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Exiting the Iran deal is a blow to financial transparency and US control

Over the past decade, the United States has succeeded at exercising an extraordinary degree of “extraterritorial” control over the Western financial system. The apotheosis of this exercise was perhaps the nearly $9 billon penalty levied against BNP Paribas in 2014. Other non-US banks caught in the extraterritorial US net include HSBC, which paid $1.9 billion in 2012 for violating sanctions against Iran and laundering money in Mexico (for which it is in trouble again), Commerzbank, and many others.

The United States’ remarkable success at exercising control over overseas banks was never a foregone conclusion. Before there was the #resistance, there was La Resistance. Many European bankers and public officials never believed it right that transactions which might be perfectly legal under their own domestic law, and which in no obvious way involve any US entity, should be blocked by whim of the American government. Re l’affaire BNP, American Banker noted:

French government officials have repeatedly mentioned that BNP’s alleged actions don’t violate European law, even though it’s irrelevant to the debate at hand. The Justice Department doesn’t care if BNP’s actions violate European law; by operating in the U.S. (through Bank of the West and First Hawaiian Bank), BNP has agreed to follow U.S. law. And U.S. officials view sanctions violations seriously. (The violations do not have to occur in the U.S. for American authorities to act.)

More recently, Europeans have chafed as the US government has chipped away at Swiss banks’ vaunted secrecy and the prerogatives of other European tax havens, while allowing places like Delaware and Nevada to pick up the business that American authorities are dismantling overseas.

Nevertheless, thus far, the Europeans have played along, and the West’s dominance of global finance has meant that the US effectively controls conduits which are the lifeblood of non-Western powers like Russia and China as well. Russia, itself bitterly subject to American sanctions, hopes to escape the noose by deploying a blockchain-based parallel infrastructure for international transactions. Whether such an enterprise will prove laughable and quixotic, or whether it might pierce meaningful holes in the US-dominated conventional system, depends a great deal on how policymakers, bankers, and entrepreneurs around the world react to it.

Prior to, well, yesterday, the US could claim a moral high ground. Its extraterritorial financial control might be objectionable, yes, but absent some coordinating mechanism like that, there would always be a competitive race among politicians and bankers to allow themselves to be persuaded that Mexican drug lords are just legitimate businessmen from a hardscrabble country and why should the Iranians be prevented from getting nukes when the world winks at the Israelis? The US may not be the ideal global financial policeman, but like every other kind of global policeman that it is, it may be better than no policeman at all.

However, now, specifically with respect to its enforcement of financial sanctions on an apparently compliant Iran, it is the United States that seems, even among its Western partners, to be the rogue state in need of policing. However begrudging European acquiescence to extraterritorial US sanctions may have been two days ago, it is more begrudging today.

More than that, the remaining counterparties of the Iran nuclear deal — China, France, Russia, the UK, and the EU — all want the deal to continue. They will be at pains to persuade Iran that it continues to enjoy significant sanctions relief relative to what it would face if it abandoned the deal. Which puts those countries between a rock and the hard-place of extraterritorial enforcement by the US of reimposed prohibitions. At a policy level, the remaining signatories now have an active interest in enabling, even encouraging, evasion of US financial controls, an interest that is morally and politically defensible. All of a sudden La Resistance among sullen French bankers isn’t just about the juicy fees foregone, but a heroic struggle to #resist Donald Trump, to prevent the renuclearization of Iran. And policymakers might agree.

That might mean taking some of the pressure off of European and vacation isle tax havens, reversing the recent, American-enforced trend towards transparency. It might mean partnering with China and Russia to participate in the parallel, alternative financial arrangements that those countries seek to develop. It plainly puts at risk the hard won, absolutely extraordinary, hegemony that American regulators have over global finance.

All of this might seem contrary to American interests. But then on questions of financial transparency and control, not all Americans actually have the same interests. And for those among the US #resistance who see Vladimir Putin beneath every strand of orange hair, what Donald Trump has just done makes the possibility of a new Russian SWIFT considerably less laughable.

Update History:

  • 10-May-2018, 9:05 p.m. PDT: “European bankers and public pubic officials” (thanks commenter Typo)

Smile

I like this piece by Kate Aronoff looking back on WPA “boondoggles” in the context of a suddenly much discussed job guarantee. A lot of people deserve congratulations for the suddenly much-discussedness of job guarantee proposals. People like William Darity, Darrick Hamilton, and Mark Paul, Pavlina Tcherneva, Randy Wray, and others have worked doggedly through years of winter to keep this (by no means new) idea alive while no major political faction in the United States was willing to give it the time of day. Now, all of a sudden, Democratic Party(ish) bigwigs including Kristen Gillibrand, Cory Booker, and Bernie Sanders are racing onto the bandwagon. Persistence pays (although perhaps not quite a living wage).

Let’s get this part out of the way. I’m for it, if it’s well implemented. What about a UBI? I’m for that too, if it’s well implemented. Do we need both? Well, they do complement each other: Pairing a job guarantee with a UBI would mitigate the risk that the “guarantee” would transmogrify under political pressure into a punitive workfare program. Pairing a UBI with a job guarantee would mitigate the risk that we neglect the broader project of integrating one another into a vibrant society, that we let a check in the mail substitute for human engagement. If we could get both a UBI and a JG, that’d be great. (Of course, if we did get both, we’d want the numbers to be different than either as a standalone.)

However, I am not so worried about an embarrassment of riches. We’ll be fortunate to get one, either one, implemented well enough not to subvert its purpose. I see no reason not to advocate both. People make this stupid argument about how we have to choose where we want to “expend our political capital”. There are times, in the context of some specific negotiation, where it might be reasonable to imagine “political capital” as a thing akin to hoarded gold, a commodity that must be spent either here or there. But most of the time this quasi-material analogy is worse than dumb. Political capacity is much more like muscle than gold, the more you use it the more you have. Advocating for UBI and advocating for a job guarantee are complementary activities. Both push against the present, barbaric consensus, under which human sacrifice to a drunken god of business cycles and market forces is defended by the fearfully fortunate as a price that must be paid. The way we squander our political capacity is not by arguing for UBI when we should be arguing for JG or vice versa. It’s when we argue with one another about which we should argue for, when we could be taking these ideas to a broader public. Whether we get either, both, or we just terrify our complacent Mandarines into using more conventional tools to run a hotter, fairer economy, persuading the public is how we will make progress.

I have nothing more to say on the normative “should we? shouldn’t we?” question. Unfortunately, in my view, much of the take-making on the subject of a job guarantee has been driven first and foremost by authors’ self-positioning as advocate or critic. But away from all that heat, the details and implications of what is proposed are fascinating. Suppose we did this thing? What would happen? What would our country look like with a Federally funded but locally administered program to exploit the talents and capacities of all those who otherwise would not be employed for a decent wage? In between the certainties of Labor Paradise or Stalinist Hellhole are more modest possibilities and pitfalls that are worth thinking through.

One of the things that I think is a mistake in the current job guarantee debate is a focus on productivity too narrowly defined. Where will be the work for all these people? Will it just be make-work? Isn’t a job something where a need is identified in advance, and then a human is hired to fill it, rather than something determined by the existence and capabilities of the human?

I think this frame is very limited and limiting. In the hallowed private market, it is not uniformly the case that a need is identified and then the cog — um, I mean, the body — is hired to fill it. Successful firms define roles to make the most of unusually talented people they are fortunate to have. An increasing share of private work cannot be easily codified and Taylorized, but involves ongoing improvisation, collaboration, and negotiation between individuals and employers to achieve business goals. A job guarantee that had an unlimited number of slots on a mid-20th Century assembly line producing valuable, salable widgets might be easy to defend as “productive”, but would be wasteful of worker talents and poor preparation for participation in the modern economy. In actual, current practice, managers with very imperfect information hire teams of people they hope will have a mix of skills to accomplish various purposes, and then do a great deal of work trying to understand and cajole the humans they find they have to make useful things happen. The luckiest managers, those who hire at high salaries for prestigious firms, do much of their work by selection. From a large pool of applicants, they can choose the very few who are not only disciplined and capable of performing the work, but who are also able to convincingly demonstrate they are disciplined and capable during a hiring process. The vast majority of managers at the vast majority of firms, however, cannot be so choosy. Managers try to select those with the highest probability of being disciplined and capable, or perhaps more accurately, those for whom they will not be blamed if a hire turns out to be difficult and unprepared. Once the hiring is done, management is the art of building true from crooked timber. The world is not made of stylized firms with slots and then workers to fill them, but with humans who improvise, including managers who cajole, threaten, and guide in the thrall of incentives that define what counts as “productivity” or “success”.

But for a job guarantee program, what should count as productivity or success? It can’t (and shouldn’t) be a “market test”. The state and nonprofits are not in the business of making goods to sell. One version of a job guarantee would focus on production within and for the employee: Is she flourishing in her role, is she learning and demonstrating skills and habits that will increase her ability to gain more remunerative private sector employment? These are all good things, but I don’t think it would be a good idea to define the success of a JG job primarily in these terms. If the job itself is for the benefit of the worker, and she is getting paid for it as well, there will be a hazard that the broader public will not perceive JG “workers” as actual workers, but as beneficiaries of taxpayer largesse twice over. For the program to survive, and for it to confer the “dignitarian” benefits thought to come with paid work, a job guarantee job must be socially coded as a job, as fair pay for value — social, rather than market, value, but still value — and not as a “handout”. Importantly, the public should very directly perceive the value provided by JG workers. The job guarantee program should yield visible, popular amenities. During economic booms that draw people out of the job guarantee program and into private-sector employment, the public should notice and lament the loss of those amenities.

In much of the conversation about a job guarantee, advocates understandably work hard to argue that employment on the proposed terms can provide “real” value, and so emphasize activities whose importance and moral worth is difficult to deny — eldercare and childcare, protecting the environment, services for vulnerable and underserved communities. But I think there is a kind of paradoxical danger in focusing too exclusively on the things that are easiest to defend as valuable. It is like how we eviscerate education by shedding arts programs and focusing on STEM and demanding ever more testing. Tradeoffs that from a narrow, goal-directed perspective make perfect sense end up undermining the broader ecology under which a meaningful education is possible, ultimately subverting even the particular goals the “hard choices” were meant to support. In a job guarantee context, I don’t think we will get to keep the valuable but largely hidden eldercare if there are not also things whose social worth will be more contestable by naysayers and scolds but also visible and enjoyable to a broad base of voters and taxpayers. Wherever the job guarantee is, there should be festivals and block parties. There should be children’s theater in the park. There should be visible beautification, beyond just the cleaning of litter — trees planted, community gardens established and tended, decaying park benches replaced with custom carpentry. Perhaps ironically, job guarantee workers could help remedy the toll our society’s increasing fetishization of formal labor has taken on civil society. With extra human energy, neighborhood association meetings could be more frequent, more festive, and publicized more invitingly than the often drab affairs that they often are, dominated by interested insiders and people unusually motivated by resentments. With a well-subscribed job guarantee, cities could provide help with organization, catering, and clean-up to anyone interested in organizing open-to-the-public meetings and events.

Should a locally administered, Federally funded job guarantee program come to exist, a litmus test for its success will be the reaction of localities. Usually, localities compete with one another to shed the unemployed, to encourage them to move elsewhere. San Francisco will happily — and so compassionately! — buy a bus ticket for any homeless person to, um, help them get “home”. In this tradition, many localities’ initial response will be to sabotage rather than embrace a job guarantee, to make the work punitive in hopes that labor-market losers look elsewhere rather than stick around and trouble the citizens. The job guarantee will succeed only if officials who reverse that impulse, who welcome job guarantee workers (and the Federal money they bring), are rewarded at the voting booth for doing so. And that will only happen if voters in municipal elections, whose behavior is notoriously not driven by altruistic or progressive impulses, perceive tangible benefits that outweigh the hassles and scandals and declamations of “boondoggle!” that will inevitably arise. We will know that a job guarantee has succeeded when the conventional incentives have flipped, when localities compete to attract job guarantee workers rather than to try to shift the burden of this otherwise marginally employed population elsewhere.

Update History:

  • 3-May-2018, 8:50 p.m. PDT: “under which human sacrifice to a drunken god of business cycles and market forces is defended by the fearfully fortunate as a price that must be paid by the fearfully fortunate.”; “and declamations of ‘boondoggle!’ that will also inevitably arise”; “that we let a check in the mail substitute”; “look like with a Federally funded and guaranteed, but largely locally administered, program”; “performing he the work”

Ceci n’est pas un post

interfluidity is migrating to hellish modernity, a new server, https rather than http links.

So exciting, I know.

I’m sorry to pollute your feed with this, a test post.

Segregation is a normal good

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

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

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

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

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

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

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

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

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

Update History:

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

Quick thoughts about airline economics

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

Update History:

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

A tao of politics

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

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

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

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

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

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

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

You tell me it’s the institution

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

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

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

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

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

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

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

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

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

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

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

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

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


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

Persuade

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

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

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

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

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

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

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

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

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

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

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

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

Update History:

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

Party polarization is endogenous

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

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

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

The economic geography of a universal basic income

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

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

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

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

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

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

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

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

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

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

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

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

Let us be lovers.


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