the income distribution, that would have been tolerable in 1962 in a way it is not tolerable now. At an institutional level, the economy has consolidated since 1962. The elites who manage the winners of that consolidation and who benefit from entrenched monopoly have of necessity developed a strategies to defend the winner-take-all economy from democratic contestation. One strategy contemporary robber barrons have converged upon is to rebrand themselves as “progressive”, as forces of social good. They cynically and collectively choose what qualifies as virtuous in social affairs, and they garb themselves and give philanthropically to immunize themselves from attacks on their dominant and entrenched economic positions. Today it is Black Lives Matter. A decade ago it was “transformation of the world economy lift[ing] four people in China and India out of poverty and into the middle class” for every American it kicks out, which doesn’t play well anymore in Western democracies. It changes with the wind, Davos is like a fashion magazine. But at any given moment, there must be great and virtuous causes whose pursuit is not antithetical to continued domination by the already dominant. Dominant firms will brook no public dissent from the moment’s religion, as preaching that religion is essential to bewildering and misdirecting an immiserated public whose democratic power could, in theory, undo them.

It’s a bit, um, rich that Bret Stephens would complain about this from his perch at The New York Times, whose dominance of print news is unprecedented and growing. But perhaps it is understandable that he feels the chill. Elite positions like his are an ever-shrinking a game of musical chairs, lots of us would love his life and he wouldn’t love ours. If he (like his editor) were kicked out in a great public scandal, it’s not at all clear that he would land so well. Among elites, the stakes of this game of dangerous speech and righteous counterspeech have become enormously high. (Just ask Steve Salaita, Bret.) You can lose the sort of incomes most of us will never enjoy, and the sort of social place most of us will never experience, if your friends decide they have to sacrifice you in the name of the corporate virtue upon which you collectively depend.

So for those of us who really favor free expression, what is to be done? It’s not enough to adopt a legalistic, First Amendment version that shrugs when private actors censor, ban, and risk people’s livelihoods. It’s pure surrender to defer to Popper’s “paradox of tolerance” and say that it’s cool there’s an ever-shifting set of boundaries beyond which expression and therefore eventually thought can legitimately be punished, because some ideas are too dangerous, free society is too weak to tolerate them.

We should return to the wisdom of Milton Friedman, that political freedom is a structural matter, inextricable from economic arrangements. Friedman was wrong that light-touch capitalism would durably enshrine and protect the kind of structure conducive to political freedom (ht Chris Mealy). He probably was not wrong that versions of socialism that repose economic power in a unified economic hierarchy would be hostile to political freedom. Instead what is required is some system in which the economic stakes of unpopular speech are unlikely to be so horrible, because the distance between lives of the conformist elite and unwashed others is not so great. What is required is a system under which economic power is not consolidated among a few firms with a shared interest in sheltering their dominance, but where instead a diversity of thriving actors ensures that any weirdo can find prosperous communities that will at least tolerate, if not agree with, her views. Such a system might look a lot like capitalism with limited government, but the limits of government would expand somewhat from protecting property and enforcing contracts to providing generous universal (therefore nondiscriminatory) social benefits, raising the floor onto which one might fear to fall for speaking your mind. Such a system might design its corporate and tax law explicitly to promote competition and limit scale (rather than narrowly proscribing a few illegitimate tactics or effects for clever lawyers to work around) so that economic power is affirmatively widely distributed.

If there’s a name for this system, almost uniquely consistent with durable political freedom, I think it would be “social democracy”.

Update History:

  • 5-July-2020, 11:35 p.m. EDT: “…middle class’ for every American it kicks out, which…”; “…some ideas are too dangerous, and free society is too weak to tolerate them.”; “He probably is was not wrong that versions…”
  • 7-July-2020, 2:30 p.m. EDT: “banished from the communities you value and be unable to earn a decent living”
  • 13-July-2020, 2:30 p.m. EDT: “…lots of us would love a his life and he wouldn’t love ours…” (thanks Christian Peel)

Pandemic Diary 2020-07-02: Thymus theories

This post is pure conjecture. I’m not an immunologist or virologist or doctor, nor am I particularly informed in any of those fields. Still, I’ve been obsessed to the point of paralysis by the COVID pandemic, and I try to make sense of things. I offer this in hopes that people more informed than me will tell me why it’s full of shit, not because you should expect it should be right. (And, though it’s all probably wrong, I don’t think these ideas are original. I’m just giving order to thoughts gleaned from conversations in the ether.)

So. Here’s the “theory”. Recently evidence has emerged that T-cells play an important role in COVID recovery and immunity (ht Andy Slavitt). T-cells (as I understand things!) comprise a distinct though related line of defense from antibodies and the B-cells that produce those. The adaptive immune system, in my imagination, is like a mind that works to sense and remember invaders, and produce a response that must be carefully calibrated to repel them without causing too much “collateral damage” to the body. T-cells have a variety of roles in that mind, serving as repositories of memory and helping to coordinate the antibody response. But they also function as killers.

While antibodies mark and disable invaders floating around in your blood, killer T-cells “look inside” the cells of your body for untoward activity that might indicate infection. (Our cells have a kind of billboard upon which they display information about what they are up to, for these cells to observe.) When these killer T-cells decide they have sufficient evidence that a cell has gone rogue, they induce the cell to kill itself. This is a rough sort of justice. Antibodies are officer friendly, attacking bad guys but leaving the host unharmed. Killer T-cells are secret police, disappearing cells whose continued survival they deem not in the interest of the community. Killer T-cells attack not outsiders or invaders, but your own tissue, as a necessary evil to root out infection.

White blood cells are developed into T-cells by an organ called the thymus (after which they are named). One a priori clue that T-cells might have some role in COVID-19 is the age profile of the thymus. The thymus is most active in young children. It’s function declines with age, particularly after puberty, when it begins to “involute” or atrophy. While the thymus functions to some degree even in the elderly, it decays continuous over our lifespans, getting worse and worse. In male rodents, castration can slow this puberty-accelerated atrophy, and interestingly there’s evidence that human castrati have unusual longevity. (I still don’t recommend the procedure.)

Young children do very well with COVID-19, while the risk of a difficult outcome increases monotonically with age. This seems suggestive that the thymus and its T-cells might have a role in repelling the disease.

Two other pieces of evidence seem to fit. A recent French study found that asymptomatic close contacts of infected individuals often showed a T-cell response with no detectable antibody response in blood (ht TWiV, a great podcast!) What this might mean is that, in the very best kind of response to the infection, where you don’t get sick at all, your T-cells just quickly dispatch infected cells without much of an assist from antibodies at all. A Chinese study comparing the antibody response between asymptomatic and clinically-ill infecteds found, perhaps counterintuitively, a stronger antibody response among the sick than among those with no symptoms. Again, this seems consistent with the idea that a quick T-cell response is what’s most capable of forestalling the disease. Antibodies, in this conjecture, represent a second-best response, appearing if the T-cell response fails to make quick enough work of the infection.

It’s all about kinetics, about speed, in this “theory”. It’s a race. Bad outcomes come from a too-slow T-cell response. If your immune system develops COVID-19-attacking T-cells too slowly, you get a big but perhaps not-super-effective antibody response because nothing else is restraining the infection. Eventually, even older, slower thymuses do produce, but by the time they do, the infection may have run wild, so your own killer T-cells may end up deciding to attack a whole lot of your own tissue. This seems consistent with the observation that, once the infection becomes severe, immunosuppressants help prevent bad outcomes.

So that’s the conjecture, definitely overfitted to stuff I hear, probably bullshit, for what it’s worth.

What would be the implications if there were something to this? On the optimistic side, if the French study generalizes and an effective T-cell response often forestalls a discernible antibody response, that’s “immunity not reflected by serology“, which could mean that the infection fatality rates we’ve estimated from serology studies are overstated, and the disease may not be as commonly fatal as we think. On the less optimistic side, it means that an observed antibody response might not be strong evidence of vaccine effectiveness (e.g. here). It also calls into question the likelihood that convalescent plasma therapy and monoclonal antibodies will be great. Obviously, I hope these less happy implications are wrong.

Under this conjecture, if there were some way to accelerate thymus function or reverse its deceleration, that might be useful as a prophylactic. If thymus health can be evaluated more individually than “it gets worse with age”, maybe that would predict risk of a hard disease course. But it’s no great insight that bad health of an organ of the immune system would predict difficulty at repelling an infection, or that improving the health of such an organ might help. If there are thymus-stimulative treatments out there, probably they are already being tried.

These “thymus theories” are how I’m currently, tentatively, making sense of things for myself. But I’m not sure they are right, and even to the degree they might be, I’m not sure they buy us very much.

Complementary currencies for municipal finance

It is an act of criminal malfeasance that the United States’ federal government has not eased the tremendous fiscal pressure on states and municipalities, enabling them to prioritize public health and long-term economic wealth over immediate maintenance of tax revenue. Misgovernance of the United States presently rises to the level of war crime (and that is not just Donald Trump).

A recent article by Rohan Grey, aptly titled Monetary Resilience, highlights one way this national misgovernance might be circumvented. Municipalities could issue complementary currencies:

[S]ome of the more historically successful complementary currencies explicitly adopted the fiscal logic of public monetary regimes, anchoring their value in the acceptability in payment of local taxes, fines, or other legal obligations. This anchor reduced the local currency’s degree of autonomy and independence from the public monetary system, but in exchange provided it with greater legitimacy and stability with respect to its underlying value.

Such an approach allows local currencies to emerge organically from below, and then receive public support from above through the granting of tax-receivable status. This dynamic, in turn, points towards the possibility of an alternative hierarchy of money, in which banks and other private financial institutions responsible for shaping and directing investment are replaced by nested community currencies, operating in accordance with common principles of ecological, economic, and social justice.

Grey here envisions municipalities blessing or adopting privately founded complementary currencies, but there is no reason why local governments couldn’t start up such currencies themselves. Suppose a municipality issued basically a gift card with which certain taxes and fees could be paid at a discount. In particular, suppose that only business taxes and fees are granted this discount, but gift card balances are sold just to individuals and in limited amounts. Suppose that local businesses can apply for “merchant accounts” with respect to these gift cards, accepting payment from customers in gift card dollars just as they might from a debit card. Businesses would be eager to receive this local scrip, at least until this revenue is enough to cover all of their tax obligations eligible for the discount. They would encourage customers to pay in the scrip, whether by sharing the tax discount directly, or by offering other inducements. The overall demand inspired by the tax discount would be more than consumer facing business’ tax obligations. These businesses’ local suppliers will also prefer to be paid in scrip, and will share inducements with business customers, creating demand beyond each firm’s own tax bill. Municipalities themselves can creatively design inducement for residents to maintain balances in scrip. Perhaps residents get 10% off museums, public transit, etc if they can demonstrate a threshold balance, with a scan of a QR code on an app. There could be some (modest) VIP amenities for high balances. Perhaps balances pay interest on themselves, at a rate lower than what municipalities have to pay to float bonds but higher than what ordinary consumers earn in bank savings accounts. To put a floor under its value and limit consumer risk, municipalities could stand ready to buy back the scrip, at a discount or with a moderate transaction fee to discourage redemption. However, the city’s tax and amenity schedule would be the fundamental driver of scrip demand.

Importantly, municipalities would retain control (by their management of merchant accounts) over to whom this scrip might be paid. Complementary currencies are historically deployed in the service of localism, of encouraging circular flow within a local economy rather than “leakage” into a more global economy. Municipalities have every interest in encouraging this sort of localism, which already they do to a certain degree via PR campaigns and small business subsidies. Should chains or national vendors have access to the local tax discount that receipt of the scrip enables? That would be a local government choice.

But besides the localism, the existence of these scrips would create a new option for municipalities, increasing fiscal resilience. During periods of great need, municipal governments could encourage an increase in the float of the currency, by adjusting the tax and amenity schedule, and also by appealing to community and local pride. These currencies could serve as small scale echoes of the “war bonds” that helped finance World War II.

There are lots of reasonable objections to this idea. Most obviously, in the United States, there is a Constitutional question. The Constitution grants Congress to power “[t]o coin Money, regulate the Value thereof” and explicitly prohibits states from “coin[ing] Money; emit[ting] Bills of Credit; mak[ing] any Thing but gold and silver Coin a Tender in Payment of Debts”. I am not enough of a lawyer to address this question fully, but two centuries later, states and municipalities emit all kinds of debt securities that are transferable with much less restriction than those described here to finance their operations. Our “complementary currencies” do not propose any new unit of account. Each local scrip would be denominated in US dollars. As Grey describes, these are “currencies” in the same way bank deposits might be “currencies”. They plug into the existing hierarchy of money for whose zenith the Constitution prescribes a monopoly. They do not compete with or seek to supplant state money.

More substantively, is localism a good thing? Localism is arguably what contemporary national monies were designed precisely to oppose. The proudest accomplishment of modern monetary systems is that bank monies trade at “par”. Payees in Pittsburgh accept funds from Paducah Bank in Kentucky as if they were the same as funds from Citibank in New York, reducing financial frictions to commerce at a distance that once upon a time were profound. But that achievement serves also as a kind of solvent, weakening once preferential ties between specific individuals and businesses, reshaping humans, in their roles of buyer and seller and investor, into creatures more like the abstract optimizers of neoclassical economics. “Civil society” is the name we give to dense, particular, reasonably stable networks of humans who interact and collaborate over time periods that outlast a mere transaction. Precisely because contemporary monetary systems work as designed, allowing each individual to optimize their choices as though the world is always new and every counterparty interchangeable, they undermine civil society, whose development and stability are founded on advantages that come from repetition and trust. Once upon a time, we all formed social networks as an inevitable side-effect of commerce. We visited the same few grocers and hardware stores. Our rolodexes filled with travel agents and insurance agents, people who, yes, were trying to sell us stuff, but who were also human experts we could phone up and chat with as a matter of course. Those kinds of “professional networks” are now decidedly upscale. For the rest of us there is Amazon and Expedia. We gained something in price and selection, but what did we lose?

As with most economic phenomena, the best solution is probably an interior one. A world without economic specialization and trade at national or even global scales would be much poorer than the world we have come to inhabit. Our forebears were right to seek to overcome the “natural” constraints on commerce across vast chasms of geography and trust. At the same time, there are real positive externalities to local commerce and exchange, in human community and civil society, and also (as we are painfully learning) in resilience. We should not abandon the hard-won institutions that enable large scale commerce, but we should supplement them with Pigouvian subsidies of localism and its extratransactional virtues. Where economies of scale and agglomeration render widely dispersed commerce genuinely superior, we should take advantage of that. But where such economies are small, or the advantages of scale are due to market power more than genuine efficiencies, we should encourage localism. The municipal complementary currencies proposed here tilt the scale towards localism, but probably too little. In our current world, big dominates, largely not due to inexorable efficiencies, but thanks to monopolized network effects and other forms of market power that we should work to oppose. Subsidies to localism create incentives to help do that.

To me, the most cutting critique of this proposal is that it is too little, too late. The United States is in a crisis, states and municipalities are throwing human bodies on the flame to sustain a trickle of tax revenue. Standing up institutions like this would take time, and managing them well, to promote useful commerce and achieve a fiscally meaningful float, would take much more time. I don’t know that we even survive in any form under which proposals like this don’t become utopian and archaic. As a human I feel like a tremendous failure, because I have ideas about how the world should be run, maybe even some good ones, but I have failed to develop and communicate them with the urgency that might have contributed, at least a small amount, to saving us. I hope I have another opportunity, that we all do.

National politicians of every party and stripe: Please provide fiscal support to states and localities now, and encourage them to prioritize public health and long-term prosperity over immediate-term economic activity. Please.

Update: Nathan Tankus has an excellent, much more historically informed, piece on tax-receivable, municipal crisis monies!

Update II: Not unusually, I was not particularly well-read on this idea before I deigned to write about it. In addition to Nathan Tankus’ excellent piece, please see Marshall Auerback on a US-centered discussion tax-receivable municipal currencies, and Paul Katz and Leandro Ferreira for a discussion of the remarkable town of Maricá, Brazil, and the use of its longstanding digital municipal currency, the mumbuca. (I’ve appended an old-school related link box below, and may add any other links that I come across without further updates here.)

Update III: John Evans suggests a reference to perhaps the most famous municipal money experiment, the “Miracle of Wörgl“. During the Great Depression, the Austrian town of Wörgl stimulated its economy by issuing not just a local scrip, but one subject to demurrage, meaning the value of the scrip declines the longer it is held, encouraging quick expenditure. This idea, which remains popular among economists today, is most famously associated with Silvio Gesell.

Update History:

  • 28-June-2020, 3:35 p.m. EDT: Add bold update re Nathan Tankus’ excellent piece.
  • 30-June-2020, 1:50 p.m. EDT: Add second update noting more relevant municipal currency pieces, and the related links box.
  • 30-June-2020, 2:25 p.m. EDT: Add third update re the “Miracle of Wörgl”, suggested by Jon Evans.
  • 30-June-2020, 7:05 p.m. EDT: “Silvi Silvio Gesell”